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The rig had the wrong equipment for the assignment, according to a
report by Mexican congressional auditors. And the tow job itself was
a fiction: The rig didn’t need to be moved. It was already in the
Gulf of Mexico.
The auditors alerted Pemex in February 2013, urging it to discipline
the employees who handled the contract. Pemex did nothing. About a
year later, an explosion aboard the rig killed two workers. The
cause of the blast is still under investigation by Pemex.
The rig deal, a Reuters examination finds, is typical of the way
Pemex and the government respond to widespread signs of fraud in the
company’s vast contracting budget: by looking the other way.
Reuters identified more than 100 Pemex contracts signed between 2003
and 2012, worth $11.7 billion, that were cited as having serious
problems by the Federal Audit Office of the lower house of the
Mexican Congress. The allegations ranged from overcharging for
shoddy work to outright fraud. The deals were worth about 8 percent
of the $149 billion in Pemex contracts registered in Mexico’s
federal contracting database in that period.
Pemex almost always disregards these warnings. From 2008 to 2012,
the most recent year of available data, the congressional auditors
issued 274 recommendations that Pemex take serious action over
contract irregularities – either press criminal charges, discipline
employees or claw back money.
The company issued responses to 268 of the cases. In only three of
them was action taken. The result: A handful of employees received
suspensions. Pemex’s internal control office dismissed 157 of the
cases. As of last month, 108 were unresolved.
“In Mexico, no one gets punished,” said Arturo Gonzalez de Aragon, a
former head of the Federal Audit Office, known in Mexico by its
Spanish acronym, ASF. “If you don’t punish anyone, impunity becomes
a perverse incentive for corruption.”
Pemex receives a second layer of oversight, but there are holes
there, too.
The Public Administration Ministry, an executive-branch watchdog
agency known by the Spanish acronym SFP, stations a team of
investigators within Pemex’s internal control office.
Among the contractors that slipped through this net was Francisco
“Pancho” Colorado, an alleged associate of the Zetas, one of
Mexico’s most murderous drug cartels. His company received tens of
millions of dollars from Pemex even after the SFP sought to ban it
for alleged fraud. He was later convicted in U.S. federal court on
unrelated charges of laundering money for the Zetas, and is now
appealing the verdict.
The failure to act on signs of fraud, say Gonzalez de Aragon and
others familiar with Pemex, is symptomatic of lax oversight of the
oil giant.
Congress’s Federal Audit Office auditors, they say, have no
authority to levy fines or press criminal charges. They can only
pass their recommendations to prosecutors or to the SFP
investigators inside Pemex.
RELUCTANT INVESTIGATORS
The SFP investigators at Pemex, meanwhile, are reluctant to pursue
cases against the officials they are supposed to regulate. These
internal investigators technically are independent of Pemex, as
employees of a separate federal agency.
But the federal agents – mainly lawyers and accountants – are
effectively part of the oil giant. They are paid by Pemex and work
in Pemex offices.
Pemex’s head of procurement, Arturo Henriquez, said the company
acknowledges having suffered from fraud and waste “in the past.” But
major changes are afoot, he said, that will cut the scope for abuse.
Pemex is creating a centralized contracting unit that will make it
harder for employees at the far-flung company to steer deals to
favored businesses, he said.
“We are going to mitigate bad practices with a centralized,
standardized process with due controls,” he said.
Pemex declined to comment on the specific cases described in this
article.
Fraud and waste at Pemex are critical because of the major role the
company plays in the Mexican economy. Pemex’s taxes and dividends
finance about 30 percent of the federal budget. Contract abuse at
the oil giant eats into the government’s ability to fund services
from healthcare to road building.
Pemex’s trouble policing itself is taking on international
importance as well. Mexico’s petroleum production is falling, and in
an effort to rev it up, the country is about to open its oil
reserves to foreign drillers. New laws will force Pemex to compete
for oil acreage with foreign operators for the first time since
1938. Pemex, however, will remain responsible for awarding billions
of dollars of service contracts.
Citigroup alleged last February that it was defrauded of more than
$400 million by a major Pemex contractor that used fake Pemex
invoices as loan collateral. Congressional auditors had issued
multiple warnings over the years about the contractor, Oceanografia,
but Pemex kept doing business with the firm. Pemex and Mexican
prosecutors say that Pemex employees aren’t under scrutiny in the
Oceanografia investigation, which is ongoing.
