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28/08/2015 | Tracing the Military Fingerprints on Guatemala's Customs Scandal

InSight Crime Staff

An investigation into the customs fraud network known as "La Linea" has implicated Guatemala President Otto Perez Molina and led to the arrest of former Vice President Roxana Baldetti. But corruption within the country's customs offices stretches as far back as the 1970s.


"Can you tell me which codes the Salvavidas Group used?" prosecutor Francisco Mendizabal asked during a criminal hearing on May 24, 1999. 

"Well, Mr. Moreno Molina was 'The Doctor' or 'Mr. Arnoldo,' and his assistant was 'Jerez,' not 'Lieutenant Jerez,'" responded Francisco Javier Ortiz.

The statements by Ortiz, a protected witness also known as "Lieutenant Jerez," were part of testimony presented by the Public Ministry (as the Attorney General's Office is known in Guatemala) in 1999 during an investigation into a customs fraud ring known as the Moreno network. 

Evidence collected by prosecutors, such as letters sent by Alfredo Moreno Molina to high-ranking military officials, as well as corroborating witness testimony outlined Moreno's leading role in a group that existed within the state and was dedicated to defrauding the nation's customs system. Witness testimony also revealed the names of politicians linked to the network, including former Presidents Alfonso Portillo and Efrain Rios Montt.

Ortiz's story is that of a man who started at the lowest ranks of a criminal network and rose to become an administrator in a customs fraud ring during two separate periods: in 1996 with the Moreno network and in 2015 with La Linea. His criminal resume reflects the evolution of fraud networks in Guatemala.

Nearly 15 years after his testimony as a protected witness, the robust man with a white beard and matching hair will hear his own voice giving orders on phone calls intercepted by the Public Ministry and the United Nations-backed International Commission Against Impunity in Guatemala (CICIG). Ortiz will once again appear in court. Other members of the criminal network, which operated from 2011 to 2015, will join him: two superintendents in charge of tax collection, customs agents, supervisors and union officials. An army of lawyers (some of whom will later be investigated themselves) will strive to keep their defendants free. Under suffocating heat, which will force the defendants to guzzle bottles of water, one by one they'll hear the charges against them: racketeering and customs fraud. It's April 17, 2015 and Ortiz will once again claim his title "Lieutenant Jerez," but this time as a defendant in the La Linea investigation. 

The Army and Customs: A Couple Forged in War

Ortiz was born in 1948 in the municipality of San Juan Sacatepequez, to a middle class military family. On June 14, 1979, at 21 years of age, he became an office assistant at Central Customs, at a time when the agency was part of the Public Finance Ministry, but controlled by the army. Between 1979 and 1986 he worked as a container inspector, and eventually rose through the ranks. This was a period when the Generals Romeo Lucas Garcia, Efrain Rios Montt and Humberto Mejia Victores ruled the nation. It was a period of military dictators and widespread abuses. 

Since the mid-1960s, as part of counterinsurgency efforts, Guatemala's customs were controlled by the military through the Internal Revenue section.  Since at least 1981, during the administration of former President Romeo Lucas Garcia (1978-1982), Ortiz knew that Alfredo Moreno Molina was the man who controlled customs throughout the country. 

Moreno was a perfect operator, with contacts at all levels of government: judges, police, military officials and even ministers. Moreno once said that although he was originally from El Salvador, he joined Guatemala's army as a teenager and later joined the Presidential Staff and then the National Defense Staff. He also worked in the army commissary, which imported duty-free products for officials and their families. He later worked at the Special Services Ministry (SEM, by its Spanish initials) and the Public Finance Ministry. He also admitted to being part of the  Army Intelligence Unit until 1989.  At SEM, Moreno met Luis Francisco Ortega Menaldo, a major in the army at the time and son-in-law of former President Carlos Manuel Arana Osorio (1970-1974). 

The original objective of having the military control customs was to prevent weapon shipments from reaching the guerrillas. But military personnel also saw customs as a source of profit through fraud and contraband. 

David Martinez Amador, an academic specializing in ethnography and criminal behavior, explained that militaries are durable structures. "Their legitimacy empowers them to penetrate the state, as well as commit crimes." 

