Hot on the Money Trail

Gustavo Gorriti made his name as an investigative journalist in his native Peru by unmasking killers. In the region where death squads began, he hiked into the highlands, avoiding military patrols to report on incidents like the 1986 Parcco massacre, in which the Peruvian military slaughtered about twenty peasants. Gorriti's reporting identified those responsible and exposed a cover-up that reached into the army high command.

Ten years later Latin America has changed and so has Gorriti. He is more likely to spend his time now poring over bank records. It is not that Gorriti has lost his taste for investigative reporting or his penchant for adventure -- at 49, the judo black belt and six-time national champion of Peru is still in fighting shape. But if you're looking for the dark underbelly of Latin America you're more likely to find stories by following a money trail than a jungle trail.

On a continent where military juntas have been replaced by elected leaders; where most of the once-chronic civil wars have ended; and where once-closed economies have swung open to foreign investment and trade, journalists are beginning to probe the relationship between money and power. The growth of investigative journalism in Latin America is due in part to the simple fact that governments have become less repressive. But journalists are also benefiting from an information explosion fueled by the opening of stock exchanges and the increasing availability of government economic statistics. They are cultivating new sources in the private sector and in government regulatory agencies. And they are forging relationships with prosecutors and members of congressional commissions who are investigating corruption in many countries.

 Armed with this new information, investigative journalists have uncovered kickback schemes, money laundering, and influence peddling throughout Latin America. In fact, the presidents of both Brazil and Venezuela were brought down by reporting on government corruption. "As soon as you know where the money is and how it's moving, it's much easier to do investigative journalism," says Edward Schumacher, managing editor of The Wall Street Journal Americas, the edition of the paper published as an insert in twenty newspapers throughout Latin America.

Gorriti settled in Panama in 1996, four years after a commando unit armed with silencer-equipped weapons broke into his Lima home and secretly hauled him away to the army's Intelligence Service compound. That was April 5, 1992, the night president Alberto Fujimori dissolved congress and the Supreme Court and took full control of Peru. Gorriti was held for thirty-six hours and believes that he would have "disappeared" if word of his detention had not gotten out to international press organizations.

 It didn't take Gorriti long after assuming his job as an editor at the daily La Prensa to discover that he didn't even have to get his boots muddy to unearth a link between Panama's president Ernesto PŽrez Balladares and the Cali drug cartel. Gorriti had moved to Panama at the invitation of La Prensa's publisher Juan Arias. He soon began following a lead given to him by a Cuban friend in Miami. In January 1996, the Panamanian Agro-Industrial Bank (Banaico) had collapsed. By cultivating sources among angry depositors, Panamanian Banking Commission members, Panamanian investigators, and U.S. law enforcement agencies, Gorriti and his team of La Prensa reporters discovered that the bank had been used by Colombian drug traffickers -- with close ties to the Panamanian government -- to launder profits from the narcotics trade. He also found that a major Colombian trafficker who was using the bank to launder money made a $51,000 contribution to PŽrez Balladares's campaign fund.

The president at first denied the La Prensa allegations, but later admitted they were true. Nevertheless, angered by Gorriti's reporting, the Panamanian government denied his request to renew his work visa and ordered him to leave the country by last August 28. It took an international campaign on Gorriti's behalf to force the government to back down. "When I was working in Peru, financial reporting was done by boring specialists," Gorriti said recently, in his ocean-front Panama City apartment after receiving word that he would be allowed to stay on. "It was only later that I understood its crucial importance."

 In fact, financial scandal has replaced civil unrest as the leading story in Latin America. The examples are legion. In Mexico financier Jorge Lankenau is the latest tycoon to be accused of fraud in a widening banking crisis. He made headlines in November when he escaped house arrest by crawling from an underground tunnel connected to his mansion in the northern industrial city of Monterrey. El Norte, Monterrey's leading daily, printed a series of stories chronicling how he moved funds from the Cayman Islands and Uruguay to shore up his crumbling banking empire.

 In Brazil, mired in its own banking crisis, stories about new influence peddling schemes occur virtually every week. When Congressman JoŠo Alves was questioned a few years ago by a TV reporter about how he made deposits of over $50 million while earning a congressman's salary he claimed that he had won the lottery twenty-four thousand times.

