AN - TSJ SHOWDOWN MASKS FIGHT FOR SPOILS, CONTROL,

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 000709

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HQSOUTHCOM ALSO FOR POLAD
DEPT PASS TO AID/OTI RPORTER

E.O. 12958: DECL: 04/09/2027
TAGS: PGOV KDEM VE
SUBJECT: AN - TSJ SHOWDOWN MASKS FIGHT FOR SPOILS, CONTROL,
AND REVENGE

REF: 06 CARACAS 01661

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Classified By: POLITICAL COUNSELOR ROBERT DOWNES
FOR REASON 1.4 (D)

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Summary
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1. (C) A dispute between the National Assembly (NA) and
Supreme Tribunal of Justice (TSJ) began in late March when
the NA condemned a controversial TSJ Constitutional Chamber
decision to modify an article of the Venezuelan tax law and
opened an investigation that could lead to the justices'
impeachment. The conflict is not a separation of powers
issue, but rather an intra-Chavista scramble for influence,
revenge, and corruption opportunities within the judiciary,
as it coincides with changes in the lower court system and a
rumored effort to reduce the number of TSJ justices. The NA
appears to have backing from Chavez, who accused the justices
of "betraying the Revolution" by its ruling.

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Round 1: The TSJ Decision
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2. (C) The Constitutional Chamber of the Supreme Tribunal of
Justice (TSJ) issued a ruling February 27 modifying Article
31 of the Venezuelan tax law by exempting bonuses and other
income supplements from taxation. The decision was in
response to a 2001 petition to nullify parts of the
Venezuelan tax law as unconstitutional. Article 31 was not
one of the articles listed in the petition, but the chamber
invoked its authority to review laws for their compatibility
with the constitution as the basis for the ruling.
Venezuelan tax authority (SENIAT) President Jose Vielma Mora
has said the decision could potentially cost the government
USD 300 million in revenue. However, Mora said on March 28
that Seniat would comply with the decision, which will go
into effect in 2008.

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Round 2: The NA Rejection
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3. (C) The National Assembly (NA) unanimously passed a
resolution March 22, nearly a month after the ruling, that
"categorically rejects" the Constitutional Chamber's ruling,
calling it "unconstitutional and in violation of social and
collective rights, and social ethics." The accord,
introduced by Second NA Vice President Roberto Hernandez,
specifically accuses the Constitutional Chamber of usurping
the NA's legislative function, overstepping its
constitutional authority, and jeopardizing the BRV's budget
and social programs by reducing government revenue. It also
calls on Venezuelan citizens and Seniat to ignore the ruling,
and establishes an investigative commission whose report will
go to the Attorney General for follow-up action. If the
Commission finds that any of the justices committed an
inexcusable error, the NA could initiate impeachment
proceedings.


4. (U) Legislators railed against the justices and their
decision during discussion of the resolution. NA Deputies
Carlos Escarra and Iris Varela denounced various TSJ justices
by name, alleging they were running "mafias" to serve special
interests. Escarra went so far as to say the justices should
go to jail for corruption, charging that their decision was
biased by their desire to lower their own tax bill, as many
of them benefit from extraordinary perks, such as government
cars, drivers and other stipends, that would now be excluded
in tax calculations. Escarra also lamented the potential
loss in government revenue, which he said would have
particularly grave repercussions for the government. NA
Deputy Calixto Ortega warned that the ruling could open a
loophole legalizing tax evasion as employers would then
choose to increase employees' bonuses instead of their
salaries to reduce the business' tax burden.


5. (SBU) The Investigative Commission was installed March 27
and includes Hernandez, Escarra, Ortega, and Varela. The
deputies have requested minutes from the TSJ's February 27
session during which the decision was made. Hernandez said
the Commission will also investigate complaints about other
TSJ rulings, implying that their focus could go beyond the

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Constitutional Chamber. During a March 24 swearing-in of
over 2,000 promoters of the United Socialist Party of
Venezuela (PSUV),Chavez accused the TSJ of "betraying the
Revolution," which suggests that the deputies have his
backing. In a preliminary report presented March 29, the
Commission called on the NA Finance Committee to reform the
law, including a reaffirmation of the disputed article 31.

