It was just five months after he’d been sworn in as president of Guatemala that Jimmy Morales was in trouble. The date was May 5, 2016, and an auditor appointed by the country’s top electoral body had concluded that Morales’ political party had broken many of the rules regulating campaign financing.

This is the last article of a three-part investigation, “Illicit Campaign Financing in Guatemala”, that looks at how the last three winners of the presidency in Guatemala financed their campaigns using hidden funds from drug traffickers to big businessmen. Download the full report here, or read the other articles of this investigation here.

Perhaps the biggest red flag for the auditor from what is known in Guatemala as the Supreme Electoral Tribunal (Tribunal Supremo Electoral – TSE) was that Morales’ party, the National Convergence Front (Frente de Convergencia Nacional – FCN-Nación), had spent a paltry amount of money, much less than the other campaigns. This was not an infraction, of course, but it hinted at something larger. Historically, presidential campaigns cost between $7 million and $12 million, but as of May 2016, FCN-Nación had only reported spending $640,000 on its victorious and stunning march to the presidential palace.

The TSE auditor also found that FCN-Nación failed to provide all its monthly and bimonthly financial reports to the regulatory agency, a legal requirement for any party. And the reports the party did turn in were incomplete. For example, the TSE report stated there were “financial reports without signatures from management … reports with errors … lack of information on candidates … lack of documentation accounting for revenue.”

In fact, during Guatemala’s 2015 presidential elections, FCN-Nación didn’t deliver any financial reports to the tribunal in September during the first round of elections, in October during the second round, and November during the traditional accounting roundup period. The political party simply stopped reporting its income.

An accountant employed by FCN-Nación during the 2015 campaign later told prosecutors that she had resigned because party leadership had stopped sending her information about its money and its donors.

“I worked there from the end of 2008 … until May 2016,” Ana Gloria Josefina Pérez Monterroso, the FCN-Nación accountant, told the Attorney General’s Office in January 2017. “One of my functions was to work with the TSE delegate … [But] I couldn’t give the information to the tribunal to do the requisite reports for those months because I didn’t have any information.”

Failing to provide accounting documents was just one of FCN-Nación’s alleged crimes. Sources close to the investigation told InSight Crime, for example, that Morales also signed checks for FCN-Nación after he had already become president — another violation. They also said the party kept campaign accounts open until at least October 2016, a year after the election, even though they were required to close them in April.

In August 2017, the Attorney General’s Office and its special assistant prosecutor, the International Commission Against Impunity in Guatemala (Comisión Internacional Contra la Impunidad en Guatemala – CICIG), concluded their first investigation against Morales and his party for alleged illicit campaign financing. And on August 25, they presented Congress with their first of several petitions to remove the president’s shield of immunity against criminal prosecution, so they could subpoena him and continue digging into his direct involvement in the crimes.

Party leadership had stopped sending her information about its money and its donors

By then, the days of President Jimmy Morales selling himself to the Guatemalan people as the anti-corruption candidate and the alternative to the government of his predecessor were long gone. That predecessor, Otto Pérez Molina, was by August 2015 one step away from resigning and being imprisoned for his alleged involvement in a massive corruption scheme in Guatemala’s customs agency and for his own illicit campaign financing scandal.

The irony was thick: Jimmy Morales was rising to power precisely because his predecessor was falling, but he seemed to have learned nothing from Pérez Molina’s mistakes. In mid-2015, thousands of Guatemalans had stormed the country’s streets and plazas to protest Pérez Molina’s corrupt government. At about the same time, Morales’ FCN-Nación stopped reporting its income to regulators, and Guatemala’s powerful interest groups began to woo the newly-minted candidate with under-the-table contributions.

Morales Comes into the Money

James Ernesto Morales Cabrera changed his legal name to Jimmy Morales in 2011. It was almost a year before retired Colonel Edgar Justino Ovalle would invite him to join FCN-Nación. Ovalle was later elected to Guatemala’s Congress, would be appointed to head his party’s caucus, and would become President Morales’ right-hand man.

