Montoro Earthquake: The Keys to a Plot in the Heart of the State
The investigation points to illicit enrichment of the former PP minister and the use of front men.
Barcelona / MadridFormer Finance Minister Cristóbal Montoro, a member of the PP government's core during Mariano Rajoy's presidency, is in the eye of the storm for having trafficked laws from within the ministry. According to the case summary to which ARA has had access, investigators suspect he has enriched himself in a manner that has completely shaken Spanish politics and is a torpedo to the strategy of the current PP leader, Alberto Nuñez Feijóo, who in recent weeks had put all the pressure on Pedro Sánchez's government over cases that also implicate the PSOE, especially the Cerdán case.
How did the scheme work? Several companies in strategic sectors—from gas companies to construction, electricity, and tobacco companies—had obtained the regulatory changes they sought, including tax benefits, after hiring the services of Equipo Económico (EE), a consulting firm founded in 2006 by Montoro himself. But the scheme doesn't end there: at the same time, EE was linked to several companies that investigators consider front companies, some of them with ties to tax havens, to make it difficult to trace illicit money. Investigators believe that, at the end of the circuit, the former PP minister and several former senior Treasury officials from his time could be hiding money.
This is evident from one of the reports from the prosecutor in the case, dated December 5, 2019, when she asked the judge to extend the secrecy of the investigation, which has now been lifted. "The corporate structure itself created and the information we have about the positions held by one of the administrative staff of the Economic Team make it clear that the true owners of the company could have resorted to the use of front men and shell companies to divert the profits from their illicit origins and hide their investment," the document explains.
The prosecutor and investigators suspect that the former Minister of Finance is one of the beneficiaries of the scheme, since despite having access to the government, he could have continued to be part of EE because the notarized documents disassociating himself from the entity would have been "fictitious." This case was initiated by the Mossos d'Esquadra (Catalan police) in 2017 in Tarragona—which is why the investigating judge is based there—and it happened by chance: within the framework of another case, they intercepted emails from the technical director of Messer Ibérica de Gasas SA, Rubén Folgado, in which he described the actions carried out by the Association with the objective of obtaining a legislative change that would provide them with tax benefits by reducing the electricity tax. Among those emails, he mentioned the hiring of the Economic Team, founded by Montoro. "The most direct route, as always, is to pay this economic team that has direct contact with Minister Cristóbal Montoro," one of the emails stated.
In total, the plot involves 28 people and six companies, to which the investigating judge accuses seven crimes: bribery, fraud against the public administration, malfeasance, influence peddling, prohibited negotiations, corruption in business, and document falsification. The Prosecutor's Office and the Mossos d'Esquadra also believe there may be money laundering crimes involved.
Throughout 2019, the Mossos d'Esquadra investigated not only the companies that had hired the services of Equipo Económico to have a "direct link" to Montoro's ministry and achieve the legislative changes they wanted, in exchange for paying for standard reports, but they also followed the trail of the money that had gone to EE. Thus, they identified that there are several companies that work only for Equipo Económico and that are linked to partners of that company and to the former minister himself.
A report from the prosecutor in the same 2019 states: "The investigation carried out by the Mossos d'Esquadra reveals that the company Equipo Económico (EE) has been used by its partners, and allegedly also by other people who covertly participated in the distribution of illegal profits... to introduce legislative reforms into our legal system that favored businessmen willing to pay." And the investigators add, at another point in the case: "This system of tax engineering allowed them to obtain tax benefits (due to their lower taxes) in addition to making it difficult to identify the final recipients of the funds."
Shell companies
The Mossos d'Esquadra have clearly identified the network of shell companies that the owners of Equipo Económico used to divert money they collected from companies in exchange for influencing the Ministry of Finance. The turnover of these companies (Econodos SL, Tutman Fiscalía SL, Consultoría y Diagnóstico SL, and Plataforma de Soluciones Jurídicas SL) is detailed, ranging from €3 million to €800,000 between 2008 and 2017. Martínez Rico, who was Secretary of State for Budgets under José María Aznar and, therefore, Montoro's right-hand man in the ministry, was also the sole director of the company Econodos, which received €3,511,925.42 in payments from Equipo Económico between 2009 and 2015.
The Mossos d'Esquadra claim that, ultimately, the scheme had two ways of sharing the profits. The first was by paying unusually high salaries to his partners, and the second through shell companies. Martínez Rico received, for example, an astronomical sum of 11,053,029 euros in payrolls.
Starting in 2015, after the first reports of Montoro's influence peddling surfaced, Equipo Económico transferred its operations to the company Global Afteli SL.
The link with tax havens
Many of these shell companies, including EE, sent money abroad to tax havens, and it is at this point that the investigation is now halted pending receipt of information from these countries. "Thus, considering it likely that the money could have been located outside of Spain, the outflow of funds from both EE/Global Afteli and Limacar to various European countries with which they would have maintained intra-community transactions has been revealed. Furthermore, it has been highlighted, on the one hand, the inflow of foreign currency to the US, the United States, and the United Kingdom, and on the other, the outflow of foreign currency from Limacar and Tutman Fiscalía to Ireland and Luxembourg," states the Tax Agency.
In Montoro's specific case, suspicions are raised about how he allegedly broke away from the firm he founded in 2006 as Montoro & Associates, which later became Equipo Económico. Specifically, the Mossos d'Esquadra (Catalan police) point out that he sold his shares for a value lower than the AEAT criteria (also his brother, Ricardo Montoro, and Luis de Guindos, former Minister of Economy under Mariano Rajoy, both also partners in Equipo Económico). Therefore, they believe he actually maintained a connection. And since they have found nothing irregular in Montoro's formal accounts and properties, the investigation now focuses on tracing the route of the money that entered Equipo Económico and was later diverted abroad. The objective is to find the front man who was supposedly hiding the former PP minister's money.
