Chilean Judge to Rule on Arrests in Bribery Scandal on Saturday

A Chilean judge said he would rule at 10 a.m. on Saturday on the arrest of businessmen and a former deputy minister in a scandal over tax evasion, political financing and bribery.

Carlos Eugenio Lavin and Carlos Alberto Delano, the owners of Grupo Penta, are accused of paying money to Pablo Wagner, the deputy mining minister from 2010 to 2011, in exchange for favors. Seven other people are accused in the case, part of which revolves around financing for the opposition Union of Democratic Independents, or UDI, a party created by former civilian members of Chile’s military dictatorship.

The country has seen a raft of fraud cases in the past year involving Grupo Penta, Chile’s largest brokerage LarrainVial SA, mining company Sociedad Quimica y Minera de Chile SA and board members at the insurance group Consorcio Financiero SA. While small compared with the scandal surrounding the state-owned oil company Petroleo Brasileiro SA in Brazil, the number of cases is beginning to damage the image of Latin America’s richest nation abroad.

“There has been a reputational impact because what seemed like a market that adhered to the rules, isn’t exactly that,” said Matias Zegers, a director of the department of corporate governance at the Catholic University in Santiago. “But there is a legal framework and robust regulation, so these cases are detected and sanctioned.”

Judge Juan Manuel Escobar could order the “preventative” arrests as prosecutors pursue the case against those charged. Other defendants include Carlos Bombal, a former lawmaker for the UDI and mayor of central Santiago during the dictatorship of General August Pinochet, and two tax inspectors.

No Help

The recent corruption allegations “don’t help at all,” Finance Minister Alberto Arenas told El Pulso newspaper Friday. They “don’t create an atmosphere that points to cautious optimism” for a pick-up in growth.

Julian Lopez, a lawyer for Lavin and Delano, said in January that his two clients “accept they have committed mistakes,” while denying criminal offenses.

The accusations revolve around the alleged issue of bills for work that was never carried out to reduce the taxable income of Grupo Penta. Some of the money was then used to finance election campaigns, typically for candidates from the UDI party, or in the case of Wagner, as a payment of 42 million pesos ($67,000) while he held office.

The wives of Lavin and Delano both issued fake expense receipts, prosecutors said. The payments to Wagner allegedly were made through his sister-in-law.

Evasion Machine

“Penta Group is a machine set up to commit tax fraud,” prosecutor Carlos Gajardo said at a hearing March 4. “All the way from the owners, down to the lowliest janitor, everybody issued fake receipts to evade taxes.”

Officials in the tax department were paid off to ensure their cooperation in the scheme, prosecutors said.

“The prosecutor describes us as the mob, as if we were Al Capone,” Lavin said March 4. “He doesn’t really know Penta.”

Wagner has pledged to repay any taxes due on his income, while denying allegations of bribery, according to his lawyer Gonzalo Medina.

In September, billionaire Julio Ponce was fined $70 million for illegal trading in shares of the holding companies through which he controls SQM. In December, Juan Bilbao resigned from his position as chairman of insurance group Consorcio Financiero SA to focus on his legal defense after the U.S. SEC accused him of trading shares of CFR Pharmaceuticals SA with insider information.

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