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The Current Corruption Scandals in Chile Explained

By | [email protected] | April 11, 2015 8:39pm


“I’d like to offer my public apologies to everyone. To my family, to my friends, and especially to my mother-in-law, the president of the republic, because she never knew anything”.

Girl, you sound like you are in trouble. Natalia Compagnon, married to Chilean President Michelle Bachelet’s son, finally broke her silence this Friday, two months after a shady deal was revealed.

Chile is still suffering from the devastating floods that hit the north of the country that have left 26 dead and more than 100 people missing. But that may not be the biggest headache for Bachelet. Her government is in the middle of three huge corruption scandals, involving one of the largest Chilean companies, her party, an ex-Pinochet son in law, and her own son. So here’s a rundown of what you need to know.

What is going on?

The Penta case, the Soquimich case and the Nueragate (sorry, but daughter-in-law-gate doesn’t sound that cool) are the three keywords in this crisis. The first two scandals may sound boring and actually are more complicated, but they compromise a lot of politicians from the current administration, the previous one and the opposition.

The Penta Group has multimillion dollar investments in the banking, insurance, pension funds, health care institutes and real estate sectors. So, basically, almost everything you can think of. It all started last year with a story of revenge: When former general manager Hugo Bravo was fired after over 30 years, in the middle of tax fraud investigations, he took the company owner to court for unjustified dismissal and demanded a rich severance payment. And, by the way, he also mentioned illegal contributions to political campaigns.

Carlos Délano and Carlos Lavín, founders of Penta, are closely connected with the Democratic Union party (UDI) and the majority of the accused belong to this conservative movement, but it’s not the only one. Those involved, including a senator and even a presidential candidate, had allegedly given fake receipts to Penta for services they never did, as a means of getting campaign funds. In Chile, there was no regulation on  political contributions until December, when Bachelet signed a bill after the scandal came to light.

Lavín and Délano. Image via La Segunda

In March, after six months of investigations, Délano and Levin were sent to jail on charges of tax fraud and bribery. A former government under-secretary, a former tax official who collaborated with the scheme and two Penta executive’s were also arrested.

But in this investigation other names came up, including another giant corporation: Soquimich. This scandal even involves the name Pinochet.

In February, a secretary revealed that Chile’s Chemistry and Mining Society (popularly known as “SQM”) also sent fake receipts to get tax reductions. It is a huge company that requires a lot of external contractors, but many of them were politicians, their relatives, assistants and even public officials of Bachelet and Piñera’s administrations.

SQM is run by Julio Ponce Lerou, a forest engineer who was married for 22 years to Verónica Pinochet, daughter of the former dictator. Ponce, who has appeared in many millionaire rankings, made a big portion of his fortune during that time, when he was leading important state-owned companies. When his figure got too public, in 1983, he was relieved from his positions, but he had already built a large network of political and business partners.

Julio Ponce Lerou. image via

Soquimich is being investigated for financing political campaigns, not only for right-wing parties, but also to Nueva Mayoría, Bachelet’s coalition. The government recognized last week that a fundraiser for the presidential campaign did send receipts to the company, but they said it was all legal.

The company recognized that 11 million dollars of payments have no backing in documents. A week ago, files were charged by the Superintendence of Securities and Insurance against the entire SQM board.

Chile ranks 21th out of 175 countries in the Transparency International corruption index, far away from Brazil (69th) and Argentina (107th). These two, sadly, are inured to the realities of corruption, but on the other side of the Andes this is an almost unknown problem. So when it hits the government, and it also hits the presidential family, it is a big deal.

Natalia Compagnon, married to Sebastián Dávalos (Bachelet’s son), own’s half of Caval’s shares, a firm that was trying (and failing) to get a 10 million dollar loan, because of its short assets and history. Luckily, the couple managed to get a meeting with Andrónico Luksic, Banco de Chile’s vice president. On November 16, 2013, just 24 hours after Bachelet’s victory, the Bank let them know that they had approved the loan. Yay!

Image via Agencia Uno

And how did they use all that money? Caval bought lands 100 kilometers south of Santiago. But not any land. This one’s value would rise a lot after a rezoning by the Government. In February, in the middle of the crisis when this was revealed, the firm closed the deal and earned a $ 3.8 million profit.

Dávalos resigned from his unpaid position in her mother in law’s office as director of socio-cultural activities. Bachelet won the elections with a comfortable 62% margin of victory. Nowadays, she has a 61% disapproval rate.

Bachelet’s leadership was strongly supported, among other reasons, because of her indisputably good reputation. When Nueragate was revealed, she didn’t mention the case for 17 days. Recently, she had to deny rumors of her resignation. Even after her daughter-in-law’s recent interview to La Segunda, eyes probably won’t move from the family. Compagnon denied any influence peddling, but the magazine Qué Pasa revealed this Friday that the loan was not the only business done with Luksic.

Bachelet recently accepted that “maybe it was a mistake” to maintain her silence, but it was to not interfere with the investigations. She is trying to remain calm with three storms brewing. “This is a complex, difficult situation. But as a country, we know how to use it to move towards a stronger democracy and separate business from politics”, she said.