Contraband was a branch of military activity requiring secrecy as well as contacts with judges, the National Police and later the Public Ministry, said Francisco Jimenez, a former minister and political science professor. Smuggling soon became institutionalized and monopolized by intelligence officers who saw how lucrative this illicit activity could become. 

During the early 1980s, the military controlled everything, and Moreno was the one who connected the military with civilians, operators in customs, the treasury, the police and the judiciary. Ortiz and other operators within the Moreno network have revealed how container inspectors would alter customs forms, fraudulently registering products as something else in order to secure lower import taxes. Receipts, customs forms and internal network memos have also shown how this process worked. The Moreno network also rerouted containers, only to later rob them. 

High-ranking officials -- who gave orders and controlled the contraband -- benefited from this scheme. In 1990, Ortiz formally returned to customs as deputy administrator of the Agua Caliente branch, in the city of Esquipulas, where his new boss Moreno was now stationed. According to Ortiz, Moreno collected the network's income and distributed it to his superiors. 

General Manuel Callejas was the director of customs during that period. Between 1990 and 1991, Callejas left his position and Moreno told Ortiz the situation would improve. General Ortega Menaldo had become the head of the Presidential Staff, an institution in charge of presidential security that boasted its own intelligence unit. 

The CIACS and Their Customs Agency

General Ortega Menaldo was different from many of his contemporaries. He spoke English, Italian and a little French. He distinguished himself at command school, and stood out as one of the most capable intelligence officials. During the Lucas Garcia administration he was assigned as head of the SEM, which was lead by General Hugo Tulio Bucaro. It was at this point that he became connected to smuggling, a connection that would be strengthened when he was appointed as the head of the army intelligence unit known as the G2. He also became the official in charge of the Mobile Military Police, a unit responsible for counterinsurgency operations during the administration of former President Vinicio Cerezo (1986-1991).

Ortega Menaldo created a criminal network within the state, the perfect example of what would later be called the Illegal Clandestine Security Apparatuses (CIACS by their Spanish initials). According to the Myrna Mack Foundation, CIACS "are illegal forces which have existed for decades and have always, to greater or lesser degrees, exerted real parallel power, beneath the shadow of formal state power." The CICIG was created in 2006 to combat these structures. Its mandate gave it the power to investigate, identify and prosecute -- in coordination with the Public Ministry -- CIACS and similar structures within the state. "Currently, CIACS are illegal political-economic networks which work together towards the objective of exercising political control and creating profits," according to Ivan Velasquez, the current head of the CICIG.

SEE ALSO: Profile of CIACS

The CIACS group headed by Ortega Menaldo became know as The Brotherhood ("La Cofradia"). It began as a group of military intelligence officials and functioned as a special fraternity within the army. The Brotherhood began operating in Guatemala's customs offices during the Lucas Garcia administration and grew stronger when Ortega Menaldo became head of the Presidential Staff during the administration of former President Jorge Serrano Elias (1991-1993).

This was the point in which Ortega Menaldo reached the peak of his formal influence in the military. He was called "the president's shadow" by Cronica magazine in September 1992. He controlled who had access to the president and what information he received. National defense information as well as information from the Presidential Security Intelligence Unit flowed through him. In May 1993, Serrano attempted a self-coup. Ortega Menaldo's suspected assistance cost him his post as head of the Presidential Staff, but the Moreno network continued running customs until their criminal activities came to light in 1996. 

Thanks to Ortiz's testimony, the customs fraud network was finally uncovered. "There were two types of forms used at the Agua Caliente Customs, one legal and one false," Ortiz explained in his testimony. "To give you an example, one form charging 50,000 Quetzals could also have a matching fake form which charged 1,000 Quetzals, robbing the state of 49,000 Quetzals." Importers, managers and directors at customs, container custodians, inspectors and collectors, all participated in the criminal structure headed by Moreno. 

The list also included members of the judiciary, the police, the army, the treasury and the Presidential Staff, who in exchange for bribe money helped protect the criminal network. 