 In Colombia, two ministers were forced to resign last summer after the weekly newsmagazine Semana published the transcript from a surreptitiously recorded cellular phone conversation in which they discussed President Ernesto Samper's plan to give half of the government's radio concessions to his friends. (See box, page 55.)

In Chile, which boasts the region's most vibrant economy, investors were furious to learn that a Spanish firm that had formed a joint venture with the Chilean electric company had used inside information to bilk investors.

In Ecuador, articles published in the daily Hoy contributed to the downfall of a president who called himself "The Madman." An investigative story coordinated by editor Diego Cornejo showed how President Abdal‡ Bucaram had diverted money he had raised during a Christmas telethon to help the poor.

Even the tiny Caribbean island nation of Antigua and Barbuda got in on the act when the opposition newspaper reported that President Lester Bird had accepted a $1 million bribe from the Cali drug cartel to allow his country to be used as a transshipment point for drugs headed to the United States.

 The press has played an important role in reporting every one of the recent scandals, often breaking the story either through its own investigations or government leaks. The new style of reporting was born in Brazil in 1992 when the press began to probe corruption allegations made during impeachment proceedings against President Fernando Collor de Mello. After running a media-savvy campaign under an anti-corruption banner, Collor -- whose hobbies include karate (a black belt) and who has flown in a jet plane that broke the sound barrier -- was named by People magazine as one of the world's fifty most beautiful people. But Rosental Alves, then executive editor of daily Jornal do Brasil, was not seduced. Jornal reporter Mario Rosa in early 1991 uncovered the first evidence of the deep cynicism behind Collor's promise of clean government. Using a computer access code provided by a sympathetic senator, Rosa perused the files of the Brazilian Finance Ministry. He found that money distributed to the president's wife Rosane and earmarked for charity had gone to her relatives and family in her home town. (Not that Rosane was reluctant to spend money on herself: during an official visit to Rome she traveled in an eight-car motorcade, dropping $15,000 on designer clothing in a few hours.)

A few months later the president's younger brother Pedro gave an explosive interview to Veja, Brazil's leading news weekly. After months of cultivating Pedro as a possible source, the magazine finally persuaded him to come forward with his accusation. Paulo Far'as, the president's campaign treasurer, ran a multimillion-dollar influence-peddling ring on behalf of the president. In response to that interview, the Brazilian Congress formed a commission to investigate the charges. Eventually, Collor was forced to resign.

 During the investigation, Brazil's feisty press, held in check until 1985 by twenty-one years of military rule, reported aggressively on the scandal. IstoE, a weekly, published an investigative story based on bank records and interviews with Far'as's chauffeur. Veja ran photographs of the lavish gardens at Collor's privately-owned residence in the capital of Brasilia. Bit by bit, a complete picture of the corruption scheme emerged in the press. Claiming to represent Collor, Far'as visited virtually every major company in Brazil and extracted bribes in exchange for favorable treatment from the government. According to published documents that included bank records, canceled checks, and telephone records that showed he was in daily contact with the president, Far'as managed to extort $55.3 million, more than $8 million of which was paid directly to Collor. Far'as wrote checks for the president's household expenses including the renovation of several houses in Brazil and the purchase of an apartment in Paris. Through its aggressive coverage, the press in Brazil gained both power and credibility.

Since the downfall of Collor, investigative reporting on corruption has become a mainstay of political coverage in Brazil. The reporting on Collor's corruption was "a typical follow-the-money story," says Alves, now a journalism professor at the University of Texas at Austin. "Often the press was out in front of the congressional investigation."

 Only six months later, Carlos AndrŽs PŽrez, the septuagenarian president of Venezuela, found himself enmeshed in a similar scandal. PŽrez was first elected president in the 1970s during the country's oil boom. Most Venezuelans seemed to ignore rumors of corruption during his first administration, when petrodollars were flowing in faster than they could be spent.

But with PŽrez presiding over a massive devaluation and a painful period of economic austerity, he soon found that Venezuelans were holding him to a different standard. JosŽ Vicente Rangel, a former congressman and presidential candidate who had re-cast himself as an investigative journalist for the Caracas daily El Universal, published the story that led to PŽrez's downfall. Relying on confidential sources, Rangel reported that PŽrez had misappropriated $17 million in discretionary funds. (The money had disappeared and was unaccounted for.) Later, using documents leaked from the Central Bank and the Foreign Ministry, Rangel alleged that PŽrez and two aides had made millions by changing Venezuelan currency into dollars just ahead of the devaluation. PŽrez denied the accusation, and the evidence produced against him was never as compelling as the money trail left by Collor. Congress nevertheless began impeachment proceedings. Eventually, like Collor, PŽrez was forced to step down.