President Enrique Pena Nieto says he plans to replace the SFP with a
more independent Anti-Corruption Commission. Two years into his
administration, the initiative is stalled in Congress, where
lawmakers are divided over the plan.
The anti-corruption initiative was part of a suite of reforms Pena
Nieto announced upon taking office. The most ambitious proposal
involved shaking up the energy sector and Pemex, but plunging oil
prices and a series of domestic crises have complicated that agenda.
Most recently, Pena Nieto, his wife and his finance minister have
been mired in controversy after it emerged they had bought or used
houses belonging to a government contractor in a high speed rail
project.
Salvador Vega, an opposition senator and former head of the SFP,
said the federal investigators inside Pemex have disciplined
thousands of employees and some contractors based on their own
inquiries, independent of the congressional Federal Audit Office.
Ministry investigators, meanwhile, criticize the congressional
auditors, saying they lack the technical expertise to understand oil
contracts.
Jose Munoz, president of the lower-house committee of Congress that
oversees the Federal Audit Office, says congressional audits are
sound, written with the help of outside technical experts. The SFP’s
Pemex unit dismisses or sits on congressional audit recommendations,
Munoz said, because the internal investigators are too close to the
Pemex employees they’re supposed to scrutinize.
A spokesman for the Federal Audit Office said the office supports
the president’s idea of establishing an independent sanctioning body
in place of the SFP.
A LETTER FROM ABOVE
A contract with Unigel Quimica illustrates the challenges involved
in policing Pemex.
The company, a unit of Brazilian chemical maker Unigel, received a
lucrative deal from a unit of the Mexican oil giant. Pemex
Petrochemicals sold Unigel a chemical called acrylonitrile at a deep
discount from 2009 through 2011, according to an investigative
report by the SFP. The chemical is used to make plastics.
It isn’t clear why Pemex sold the material so cheaply. By giving
Unigel the generous discount, Pemex lost $24.2 million from 2009 to
2011, according to the SFP report. Unigel made just over $30 million
on the deal, the report says.
Two Pemex Petrochemicals officials approved the problematic portion
of the contract. The two officials, Lorenzo Aldeco and Manuel
Sanchez, did so without the approval of the legal department or
their fellow managers, bypassing routine safeguards, the SFP report
found. Aldeco later left Pemex and went on to become an executive at
Unigel. Sanchez now runs the Pemex Petrochemicals unit.
The internal investigators recommended that Pemex Petrochemicals
renegotiate part of the contract. In a separate audit report last
year, congressional auditors called on Pemex to sanction the
employees who supervised the deal, without naming names.
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Instead, Daniel Ramirez, then head of the SFP investigative unit at
Pemex, sent a letter to his SFP colleagues stationed at Pemex
Petrochemicals, directing them to defuse the problems with Unigel,
according to a copy of the letter seen by Reuters.
“You should work with the director of Pemex Petrochemicals to attend
to and answer these recommendations, with the aim of avoiding them
becoming definitive issues,” the letter says.
Sanchez, now the head of Pemex Petrochemicals, said there was
nothing unusual about the letter. As for his role in greenlighting
the Unigel deal, Sanchez said he signed off on an estimate of
Unigel’s planned investment, which didn’t require legal review. The
price of the contract wasn’t renegotiated, in spite of the SFP
report’s recommendation, he said. Asked why, he compared his
company’s relationship with Unigel to a “marriage”: “Not everything
is perfect, perfect, perfect…. We realized that there are things to
improve.”
Ramirez was named last month to the newly created position of
general auditor for Pemex. He did not respond to requests for
comment. Pemex’s press office declined to comment. The investigation
into the Unigel contract is ongoing, according to internal Pemex
investigators.
Aldeco left Pemex about six years ago and is now the chief executive
of the Mexican unit of Unigel. He declined to discuss the contract,
and said his hiring by Unigel does not pose a conflict. Aldeco said
he had no idea he would one day work for Unigel when Unigel won the
contract in 2007. He said he left Pemex in 2008, joining Unigel in
2012.
Jose Francisco Rivera is a former senior SFP investigator inside
Pemex who examined Unigel. He said other federal agencies he worked
at would have taken action on a Federal Audit Office finding of
major problems with a contract.
“I’ve been in the public sector since 2004,” Rivera said. In his
experience, “all the important recommendations from the Federal
Audit Office were dealt with in a process that normally ended in a
sanction for a public sector worker. That is, until I arrived at
Pemex Petrochemicals.”
