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In July 2018, the European Green Party released an eye-opening report identifying the costs of corruption across the EU. In Spain, corruption costs amount to EUR 90 billion annually, or 8% of GDP, according to the report. Public opinion surveys indicate that corruption ranks among the highest concerns for Spanish citizens, 94% of whom believe the problem is widespread.
In this article, we look at three corruption cases highlighted as most grave in a May 2018 article on Spanish mainstream newspaper El País, due to a combination of degree of sophistication, amount of funds defrauded, and public profile of the co-conspirators. We conclude by assessing the adequacy of Spanish authorities’ anticorruption efforts, and the impact of ongoing political instability on perceptions of governance and corruption in Spain.
The Púnica case concerned a kickbacks-for-government-contracts scheme involving local-level political leaders, mainly members of Spain’s Popular Party (PP), and Spanish businessmen. The funds defrauded amounted to EUR 250 million (mn) over a two-year period, according to an October 2014 report on Spanish mainstream newspaper El Mundo. Francisco Granados, who served as secretary general of the PP’s Madrid branch from 2004 to 2011, and David Marjaliza, a businessman and Granados’ friend, were at the center of the Púnica investigation.
The investigation began in 2013, when Swiss prosecutors alerted their Spanish counterparts that they were investigating Granados and Marjaliza for alleged money-laundering crimes. Wiretaps revealed an influence-peddling network: government officials awarded public contracts to a variety of businessmen in exchange for bribes amounting to 2% to 3% of the contract’s value.
The investigation implicated about 50 individuals and 12 municipalities. In October 2014, Granados and Marjaliza were arrested for their roles in the scheme and sentenced to pretrial detention. Both men were released on bail after spending several months in prison. In December 2017, the Spanish National Court issued a two-year prison sentence against Granados because he had received a tip from a law enforcement agent about the Púnica investigation. In March 2019, the Spanish Supreme Court ratified the 2017 National Court’s ruling.
In September 2019, Spanish news outlets reported that former presidents of the Madrid region Esperanza Aguirre (2003 to 2012) and Cristina Cifuentes (2015 to 2018) were also being investigated within the context of Púnica for their alleged involvement in an illegal funding scheme for the Madrid branch of the Popular Party between 2003 and 2014. The Púnica investigation is ongoing.
The Gürtel case, which has been described as “Spain’s Watergate,” was another kickbacks-for-contracts scheme, this time involving Spanish businessman Francisco Correa and local leaders of the PP, mainly in Madrid and Valencia. Luis Bárcenas, as the PP’s treasurer, was at the center of the scheme. Gürtel investigators uncovered Bárcenas’ notebooks, which contained details about bribes paid to PP officials and bribes used to illegally fund the party. The funds defrauded amounted to EUR 123 mn between 1999 and 2005, according to Spanish business publication El Confidencial.
Significantly, Mariano Rajoy was called to testify as a witness during the legal proceedings. Rajoy was not implicated as a co-conspirator, but was the first sitting Spanish Prime Minister called to testify as part of a criminal investigation.
On May 24, 2018, the Spanish National Court sentenced Correa and Bárcenas to 51 and 33 years in prison, respectively. Bárcenas was also ordered to pay a EUR 44 mn fine. Most of the other 35 individuals involved in the Gürtel case were also sentenced to time in prison. The PP was ordered to pay a fine of EUR 240,000 because it profited from the scheme.
A day after the National Court’s ruling, the main opposition party, the Socialist Party (PSOE), filed a motion of no-confidence against Rajoy, who was ousted on June 1, 2018 due to the numerous findings of corruption in his party.
Palau de la Música
Between 2000 and 2009, Fèlix Millet, president of the Catalan Palace of Music (Palau de la Música) and his right-hand man and general manager of the entity, Jordi Montull, defrauded the institution in the amount of approximately EUR 23 mn. They used the money to pay for extravagant family vacations, their daughters’ weddings, and home renovations, among other private expenses.
The investigation revealed that the Palace was involved in a kickbacks-for-contracts scheme involving Ferrovial (a leading national construction conglomerate) and Catalan political party Convergència Democràtica de Catalunya (CDC). Between 1999 and 2009, Ferrovial paid bribes amounting to EUR 6.6 mn, or 4% of the value of public contracts, which were split as follows: 2.5% to CDC and 1.5% to Millet and Montull (of which the former kept 80% and the latter 20%).
In January 2018, the Provincial Court of Barcelona sentenced Millet to nine years and eight months in prison and ordered him to pay a fine of EUR 4.12 mn. Montull was sentenced to seven years and six months along with a EUR 2.9 mn fine. CDC was ordered to reimburse the illegal bribes received; and the party’s treasurer, Daniel Osàcar, was sentenced to four years in prison and ordered to pay a EUR 3.7 mn fine. Pedro Buenaventura and Juan Elízaga, two Ferrovial executives involved in the scheme, were absolved because the statute of limitations had passed. The case was escalated to the Spanish Supreme Court, which has not yet issued its ruling.
The Púnica, Gürtel and Palau de la Música cases all have in common a lack of oversight of public officials at the local and regional levels. Since the 2013 launch of its Democratic Regeneration Plan (Plan de Regeneración Democrática), the Spanish government has implemented numerous initiatives to promote better oversight. A November 2019 report published by the European Council’s Group of States Against Corruption (GRECO) acknowledged Spain’s efforts, but stated that most of the initiatives were piecemeal and not integrated in a comprehensive strategy. Moreover, there has been no evaluation or impact assessment of the measures implemented to date.
GRECO recommended Spanish authorities to prioritize the creation of a coordinated strategy against corruption, with particular emphasis on prevention, oversight and accountability. However, the draft Anticorruption and Whistleblower Protection Law, which includes the establishment of an Anticorruption Authority, has been lingering in Parliament since 2014. Ongoing political instability suggests it is unlikely that the Spanish government will prioritize the implementation of a comprehensive anticorruption reform in the near future.
Spain scores below the EU average in Transparency International’s Corruption Perceptions Index (58 score in 2018 vs the EU average of 66). Moreover, perceptions of governance and corruption in Spain are deteriorating, likely due to a combination of political instability and widespread media coverage of corruption scandals, including Púnica, Gürtel and Palau de la Música. The most recent release of the World Bank’s Worldwide Governance Index (WGI), based on perceptions of six dimensions of governance, indicates that Spain’s rank on “control of corruption” (defined as perceptions of the extent to which public power is exercised for private gain) declined to 72.6 in 2018 from 68.27 in 2017 (out of 200 countries).
Duff & Phelps and Kroll, a division of Duff & Phelps, can help companies navigate the business landscape in Spain to mitigate legal, regulatory and reputational risks. For more information on the services we offer, specifically around country-specific risk reports, reach out to our due diligence specialists.
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