But back in 2011, the two of them were just beginning their political careers. Morales was a political neophyte with no major party affiliation. In September, he ran for mayor in Mixco, one of Guatemala City’s most populous suburbs, but got just 8 percent of the vote and finished a distant third.

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Still, Morales was curious, an eager student, and had a good capacity to network. In his formative years, he attended Evangelical Christian schools and earned degrees at Guatemala’s oldest and largest university, San Carlos — or the USAC, as it’s popularly known — where he also later taught. At the USAC, Morales developed relationships with future allies and mentors. It was at the USAC, for example, that Morales met the man who would eventually become his vice-presidential running mate: Jafeth Cabrera, who was the rector of the USAC in the mid-1990s before getting into politics.

In 2012, Ovalle wooed Morales into FCN-Nación. The party was dominated by ex-military officials who were more concerned about the government’s incipient efforts to criminally prosecute members of the army for crimes during the country’s 40-year civil war than running the country. The war had ended in 1996, and for members like Ovalle, the party would become more than a defense mechanism, it would become a lifeline. (Ovalle himself is currently facing charges for forced disappearances and crimes against humanity.)

Morales was a perfect front-man for the party. He was good at politics. As a comedian with his own variety show, Morales was well known. He was comfortable in front of the camera and spoke with confidence, providing just enough detail to appear knowledgeable, even if he lacked depth. He was serious when he needed to be, funny whenever he wanted to be. He was openly religious, had multiple degrees and surrounded himself with powerful ex-military advisors.

His chances of victory, however, seemed slim given his resounding defeat in Mixco.

Morales was also going against the heirs to an established political power that had governed the country between 2008 and 2012. The National Union of Hope (Unión Nacional de la Esperanza – UNE) party of President Álvaro Colom was by the 2015 elections headed by his ex-wife, Sandra Torres, who had name recognition and a powerful party machine.

The favorite, though, was UNE dissident Manuel Baldizón, a former congressman who had formed his own Renewed Democratic Liberty (Libertad Democrática Renovada – Líder) party with some questionable, government-linked financiers and contacts. Baldizón’s dubious backers gave him an endless war chest, and ads for his candidacy began almost as soon as the 2011 campaign had finished.

In June 2015, a little over a month into his candidacy, Morales was barely part of the conversation. According to a poll conducted by the Latin American Faculty of Social Sciences (Facultad Latinoamericana de Ciencias Sociales – FLASCO), the FCN-Nación candidate had the support of less than 10 percent of potential voters. Baldizón had 25 percent, and Sandra Torres, 13 percent.

But rumors were already swirling about Baldizón’s shady financial backers, and, in mid-July, the Attorney General’s Office and the CICIG announced they were investigating his vice presidential candidate, Edgar Barquín, and a host of others, including his brother, for money laundering.

The disintegration of the Pérez Molina administration … came at a near perfect moment for the campaign

At the same time, the Pérez Molina administration was in free fall. In April, the Attorney General’s Office had formally accused Vice President Roxana Baldetti’s personal secretary of heading a massive corruption scheme at the custom’s agency. Protests had been going ever since. In August, Baldetti resigned and pressure was mounting for Pérez Molina to do the same.

By then, Morales had surged in the polls. Money began to flow to FCN-Nación’s coffers, advertising rose, and by September, when Pérez Molina did eventually resign and was arrested, Morales reached 25 percent. Baldizón had dropped to 20 percent. The trajectories of the two candidates were going in opposite directions.

Many attributed this rapid rise to Morales’ timing. The disintegration of the Pérez Molina administration between April and September came at a near perfect moment for the campaign. In addition, the other top candidates looked like more of the same, while he appeared to signal change. And the charges against Baldizón’s running mate crippled his campaign.

The door was open, and Morales took advantage.

His slogan, “Neither corrupt nor a thief,” was catchy, said Elvin Díaz, director of the Institute of Comparative Studies on Prison Sciences of Guatemala (Instituto de Estudios Comparados de Ciencias Penales – ICCPG).