Legislative reforms
Companies paid EE, which was directly linked to Montoro, to obtain favorable legislative measures. The Mossos d'Esquadra compile a list of those implemented during Rajoy's time as president, specifically between 2012 and 2014, such as the 85% reduction in the electricity tax for industrial activities if the electricity they consumed represented more than 50% of the product's cost. This regulatory change was easy with the PP's absolute majority and, according to investigators, "was more in the interest of EE than the general interest."
Regarding this case, it is explained that the gas companies, having been excluded from a tax exemption in 2013 for electrolytic, chemical reduction, mineralogical, and metallurgical processes, began to maneuver, especially under the direction of the Association of Manufacturers of Industrial and Medicinal Gases (AFG). There comes a point when they say that the effective way "is to pay the economic team that has direct contact with Minister Montoro." Meetings are held, and they finally agree to pay a total of 270,000 euros (each company, not the association) to EE for a 12-page report. "EE was hired for its influence," the Mossos d'Esquadra conclude. After a meeting with Montoro himself, everything culminates in the Treasury's approval of this tax benefit. The approval significantly reduced revenue collection (three million less in Tarragona in 2015, for example), and the Treasury concluded that it had had a negative impact.
They also explain how the modification of the tax on economic activities (IAE) was conceived at the request of gas companies. First, they contacted a company to lobby and influence the Ministry of Finance to accept this modification and incorporate it into the budget law. They were unsuccessful because one of the arguments the ministry gave was that the approval of the accounts was not guaranteed. The gas companies decided to open the Economic Team to try to get the measure approved. Through Montoro's law firm, the reform was successful, and EE billed them €360,000 for the services.
The Catalan police also refer to another modification on how to address the problem of the growing tariff deficit, which led to a clash between Montoro himself and the then-Minister of Industry, José Manuel Soria. While the latter wanted to eliminate the subsidies for renewable energy and tried to implement a "progressive" tax in the electricity sector, which penalized these companies, Montoro advocated limiting the elimination of subsidies to renewable energy and managed to shift the tax burden to traditional electricity companies, according to the Mossos d'Esquadra. One of the renewable energy companies that benefited from the deals with EE was Solaria, from which the firm founded by Montoro received the most revenue.
Ferrovial, Red Eléctrica, and Abengoa
The Mossos d'Esquadra investigation begins with the gas sector and continues with renewables, but also focuses on the relationship EE had with specific companies, such as Red Eléctrica, in which SEPI, the state's public investment arm, holds a 20% stake; Abengoa (where they highlight its close relationship with political powers of all stripes); Madrid Network, linked to the Community of Madrid; and Ferrovial. The Catalan police say that Red Eléctrica, which they note is the company that monopolizes all electricity transmission networks in Spain, contracted EE services worth €1.3 million between 2010 and 2015. Regarding Ferrovial, they gather information from a complaint filed by Antonio Beteta, Secretary of State for Public Administration during the Rajoy administration, who suggested that he hire Montoro's office to further his intentions to reform the regulatory framework, which ended up billing the company €300,000.
On the other hand, the Catalan police are also highlighting a branch of the Madrid Community, through Madrid Network, a private association that promoted innovative projects but managed public funds. How so? Following an agreement made by Cristina Garmendia, minister under José Luis Rodríguez Zapatero (PSOE), who transferred money to the Madrid Community and, at the same time, signed an agreement with Madrid Network to finance the projects it considered. The Economic Team had a turnover of 2 million euros. Antoni Beteta also chaired this organization and was Minister of Economy in the Madrid Community. The Mossos d'Esquadra, at the same time, point out that this organization made loans to companies linked to former minister Garmendia.
Finally, the police also cite the relationship between EE and Abengoa, with whom Montoro's firm invoiced more than €3 million. In any case, they note that the relationship goes beyond the contractual, and the key figure here is Ricardo Martínez Rico, a partner at EE, hired by the firm "to provide a direct connection with the Minister of Finance." Rico is also the brother of Felipe Martínez Rico, Montoro's chief of staff when he was minister.
Philip Morris and the gaming companies
Tobacco companies also turned to EE and Montoro to achieve the legislation they wanted, and Philip Morris in particular appears as one of the companies that paid the most money, with 1.3 million euros. They also claimed to receive profits from Philip Morris, also in 2016, for courses and conferences.
At the same time, gambling companies approached EE, and specifically Codere SA, before the gambling law came into force. At that point, another name linked to the PP appeared: former Minister of Justice Rafael Catalá, who had worked with partners of the Economic Team when he was part of Montoro's Treasury Department and was linked to Codere through previous employment relationships. The operation was as follows: Spanish gambling companies lobbied to obstruct foreign-owned companies, and after Codere became an EE client, the Treasury required foreign gambling companies to pay taxes on profits obtained in the four years prior to the law's passage if they wanted to obtain a license in Spain.
Access tax information
Montoro also used his position to access tax information on politicians, journalists, and celebrities—information that is "sensitive and legally protected," according to the Tax Agency. The Mossos d'Esquadra (Spanish National Police) provide evidence of this with several emails showing that the former minister's chief of staff, Felipe Martínez Rico, was informed by the former director of the Tax Agency, Santiago Menéndez, about the tax status of certain individuals. This happened with former Madrid president Esperanza Aguirre and also with the Pujol family. Menéndez explicitly requested to know the content of the reports requested in the context of the Pujol case before sending them to the judge. He also made a request in the Gürtel case, in which Martínez Rico was involved.