Jailed Banker’s Bombshell Fuels Mexico Bailout Probe

First he was lionized as the model Mexican businessman. Then he was demonized as a symbol of the fraud that contributed to the country’s bank collapse. Now, from an Australian jail cell, Carlos Cabal Peniche is electrifying Mexicans again, offering tantalizing details about President Ernesto Zedillo’s 1994 campaign.

Banker Cabal’s reports of huge and potentially illegal campaign contributions have added fuel to one of the most intense investigations ever carried out by Mexico’s Congress.

The lawmakers are investigating the government’s $65-billion bailout of the banking system starting in 1995. One of their key questions: Did businessmen such as Cabal use their banks to make big donations to the ruling Institutional Revolutionary Party, or PRI--then stick taxpayers with the bill when the institutions collapsed?

In a rare showdown, the lawmakers are now threatening to go to the Supreme Court to force the Zedillo administration to turn over information about the banks.

Analysts say the case has turned into a test of this young democracy’s ability to end the deep-seated culture of impunity for politicians and their cronies.

“Again and again, information comes out about scandals, robberies, illegalities, and there are no institutions in Mexico capable of doing justice,” said Sergio Aguayo, a political scientist.

The scandal has its roots in the last presidential race. For years, opposition politicians had alleged that Cabal was a sort of Daddy Warbucks for the PRI. Touted as a self-made billionaire, Cabal was a favorite son of the ruling party in the early 1990s as he snapped up a variety of companies, including two state-owned banks.

But in September 1994, his banks were seized and he embarked on a four-year odyssey of country-hopping, ending with his arrest in Australia on Mexican charges of helping bilk his banks of as much as $700 million.

Politicians, Executives Had Cozy Relationship

Cabal is now furiously fighting extradition to Mexico. He claims to have a powerful weapon: secret information about the cozy relationships between Mexican politicians and business executives.

In recent weeks, Cabal has claimed that he personally rounded up $15 million from unidentified donors in 1993 for the last presidential race--one-third of all campaign contributions reported by the PRI. He provided the information in written answers to questions from several news outlets, including The Times.

“Donations of this kind were normal in Mexico,” Cabal said. “It was part of the system between businessmen and politicians.”

But the banker had an even more explosive revelation. Cabal said this month that his banks had paid an additional $4.5 million to the PRI and its campaign suppliers shortly before the August 1994 election--payments that would have been illegal under laws banning corporate contributions, electoral officials say.

Zedillo was informed about the 1993 contributions, and personally met with Cabal on Jan. 12, 1994, to discuss the banker’s pledge of additional funds, Cabal alleged in the written answers. At the time, Zedillo was manager of the presidential campaign.

Cabal said he fell out of official favor when Zedillo became the candidate after the assassination of PRI contender Luis Donaldo Colosio in March 1994. Zedillo “was certainly not my political preference,” the banker told The Times. He alleged that the president is now seeking to use him as a scapegoat for the banking crisis.

Cabal’s recent declarations were a bombshell. The PRI was forced to acknowledge receiving the $15 million in 1993 from a man the government now brands a crook. The party noted, however, that the contribution was in line with election law at the time.

But the Zedillo administration has hotly denied that the campaign received under-the-table funds from Cabal in 1994. It says he only made a personal donation of 1 million pesos (then about $300,000), which was within legal limits. And Zedillo never discussed contributions with Cabal, said presidential spokesman Fernando Lerdo de Tejada.

“This is a trick by Mr. Cabal,” the spokesman said in an interview. “He is trying to paint a criminal fraud as a political issue, in order to avoid extradition from Australia.”

Authorities say that, if anything, Zedillo has been a pioneer in campaign-finance reform, pushing a 1996 law that sharply restricted private donations. And if Zedillo were in league with Cabal, they say, his government would hardly have pursued him for four years.

Still, the revelations could embarrass the PRI as it heads into the crucial 2000 presidential campaign.

No one expects Zedillo to be ousted as he approaches the end of his term. And the nation’s Federal Electoral Tribunal has refused to review the 1994 campaign finances, saying the statute of limitations has expired.

But the congressmen say that the PRI is obliged to pay back any donations that came from loans absorbed into the government’s bank bailout. They claim that Cabal’s statements indicate that the government is hiding damaging information.

Earlier this month, opposition legislators triumphantly showed reporters checks and receipts totaling 1.7 million pesos--about $550,000 at the time--that appeared to reflect payments by Cabal’s Banco Union for PRI campaign expenses in June and July of 1994.

The receipts and checks appeared to bolster the banker’s claims about the illegal donation in 1994. Copies of the documents also have been provided separately to journalists by Cabal’s press office.

“The president has lied to the nation,” an independent legislator, Marcelo Ebrard, declared to the assembled media.

The president’s spokesman and the PRI have denied that the payments occurred. But they have offered no explanation for the receipts and checks.

“I don’t know the details,” Lerdo de Tejada said. The PRI spokesman, Carlos Reta, did not return repeated calls for comment.

Deputies turned the latest documents over to a Canadian auditor hired by the opposition-dominated lower house to examine the bank bailout, and asked him to investigate.

But so far, the government has refused to provide detailed information on Cabal’s accounts. In early July, the Finance Ministry turned down a request by the Canadian auditor for documents about Cabal’s $15-million donation to the PRI in 1993 and a separate $5-million contribution he made to a PRI governor’s campaign in Tabasco state.

Opposition legislators suspect that the donations might have originated in dodgy loans by Cabal’s banks--not from party supporters.

The Finance Ministry argues that, by law, it can only make an exception to bank-secrecy regulations if the auditor uncovers evidence of wrongdoing in the sample of records he examines--not in outside information.

“It’s a legal consideration that has nothing to do with politics,” said Marco Provencio, spokesman for the ministry.

Opposition politicians disagree. On Wednesday, they lodged a complaint with the president about the ministry’s behavior. They say they will pursue the matter to the Supreme Court.

“This is a subject they [authorities] don’t want discussed. It could be very delicate for them and the president,” Ebrard, the independent legislator, said in an interview. “The question here is whether the president can limit the scope of an audit when it affects his interests.”

The Zedillo administration argues that the opposition is playing politics. Officials who have seen an early version of the auditor’s report on the bailout--released to Congress on Monday but not made public--say it will criticize the government but will not be a sweeping indictment.

“Since the report won’t give them [the opposition] the political results they expected, they are trying to shift attention toward another theme, the PRI’s finances,” said Provencio, the ministry spokesman.

Some Say Justice Will Never Be Served

Some analysts say the clash between the legislature and executive branches shows the Congress’ limits in investigating one of Mexico’s most intractable problems--corruption.

“This is tragic. It’s discouraging. One sees information and revelations coming one after the other, and there is no system able to investigate and present a definitive report,” said Aguayo, the political scientist.

But others note that Congress has assumed a far more powerful watchdog role than in the past, when it was mainly a rubber stamp for the president. The PRI had controlled the legislature for nearly seven decades until the opposition won a majority in the lower house in 1997.

“Congress remains extremely weak when you put it up against American standards of oversight functions,” said Federico Estevez, another political scientist. But, he said, “even with little legal power, Congress has really opened this up in a way that would never have happened before.”