Chile’s Milicogate Scandal


Contents
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Introduction
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Chile has an unusual method for funding arms purchases: a 10% levy on export revenues from the state copper company, Corporación Nacional del Cobre (CODELCO). These funds go directly to the three branches of the armed forces to spend as they choose on arms purchases, without passing through the central Ministry of Defence, and without parliamentary scrutiny. A group of military officers, in what became known as the Milicogate scandal, concocted a series of fake military procurement deals to embezzle almost USD 11 million from the CODELCO revenues. The officers issued invoices associated with fake deals for goods and services that were never supplied, siphoning off the proceeds for their personal benefit, and potentially to pay off higher-ups in the military as well.


Case details
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Seller country: Chile
Seller company: Frasim, Tecnometal, Power-Ti
Buyer country: Chile
Goods category: Fake Invoices
Equipment sold: None – corruption involved embezzlement using fake invoices.
Deal value: n/a
Start year: 2010
End year: 2019
Outcome status: Legal Investigation Ongoing

Dramatis Personae
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  • Corporal Juan Carlos Cruz Valverde, Colonel (ret.) Clovis Alejandro Montero Barra, and Sergeant Liliana Francisca Villagrán Vásquez — officers serving in the Armed Forces Support Command (CAF); charged with tax fraud in February 2016.

  • Juan Miguel Fuente-Alba Poblete — retired general, former Commander-in-Chief of the Army; under investigation.

  • Antonio Cordero Kehr, Jorge Salas Kurte, and Miguel Muñoz Farías — retired generals, formerly serving in the CAF; charged with breach of military duties in September 2016, under investigation for issuing false invoices.


Summary of Corruption Allegations
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Three Chilean Armed Forces (CAF) officers: Corporal Juan Carlos Cruz Valverde, Sergeant Liliana Francisca Villagrán Vásquez, and retired Colonel Clovis Alejandro Montero Barra were indicted or tax fraud. Further charges were leveled in May 2016 against two lieutenant colonels, a lieutenant, and two company directors.

Colonel Clovis Montero, the main accused, allegedly laundered money through a series of purchases of luxury cars for Fuente-Alba via a particular car dealership. The dealership would sell cars to Fuente-Alba at cost price, the contract would be transferred, and then the general would refund the cars at full sale price. The difference would be kept by Fuente-Alba.

Three other retired generals, Antonio Cordero Kehr, Jorge Salas Kurte, and Miguel Muñoz Farías, who all served with the CAF, are under investigation for potentially issuing false invoices.


Timeline
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  • 1958

    The Ley Reservada del Cobre (Secret Copper Law) was first passed, and has been modified several times since. It is widely criticized as a means of funding arms procurement. The text of the law, and subsequent modifications, remained a secret until 2016, although information on the sums spent under the law have generally been available.

  • 2010

    The embezzlement plot began. Fake invoices issued to three companies that were suppliers to the army: Frasim, Tecnometal, and Power-Ti. The embezzlement was made possible by a lack of oversight and control of spending at the Comando de Apoyo a la Fuerza (CAF, Armed Forces Support Command)—which oversees military procurement.


Investigation Outcomes
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  • 2014

    Army officials first started to notice irregularities in invoicing and started an investigation. Suspicions initially fell on two CAF officers: Corporal Juan Carlos Cruz Valverde and retired Colonel Clovis Alejandro Montero Barra, who were placed in military detention.

  • Aug 2015

    News of the affair became public in August 2015 through the weekly newspaper The Clinic.

  • Oct 2015

    Parliamentary commission of inquiry was created. The internal Army enquiry moved to the judicial system in November that year, with the appointment of examining magistrate Omar Astudillo Contreras.

  • Feb 2016

    Astudillo indicted Cruz and Montero, along with another CAF officer, Sergeant Liliana Francisca Villagrán Vásquez, for tax fraud.

  • May 2016

    Further charges were leveled in May 2016 against two lieutenant colonels, a lieutenant, and two company directors. Investigations have continued, and have scrutinized the role of former Commander-in-Chief of the Army, retired General Juan Miguel Fuente-Alba Poblete.

  • Sep 2016

    Three other retired generals, Antonio Cordero Kehr—formerly the chief bodyguard of General Pinochet and his wife—Jorge Salas Kurte, and Miguel Muñoz Farías, who all served with the CAF, were charged with a breach of military duties and are under investigation for potentially issuing false invoices.

  • Dec 2016

    A result of the parliamentary commission was the text of the previously ‘Secret’ Copper Law, and its various modifications were officially made public.

  • Sep 2019

    The Copper Law was finally repealed after 61 years. The Chilean Congress approved a new compromise whereby the 10% levy on Codelco sales would be maintained for nine more years, and then phased out over four years. In addition, the statutory floor on the armed forces’ budget will be eliminated. The new law, however, does not increase oversight of military budgeting or procurement.


References
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  • World Peace Foundation - Compendium of Arms Trade Corruption,

  • https://sites.tufts.edu/corruptarmsdeals/chiles-milicogate-scandal/

  • “Chile investiga facturas falsas del Ejército por valor de diez millones de dólares,” Infodefensa (website), Dec. 16, 2015, http://www.infodefensa.com/latam/2015/12/16/noticia-milicogate-fondos-reservados-cobre-terminaron-desfalco-millones-dolares.html.

  • “CHILE SECURITY: Another institution hit by scandal,” Latin America Strategic and Security Report (website), February 2016, http://www.latinnews.com/component/k2/item/68122-security-another-institution-hit-by-scandal.html.

  • “Minuta Milicogate,” Transparency International Chile briefing, May 3, 2016, http://www.chiletransparente.cl/wp-content/files_mf/1463167588Minutamilicogate.pdf.

  • “Contraloría inicia sumario en Ejército por anomalías en compras a empresa involucrada en Milicogate,” The Clinic (online), May 11, 2016, http://www.theclinic.cl/2016/05/11/contraloria-inicia-sumario-en-el-ejercito-por-anomalias-en-compras-a-empresa-involucrada-en-milicogate/.