ALBA Petróleos: The Biggest Money Laundering Investigation in the History of El Salvador

*According to the US Department of State, the business consortium formed by the FMLN Mayors’ Office and the state-owned Venezuelan Oil Company, PDVSA has diverted more than US$400 million in front companies.

**José Luís Merino and his brother, both added to the “blacklist” of the United States, are the center of controversy for ALBA Petróleos whose links extend into Honduras.

Expediente Público

It was the time of the fat cows in Venezuela and the Farabundo Martí National Liberation Front (FMLN), the guerilla group that had become El Salvador’s main opposition party, had begun the transition to a business consortium with diverse ramifications, like the Nicaraguan model. It was April of 2006, and 19 municipalities led by the leftist party had joined together to form the Intermunicipal Association of Energy for El Salvador (ENEPASA) and create a corporation for selling and purchasing fuel.

Considering then President Elías Antonio Saca’s refusal to join Venezuela in Petrocaribe and the ARENA party’s place in power, the FMLN incorporated its mayors’ offices into a business venture and created the company, ALBA Petróleos de El Salvador.

The company was formed by 40% of ENEPASA and 60% of PDV Caribe SA, an affiliate of Petróleos de Venezuela SA, PDVSA, created to implement the Petrocaribe agreement. Petrocaribe was an initiative whose objective was to facilitate the distribution of Venezuelan oil to other Latin American countries. Former Venezuelan President Hugo Chávez began this initiative in 2005 as part of the Bolivarian Alliance for the Americas (ALBA), an international organization founded a year earlier due to Cuban and Venezuelan efforts.

The Whereabouts of Comandante “Ramiro”

In El Salvador, the FMLN would reach power in 2009, however, the government of Mauricio Funes did not join the Salvadoran State in the Venezuelan project, and part of the FMLN’s powerful circle directed the company which had begun to diversify.

At the head of the company was José Luís Merino, Comandante “Ramiro,” a historic leader of the Salvadoran Communist Party, one of the five guerilla organizations that formed the FMLN.

José Luís Merina was the Vice Minister of Foreign Investment and Finance for Development in the Ministry of Foreign Relations during the government of Salvador Sánchez Cerén (2014-2019). In May of 2019, Merino was included on the US State Department blacklist for corrupt officials in El Salvador, now banned from entering the United States due to his ties to drug trafficking, corruption, or illicit electoral practices. In May of 2021, the US Department of State included José Luís Merino Merino in the list of corrupt officials of the Northern Triangle of Central America.

Merino was accused of diverting US$400 million to fictitious companies. His designation was a tough blow to the party and the government of Sánchez Cerén. Luís Merino ran for congressman in 2018 but did not receive enough votes. He co-manages ALBA Petróleos with his younger brother, Sigfredo Israel Merino Cabrera.

“ALBA Petróleos was founded on the ethical vision of Schafik Handal, the famous deceased leader of the Community Party, to benefit the neediest through local development. However, a group of members took over and deviated from these intentions toward their own interests,” recognized Eugenio Chicas, FMLN leader, former Secretary of Communications for the Salvador Sánchez Cerén Administration, and today, staunch critic of ALBA Petróleos. In March of 2021, in an interview with local Salvadoran media, Chicos said that “a business conglomerate began to accumulate power [around the FMLN] and have influence in party decisions,” referring to ALBA.

At the time when the FMLN was the ruling party, ALBA Petróleos was presented as a “company with interest in social causes,” as announced on the radio and television, and in the written press, which all promoted its projects and donations.

ALBA Petróleos was involved in it all. They had corporations for almost every market in the Salvadoran economy: food, medical products, solar panels, oil distribution, electricity, an airline called Economic Airlines of Central America (known as VECA for its initials in Spanish), and a financial firm called Tu Solidaria led by Jorge Schafick Handal, the son of the late FMLN leader and candidate for mayor in 2021.

This financial firm, along with another corporation called Inversiones y Valores de El Salvador (Investment and Securities of El Salvador or INVERVAL) began to grant loans to everyone, many times, without strong guarantees. The list of debtors ranged from businessmen with similar interests to ministers of FMLN governments, along with dozens of corporations and individuals.

