Latin America

Bye Bye Birdie

Soldier Ecuador
An Ecuadorian soldier patrols the country's border with Colombia by helicopter in September 2000 (Photo: AFP).

According to reports in the centrist Guayaquil newspaper, El Universo, Ecuador’s navy has lost US$17.9 million in an arms deal gone wrong. In 1997, the Ecuadorian navy contracted Panamerican Organization Properties (POP), a Panamanian  company, to act as a middleman in the purchase of two Bell helicopter gunships. Five years and nearly US$18 million later, the helicopters still have not arrived. A criminal investigation is under way in Panama and Ecuador, high-ranking Ecuadorian naval officers may face court-martials, and Panama’s foreign minister, José Miguel Alemán Healy, has been indirectly tarred by the scandal.

Records on file at Panama's Public Registry show that POP was registered on March 30, 1982, with US$300,000 in seed money. The attorney who registered the company was one José Miguel Alemán Healy, who now serves as Panama's Foreign Minister. The documents list the law firm in which Alemán is a partner, Icaza, González-Ruiz y Alemán, as POP's resident agent in Panama.

On May 16, El Universo reported that the Ecuadorian national comptroller's office had confirmed that POP had defrauded the National Defense Council (JDN, by its Spanish initials) of millions of dollars in the deal. Comptroller Alfredo Corral determined that POP had forwarded only US$9,212,800 of the US$17,900,000 it had received from the JDN. Of the roughly US$9.2 million that did make it to its final destination, US$3 million reportedly went to Texas-based Bell Helicopter Textron; the remainder went to Heli-Ayne Systems, which had been contracted to outfit the helicopters with anti-submarine systems.

POP retained the other US$8,687,200, but delivered nothing, the comptroller found.

According to a series of investigative reports in El Universo, the Byzantine details of the scandal stretch back five years, to the signing of a contract between the JDN and POP. Under the terms of the contract, the JDN was to pay a total of US$35.8 million for two Bell attack helicopters outfitted with anti-submarine weapons systems. Thirty percent of the total bill, that is, US$10.74 million, was due within 30 days of the contract’s signing. Another US$7.16 million was due within 30 days after the JDN received the inspection certificate for the first helicopter. An additional US$7.16 million was due after the JDN received the inspection certificate for the second gunship. The remaining balance was to be paid soon after the helicopters were delivered to Ecuador.

On Sept. 24, 1998, the first helicopter passed inspection, but was never delivered. Representatives of POP claim this was because JDN never presented a flight plan to bring the helicopter from Texas to Guayaquil, and—after an unrelated debacle with the Guayaquil insurance company Ecuatoriana de Seguros—because the JDN failed to insure the helicopters for their trip from the United States to Ecuador.

On Feb. 15, 1999, the second helicopter passed inspection. It never arrived either. Incredibly, one year later, the JDN began negotiating an agreement whereby POP would deliver two additional helicopters, in exchange for interest on late payments and other "intangible costs."

These negotiations began to show signs of strain when POP first asked for US$3.9 million in interest—later lowered to US$2.4 million—and US$8.2 million in "intangible costs," which, the Ecuadorian government said, could not be documented.

On Nov. 16, 2000, Vice Adm. Fernando Donoso sent a message to the JDN indicating he thought he could reach a compromise with POP to save the deal. Under the terms of the compromise, POP would deliver only one helicopter fully outfitted according to the original contract, but would deliver two other helicopters with less extensive weapons systems in exchange for US$20.3 million more than had already been delivered, bringing the total cost of the transaction to US$38.2 million, up from US$35.8 million.

Comptroller Corral’s opposition scuttled that deal. Corral said that there had been no negligence on the state's part, and indicated that he expected it to be very difficult to recoup either the aircraft, or the US$17.9 million that was paid.

In 2001, after the two parties had failed to reach a compromise, the JDN filed two lawsuits against POP before the First Bench of the Administrative Disputes Tribunal in Quito. In its civil complaints, the JDN demanded that the helicopters be delivered according to the terms of the contract, and that the helicopters be sequestered until then. POP, for its part, filed a lawsuit before the same tribunal, demanding that the JDN pay US$70 million for alleged breaches of contract and revenue lost because Bell had stopped using the company as its representative in Ecuador.

On May 15, Comptroller Corral told reporters from El Universo that Bell had confirmed that it had received only US$9.2 million of the US$17.9 million the Ecuadorian government had sent to POP. The rest, Corral could only assume, had been stolen.

Military and civilian trials are underway in Ecuador. Ecuadorian Attorney General Mariana Yépez, who is prosecuting the case in the civilian courts, has asked that the civilian courts’ jurisdiction take precedence over the jurisdiction of the military courts. She has accused Adm. Cristóbal Moncayo of fraud, and of abusing his position to favor POP in the purchase of the helicopters, against the advice of his subordinates. Yépez also accuses Navy Cmdr. Raúl Rivas, Capts. Gonzalo Muñoz, Diego Mantilla, Walter Rodríguez, Raúl Hidalgo, Édison Villamarín, Raúl Samaniego, and Lt. Eddy Terán of abusing their power to favor POP in the competition for the contract.

Ecuadorian Defense Minister Hugo Unda has publicly said that the Armed Forces will not interfere in the civilian court cases against the military officials, and that Capt. Walter Rodríguez—who is serving as the naval attaché in Chile—will not be prevented from finishing his mission there unless the civilian court calls him home to face charges. The minister distinguished Rodríguez's case from that of the former naval attaché in London, Rogelio Viteri, who was recalled from his foreign mission after a complaint about an alleged overcharge in the insurance contract for military aircraft.

The Ecuadorian press has been coming up with new names for the scandal almost every day. El Universo publishes daily reports on the trials. As the wheels of justice turn, Ecuador still has not received the helicopters, and there is little hope it will recover the money it lost.

The author wishes to thank Rubén Darío Buitrón, editor of El Universo, for his help with this story.

Editor's Note: The original draft of this story identied Panamerican Organization Properties (POP) as an "arms-trafficking company." POP's work has included contracts for civilian as well as military clients. The original headline, "Multi-Million Dollar Swindle in Ecuador," suggested that POP had defrauded the Ecuadorian government. As the original draft indicated, the matter is still in litigation. World Press Review regrets the error.