Ortiz also explained how members of the network bought judges in order to secure favorable rulings. On one occasion, he said, they paid Judge Maria Eugenia Villaseñor to rule in favor of former President Efrain Rios Montt, although they did not specify in which case. Members of the Moreno network did the same, Ortiz claimed, in the Myrna Mack murder case, in which military personnel were implicated. The customs agents collected 100,000 Quetzals to pay for rulings handed down by Judge Villaseñor, who years later would become a Supreme Court judge.

According to Ortiz's testimony, the customs fraud network didn't disappear, but rather developed more direct political participation during the administration of former President Alfonso Portillo (2000-2004). In his 1999 testimony, Ortiz revealed: "Mr. Alfonso Portillo received 50,000 Quetzals from the Valle Nuevo Customs branch every 15 days, and 20,000 Quetzals from the Pedro de Alvarado branch. The 50,000 Quetzals were for his party and the 20,000 Quetzals were for himself. He received the 15,000 Quetzals and returned with General Efrain Rios Montt for the 50,000 Quetzals, and Mr. Moreno's deliveries were organized in Rios Montt's house." After losing the 1996 presidential elections with campaign funds that were partly derived from customs fraud, Portillo and his political party, the Guatemalan Republican Front (FRG by its Spanish initials), set about trying to win the next elections. 

Both Portillo and Rios Montt had been identified as part of the Moreno network. In fact, Ortiz labeled them as members of the highest ranking group that directed the criminal network: the Salvavidas Group. Within this group, Portillo was the political adviser and Rios Montt was in charge of internal affairs. Moreno was the president, Elio Sanchez the vice president, Osmundo Villatoro Escobar the secretary, and Ortiz the treasurer. Rolando Sagastume and Mario Reyes handled the press, while Augusto Catalan ran security; Vicente Gonzalez, Ramon Saenz and Alvaro Sierra were lawyers, and importer Alex Castillo was the "wildcard," acting as a businessman while looking for new clients for the network. The former prosecutor Mendizabal complained legal restraints, such as injunctions and appeals, had made the network's leadership untouchable.

SEE ALSO: Guatemala News and Profile

Ortega Menaldo and others bet on Portillo and the FRG party winning the presidency and recuperating the power lost by the Moreno network during the administration of Alvaro Arzu (1996-2000). Once Portillo became president, Ortega Menaldo returned to leading the organization from behind the scenes. "Although he had no formal position in the government, it is assumed Ortega Menaldo was a close adviser to President Portillo," states a report by the Washington Office on Latin America (WOLA) on Guatemala's CIACS.

With this return to power, the leaders of the criminal network blocked any investigation against them. Through the FRG, the CIACS involved in customs fraud expanded and evolved their activities, former Minister Francisco Jimenez said. On top of container robbery, arms trafficking and money laundering, drug trafficking now became a part of their business. 

"Cleaning up customs stopped the moment Portillo became president," Mendizabal said. "He was part of the customs fraud network. You have to remember that Portillo received money from smuggling and the Moreno network. Between 20,000 and 70,000 Quetzals per week. That was a lot of money at the time. Too much… so there was never enough will to begin prosecution. What's more, the witnesses had not testified, and without that we couldn't begin the [judicial] process," Mendizabal said. "And besides, who could investigate the president?"

'I Have 18 Years of Experience in This Business'

Ortiz survived the Moreno network's fall in 1996 thanks to his testimony as a protected witness. Without him and his descriptions of the group's modus operandi, prosecutors would not have been able to touch the criminal structure. The investigation would also not have been possible without the help of army intelligence. "We had a lot of help from army intelligence, " said Mendizabal, who directed the investigations. "They came with us to see if there really was a case. They couldn't continue the investigation and had to transfer it to the Public Ministry. With the protected witnesses' testimony and the documents we had collected, we could begin the case." 

Ortiz was the link that connected the middle of the organization with its almost untouchable top leadership. This upper echelon consisted of high-ranking military officials who, after the Public Ministry's investigation into the Moreno network in the mid-1990s, took a step back and kept silent. "What we saw was that somehow these military officials saw what was happening and withdrew," Mendizabal said. "They saw the fall of the Moreno network as some sort of vendetta, but evidence of their participation was clear. Unfortunately, there was not an adequate justice system in place."