Never mind that Morales was already committing some of the same crimes that had brought the Pérez Molina government to power.

“In 2015, there were no laws that could stop him, and they repeated the [same] practices,” Díaz said. “Back then, they thought they were untouchable, [and] would never be investigated.”

It would be, quite simply, their original sin.

Red Flags

Meanwhile, the money kept flowing into the campaign, even if the party did not register it.

Independent organizations and election authorities were already seeing red flags, noting, for instance, how the reportedly meager spending registered by the party could not have possibly paid for the huge ad buys they were observing with their own eyes and ears. The invoices they got from the media companies later confirmed these suspicions, but, at the time, authorities and independent observers could only rely on the party’s official tally, and that tally seemed unusually low.

According to official registries, between May and September, for example, FCN-Nación reportedly spent just $77,000 on ads, according to a study by Acción Ciudadana and other civil society groups — far less than its two main rivals. And in between the first round in early September and the second round of elections at the end of October, FCN-Nación reported that it spent just over $32,000 on ads, a little more than a third of what Sandra Torres’ campaign spent.

Source: 2015 Election Monitoring Report (Informe de observación electoral 2015), Mirador Electoral.

Unreported ad buys were just one of a half-dozen reasons why the TSE sent several written warnings to FCN-Nación between July 2015 and the beginning of 2016. But FCN-Nación simply ignored them.

As Morales took off in the polls in mid-2015, journalists also started asking questions about the party’s money sources and spending habits, but Morales shook them off as well, claiming his campaign relied on party-member donations and his own personal fortune.

To be sure, in an interview with La República, Morales hinted that his brand was enough to pay for the campaign. It was a brand built through “work with honor,” he said, before repeating his slogan. “I’m honest. I’m not corrupt or a thief.”

Specifically, he said he had spent close to $640,000 of his own money as of July. But later TSE audits showed that was the amount the party claimed to have spent for the entire campaign. Furthermore, the TSE could not identify the source of 90 percent of these funds.

Prosecutors later told InSight Crime the money came from three different sources: Evangelical churches and religious organizations with ties to Jimmy Morales and his political party; a group of ex-military officials who saw the political party as a means to contest the accusations against them for war crimes; and various influential Guatemalan businesspeople.

After the presidential election, a possible fourth source of funds came to light. In November 2016, a Guatemalan drug trafficker allegedly told United States counter-drug agents that he had given $500,000 to Vice President Cabrera’s son during the 2015 campaign. The drug trafficker was extradited to the US, and the accusations remain uncorroborated.

The support of Morales was typical quid pro quo in Guatemalan politics, according to an investigator who spoke on condition of anonymity. He said they saw “an opportunity to invest [now], so that once the politician was in office, they could ask him to return the favor.”

By late October, it was clear they would get their chance. Baldizón was eliminated in the first round in early September. Morales and Torres faced off in the second in late October. Although touting the same anti-corruption mantra as her opponent and spending considerably more money, Torres didn’t stand a chance. On October 25, Morales won with 67.4 percent of the vote, 35 points more than Sandra Torres.

A President Under Fire

It wasn’t until the end of 2016 that FCN-Nación realized that the TSE and Attorney General Office’s investigations were serious. The party scrambled and began to cover its tracks. It hired an accounting firm and asked it to reconstruct its books for the campaign.

It was not easy. There were months when the party simply had no registered payments in or out — no receipts, no audits, no bank statements to match their real spending, and few invoices. When the accountants found holes, they falsified documents, often illegally backdating and signing them, investigators said.

In all, investigators say they are combing through some 65,000 transactions from at least three Guatemalan bank accounts, most of them from between June and November of 2015.

As an example, investigators said they had homed in on some questionable receipts for payments made through a bank account with G&T Continental. One receipt was for two checks, totaling slightly more than $30,000, signed by Rafael Díaz Samos, the owner of various construction companies that were also tied to similar cases of illicit campaign financing in 2011.