Because journalists are exposing corruption, polls in the last few years throughout Latin America show that the press is the institution that inspires the greatest degree of public confidence -- neck and neck with the Catholic Church. But rather than taking pride in this, Rangel -- like many journalists in Latin America -- is alarmed. "It worries me because it suggests that other institutions that regulate power in a democracy are not functioning," he says. "The press has become the investigator, the prosecutor, and the judge in order to fill the power vacuum. That's a very dangerous role for the press to play."

Yet it is a role the Latin American press has assumed with a vengeance. In Argentina the press has implicated President Carlos Menem in countless financial scandals. Using confidential sources and leaked financial documents such as bank records, Horacio Verbitsky, columnist for the daily P‡gina/12, has crusaded against Menem. The paper has published stories about how the president's brother-in-law tried to shake down an American company to import machinery into Argentina. His reporting also showed how Argentina's National Bank made a $75 million loan at preferential interest rates to companies owned by Menem's family.

Some of the most damaging reports, published in the weekly Noticias, have linked Menem with businessman Alfredo Yabr‡n -- a man whom the president's former finance minister, Domingo Cavallo (who was recently elected to Congress) described as the "head of the Mafia." In March 1996, Noticias published one of the first photographs of the notoriously reclusive tycoon, who controls much of Argentina's private mail delivery services and has grown extraordinarily wealthy on government contracts. Ten months after the photograph was published, the man who had taken it was found dead. The charred and handcuffed body of JosŽ Luis Cabezas was found in his car in January 1997. A former police officer with close ties to Yabr‡n has been arrested for masterminding the killing. Menem originally denied that his administration had had any dealings with Yabr‡n, but newspapers reported that investigators had traced dozens of phone calls from Yabr‡n to Justice Minister El'as Jass‡n just after the murder. Menem backtracked and acknowledged his personal friendship with Yabr‡n, while Jass‡n was forced to resign.

 For Verbitsky, the rise of investigative journalism in Argentina has more to do with the demise of authoritarian controls than with the explosion in information. "There was no lack of information under the dictatorship," which lasted until 1983, he argues. "What was lacking was the possibility of publishing that information or surviving if you did."

But other news people, like The Miami Herald Latin America correspondent Andres Oppenheimer, see a clear correlation between the opening of the region's economy and the increased reporting on scandal and corruption. "In Latin America today you have different economic groups competing with each other for power," argues Oppenheimer. "There's now more of a fragmentation. Not enough to create a full democratic opening, but there are more players, and that widens the array of possible sources. Where there is a winner there might be three losers who are willing to talk."

In Argentina -- as well as Brazil and Mexico -- financial newspapers were the first to break the information bottleneck, printing critical stories about policies that directly affected the powerful business community. Today, every major paper in Latin America has a business section. With the opening of stock exchanges, better reporting from central banks and government agencies, and the influx of professional financial analysts, the amount of basic financial information has increased dramatically in Latin America. International investors who have poured billions of dollars into stock markets from Argentina to Mexico are also demanding timely, accurate information about events that could affect their bottom line. The Wall Street Journal has eight full-time reporters covering Latin America, and with the launching of its U.S. edition, the Financial Times is also increasing its newshole for Latin American coverage. The Los Angeles Times, The Miami Herald, and The New York Times all have full-time business reporters covering Latin America. Bloomberg, expanding faster, has twenty-four reporters in seven countries and more than 1,000 subscribers in the region. Reuters has doubled its Latin American staff in the last decade to 130 full-time reporters. "There's no distinction between financial and political news," says Bernd Debusmann, Reuters's Americas news editor. "If there's a big corruption scandal people need to know in order to make their investment decisions."

 Yet within Latin America, it's hard to get access to even basic financial information -- such as company ownership. For journalists who want to know more than the earnings of a publicly traded company or the foreign reserves in the central bank good sources remain indispensable.

