The theft of Mexican state oil company Petroleos Mexicanos (Pemex) illustrates how an unaccountable kakistocracy combined with an allied kleptocracy can loot the public blind.
On Feb. 12, 2020 authorities arrested Former Pemex CEO Emilio Lozoya Austin (2012-2016) in an upscale suburb of the southern Spanish port city of Malaga. Lozoya was a close associate of and election campaign adviser to former President of Mexico Enrique Peña Nieto (2012-2018).
Lozoya stands accused of orchestrating a scheme designed to systematically “plunder” Mexico’s finances, according to the country’s Attorney General Alejandro Gertz Manero.
Lozoya’s method provides a template for how such looting is done. The key is to get a hold of the public purse, whether it’s pension funds, a government agency, a national bank, or a large public corporation. Straw men associates are then set up to conduct favored transactions with the purse holder. In today’s bubble in everything, the plutocrats are running amok all over the world.
In this case, Lozoya had Pemex repurchase for the obscenely inflated sum of $665 million two fertilizer plants that the oil company had sold to private investors many years earlier. One of the plants hadn’t been operational for 14 years — and still isn’t — while the other one operated well below capacity. Before the purchase of the fertilizer plants, international auditors warned Pemex’s board of their dire state, but the company went ahead with the purchase anyway.
The money then passed through shell companies in the British Virgin Islands before coming to rest in private bank accounts belonging to Lozoya in Switzerland, Liechtenstein and Monaco. The loot was then divided up among the co-conspirators. Pemex officials often used sham companies operated by their children to collect and launder bribes.
That illustrates the other aspect of the method: stacking the board of directors and auditors with flying monkeys or stooges. Bribes and kompromat are liberally applied.
In Mexico, the previous Attorney General, Raul Cervantes Andrade, dragged his feet when the scandal broke. Yes, he, too, is a very close friend of former President Nieto, who, in turn, is a very close friend of Lozoya’s.
Andrade worked alongside Lozoya on Nieto’s presidential campaign. Within weeks of Nieto’s victory in 2012, Andrade was given the top job in Mexico’s justice system, and Lozoya was handed control of Pemex, just as Nieto was about to begin the de-nationalization of Mexico’s oil sector.
“In Mexico, no one gets punished,” said Arturo Gonzalez de Aragon, a former head of the Federal Audit Office, known in Mexico by the Spanish acronym ASF. “If you don’t punish anyone, impunity becomes a perverse incentive for corruption.”
Such reckless and above-the-law lavishness was a constant feature of Lozoya’s 2012-2016 tenure as CEO of Pemex and Nieto’s Presidential term.
“It was conduct that was repeated in a very structured way with the aim of looting the country. I don’t see any other way to describe it,” says Gertz Manero.
Lozoya conducted a disastrous foray into Spain’s ship-building business. In 2013, as Spain’s financial crisis was still biting, the country’s biggest private shipyard, Ballesteros, based in the north-western region of Galicia, was teetering on the edge of bankruptcy. Hundreds of jobs were on the line, at the worst possible time for Galicia’s president, Albert Núñez Feijóo: just before new elections.
With the help of Spain’s then-President the corrupto Mariano Rajoy, negotiations were quickly arranged with Lozoya, who agreed to let Pemex buy up 51% of the shipyard for next to nothing (€5 million).
But despite having bought a controlling stake in the company, Pemex decided not to exercise any control of the business, preferring to leave that to the other (Spanish) shareholders. Pemex also became Ballesteros’ number one client, ordering the construction of two so-called floatels (hotel-boats for oil rig workers) for hundreds of millions of dollars. One of them acquired for €175 million, Pemex never even used. The other, Pemex hasn’t used anywhere near full capacity.
In October 2019, Ballesteros went bankrupt once again. Pemex’s current CEO, Octavio Romero, says that the purchase was riddled with irregularities and has filed a complaint for fraudulent administration. Once again, tens of millions of dollars disappeared.
Between 2012 and 2016, the ranks of senior management and administrators on Pemex’s payroll tripled. Despite Pemex’s growing losses, they awarded themselves generous salary raises and lucrative perks, including three executive planes and a helicopter, and 911 company cars and SUVs.
The planes and helicopter, as the Mexican weekly Proceso reported, were used to shuttle Lozoya and his cronies to and from luxury resorts in Mexico and the United States at public expense. There’s no public record of who accompanied Lozoya on those jaunts.
Mexico’s oil workers’ union joined in the looting. Union chief Carlos Romero Deschamps was prominently featured in Forbes’ 2013 ranking of the 10 most corrupt people in Mexico.
Mexican daily La Vanguardia revealed that Deschamps’ sister, brothers-in-law and an assortment of nephews, nieces and cousins were all on Pemex’s payroll, with contracts guaranteed until the year 2999 (no typo). None of them appeared to actually do any work for Pemex. They’re all highly connected, card-carrying members of Peña Nieto’s own party, the Institutional Revolutionary Party (PRI), which has held power in Mexico for 75 of the last 87 years. Deschamps himself is now a PRI senator.
Lozoya effectively took down security on the oil and gasoline facilities, likely working hand in hand with the cartels. Now, systemic theft is estimated to be costing Pemex 20,000 barrels of gasoline daily, with a market value of around $4 million. That’s about $1.4 billion a year. It’s the second most profitable source of funds for Mexico’s criminal gangs, behind the trafficking of drugs.
During Lozoya’s tenure as CEO of Pemex from 2012 to 2016, the company’s already fragile financial health underwent a dramatic turn for the worse. Of course, access to cheap debt is the template for these scams. As the company was looted, it was also generously financed by global banksters. Pemex’s total debt load grew from $64 billion in 2012 to $106 billion. Today, even after a couple of bailouts last year, it’s still above $100 billion, of which roughly $85 billion is owed to bondholders.
This corrupto Lozoya was piled high with awards during his looting operation.
- Energy Intelligence announced that Emilio Lozoya Austin, CEO of Petróleos Mexicanos (Pemex), earned the distinction of his peers as “Petroleum Executive of the Year.” The 2014 award, as selected by top global industry executives. Energy Intelligence jointly convenes “Oil & Money” with the International New York Times.
- Global Young Leader by the World Economic Forum (2012)
In the past, Pemex provided a cushion to keep Mexico above water financially. That is now all gone. Once a Goliath on the global energy scene, this enterprise is now dependent on state aid to meet its day-to-day needs.
More importantly, where does the buck stop? The pattern is to pay a token fine and walk free. Deferred prosecution agreements as a Crime Syndicate looting tool was discussed in our post “US, International Banksters Receive Mere Wrist Slaps for Laundering Narcos’ Drug Money.”
Indeed upon his return to Mexico, Lozoya was hospitalized for anemia and problems with his esophagus; later, he had surgery for a hiatal hernia. On July 21, 2020 President Andrés Manuel López Obrador said that Lozoya would be given witness protection because his testimony could help “clean” Mexico of corruption, and that he (AMLO) would support a sentence reduction if Lozoya’s testimony proved useful. The president said, Nosotros queremos recuperar el dinero (“We want to recuperate the money”).
Attention is already switching to Lozoya’s one-time corrupto boss, former Mexican president Nieto, whose government is seen as one of the most corrupt in modern Mexican history.
In February 2020, allegations were made concerning the “misuse” of the funds – US$29.3 billion – uncovered by the Secretariat of Public Administration (SFP) via 2,500 audits of spending by Peña Nieto’s government.
Presenting the audit report on Thursday, Public Administration Secretary Irma Sandoval said that the amount of resources in question is greater than the entire federal budget allocated annually for education and health, which receive more funds than any other areas.