The accounts of ALBA Petróleos deteriorated rapidly after many individuals and companies had benefitted through loans. Until 2016, the largest debtors of ALBA Petróleos were the corporations of Atlantic Pacific Logistic, SA (US$149.6 million) and APES Inc. (US$165.4 million), both established in Panama, followed by Termopuerto (US$20 million), HYDROIL, and SUBES, among others.

APES Inc. turned out to be a subsidiary created by the executives of ALBA Petróleos: Carlos García Ruiz and Sigfredo Merino. The subsidiary received transfers of US$165 million in “loans” whose destination was never known.

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The Fall of ALBA Petróleos

At the end of the Salvador Sánchez Cerén Administration, the ALBA Petróleos debacle was imminent. On May 31, 2019, the last day of the Sánchez Cerén government, the Attorney General’s Office raided 27 headquarters of companies linked to ALBA Petróleos de El Salvador and seized accounting information.

And even though no one had been prosecuted yet, in January of 2020, the Financial Intelligence Unit of the Attorney General’s Office (UIF) revealed that it is investigated ALBA Petróleos de El Salvador SEM de CV for alleged money laundering worth US$438,112,057.99, between the years 2010 and 2017.

The figure amounts to the largest money laundering investigation in the history of El Salvador, even greater than the cases brought against former Presidents Elías Antonio Saca and Mauricio Funes.

According to the Public Prosecution Service, the company ALBA Petróleos moved US$3,242,023,671.64 between 2010 and 2019. The Salvadoran authorities have detected five irregularities, based on tax returns, where money laundering could have been committed.

The Salvadoran Public Prosecution Service has found an atypical growth in taxed income and the ratio between costs and expenses. According to the fiscal analysis, between 2012 and 2013, “growths of 333% and 273% in taxed income, along with 337% and 297% for costs and expenses [were detected], respectively.”

One of the initial “alarms”, according to state prosecutors, were the donations that ALBA made for US$12,081,529.02, an “amount of money valued greater than profits generated,” concluding that the “company (ALBA) had given away more than it had generated, for its own benefit, and with the aggravating factor that its profits are not representative of income generated and the destination of these donations is unknown.”

Among the indications of money laundering found by the Public Prosecution Service, there are also inconsistencies when comparing the total income and sales.

The findings reveal that ALBA had another total revenue figure mounting to US$1,908,433,741.09, where 69.5% represents income and only 30.5% cover sales, which, according to prosecutors, means that US$837,617,406.66 is inconsistent with the “company’s line of business.”

Another atypical behavior found in ALBA Petróleos’ tax returns is related to total costs and expenditures regarding purchases. The investigation points to the “[incoherency] because purchases represent 7.5% of total costs and expenses, showing that the company allocated 92.5% to expenditures inconsistent with the company’s line of business.”

The findings add that, between 2010 and 2019, the company when questioned, spent US$2,533,745,066.61 without knowing how this money had been spent, facts which “merit an exhaustive review of the company’s accounting and financial statements,” said a financial analyst for the Public Prosecution Service.

The final irregularity identified by the Public Prosecution is the lack of explanation for the operations carried out in favor of companies at the national level and outside of the country, regarding the remittance or delivery of funds.

The then Attorney General Raúl Melara described this money laundering investigation as the “biggest in the history of El Salvador,” even though to date there has not been a single person prosecuted. There are, however, bank accounts and 64 real estate assets that have been frozen, along with 34 seized vehicles and documentation from 27 related companies that has been confiscated.

“The Public Prosecution Service owes us the results of this investigation, and the FMLN should give us a coherent position,” said Eugenio Chicas, referring to the issue, after alluding to the business group that positioned itself within the party to use company resources and distort the political strategy of the party.

The financial group, Tu Solidaria has been questioned by historic FMLN cadres who had their properties seized by the company. “This group, to which Jorge “Jorgito” Schafick (Handal) belongs, is seizing and threatening to seize small cooperatives of former combatants,” condemned Eugenio Chicas in statements given to the local Salvadoran press referring to the son of the late Schafick Handal. In response to Chicas’ accusations, Jorge Handal II said that the former Secretary of Communications for Sánchez Cerén was a “traitor”.

