Corruption in Puerto Rico – July 12, 2019

Today I am not going to talk about PROMESA or the Board. Today I want to address the terrible scourge of corruption in Puerto Rico. On Wednesday, July 11, 2019 the FBI arrested two former Puerto Rican officials and four private industry individuals for theft of federal funds. I am not going to go into the 44-page indictment. Those interested in reviewing can go here.

Suffice it to say that the scheme described in the indictment is private governmental contractors who would conspire with government officials to snag contracts. The scheme is very similar to another scandalous case, the Anaudi Hernández conspiracy, which made headlines in 2016 under the García Padilla administration.  The consequences of this scheme are so devastating that Puerto Rico’s legislative leaders want to meet with the Governor and the Resident Commissioner to see how they can prevent harm to federal transfer payments and other federal funding. The question is how can we greatly reduce this type of corruption while making sure that the desperately needed federal funds are received without delay.

Although President Trump has expressed concern over the possibility of federal relief funds being misappropriated, Puerto Rico has done little to prevent it. Governor Rosselló allegedly implemented anti-corruption measures to monitor the good use of federal funds but once more, it was federal agencies that discovered the theft of over $15 million in federal taxpayers’ money. Since the Puerto Rican Government has shown itself incapable of preventing this type of misappropriation of funds, it is time that President Trump, given the deadlock in Congress, step in. Moreover, Congress is also asking for greater oversight over the use of federal funds in Puerto Rico.

My proposal for this oversight is simple: since the last two big cases of corruption in Puerto Rico are very similar, let’s make it more difficult for thieves to steal. President Trump may appoint a person (Commissioner, Czar, etc.) to review each and every contract Puerto Rico gives out that will be payed with federal funds. This federal official would provide guidelines to the Commonwealth on what contracts to approve and which not to approve, as well as which contracts can be canceled. For example, corporations created or merged shortly before the contract should not be approved, those whose needs are questionable from a management stand point should be denied, as well as cancellation of contracts with good performers in order to give them to friends of the administration should also be denied. This is precisely what is alleged in the Kelleher and Anaudi Hernández indictments.

Also alleged in these indictments is that Government officials shared information on bids with private actors. Although this cannot be entirely eliminated, it can be constrained if the bids are not received by Government officials, but rather by this federal official who will bring them to the Commonwealth office for their opening. As an added restraint, the successful bid cannot be canceled unless clear evidence to the contrary is presented to the federal official. In addition, the federal official would monitor the Puerto Rican Comptroller’s office website for the new contracts just in case P officials “forget” to report a contract. Moreover, its efforts should be coordinated with this office which does the best job it can rooting out government misdeeds.

Why not a Commonwealth agency? The Government of Puerto Rico has shown itself incapable of changing. It has resisted all efforts of the Board to change the way it works and puts political considerations ahead of sound public policy. Moreover, it is obvious that it cannot be trusted to stamp out corruption. The Comptroller’s office, for example, depends on the Commonwealth’s Department of Justice to bring indictments against those who do not follow the rules. Anyone in Puerto Rico can tell you that the Secretary of Justice under all administrations is nothing more than another political hack.

Why not give this function to the Board? Perhaps they could if 1) they weren’t so damn focused on shredding bondholder rights and declaring valid GO debt unconstitutional, and 2) they voluntarily remove their own members who are knee deep in controversies that remain unaddressed (i.e. – the Matasantos affair and the connections some members have to Santander). Moreover, the Board has its arms full with the PREPA and Commonwealth Plan of Adjustment as well as the future dealings with the 78 municipalities. In addition, the Board made it clear to the Commonwealth that it would not review contracts less than $10 million. The contracts at hand were each for less than that amount, but put together they total $15.5 million.

Why not the Federal Coordinator proposed by Mr. Zamot? He still doesn’t seem to get it. His proposal is only to have a federal employee present when dealing with a government contract of recovery funds. We must remember that both the Anaudi and Kelleher cases have nothing to do with recovery funds. All contracts with federal funds must be reviewed and the federal official must have veto power over them. Otherwise, it will business as usual.

This federal official should report to the President directly or a Federal judge appointed by Chief Justice Roberts. This may sound extreme, but the cost is too high for business to remain as usual.

And then maybe this way last Wednesday’s arrest and those to come will not preclude the needy people of Puerto Rico from receiving the federal funding.