Pinocheques

Pinocheques (Spanish: Pinocheques) is the name given to a corruption scandal in Chile centered on three cheques, worth a combined US$3 million, that the Chilean Army paid in mid-1989 to Augusto Pinochet Hiriart, the eldest son of dictator Augusto Pinochet, in connection with the army's purchase of a bankrupt small-arms manufacturer, Valmoval. No clear justification for the payment to the younger Pinochet was ever established. Attempts to investigate the affair, first by a committee of the Chamber of Deputies in 1990 and later by the courts, were repeatedly blocked by displays of military force ordered by the elder Pinochet, who remained commander-in-chief of the army after leaving the presidency. The case was formally shelved by the Chilean judiciary in the mid-1990s at the request of President Eduardo Frei Ruiz-Tagle, "for reasons of state."

The affair resurfaced after 2004, when a United States Senate investigation into Riggs Bank revealed that Pinochet had hidden tens of millions of dollars in secret U.S. accounts. Chilean judge Manuel Valderrama reopened aspects of the Pinocheques case as part of the broader inquiry into Pinochet's fortune, but the proceedings against members of the Pinochet family were closed without charges, first in 2010 and definitively in 2013, after investigators were unable to trace roughly $17 million of the funds involved. Several retired military officers were indicted for helping conceal the accounts.

The military's show of force in December 1990, known as the ejercicio de enlace ("link exercise"), was widely regarded as the most serious crisis faced by the fledgling democratic government of President Patricio Aylwin in its first year, and a similar mobilization in 1993, the boinazo, forced a second retreat by civilian authorities. Both episodes are frequently cited as illustrations of the constraints Chile's post-dictatorship governments faced from a military still under Pinochet's command.

Background

In 1984, Augusto Pinochet Hiriart, using a business associate, Eduardo Le Roy, as a front man (testaferro), acquired a small metalworking firm, Nihasa Limitada, which he soon renamed PSP (Proyectos Metalúrgicos Integrados de Producción). PSP's clients came to include CEMA Chile, an organization run by Pinochet's mother, Lucía Hiriart, and the Chilean Army itself, for which the company modified vehicles used against street protests.

In 1987, PSP purchased Valmoval, a small-arms manufacturer that was administered by the army and had recently been declared bankrupt. According to contemporaneous reporting, Valmoval was in fact a Chilean affiliate of the Swiss arms manufacturer SIG (Schweizerische Industrie-Gesellschaft). The Chilean army's Fábricas y Maestranzas del Ejército had itself pushed Valmoval into insolvency shortly before PSP's purchase, according to court records later cited by Chilean media.

The transaction

Two years after PSP acquired Valmoval, in mid-1989, the army bought the company back. The transaction was paid for with three checks, drawn on the army command then headed by Pinochet's father, for a combined sum of close to US$3 million (about 971 million Chilean pesos at the time). Pinochet Hiriart was not the registered owner of Valmoval, and investigators were never able to establish a legitimate business reason for the payment made to him.

Following the sale, Pinochet Hiriart moved with his wife and children to Sacramento, California, where he opened bank accounts in the names of family members; investigators later found that one such account accumulated some $1.5 million.

Parliamentary inquiry and military pressure

The payment was investigated in 1990 by a special committee of the Chamber of Deputies chaired by Jorge Schaulsohn. On 19 December 1990, less than a year into Chile's return to democracy, General Pinochet, still commander-in-chief of the army, ordered troops confined to barracks and placed the roughly 57,000-strong force on alert, in what he described publicly as merely an "ejercicio de enlace" ("link exercise"). The mobilization was widely understood as pressure on President Aylwin's government to halt the investigation, and it succeeded: legal action was shelved.

Similar pressure was applied again in May 1993. After the newspaper La Nación reported that the case had been reopened, army officers gathered near the La Moneda presidential palace escorted by soldiers in combat dress and black berets, in an episode that became known as the boinazo ("beret-thump"). Aylwin's government again backed down. Contemporary accounts described the ejercicio de enlace standoff as the most severe crisis to confront the three-year-old coalition government of President Aylwin.

Judicial closure and reopening

Chilean courts continued to examine the payment through the early 1990s, but in 1994, as the case neared a decision by the Supreme Court, newly inaugurated President Frei directed the Council for the Defense of the State to withdraw its appeal, invoking reason of state rather than legal grounds. The case was closed in 1995 without any penalty for those involved.

The affair drew renewed attention in 2004 after a U.S. Senate investigation, led by the Permanent Subcommittee on Investigations, disclosed that Riggs Bank of Washington, D.C., had maintained a decades-long, largely undisclosed relationship with Pinochet, helping him conceal funds through offshore shell companies and accounts opened under false names. A follow-up Senate staff report in 2005 found that Riggs alone had held 28 Pinochet-related accounts spanning 25 years, and that other American banks, including Citigroup and Bank of America, had also handled funds for Pinochet and his relatives.

The Riggs disclosures prompted Chilean judge Manuel Valderrama to examine whether the Pinocheques payment had ultimately flowed into Pinochet's secret accounts. In 2010, that specific line of inquiry was dismissed for lack of evidence tracing the funds. The wider, nine-year investigation into Pinochet's foreign accounts—of which the Pinocheques thread formed a part—was closed definitively in 2013. Judge Valderrama concluded he had exhausted available leads but could not determine the origin of roughly $17 million of the more than $21 million found in Pinochet-linked accounts at Riggs and other institutions; no member of the Pinochet family was charged. Six retired military officers, including two former generals accused of opening a secret Riggs account for Pinochet under a false name, were indicted in connection with handling the funds.

Aftermath

Pinochet Hiriart was never charged in relation to the Valmoval sale. He and other family members maintained that Pinochet's accumulated wealth represented a lifetime of frugal savings and investment rather than proceeds of corruption, a characterization disputed by lawyers representing plaintiffs in the case. The Pinocheques affair, together with the ejercicio de enlace and boinazo mobilizations it provoked, is frequently cited by historians of Chile's transition to democracy as an early demonstration of the limits civilian governments faced while Pinochet remained head of the armed forces.

See also

• Boinazo
• Riggs Bank
• Corruption in Chile
• Military of Chile
• Chilean transition to democracy

External links

• Transcription of article in the Chilean online newspaper El Mostrador about the scandal
• Ellison, Katherine (18 July 1993). "Corruption Case Is Testing Chile's Fledgling Democracy – New Government Takes On Pinochet". The Seattle Times.
• Weeks, Gregory (2000). "Waiting for Cincinnatus: the role of Pinochet in post-authoritarian Chile" (PDF). Third World Quarterly. 21 (5): 725–738.