Identifier
Created
Classification
Origin
05TEGUCIGALPA1317
2005-06-21 16:36:00
CONFIDENTIAL
Embassy Tegucigalpa
Cable title:  

HONDURAN STEEL: A FRONT FOR CUBAN MONEY TRANSFERS?

Tags:  EFIN KJUS PINR ETRD CU CO HO MONY NT 
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C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001317 

SIPDIS

STATE FOR EB/IFD, WHA/EPSC, AND WHA/CEN

E.O. 12958: DECL: 06/21/2015
TAGS: EFIN KJUS PINR ETRD CU CO HO MONY NT
SUBJECT: HONDURAN STEEL: A FRONT FOR CUBAN MONEY TRANSFERS?


Classified By: ECONOMIC CHIEF PATRICK DUNN FOR REASONS 1.4 (B) AND (D).

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001317

SIPDIS

STATE FOR EB/IFD, WHA/EPSC, AND WHA/CEN

E.O. 12958: DECL: 06/21/2015
TAGS: EFIN KJUS PINR ETRD CU CO HO MONY NT
SUBJECT: HONDURAN STEEL: A FRONT FOR CUBAN MONEY TRANSFERS?


Classified By: ECONOMIC CHIEF PATRICK DUNN FOR REASONS 1.4 (B) AND (D).


1. (C) SUMMARY: On May 5, 2005, Mr. Antonio Kattn, owner of
Honduran steel company Aceros Alfa, told ECONOFFS that he is
facing unfair competition from Cuban government-owned
competitor, Aceros Centro Caribe. According to Mr. Kattan,
Aceros Centro Caribe is importing production inputs (steel
billets) from ACINOX, its Cuban parent company, at
below-market prices. Actual market value of the monthly
shipments is estimated at $520,000 per month, but they are
invoiced at only $380,000, implying a $140,000 per month
profit. In addition, Kattan believes that Aceros Centro
illegally avoids paying sales tax on these inputs. Moreover,
according to Kattan, Aceros Centro Caribe has not paid its
monthly invoices of $380,000 since October 2004. It is not
clear where these substantial cash revenues are going, or why
a GOC firm would willingly continue to absorb such losses.
Kattan said that Acinox maintains another subsidiary in
Colombia and speculated that there may be narco-trafficking
connections between the companies. End Summary.

--------------
Tale of two steel companies
--------------


2. (C) On May 5, Mr. Antonio Kattn, one of two owners of
Aceros Alfa (one of the largest steel companies in Honduras)
met with ECONOFFS to discuss "investment of the Cuban
government in Honduras and its implications," and also a
possible purchase contract with NUCOR, a Jackson, Mississippi
steel company. Kattan,s partner, Jose Lamas (the Cuban-born
President of gasoline provider Dippsa and Banco Mercantil),
asked Kattn not to come to the Embassy with the information,
as he wanted to avoid 8bigger problems with the Cubans.8


3. (SBU) Aceros Alfa employs 167 people at its San Pedro
Sula steel reinforcement bar (rebar) mill, and has an 80
percent share of the Honduran rebar market, as well as 10
percent of the Salvadoran market and 7 percent of the
Guatemalan market. It currently imports $5,000,000 of
billets per month from Russia, Ukraine, and Brazil, which it

then converts into various sizes of rebar. It is currently
negotiating a contract to source billets from U.S.-based
supplier, NUCOR.


4. (SBU) Kattan,s competitor, Aceros Centro Caribe, S.A.,
was founded in May 2000 as a joint venture between Cuban
government-owned steel company Acinox (which holds its 60
percent share through an Aruba-based subsidiary, FIMSE, N.V.)
and 2 Honduran businessmen (sons of Vice-President Lobo). In
2003, amidst significant corporate financial difficulties,
the Hondurans divested their shares. In 2004, an Italian
engineer (NFI) working for Cuban parent company Acinox
received 40 percent ownership in Aceros Centro Caribe in lieu
of wages owed. Since October 2004, Aceros Centro Caribe has
increased its market share significantly and now has 5-6
percent of the Honduran rebar market.

