GE - ONE STEP CLOSER TO RESOLUTION

UNCLAS LIMA 000128

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR WHA/AND, WHA/EPSC, EB/IFD/OFD, EB/CBA, EB/IFD/OIA
TREASURY FOR OASIA/INL, DO/GCHRISTOPOLUS
COMMERCE FOR 4331/MAC/WH/MCAMERON
USTR FOR BHARMAN/DWEINER
E.O. 12958: N/A
TAGS: EINV ECON KIDE PE
SUBJECT: GE - ONE STEP CLOSER TO RESOLUTION

Contains Sensitive Business Information, not for Internet
Distribution.

1. (SBU) Summary. On December 27, the 8th Penal Court in
Lima ruled in favor of General Electric (GE) on one of its
six habeas corpus cases, lifting the international arrest
warrant for the GE executives accused of having wrongfully
terminated and committed fraud against former GE distributor
in Peru Guillermo Gonzalez Newmann. Newmann's lawyers on
December 28 appealed the Court's decision to overturn the
arrest order, claiming that only the Constitutional Court
can issue such a ruling. The Constitutional Court still has
not ruled on the three remaining habeas corpus cases, two of
which, if the Court rules in favor of GE, could throw out
the case against GE. End Summary.

Background
--------------


2. (SBU) General Electric terminated its relationship in
1998 with Peruvian businessman Guillermo Gonzalez Newmann,
former General Manager of LATAM, a distributor for GE in
Peru from 1992-1998. Gonzalez Newmann brought a civil suit
in a Kentucky Court against GE in 1999, seeking multi-
million dollar damages. The American court, in 1999, found
in favor of GE. In 2001, Gonzalez Newmann opened another
civil case against GE in Miami Federal Court, which resulted
in the American court again ruling in favor of GE in 2002.
After losing the first (Kentucky) U.S. case, Gonzalez
Newmann in 2000 filed criminal fraud charges against GE in
several courts in Peru, until he found a court that would
open a criminal case on what would normally be a civil
matter.


3. (SBU) After two lower Peruvian courts ruled in favor of
GE in 2001 and 2002, Gonzalez Newmann appealed the decision
in July 2003, and included in his criminal case 23 high-
ranking current and former GE officials. (Note: 20 of
these officials are American citizens, with two from Chile
and one Brazilian citizen. American citizens include former
GE CEO Jack Welch, current CEO Jeffrey Immelt, James
Campbell, David Blair, and current Home Depot CEO Robert
Nardelli, among others. Please protect. End Note.) In
September 2004, the Appellate Court ruled in favor of
Newmann's appeal. Subsequently, the Peruvian prosecutors
convinced the Lima Criminal Court to issue an international
arrest warrant for all 23 defendants. (Note: the warrants
had glaring deficiencies per Peruvian law; for example
inadequate identification of the suspects. End Note.) GE's
local counsel then appealed the Appellate Court decision to
the Superior Court. As a result, the arrest warrants were
held until the Superior Court could make a decision.


4. (SBU) In June 2005, the Superior Court ruled that there
was sufficient cause to order the case reopened, remanding
the case to the trial court. At the same time, the Court
also affirmed the detention order for the 23 executives, to
be activated through Interpol. The Superior Court also
ordered the seizure of GE property. The Ambassador, working
closely with GE's local counsel, met several times with the
Chief of the National Police and the Minister of Interior ,
who determined that the Peruvian police should not submit
the warrant to Interpol for action until the appeals process
has been exhausted.

GE's Plan of Attack
--------------


5. (SBU) In response to the 2005 Superior Court ruling,
GE's local counsel submitted six petitions for habeas corpus
to the Constitutional Court. GE filed four petitions
against Criminal Court Judge Herrera Cassina (who issued the
international arrest warrant on August 3, 2005),questioning
the arbitrariness of the detention orders and arguing that
the process violates due process. The habeas corpus cases
also note that the detention order was improperly filed, as
it did not include specific information required under
Peruvian law (four names, identifying features, etc). (Note:
Herrera Cassina is widely suspected of corruption. In
filing these habeas corpus petitions, GE hopes to raise
suspicions on why Gonzalez Newmann chose Cassina's court in
which to file his case. End Note). If the Constitutional
Court rules in favor of GE in any of these four cases, it
would overturn the detention order and remand these cases to
the Criminal Court for a trial.


6. (SBU) GE also submitted to the 8th Penal Court of Lima
an additional fifth habeas corpus case filed against the
Court of Appeals. This case argues that the 21 of the 23
current and former GE executives had no relationship with
Gonzalez Newmann and should not be included in the arrest
warrants. The final sixth habeas corpus case was submitted
to the Constitutional Court. With this case, GE argues that
two courts in the United States already adjudicated the
facts of the fraud case, albeit as a civil case, and ruled
in favor of GE. GE's local counsel claims that by allowing
Newmann to venue shop, it violates the 23 GE officials' due
process. By ruling in favor of GE in either of these two
cases, the Constitutional Court could conclude that the
process itself was illegitimate and dismiss the criminal
cases against the GE executives.

One Ruling in Favor of GE
But Case is Appealed
--------------


7. (SBU) On December 27, the 8th Penal Court in Lima
issued a ruling in favor of GE on one of its two habeas
corpus petitions against the Appellate Court. The Court
found that there was no clear link between the 21 of the 23
GE defendants and the justification stated in the warrant as
well as a lack of specificity in the warrants. Judge
Eduardo Jose Martin Gago of the 8th Penal Court, also
declared null and void the international arrest warrants for
all 23 GE executives. The Court also remanded the case to
the criminal court, pending rulings by the Constitutional
Court on the other habeas corpus cases.


8. (SBU) The next day, the lawyers for Gonzalez Newmann
submitted an appeal of Judge Gago's decision, arguing that
only the Constitutional Court has the power to nullify
international arrest warrants. The Constitutional Court
accepted the appeal, and it will hear arguments on this
habeas corpus case in late January.

Next Steps
--------------


9. (SBU) The Constitutional Court is expected to issue a
final ruling on the four pending habeas corpus cases
presented against Judge Herrera Cassina in mid-January.
GE's local counsel, Jorge Santistevan, informed us that he
expects the Constitutional Court make one of two decisions:
either go beyond Judge Gago's ruling to include either
nullification of the opening of the criminal case or call
for a new opening of the case by a judge other than Judge
Herrera Cassina. Additionally, Santistevan noted that the
Constitutional Court may rule in early February on the
habeas corpus case against the members of the Appeals Court.
If the Constitutional Court rules in favor of GE in this
case, it would reverse the decision to open the case,
eliminating the criminal case against the GE executives.


10. (SBU) GE's U.S. legal team will be traveling to Peru
the week of January 30 to meet with Peruvian officials. We
will also meet with the GE team, as well as the local
counsel, to coordinate our next steps.

Comment
--------------


11. (SBU) The ruling in favor of GE sets a precedent for
the Constitutional Court to issue additional rulings in
favor of the U.S. company. This case may have implications
for Peru's investment climate.

STRUBLE