During Alvaro Arzu's administration, another network which had arisen through loyalties within the army saw an opportunity to work with the military officials who had been crippled by the Public Ministry's investigation. In the following years, a new CIACS named "The Syndicate" arose, made up of officials from the 1973 graduating class of Guatemala's Polytechnic School. In contrast to "The Brotherhood," members of "The Syndicate" advocated "stabilization" and "pacification" during the civil war, instead of total victory against the guerrillas. They were influenced by low-intensity warfare and development theory promoted by the US army. They adhered to what they considered "non-participation" in the more repressive aspects carried out by army intelligence.  One of their leaders was Otto Perez Molina, the current president of Guatemala

"[Guatemala's] transition to democracy could not eliminate the capabilities of the military officials who made up intelligence," said organized crime specialist David Martinez Amador. The Brotherhood and The Syndicate were not enemies. There wasn't an inter-generational conflict within the army for control of customs, but rather a gradual transition with new faces. "Here you see the capacity to share state wealth, without rivalries," Martinez Amador explained. "Within the parallel powers there was a 'democratization' of access to state wealth. There was enough for everyone. Different organizations had different operators."

From Moreno to La Linea

The continuity of the CIACS can be seen in the similarities between La Linea and the Moreno network. Indeed, some personnel and methods were simply copied and pasted from one customs fraud ring to the other. 

Both networks relied on maintaining a powerful political influence in order to protect criminal operators. Ortega Menaldo filled this role as head of the Mobile Military Police in the 1990s, as did Juan Carlos Monzon, an alleged leader of La Linea who served as the private secretary to former Vice President Roxana Baldetti from 2011 to 2015.

Both networks also required an operations coordinator and a treasurer, tasked with managing money and distributing it throughout the network. Francisco Javier Ortiz, alias "Lieutenant Jerez," was the coordinator of both the Moreno network and La Linea.

"I have 18 years of experience in the business," Ortiz said on one of the intercepted phone calls heard in court.

Although the Moreno network and La Linea maintained many similar characteristics, there were also some important differences. The Moreno network used murder and violence to keep the lower ranks in line. La Linea worked more like a business by threatening to transfer from one customs branch to another those who didn't follow Juan Carlos Monzon. 

"These structures, at their roots, work as cults recruiting new people," Martinez Amador said. "At first they wanted to create an identity that was linked to the state. That mutated into parallel structures with a business sense. Now, they are centered around business pragmatism, not an ideology."    

Nevertheless, Ortiz stuck with some of the strategies he used during the 1990s as the Moreno network's administrator. Bullying, intimidation and threats can all be heard on phone calls intercepted by the Public Ministry and the CICIG.

But La Linea could no longer rely on unconditional backing from the military, and they needed more civilians, coordinators and customs personnel. "The network's power democratized, became horizontal, without strict hierarchies," said former Minister Francisco Jimenez. "La Linea's mistake was returning to a military-style hierarchy, with ranks. This made it easier for the CICIG to understand each [suspect's] role as they began their investigation and went up the chain of command," Jimenez added. 

The Dragon and the Hydra

Revelations about the Moreno network weren't enough to alter the presidential elections in the late 1990s. Alfonso Portillo became president, Efrain Rios Montt consolidated his power as head of Congress and the investigation's advances were buried under legal obstacles as the FRG came to power. 

This time however, there has been a political earthquake. The La Linea scandal has put the Perez Molina administration on the ropes and forced former Vice President Roxana Baldetti to resign, amidst public demands for structural reform of the political system. This and other recent corruption scandals have implicated members of congress, judges, state secretaries and vice presidential candidates.

As politics in Guatemala are changing, so too are its criminal networks, which are starting to act less like a dragon and more like a multi-headed hydra. Criminal structures within customs, initially covered under the guise of counterinsurgency, grew and multiplied. Ortiz, a middle manager in both the Moreno network and La Linea, embodies this evolution. Customs fraud has not stopped, and neither have the other criminal activities run from within the state. One of the hydra's heads has been cut off, but there are many others to replace it. (Estados Unidos)


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