When the Attorney General’s Office questioned Díaz Samos about the checks, he testified that he never got any receipts for these contributions. His story came into question when the accounting firm FCN-Nación hired produced a receipt dated June 2015. The investigators questioned him again, and he stuck to his story. Confused, investigators then went back to party records and found that the receipt the party had provided had been signed by a different accountant than the one the party had when Díaz Samos made his donation.

More questions emerged later. Jimmy Morales, for instance, continued signing checks for the FCN-Nación campaign account until April 2016, when he should have stopped in January, after his inauguration. The Attorney General’s office also said that FCN-Nación’s campaign accounts had remained open until October 2016, which is also a violation of Guatemalan electoral law.

The deeper the investigation went, the more suspicious activity authorities discovered. The list of donors to FCN-Nación, for example, included people whose close relatives went on to work for the Morales government. Most notable among these donors were Fanny de Domínguez and Francisco Estrada Domínguez, the mother and brother of Julio Héctor Estrada Domínguez, who Morales appointed as the government’s new finance minister. (Julio Héctor resigned during Morales’ battles with the CICIG.) The family made the donation via a construction company they own, Pedreiro.*

(In an email exchange with InSight Crime following the original publication of this article, Minister Estrada Domínguez defended his family’s donation and said that it did not represent a conflict of interest. “I don’t see how serving the government can be a conflict of interest,” he wrote. “When you believe in an idea and have the opportunity to serve, you take it the job, and then you assume the risks that come with it.” See the whole email exchange here.)

Prosecutors also noted suspicious movements from the party’s bank account. Among many who received funds from FCN-Nación accounts was Ovalle, the former army colonel who headed FCN-Nación’s legislative caucus until he lost his immunity and his congressional seat to face war crimes. Prosecutors say the party gave regular $20,000 payments to Ovalle from its account for no apparent reason.

The connection to the PP raised more red flags

FCN-Nación sent a similar amount to Estuardo Galdámez, the party secretary and the head of Agromec, a company that has also received government contracts to repair roads. Galdámez is a former military officer with ties to Pérez Molina’s and Baldetti’s Patriotic Party (Partido Patriota – PP).

The connection to the PP raised more red flags. The PP government and ex-military criminal networks had plundered the government during the Pérez Molina administration, landing Pérez Molina and Baldetti behind bars. The investigations into the PP, however, continued, and more connections between FCN-Nación and the PP were on the way.

Jimmy Morales Goes to War

On August 26, 2017, Jimmy Morales stepped in front of the cameras to make a 44-second announcement on a YouTube channel.

“In the exercise of my constitutional powers … as president of the Republic of Guatemala, in the interest of the people … and to strengthen [the country’s] institutional structures, I declare Iván Velásquez Gómez persona non grata in his capacity as commissioner [of the CICIG],” Morales declared.

Velásquez is Colombian. A celebrated former judge, he had long since made himself the enemy of the traditional and political elites in Guatemala as the head of the CICIG. To be sure, it was he who would later declare that illicit campaign financing was Guatemala’s “original sin.” 

Just two days prior to the president’s startling announcement, the Attorney General’s Office and the CICIG had petitioned Congress to withdraw the president’s immunity. Prosecutors sought information on more than $900,000 in undeclared campaign donations to FCN-Nación based on the Attorney General’s Office investigation, but they could not officially investigate Morales until the immunity was lifted.

Morales’ announcement was nothing short of a declaration of war. That same day, the president signed a document ordering Velásquez “to leave the Republic of Guatemala.” The next day, he ordered his minister of foreign relations to enforce the order “within the legal and diplomatic framework” of the country.

Morales’ ire with the CICIG had really begun months earlier when, in early 2016, the CICIG and the Attorney General’s Office arrested his son and his brother on charges they had helped embezzle some $24,000 from a small government office years before Morales took office. The charges seemed petty and made the president and his followers angry. 

