Mexico’s ‘Case of the Caves’ Shows Perils of Privatization : Economy: Nation has staked future on selloff. But failure to probe park bid may signal potential pitfalls.

It was with great flourish Tuesday that the director of Mexico’s National Institute of Ecology unveiled the pioneer project in the government’s controversial plan to privatize national parks this year.

The spectacular Caves of Cacahuamilpa, south of the Mexican capital, would be on the cutting edge of a program that institute President Gabriel Quadri said will make Mexico’s neglected natural wonders more attractive and marketable.

But the plan--indeed, the government’s entire privatization effort, which includes some of the nation’s most strategic facilities--appears fraught with peril.

Quadri indicated that he knew little about the dinosaur robots and hologram shows that Canadian businessman Barry Sendel planned to install in the pristine caves--plans that have raised the ire of Mexico’s environmentalists.

He also seemed dumbstruck when reporters asked about Sendel’s criminal record, which includes U.S. federal prison time in 1979 for fraud committed in Chicago, and about lawsuits filed in Montreal last year by investors alleging that Sendel and companies he controlled had run out on about $1 million in debt on a failed dinosaur park project there.

And it was clear that Quadri, who signed over the 50-year cave concession to Sendel in April, awarded him the rights to develop 39 acres of Mexico’s natural heritage without performing so much as a basic background check.

Sendel readily acknowledged the lawsuits in an interview with The Times last week, claiming no wrongdoing and asserting that he did not tell the Mexican government about them because he did not think it was necessary.

When reporters asked Quadri about the Montreal dinosaur park--highly publicized in Canada and easily researched--he conceded he knew nothing about Sendel’s past. “Of course . . . we are going to check with the Canadian Embassy to make a detailed evaluation now,” he said.

Within days, a Mexican judge issued a warrant for Sendel’s arrest on fraud charges related to the cave project. Sendel’s wife was jailed Wednesday on charges that she had passed a bad check for $40,000, and by week’s end, Quadri issued a terse statement announcing that he was withdrawing Sendel’s cave concession on “technical grounds.”

The case of the caves highlights the enormous risks facing Mexico as it rushes into one of the world’s most aggressive privatization programs, on which it has staked much of its economic future.

In addition to last week’s caves controversy, the government has already faced two major banking scandals. It seized two of the nation’s 10 largest financial groups last year because of alleged multimillion-dollar fraud--which analysts blamed on the government’s failure to police investors adequately when it privatized the banks almost overnight two years ago.

Now, as President Ernesto Zedillo’s government accelerates privatization in an effort to blunt Mexico’s financial crisis with more foreign investment, analysts say the potential for fraud is monumental, and the need to police investors is critical.

On the auction block this year will be key seaports, airports and railway lines--potential gold mines for both the government and investors. Zedillo’s advisers have said they hope to raise as much as $6 billion for his cash-strapped government this year, and up to $8 billion more in years to come, by selling operating rights to vital transportation facilities, telecommunications services and the parks. The government concedes that most of those facilities are now badly mismanaged--especially the parks.

But procedures for even simple background checks on prospective investors remain unclear. Quadri, who said he was under pressure from the state government in Guerrero to approve the project, told reporters his institute is responsible only for evaluating the environmental impact of private-sector bids. Mexico’s Treasury and Justice departments are charged with investigating the bidders’ financial and criminal records, he said.

Spokesmen for those departments, however, said responsibility for checking out the Canadian businessman and his proposed project lay with Quadri’s government institute.

Given such loopholes, law enforcement officials privately expressed concern that the privatization plan could be as lucrative for organized crime as it is for legitimate businesses. And many independent analysts and environmentalists warn that the plan will backfire if the government sells rights to individuals who use them inefficiently, unprofitably or illegally.

If a businessman with Sendel’s history could win a park concession without any consideration of his background, they say, anyone could. Even the sophisticated drug cartels that ship cocaine to the United States through Mexico could slip through the bureaucratic cracks, perhaps winning concessions to run strategic transit points.

“When you give concessions without thoroughly investigating where the money comes from, there’s always risk that drug money could be involved,” said Homero Aridjis, a leading environmentalist whose Group of 100 led the fight against Sendel’s cave project.

“Even in the case of the banks, when they supposedly did a thorough background check, there were problems,” said Emilio Zebadua, an economics professor at Mexico City’s Colegio de Mexico. “Now there is even greater pressure to privatize rapidly. What’s unclear is who is responsible for these background investigations. There doesn’t appear to be any internal regulation.”

Many analysts say the Caves of Cacahuamilpa should serve as a lesson in how not to privatize. Not only did Quadri’s institute fail to investigate Sendel’s background before last week, but Quadri also indicated last week that he signed the concession agreement April 7 without precisely knowing the source of Sendel’s financing. Quadri said he had yet to approve the Canadian’s plans to radically alter the interior of the caves.

Sendel spelled out his $20-million “Caves of Time” plans in a slick, 50-page booklet published earlier this year in English and Spanish. In addition to a hotel, restaurant, new landscaping and renovation of the graffiti-covered cave walls, the project would have included the installation of life-sized, animated dinosaur replicas, hologram machines, and smoke and light shows.

Sendel’s prospectus noted that the caves were “sacred” national treasures and stressed that the project not only would safeguard their natural beauty but enhance it. On the basis of this claim and his commitment to provide 600 new jobs, Sendel was given the concession.

Sendel said he did not disclose to Mexican officials his 1978 guilty plea to four counts of mail fraud in Chicago nor the civil lawsuits in the failed “Dinosaurium” park in Montreal. “I didn’t think it was necessary,” he said.

Sendel made no effort to hide his background during his interview with The Times, stressing that the criminal case “happened 25 years ago” and maintaining that the civil lawsuits still pending in Montreal are complex cases in which he bears no guilt.

As Quadri stressed to reporters last week, lost in the growing caves controversy is a need that goes beyond Mexico’s immediate economic crisis--the need for management expertise in addition to money. The government lacks the resources, Quadri said, to efficiently and profitably manage public facilities such as its parks.

The national park system is in such disarray that only the profit-driven private sector can save it, he said. “As far as we know, there are 44 or maybe 50 national parks,” Quadri said. “You’re not going to believe me, but nobody knows for certain just how many parks there are.”

Times special correspondent Joel Simon contributed to this report.