--------------
Allegations
--------------


5. (C) After the Honduran investors divested themselves of
their shares of Aceros Centro in 2003, the company
drastically reduced operations for a year and a half,
importing only 1000 tons of billets every 2-3 months. Since
October 2004, Acero Centro,s imports and production have
grown substantially, and they are currently importing 1800
tons of billets every month. The market value of the
shipment is estimated to be $520,000; however, Aceros Centro
is reportedly only being invoiced $380,000 per shipment. Mr.
Kattan has written a letter to the Honduras Ministry of
Industry and Commerce, raising these concerns, but has not
yet received a response.


6. (C) Kattan also alleged that Aceros Centro is illegally
benefiting under a GOH Temporary Import Regime. This
program, managed by the Ministry of Industry and Commerce,
allows Honduran exporters to temporarily import inputs,
incorporate them into the production process, and then
re-export the finished good without having to pay the 12%
sales tax typically due on imported goods. Although Aceros
Centro exports none of their product, they are importing
their inputs without paying taxes due.


7. (C) The alleged transfer-pricing scheme would yield up to
$140,000 in profits to the importer. Additionally, Kattan
told EconOff that he had seen (and had access to) documents
in the Dominican Republic proving that Aceros Centro has not
paid even the discounted invoices due to Acinox. It is
unclear, therefore, where these substantial cash revenues are
going, or why the GOC parent company would willingly continue
to absorb such losses.


8. (C) Kattan alleges that the Cuban parent company
maintains a similarly structured subsidiary in Colombia.
When EconOff noted Honduran recent press reports of FARC
connections between Colombia and Honduras, Kattan said that
his instincts tell him that the Aceros Centro financial
arrangement is related. He also noted that there are several
Chavez-affiliated organizations supported by the Venezuelan
government operating both overtly and covertly in San Pedro
Sula, and suggested that there may be a Cuban connection to
these organizations. EconOff pursued the point, asking why a
GOC firm would absorb such losses, when generally the GOC is
hungry for hard currency inflows. Kattan told EconOff that
he suspects the Cuban government could be using the alleged
transfer pricing and payments arrears schemes to mask large
transfers of funds to these leftist groups within Honduras,
without having to use formal channels. Kattan, however,
could offer no proof nor cite examples of this.

--------------
Other considerations
--------------


9. (C) Asked about his sources, Kattan said, "Every rebar
that comes or goes in this country, I know about." He said
he must know his business and that's what he pays people to
do. He also said that within the last week, he had hired
away one of 6 Cubans working for Aceros Centro.


10. (C) Kattan said his reasons for approaching the U.S.
Embassy were two-fold. First, while he described his own
company's market-share position as solid, he admitted that he
was unable to compete with Aceros Centro on rebar pricing,
which is consistently 5 percent below what Kattn considers
market price. He therefore has a strong economic incentive
to enlist our help in countering what he considers unfair
competition. Second, he expressed concern that the funds
generated by these companies are supporting subversive
elements of Honduran society, and as a businessman and
citizen, he wants to see Honduras remain a stable home for
his business and family.


11. (C) Comment: Post has requested but not yet received a
copy of the documentary evidence of the under invoicing
alleged by Kattan. We do not discount Kattan,s allegations,
and will seek additional information on Aceros Centro and its
activities. That said, Kattan has clear personal economic
interests in convincing us that his business competitors are
a threat to USG or GOH national security, and we remain
appropriately skeptical of his claims. In addition to
speculation of possible narco-trafficing connections between
his competitor and Colombia, Mr. Kattn also speculated that
the missing funds might support Chavista elements active both
overtly and covertly in San Pedro Sula, Honduras, industrial
capital. All investigations have indicated that this is
false and that no such groups exist. Thus, this allegation
detracts from Mr. Kattn,s credibility. Mr. Kattn was
eager to mention any possible hot button that might rouse
U.S. ire. Even if the transfer pricing, market dumping, and
tax evasion allegations prove true, they could merely be the
result of workaday corruption in Honduras. Corruption runs
rampant in Honduras corporate dealings, and corrupt practices
in pricing and invoicing would not surprise us. Moreover,
Honduran public and private sector officials have in the past
played on U.S. fears (communism, terrorism, and most
recently, gangs) through exaggeration or even fabrication of
alleged threats to advance their own agendas. End Comment.
Palmer