Their anger coalesced into a movement, and Morales is now part of a larger cadre waging war against the CICIG. Former president and long-time Guatemala City Mayor Álvaro Arzú also joined Morales’ team not long after he was also implicated in a corruption scheme. And until his death in April 2018, many saw Arzú as the real power behind the campaign to get rid of the CICIG and turn the clock back to a time when the Guatemalan elites could toy with the country as they pleased without repercussions.

But Commissioner Velásquez had his own allies too. The CICIG is funded mostly by the US government, which remains a staunch backer of the commission. And the day after Morales declared the CICIG commissioner persona non grata, Guatemala’s Human Rights Ombudsman, Augusto Jordán Rodas, filed an injunction with the Constitutional Court to suspend the order. According to two officials with inside knowledge of the events of that day, the court called a special session and ruled in a three-two vote against the president.

Velásquez would stay.

The rebuke hurt the president. One of the sources on the proceedings inside the court, who spoke to InSight Crime on the condition of anonymity for security reasons, recalled that some in the Constitutional Court feared Morales might declare a state of emergency. He did not. Instead, the president started a more low-key campaign against the commission.

At the center of this effort is Javier Hernández, who took over FCN-Nación after Ovalle ran into his legal troubles. Hernández has legal troubles of his own. His signature appeared on checks for the party’s campaign, and the Attorney General’s Office has accused him of failing to report the sources of at least $400,000 in donations.

In September 2017, shortly after prosecutors petitioned Congress to remove the president’s immunity and Morales made his dramatic attempt to expel Velásquez, Hernández led an effort to soften punishments for government officials and politicians accused of corruption.

Among the proposed reforms were virtual get-out-of-jail-free cards for party heads like Hernández. Only accountants and other underlings would face possible charges in cases of campaign finance violations. The Guatemalan press labeled the congressional initiative the “pacto de corruptos,” or the “corruption pact,” and public and international pressure throttled the bill.

During the same month, Hernández also led two efforts to undermine prosecutors’ continuing petition to withdraw immunity from President Morales.

In January 2018, Morales strengthened his shield in Congress when Álvaro Arzú Escobar, the son of ex-President Álvaro Arzú, became president of Congress. Morales also fired several key CICIG allies in his administration, including the interior minister, and the head of the tax agency. It seemed the Guatemalan president could rest easy, but more surprises from the CICIG and the Attorney General’s Office were on the way.

Guatemalan Elites and FCN-Nación

At the beginning of December 2016, Guatemala’s Attorney General’s Office raided 12 properties. In the raids, investigators uncovered evidence that led them to a warehouse in another part of the city, where they found ash heaps that included official documents and clues that led them to other warehouses, industrial facilities and offices for companies with ties to multiple corruption schemes that took place during the Pérez Molina administration.

“One raid took us to another,” recounted a participating investigator.

Little by little, the Attorney General’s Office and the CICIG put together a puzzle made up of company bribes and payoffs for construction projects. Authorities dubbed it the “Construction and Corruption” case.

At the top of the pyramid, prosecutors said, was Alejandro Sinibaldi, the former minister of infrastructure, housing and communications during Pérez Molina’s administration. Sinibaldi had long since gone on the run. (See previous installment of this investigative series) He was last seen in public giving an interview via Skype from India during which he spoke about his contacts with other political parties.

The Construction and Corruption case opened another investigative avenue in the FCN-Nación campaign financing case. Prosecutors found that two companies linked to Sinibaldi — Inversiones Delta and Multitek — donated $18,600 to the campaign. Multitek was run by Jonathan Chévez, alias “El Mago,” who was also implicated in a corruption scheme during the Pérez Molina administration.

Amid the documents from the raid were also references to the National Civic Movement (Movimiento Cívico Nacional – MCN), a kind of Guatemalan political action committee. The MCN, according to the documents, also gave donations to FCN-Nación that were not reported to electoral authorities. Prosecutors would later baptize this “phase two” of the FCN-Nación investigation.

