As Latin America emerges as the new global epicenter of the coronavirus pandemic, corruption has proliferated, with politicians and middlemen quick to line their pockets.
Contracts for the coronavirus response have been riddled with irregularities in a dozen countries ranging from Argentina to Mexico, a May 19 report from the Lawyers Council for Civil and Economic Rights found.
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InSight Crime examines three major types of contract manipulation — fraud, favoritism, and price-gouging — that have surged amid the pandemic.
1. Fraud
In the frenzy to prepare for spikes in coronavirus cases, national and local governments have hastily drawn up contracts to address health, security and infrastructure emergencies.
Contractors and officials took quick advantage to embezzle cash and commit fraud.
In Colombia, more than 300 local government contracts were found to have irregularities, according to a May 20 report in Semana.
The report noted redundant contracts, purchases of unnecessary items like portable radios, and people hired with no relevant experience, including a bar owner contracted to transport coronavirus tests.
The attorney general said in late May that at least a dozen mayors would be served arrest warrants for corruption and embezzlement, but he hasn’t made public any developments in the cases since then. Several governors have also come under investigation for contract irregularities, the attorney general and other officials said in late April.
The Brazilian government has launched more than 400 investigations into coronavirus relief contracts. In late May, authorities executed a dozen search warrants, which included searching the residence Rio de Janeiro state Governor Wilson Witzel on suspicion of embezzlement of funds for hospital construction, according to the AP. Witzel said the probe was politically motivated.
2. Favoritism
Officials are also using coronavirus contracts to enrich their inner circles.
Semana’s investigation in Colombia found that local authorities often awarded contracts to associates, relatives or campaign donors.
In the Dominican Republic, the Health Ministry awarded $27 million of its $37 million supply contracts to one company, according to the Lawyers Council report and Dominican news source Acento. In many cases, the firm was the sole bidder for contracts that were left open for just a few hours, the Lawyers Council report stated.
The administration of President Danilo Medina has since annulled these contracts. In early April, Medina opened a coronavirus response transparency commission. The relationship between the government and the company’s owners is unclear.
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In Paraguay, the Health Ministry awarded pharmaceutical and medical supply contracts worth tens of millions of dollars to companies linked to family members and associates of a single businessman, Justo Ferreira, Paraguay’s La Nación reported in April. The Attorney General’s Office said in late May that it is investigating the contracts, which have been annulled, ABC Color reported.
Medical officials said June 8 that medicines imported by Ferreira’s companies were substandard and will be destroyed. In an interview with ABC TV Paraguay, Ferreira defended his work, saying that his companies only bid on the contracts in order to serve the Paraguayan public and that he took sole responsibility for the quality of the products.
Most business formation laws in Latin America do not require a company to disclose its “beneficial owners” — those who profit from the company but whose names are not on the title, said Julia Yansura, a Latin America finance expert at the DC-based think-tank Global Financial Integrity.
This lack of transparency makes it easy to conceal an improper relationship. “It’s a much larger issue, but it really comes to a head during a crisis like this when people are forced to issue contracts quickly,” Yansura told InSight Crime. “[Governments] just do not have the full information they need to ensure that [they’re] avoiding favoritism.”
3. Price Gouging
Additionally, governments have been purchasing medical supplies at sky-high prices, turning profits for connected contractors and enriching politicians in the form of kickbacks and other favors.
In Bolivia, authorities arrested Health Minister Marcelo Navajas on May 20 after allegations that the government had purchased 170 ventilators from a Spanish company for nearly four times their value — overpaying by more than $3.5 million. The ventilators were not suitable for intensive care units in Bolivian hospitals, according to Bolivian news source Página Siete. Navajas’ lawyer said after his arrest that the ventilator purchase was legal and that authorities had violated his constitutional rights.
Bolivia’s legislative assembly announced via a press release on May 18 the creation of a mixed chamber commission to investigate the ventilator scandal. Four days later, the head of the Bolivian Chamber of Deputies, Sergio Choque, accused the government of trying to distance itself from the scandal and said that Aníbal Cruz, Navajas’ predecessor as health minister, should also be investigated.
In Honduras, the government bought coronavirus tests at $100 apiece from three middlemen that had purchased the tests for just $4 per unit from China. In Guatemala, the government bought N95 masks for 18 times their market value from a businessman who had previously been convicted on corruption charges.
And in Ecuador, overpricing schemes have been even more macabre amid the global emergency. Two hospitals overpaid for body bags to the tune of $568,090, as InSight Crime previously reported.
In other cases, concerns over contracting corruption and misuse of public funds have stifled the flow of needed relief to affected communities.
Yansura pointed to an investigation from Guatemalan news site Nómada that found the Guatemalan government has yet to spend a single dollar of aid money from several organizations, such as the Central American Bank for Economic Integration (Banco Centroamericano de Integración Económica — BCIE), on contracts for public health needs.
The holdup is the result of bureaucratic obstacles that delay the registration of donations in the government’s databases, in turn complicating and obscuring how that money is redistributed, according to the investigation.
“From a transparency point of view, it’s not just that you want to prevent corrupt or bad spending, it’s that you also want to ensure that the good spending is happening,” Yansura said.
The exact scale of contract fraud and spending disruption is hard to estimate, as governments have limited how much information they make available to the public. Some leaders, like President Nayib Bukele in El Salvador, have simply refused to disclose how and where they’ve allocated contracts and emergency spending.
As cases and death tolls climb across Latin America, corruption in the public health sector will continue to disrupt supply chains, drain government funds and prevent medical supplies from reaching those who need them.