The Bukele Nexus

Among the beneficiaries of the credits appears Nayib Armando Bukele Ortez, the now President of El Salvador who received US$1.9 million as Mayor of Nuevo Cuscatlán, an upper-middle class city southwest of the capital. The money went to OBERMET, an advertising agency owned by Bukele and his siblings, in addition to Starlight, the company that managed a television channel called TVX. The firm INVERVAL also made large real estate investments in Nuevo Cuscatlán in the luxurious residential area of Garden Hill when Bukele was mayor. In addition to the loan received by Bukele and his companies when he was Mayor of Nuevo Cuscatlán, FMLN leaders have pointed out that the President enjoys the support he receives from José Luis Merino, giving the example of Erik Giovanni Vega, a former assistant to Merino who is now a close collaborator for Bukele.

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Active Businesses in Honduras

In the case of Erick Giovanni Vega, he and his counterpart, Sigfredo Israel Merino Cabrera incorporated Comercializadora Centroamericana (COMERCA) in Honduras which, together with ALBA Alimentos de Nicaragua, make up ALBANIHSA, the business formed in Honduras in 2013 by José Francisco “Chico” López who is considered to be one of closest people to the presidential family in Nicaragua and Treasurer of the Sandinista National Liberation Front (FSLN), the ruling party in the Central American country.

Sigfredo Merino is the brother of José Luis Merino, and, together, they oversaw business related to ALBA Petróleo. In Honduras, Sigfredo Merino and Erick Giovanni Vega formed a company with Gerardo Arcángel Meraz Puerto called COMERCA.

According to corporate filings in San Pedro Sula, the company Comercializadora Centroamericana de Honduras (COMERCA) has created other businesses through ALBANIHSA.

Read: Part I – “Chico” López

Petrocaribe, Comercializadora Agrícola, Mercados Caribeños Varios, Castilla Refinería, Castilla Energy, Amerigas, Inerforte, and GM Seguros e Inversiones Financieras (GM Insurance and Investment) are part of the financial emporium which the Nicaraguan national, Francsico López has created in Honduras.

In the nexus of ALBA businesses in Honduras appeared Vuelos Económicos de Honduras (Economic Airlines of Honduras or VECA), an airline financed by ALBA Petróleos, in the Tegucigalpa Commercial Registry. This company was registered on July 9, 2014.

Erick Giovanni Vega was director of several ALBA companies but left them in recent years. Even if he does not formally have an important position within the government of President Nayib Bukele, he is seen accompanying him to private activities, including a visit to the Dominican Republic when Bukele was elected President of El Salvador. Bukele is also the godfather of one of Vega’s sons. Meanwhile, Luis Merino’s ties to Nayib Bukele led to his public appearance on February 28, 2021, where he denied these same links.

“I want to be categorical in denying the factory of perverse slander of twisted minds that exists, which insists on the alleged relationship between Commander “Ramiro” or José Luis Merino and Bukele,” said Merino in an appearance he did for the Telesur television network.

Zero Profits for Municipalities

In this game of interests and business, the biggest losers in the ALBA Petróleos venture were the municipalities that partnered with PDVSA in ENEPASA. None of them received any profits, even when, at its peak of business, ALBA Petróleos had 57 service stations. Today, all of them have been sold to distributors or operate as white flag gas stations in the name of individuals who no longer want to use the franchise.

“In terms of transparency, the economic initiative known as ALBA Petróleos was a negative precedent in the process of accountability for the public,” said Roberto Burgos, a Salvadoran transparency specialist.

Burgos describes it as such due to the “joint ventures which were used to mix public, private, and foreign capital from the state-owned Venezuelan company, information that was made available through citizen requests or investigative journalism: a challenge that put to the test institutions, applicable law, and the patience of those that wanted to unravel the ins and outs of the initiative. The reasons for its rapid growth in goods and services and the possible existence of conflicts of interests and acts of corruption are presumably still being investigated in El Salvador.”

Campaign financing and investment from companies of food, medicine, and aviation were not exempt from public questioning; however, “official secrecy and doubts regarding the costs that matters of taxation have had on politics and the national economy prevailed,” said Burgos. For him, today, the company of “social responsibility” is the target of the largest money laundering investigation in the history of El Salvador. This investigation includes José Luis Merino, who, together with his brother, Sigfredo Ismael Merino Cabrera, are defined by the US Department of State as individuals that “allegedly diverted more than US$400 million through a series of shell companies to offshore accounts in Panama and other front companies. José Luis Merino was never convicted and currently enjoys immunity as Deputy Minister,” according to a document released on May 18, 2019.