 In Mexico, for example, public documents and inside sources have played a major role in the coverage of the devastating peso devaluation in December, 1994. Ever since the devaluation forced the Mexican economy into a two-year long recession, there has been an intense public debate about who is responsible -- the former administration of Carlos Salinas de Gortari, or the current administration of Ernesto Zedillo. The debate has been waged with statistics about current account deficits, foreign reserves, the movement of capital in and out of the stock exchange. Leaked information about private meetings also has been important. Rossana Fuentes, an editor with the Mexico City daily Reforma, broke ground with her three-part series on the devaluation published in May 1995, that showed how ineptitude and personality conflicts within the government contributed to the debacle.

 It was Oppenheimer at The Miami Herald who first broke the story about Raœl Salinas's Swiss bank account, and reporting by Reforma, and The Wall Street Journal helped complete the picture of how the former first brother managed to assemble a fortune totaling $120 million. In November 1995, after Salinas had already been jailed for several months, charged with masterminding the murder of a rival politician, prosecutors investigating that murder turned up a fake passport used by Salinas. Using the pseudonym on the passport, authorities were able to locate Swiss accounts containing $84 million. Salinas' wife Paulina Casta--—n was arrested by Swiss authorities while attempting to make a withdrawal. Salinas' money was apparently spirited out of Mexico through Mexico City's Citibank office. Following the money trail, Oppenheimer located international bank records demonstrating that Salinas lent a Mexican executive nearly $30 million that was used to buy a television network that was privatized by the government. The bank records -- later published in the Mexican press -- show the money was moved through the account of Silverstar, a Panama-based import-export company.

While access to new information has given journalists enormous new power, Financial Times Latin America editor Stephen Fidler argues that there are special dangers faced by a powerful press in countries where weak judiciaries lack the clout to carry out prosecutions. "The whole effect is to undermine confidence in democratic institutions," says Fidler.

 That has certainly been the case in Colombia, where despite extensive and well documented reports linking President Ernesto Samper to the Cali drug cartel, the congress was unable to mount enough political support to kick him out. In August 1995, fifteen months after Samper had taken office, El Tiempo, Colombia's leading daily, published testimony taken from a campaign aide, Santiago Medina. In his depositions, taken before the prosecutors office, Medina claimed that he had helped raise nearly $6 million in campaign contributions from members of the Cali cartel. The contributions, Medina testified, had been solicited at the behest of the candidate himself in exchange for lenient treatment for traffickers should Samper win the election.

The revelations -- apparently received from a source in the federal prosecutor's office -- forced the resignation and arrest of Defense Minister Fernando Botero, who had served as Samper's campaign chairman. Samper survived impeachment proceedings in Congress but, largely because of the allegations, has lost virtually all of his political support. Francisco Santos, editor of El Tiempo, says he hasn't become cynical over Samper's holding onto his office because the press has stepped up its role as watchdog. "We've lost our fear of power," says Santos, referring to the Samper scandal.

Despite the advances, the Latin American press faces serious obstacles. Many financial reporters lack the technical training to evaluate and analyze economic statistics. A new generation of journalists is only beginning to explore the limits and responsibilities of a free press. Meanwhile, violent or repressive responses from powerful figures unaccustomed to public scrutiny continue to make journalism a very dangerous profession in Latin America.

 While Gustavo Gorriti managed to thwart the recent efforts by the Panamanian government to expel him, he hopes to return to Peru and track how money flows through the government of Alberto Fujimori. "When I was working in Peru I was so unprepared to do this kind of reporting that if a [financial] story hit me in the face I wouldn't have seen it," says Gorriti.

But when he leaves Panama he will leave behind converts at La Prensa. A year after Gorriti arrived in Panama, Rolando Rodr'guez -- who had the highly coveted political beat at the paper -- asked for a transfer to the business section. He felt that he would have more opportunities to do investigative reporting. Rodr'guez soon found plenty of good stories. With 120 banks, Panama is one of the world's most important off-shore banking centers. Rodr'guez joined a team of reporters investigating how financial mismanagement by Panamanian government regulators put investors at risk. Working with Gorriti, and business editor Miren GutiŽrrez, Rodr'guez began to examine the efforts of Taiwan and China to gain influence in Panama before the country gains complete control of the canal in 2000.

"This is virgin territory," says Rodreguez. "If you look closely, you always find there's money dancing under the table."

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