Big Trouble in Catalonia, As Godfather of Independence Movement Confesses to Tax Evasion

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By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.

With just 103 days remaining before Catalonia’s scheduled public consultation on national independence, a hefty spanner has been thrown into the works – and from the least likely of quarters.

The source of all the trouble is Jordi Pujol, the five-time and now-retired leader of the region’s government who is widely credited with laying the foundations of post-Franco governance in Catalonia. To the collective dismay of millions of Catalonian independentistas, Pujol just admitted in a public letter that he had kept a fortune in tax havens for 34 years, and had only recently settled with the Spanish tax authorities.

According to Pujol, the money – roughly €4 million – was an inheritance left to him and his family by his father in 1980. The money was quickly channelled to one of the world’s many tax havens, probably Andorra. Since then Pujol and his family just never quite “found the time” to bring it back within Spanish borders, despite three separate tax amnesties.

However, an ongoing police investigation has alleged that the €4 million of undeclared funds is a mere drop in the ocean compared to the entire fortune that Pujol and his family – in particular, his two sons Jordi Pujol Ferrusola and Oleguer Pujol Ferrusola – has shipped off to more tax-friendly climes. And the main source of all that lucre? Why, political corruption, of course.

The Three-Percent Rule

There is a popular urban legend doing the rounds here in Catalonia that political heavy weights in both regional and municipal governments have for decades been feathering their and their parties’ nests by charging a three-percent commission on most public infrastructure and real estate deals. A number of mayors and councillors have already been caught in the act, but there was no definitive proof connecting such practices to Pujol Sr., who headed Catalonia’s parliament between 1984 and 2003 – until now that is!

Indeed, if there’s a grain of truth to the police’s latest allegations – which just so happen to have been leaked to just about every media outlet in Spain – the Pujol family is guilty of a whole lot more than just skimming a little off the top of political funds. According to María Victoria Alvarez, Pujol Ferrusola’s ex-girlfriend – a dangerous witness if ever there was one – the Pujols have managed to amass more than 100 million euros over the course of 40 years of political extortion.

Alvarez told Spanish police that her ex-boyfriend, Jordi Jr, would bring back bags filled with as much as half a million euros from his regular trips between Madrid and Andorra, the tiny mountain-ringed tax enclave lodged between France and Spain. According to Alvarez, Pujol Sr. “is a pathological liar,” and the only thing that united the Pujol family was their love for money – money which has supposedly been transferred between no less than 13 different tax havens in recent years.

The primary source of that money appears to be shady business deals across a pot pourri of locations and business sectors. They include (and Sopranos fans will love this one) waste management services in Catalonia’s southern tip, as well as tourism and real estate investments in the United States, Argentina and Mexico. In Mexico, Pujol Jr. is alleged to have invested up to €93 million in a luxury tourist resort in Acapulco as well as an unspecified amount in Monterrey’s Casino Royale. Many of these deals were either not declared to authroities or were billed to front-companies, say the police.

As for Pujol’s younger brother, Olegeur, he is under investigation by Spain’s Anti Corruption unit for the purchase in 2007 of 1,152 Banco Santander branches for just over €2 billion. According to police allegations, the operation formed part of a massive money laundering scheme involving myriad shell companies based in Spain, the UK, Holland and Luxemburg.

The Big Picture

Whatever the veracity of the allegations pouring out through the Spanish press, two things are now abundantly clear: first, the scale and scope of political corruption, extortion and nepotism in Catalonia and Spain at large are even greater than previously feared; and second, the timing of Pujol’s announcement – just three days before a crucial sit-down between the Spanish premier Mariano Rajoy and his Catalonian counterpart, Artur Mas – could not have been more inopportune for Catalonia’s coalition government. Indeed, one can only assume that Pujol’s decision to come clean right now was in order to pre-empt the publication of allegations about his sons from Madrid.

As Pujol’s former apprentice and current leader of CDC (Democratic Convergence of Catalonia), the political party Pujol founded in 1974, Mas’s already weak hand is now effectively crippled – especially if Rajoy uses the threat of prison for his mentor’s offspring as a bargaining chip. In contrast, Madrid, always the stronger negotiating party, will feel emboldened by the way the latest events that it itself set in motion have panned out.

The problem is that by seeking to decapitate Catalonia’s independence movement, Madrid risks making an already difficult problem intractable. You see, what Rajoy and his cohorts seem incapable of understanding is that contemporary Catalonian nationalism is as much a bottom-up phenomenon as it is top-down. As such, taking out Mas or Pujol is unlikely to derail the movement.

Tick Tock, Tick Tock...

As things currently stand, 80% of Catalans of voting age want a referendum, and just over half of them support national independence from Spain – a prospect that is unthinkable to the vast majority of Spain’s political class and voters. Just today Pedro Sanchez, the newly elected leader of Spain’s second largest political party, the PSOE, reiterated the threat of possible military intervention in the event of a Catalonian referendum or public consultation.

To make matters worse, Madrid’s actions risk further radicalising sentiment both in the parliament and on the streets of Catalonia. Mas’ approval ratings have been in freefall ever since he made the fateful decision, two years ago, to jump on board the wild tiger of national independence. His loss has been the exclusive gain of Oriol Junqeras, the firebrand leader of the left-wing party Esquerra Republicana Catalana (ERC).

Unlike Mas, Junqueras is not one to mince his words or back down from a confrontation, as he amply demonstrated last year when he chose the occasion of a visit to Brussels to deliver a barely veiled threat to Spain’s creditors about the dangers of failure to defuse the simmering conflict between Madrid and Catalonia:

Given that Catalonia represents a quarter of all Spain’s fiscal revenues and that we have the means to mobilise two million people onto the streets of Catalonia, does anyone seriously believe that we are not capable of halting the Catalonian economy for one week? If we did this, can you imagine what kind of impact it would have on Spanish GDP? Or what foreign creditors would suddenly think of Spanish debt and what that would mean for the risk premium of Spanish bonds?

As such we also have our own instruments. European institutions need to decide what should prevail: democratic principles or the de-facto actions of the (Spanish) state? If it is the latter, clearly we will deploy all instruments available to us. [You can read more on the speech here]

Madrid and Barcelona have just 103 days to diffuse the slow-ticking time bomb in their midst. The genie of national independence is out of the bottle and, as with all genies, it does not want to go back in. With Madrid determined to splinter Catalonia’s coalition government, while offering its bolshie north-eastern neighbour little in the way of carrots and a hell of a lot in the way of sticks, the prospects of fruitful negotiation are anorexic-slim. All the while, the clock keeps ticking. By Don Quijones. An exclusive for Wolf Street.

The two deals, one in Spain the other in the UK, expose the imperative to deny a bleak reality, on the principle that when banks win, we all win. Read…. The Absurdity of Celebrating ‘Successes’ of Bailed-Out Banks

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