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TSJ Counters, Demanding Respect

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6. (U) The justices have held firm to their decision. Chief
Justice Luisa Estella Morales came out forcefully April 2,
admonishing the legislators for disrespecting the judiciary
as an institution, and said that all TSJ sentences should be
complied with. She noted that even Chavez has criticized the
Court's decisions, such as the August 2002 decision
acquitting eight generals accused of rebellion for their role
in the April 2002 coup, but he nevertheless respected its
rulings. Morales called on the NA to follow his example. In
addition, an unnamed justice was cited in a local "El
Universal" newspaper article March 24 warning the legislators
that encouraging noncompliance with TSJ rulings brings jail
time and a hefty fine. Another unnamed justice in the same
article also reminded the NA that the Constitutional Chambers
has several cases before it that could affect the deputies
and the government.

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The Real Story?
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7. (C) The Caracas rumor mill has it that this
intra-Chavista spat masks a struggle for power and illicit
enrichment opportunities. Former judge Monica Fernandez and
lawyers Antonio Rosich and Alfredo Romero told Poloffs that
they believe the fight is between Chavez-backed justices and
a group of judges and political prosecutors linked to ex-Vice
President Jose Vicente Rangel and Foreign Minister Nicolas
Maduro that are suspected of running an extortion ring (the
"Band of Midgets" denounced in 2006 by deposed TSJ Justice
Luis Velazquez Alvaray - reftel). They note that the move
coincides with a number of changes in the lower courts since
Morales was installed as Chief Justice. Several of the
judges Alvaray named from this group, for example, have been
removed and now face corruption or administrative charges.
They also interpret the recent, arbitrary rotation of Caracas
Appeals Court judges and changes in the distribution of court
cases as an attempt to further dilute the group's influence.
Columnist Nelson Bocaranda and others say, however, that it
is a power play by ex-Chief Justice Omar Mora.


8. (C) Revenge may also be a factor. Escarra, a former TSJ
justice, has had a personal feud with TSJ Justice Cabrera,
who wrote the decision in the tax case. Varela may also be
motivated by the chance to get back at her long-time nemesis
and current NA President Cilia Flores, to whom Chief Justice
Morales is reportedly linked. The NA may also be using the
ruling as a pretext to reduce the number of justices on the
TSJ, a move that has been rumored to be in the works for

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several months and is expected to be proposed in the ongoing
revision of the 2003 TSJ Law. Another theory (circulating
mainly in opposition circles) is that Chavez is trying to
remove Cabrera and fellow Constitutional Chamber Justice Luis
Rondon Haaz for fear that they may challenge his attempts to
eliminate presidential term limits and ram through other
significant constitutional changes without convoking a
constituent assembly as many believe is required by law.
(Comment: This later theory seems pretty far-fetched,
considering Chavez' domination of the TSJ.)

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The Peanut Gallery
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9. (C) The opposition is using this opportunity to try to
exacerbate the divisions within Chavismo and question the
BRV's socialist credentials. During a March 24 press
conference, Fernando Barrientos, labor leader for opposition
party Un Nuevo Tiempo (UNT),said that if the NA were truly
socialist it would support the ruling, since it would
actually benefit workers and settle a long-time labor
grievance. Barrientos also said the decision harmonized
several decisions previously approved by the TSJ's

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Administrative Chamber. He said that if the NA
re-establishes the contested provision, UNT would petition
the TSJ to nullify the provision. Opposition parties Copei
and Movement Toward Socialism (MAS) have defended the
justices and encouraged them to stand up to Chavez' attempts
to force constitutional changes. Copei leader Roberto
Enriquez called on Attorney General Rodriguez to investigate
the deputies for inciting delinquency as he has done with
opposition leaders who have made similar or even lesser
criticisms of BRV policies.

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Comment
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10. (C) Chavismo consists of many divergent groups that have
always competed for influence and favor from the mercurial
Chavez. The current dispute will certainly not weaken
Chavez' control of the Court, as he hand-picked the current
Chief Justice and the twelve justices added in 2004, and
holds substantial influence over the other justices.
Allegations of internal jockeying as the root cause of the
NA-TSJ spat seem as plausible as any explanations we've
heard. Several legal experts, including former Chavista
Attorney General Javier Elechiguerra, have pointed out that
the TSJ has previously overstepped its bounds and modified
laws without drawing NA criticism. Moreover, NA deputies,
who also receive substantial, now untaxed, benefits (though
not as hefty as the TSJ justices),would have benefited from
the TSJ ruling and would have had little incentive to contest
it. It is also curious that Cabrera also wrote the decision
dismissing two key political judges. The theory that Chavez
is worried about possible Constitutional Chamber decisions
has wide currency with the opposition, but it is difficult to
believe that any of the justices of a court that stood and
chanted, "Uh, Ah, Chavez no se va," ("Ooh, Ah, Chavez is not
going!") would block one of Chavez' top priorities--staying
in power forever.

BROWNFIELD