The oil giant’s watchdogs do sometimes act. In 2012, the Federal
Audit Office found that Gutsa, a Mexican construction company,
botched a $30 million Pemex contract to build a monument to mark the
bicentennial of Mexican independence. Gutsa did not finish the
monument in time for the anniversary, and the costs ballooned to
more than $90 million, the office found. After a related
investigation, three Pemex employees were fired by the SFP.
The Gutsa case itself followed an oversight, however. Gutsa won the
monument deal despite having been banned from working with the
government in 2007, after abandoning an unfinished road project. It
won the contract while appealing the ban.
Reuters found that when Pemex’s internal inspectors do complete an
investigation, it rarely results in action. The 160 completed probes
resulted in no penalties for contractors. Three of the cases
resulted in suspensions for Pemex employees, ranging from five days
to six months.
THE PANCHO DEALS
Even when the SFP sanctions a contractor, companies can exploit
loopholes to keep winning deals.
Reuters found that from December 2006 through September 2013, about
40 companies won a combined $88.1 million in Pemex contracts after
Pemex’s internal SFP unit banned them.
Vega, the former head of the SFP, said he was surprised by those
numbers. While the awards technically weren’t illegal, he said,
Pemex should not grant contracts to companies who’ve been given
notice of an SFP ban.
“It should be thoroughly investigated,” Vega said.
Among those companies was ADT Petroservicios, owned by Pancho
Colorado.
Ministry investigators first banned ADT from winning contracts in
2009, over its alleged participation in a multi-million dollar fraud
involving the cleanup of an oil spill. Reuters requested documents
detailing the allegations against ADT under Mexico’s freedom of
information act. The ministry said it was unable to release the
documents, saying they were sealed in an appeals proceeding.
A Pemex contracting ban normally takes effect within a few days of a
decision. ADT was able to postpone the ban for years by appealing it
in court.
As a result, ADT won more than $35 million in additional contracts
after Pemex investigators announced the ban. Pemex declined to
explain why it opted to give fresh contracts to ADT during the
appeal period.
Colorado found other ways around the ban, too. He formed another
company, MTTM Servicios Petroleros, to skirt the impending ban of
ADT, U.S. Internal Revenue Service special agent Michael Fernald
told Reuters. In addition to the ADT contracts, MTTM won two
contracts from Pemex worth $23 million in April and July of 2011.
The deals ADT went on to win in the interim included a $9.7 million
contract for bridge, road and oil-well work awarded in August 2011.
That award came two days before Pemex finally implemented the ban.
The contract ran through 2013.
In March 2012, Pemex deposited a $4.6 million payment to Colorado’s
accounts, according to IRS agents who helped prosecute him. That
transaction, by chance, came just one day after Mexican federal
police engaged in a fierce shootout with Zetas gunmen at Colorado’s
ranch in Veracruz, while pursuing a cartel boss who had holed up
there. Colorado wasn’t present at the time.
In May 2012, Colorado was indicted on charges of money laundering
for the Zetas in the U.S. Western District Court of Texas in Austin.
The U.S. Treasury designated ADT as a front for the cartel.
Prosecutors alleged that Colorado laundered $10 million for Zetas
members in the United States by purchasing race horses.
In the time between the implementation of the ADT ban in August 2011
and Colorado’s indictment the following May, Pemex deposited $9
million into Colorado’s bank accounts, according to IRS
investigators.
It isn’t clear why Pemex officials were so keen to keep doing
business with Colorado. At Colorado’s trial, a witness testified
that in February 2012, he attended a meeting at a Pemex office with
Colorado and a high-level Pemex official. There, the witness said,
the two men discussed how Colorado could pay $5 million to the Pemex
official. The witness didn’t say what the money was for or whether
the payment took place. Pemex declined to talk about the case.
Colorado was convicted in 2013 and sentenced to 20 years in prison.
Chris Flood, a lawyer for Colorado, said his client denies the
charges and is appealing the conviction. His attorneys have said he
was not an associate of the Zetas, and that he paid for the horses
with legitimate profits from ADT's business with Pemex. Many of the
key witnesses against him were criminals trading testimony for deals
with U.S. authorities, Flood said.
Asked about Colorado’s dealings with Pemex, Flood declined to
comment.
(Edited by Michael Williams)
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