Like phase one, phase two relied on insiders. On February 26, 2018, a member of a powerful Guatemalan elite family, Paulina Paiz Riera, talked to prosecutors. She later provided documents showing that various business leaders — among the most influential in the country — had given unregistered donations to the Morales campaign.

They were paying for the right to ‘picaporte’ [quid pro quo], as we say in Guatemala … for contracts, for key ministries

Specifically, Paiz testified that on August 19, 2015 — as FCN-Nación was rising in the polls and the Pérez Molina administration was disintegrating — Morales and Ovalle met with various members of the Paiz family and other businesspeople. They came to an agreement that the businesspeople — from the premier elite families in the country — would help pay for the election observers known in Guatemala as “fiscales de mesa.” The donations would be made through a company called Novaservicios, which was run by Paulina Paiz, and go to checking accounts that Ovalle provided. All told, the businesspeople donated close to $1 million. FCN-Nación, however, only reported about $14,000 of this money to regulators.

“The payments were made directly by the companies … to the party’s election observers, and the expense was not reported to the TSE, which constitutes illicit campaign financing,”  then-Attorney General Thelma Aldana stated at a press conference held on April 19, 2018.

The business leaders also gave a mea culpa press conference where they read a letter and apologized to the shareholders of their companies and to the country at large.

“People’s character is not found in their errors, but in how we face them and what we learn from them, making a firm and clear commitment not to make them again. We apologize to Guatemala for these actions,” the letter read.

One of these business leaders contacted InSight Crime shortly after the dramatic press conference. He did not want to be quoted by name and spent most of his time trying to contextualize the donations, focusing on Baldizón and his party, Líder.

Baldizón — who was later arrested in the United States for his alleged participation in a corruption scheme in Guatemala connected to the now-infamous Brazilian construction company Odebrecht — was a worrying candidate. His alleged ties to criminal groups and dubious sources of financing had also peaked the interests of the United States government, which was signaling to the country’s elites that it would not welcome a Baldizón presidency.

We acted fast and weren’t diligent. Líder was violating the [campaign funding] limits … [FCN-Nación] was a small party that asked us for help,” the business leader told InSight Crime.

When InSight Crime pressed the business leader on whether they verified where the money was going, if they had received receipts, and if they had followed up with the party after the election, the source excused himself and hung up the phone.

Two prosecutors were not as gentle in their assessment of the business leaders’ actions.

“They were paying for the right to ‘picaporte’ [quid pro quo], as we say in Guatemala … for contracts, for key ministries. We got ‘em, and now, all of a sudden, they’re sorry,” one of the prosecutors said.

A President, Alone

Jimmy Morales became president of Guatemala in August 2016. His legal problems over possibly illegal campaign financing began just months after his inauguration. Photo AP

All told, the Attorney General’s Office is charging FCN-Nación and Morales with failing to report some $2 million in revenue during his 2015 presidential campaign and the early months of 2016.

Despite a transition at the top, the Attorney General’s Office has kept up the pressure. In a May 2018 press conference — her last as attorney general — Aldana said the investigations had crossed the threshold to make another petition to Congress to remove Morales’ immunity. And on August 10, Guatemala’s new attorney general, María Consuelo Porras, made the official request.

Doubts had surrounded Porras. Her husband is ex-military, and she was a judge, not a prosecutor. But with CICIG Commissioner Velásquez at her side, she said that Paulina Paiz’s revelations that payments were made by business leaders had pushed her to move forward with the request to Congress.

The circle is nearly closed. Jimmy Morales, who won power precisely because of his predecessor’s corruption, is now facing down accusations that he committed some of the same transgressions. It was a biblical lesson he apparently missed: Dubious campaign financing was his and Guatemala’s original sin.

*Correction: The original article published August 23, said Pedreiro was the property of another minister and that it had received government contracts. Both of these assertions are untrue. InSight Crime regrets the error. 

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Steven Dudley is the co-founder and co-director of InSight Crime and a senior research fellow at American University’s Center for Latin American and Latino Studies in Washington, DC. In 2020, Dudley...