Minister Montoro's plot at the Treasury in five steps
Cristóbal Montoro is being investigated for allegedly using the Ministry of Finance between 2011 and 2018 to favor the Equipo Económico (EE) firm, which he had founded a few years earlier. When he came to power under Mariano Rajoy, he had already formally separated from the consulting firm. However, the links continued to emerge.
The judge suspects that EE became a sort of obligatory gateway for companies seeking favorable tax treatment. Investigators have unraveled the workings of the organization now under scrutiny.
Cristóbal Montoro had to deal with the economic crisis that was ravaging the country when he came to power in 2011. His policy was one of maximum austerity and tax increases, contrary to what the PP had promised when it was in opposition. Those who know him call him the "master of austerity." That's why he already raised eyebrows when some of his legislative reforms favored certain sectors with taxes. A judge in Tarragona has been investigating for years whether corruption may have been involved in this preferential treatment. The investigating judge has relied on the Anti-Corruption Prosecutor's Office, the Mossos d'Esquadra (Catalan Police), and the Civil Guard to define the suspicions that the Ministry of Finance may have favored certain companies with beneficial legislative reforms. How did they do it? The court's theory is that certain companies knew that Montoro's iron fist could be softened if they turned to the Equipo Económico law firm as an intermediary. It's the firm he founded and where his former partners remained. The first thing they received was a slammed door, a "no" for an answer. Once they saw that their attempts to change the law that would make them pay less were failing, they came knocking on the US door. This was confirmed by a representative of the Association of Industrial and Medicinal Gas Manufacturers (AFGIM), who, after seeing how the attempt to get the gas companies to benefit from a tax cut failed, made it clear what the next step was: "The most direct route, as always, is to pay the Economic Team, which has direct contact with Montoro."
The accumulated failures to achieve legislative change sometimes took a decade. In a report prepared by the Mossos d'Esquadra (Catalan police), and to which La Vanguardia has had access, they state that "the favorable legal reforms occur after the companies seeking such reforms accept payment of the price requested by the Economic Team, evidencing a "doing/not doing" conditional on said payment." In the case under investigation, the gas companies Air Liquide, Abelló, Messer, Praxair, Sociedad Española de Carburos Metálicos, and AFGIM paid €779,705 to the Economic Team between 2011 and 2019. Investigators suspect that what the gas companies did is just one example of what happened to other companies in the tobacco, gambling, banking, and electricity sectors. However, for now, the judge has focused on the former, charging the companies and their top executives. This case highlights the fine line between lobbying, which works to achieve benefits for a particular sector (not for specific companies) and influence peddling. Once paid, it was time to draft the text of the regulation they wanted to amend for the Treasury to consider. That's when the agents discovered that the technical reports were not prepared by EE but were commissioned from other consulting firms, such as Ernst and Young (EY), which performed the work for a price ten times lower. However, these reports bear the signature of Montoro's former firm. Hence, investigators suspect that EE's real value lay in its direct contact with top Treasury officials.
To understand EE's ability to access the Treasury, investigators analyzed the ministry's organizational chart at the time. The minister was one of the firm's founders, his chief of staff was the brother of the consulting firm's top executive, and other senior officials had also worked there. The investigation defines this as a closed circle of contacts. The next step in the "modus operandi," as defined in the police reports, was, once the payment was verified, an "avalanche" of contacts and meetings with senior officials in the Ministry of Finance, the result of which was nothing less than the client's "participation" in drafting the text of the law to be approved. Legislative reforms à la carte. Moreover, investigators have found that not only did they fabricate the regulatory text, but that EE's services would also involve the existence of decisive opinions and reports issued by various bodies that validated the reform. That is, the organization would leave no stone unturned regarding the rules for processing proceedings in the Congress of Deputies, which require—depending on the type of reform—reports like those from the Council of State. For example, the gas companies under investigation actively collaborated in drafting a bill that ultimately resulted in the approval of Law 28/2014, which they were interested in from the outset. But also, and something more striking for the Mossos d'Esquadra, the gas companies' association participated years later in amending a legislative royal decree, drafting "the final version" that was included in the 2018 General State Budget.
Investigators maintain that the alleged drafting or reform of laws in favor of companies that were in Equipo Económico's client portfolio was "hidden" in reports that were not prepared by the firm founded by the former Treasury chief, but by a third party—usually another consulting firm—at "a significantly lower price" than that ultimately charged by EE. Sometimes the firm's turnover was up to ten times higher. In other words, a subcontracting that would have worked out perfectly for them. The Mossos d'Esquadra suspect that this practice not only demonstrates that EE's intervention "lacked added value," since "the real service" performed was the ability to influence or act within the Ministry, but also that the contracting of these strategic reports "would conceal the payment of alleged commissions" to achieve legal changes. The Economic Team forced the Gas Association to hire an external consulting firm to actually prepare these strategic reports, as well as to "divide" the billing among several companies that were under the umbrella of associated companies for a single purpose, according to the Mossos d'Esquadra: to conceal the actual service and its final price from the authorities. The billing was carried out for various services at prices "lower" than those ultimately charged by the Economic Team. This is yet another "opaqueness," the Mossos d'Esquadra conclude in their report, in the chain of evidence that has led to the indictment of the network led by Montoro: the judge is investigating 28 people and six companies for the alleged commission of seven crimes.
That austere Montoro, with his keen focus on tax revenue in an attempt to emerge from the economic crisis and in the midst of a bank bailout, had to justify that the approved reforms did not affect tax revenue, that is, did not harm the public coffers. The Mossos d'Esquadra (Spanish Ministry of Finance) point to "inconsistencies" in the way he justified the benefits of the proposed reforms. For example, the agents believe that the 2014 reform of the electricity tax had a negative effect, as evidenced in the tax revenue reports from the Tax Agency for 2015 and 2017. This is questioned by the AEAT (Spanish Tax Agency), which in 2015 assessed that the economic impact resulting from the change in the IEE (Spanish Income Tax) represented a loss of 59 million euros for the public coffers. Furthermore, the Treasury was able to easily approve such legislative initiatives thanks to the absolute majority enjoyed by Rajoy's administration. The Mossos d'Esquadra (Spanish police) claim they don't understand the legal uncertainty, for example, to which he referred in justifying the change in the rates of the Economic Activities Tax, given that there is "an avalanche" of previous rulings to the contrary. After the secrecy of the case was lifted and the details of the investigation were made public, the Economic Team has come out to defend its honor. So has Cristóbal Montoro. They are now pointing to political persecution. The judge suspects the possible commission of seven crimes. Until now, he has kept the case under seal for seven years, which has allowed him to work with relative peace of mind. From now on, around thirty lawyers will try to annul the case, although it is still unclear what the Anti-Corruption Office's position will be from now on, which is suffering from its own internal struggles.
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