By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Since the Prime Minister Mariano Rajoy took office in December 2012 ,Spain has witnessed more and bigger political scandals than at any other point since it transitioned from dictatorship to democracy in the late seventies and early eighties. But according to an expose by El Confidencial, things may be even worse than feared: rampant corruption in Spain extends far beyond the political sphere, to the beating heart of the financial markets.

Extortion Inc.

Just as Spain’s governing party is accused of awarding public work contracts and fine tuning political legislation on the basis of the kickbacks it receives from large Spanish companies and wealthy individuals, so too is Spain’s financial markets regulator, the CNMV – the Spanish equivalent of the Securities and Exchange Commission – suspected of criminal malpractice in the concession and withdrawal of licenses for operating in the Spanish market.

In other words, the organization ostensibly responsible for maintaining confidence in the financial system and combatting the financial crimes of supposedly regulated businesses is itself now accused of perpetrating a litany of financial crimes.

Two weeks ago the Police’s financial crimes unit (UDEF) interrogated Elvira Rodríguez, the president of the CNMV, as part of an ongoing investigation into an alleged corruption ring within the financial markets supervisor. According to sources close to the investigation, Rodríguez, a former senior member of the governing Popular Party, has been aware for some time of the Police’s criminal charges against the CNMV. The UDEF has also interrogated former and current employees of the CNMV.

A Litany of Crimes

Based on the findings of its investigations, first launched in 2012 in response to complaints lodged by companies adversely affected by the CNMV’s activities, the UDEF has accused the regulator of a litany of criminal offences dating back to 2007. They include the forgery of documents, perversion of justice, bribery, threats, extortion, money laundering, and involvement in organized crime.

As El Confidencial reports, these allegations are of vital importance for two reasons:

First, the CNMV is the equivalent of Spain’s financial police force. In other words, it is responsible for detecting and punishing irregularities in the financial markets. As such, accusations of pervasive wrongdoing within the organization should be taken extremely seriously. Second, the scandal is not likely to have affected public funds, as is generally the case in most political corruption cases. But it will have affected the funds of businesses and private individuals.

The CNMV is exclusively responsible for awarding (or denying) operating licenses to brokers, investment fund managers, SICAVs (open-ended collective investment schemes that are often used by Spain’s super rich to avoid paying taxes), holding companies and independent financial advisors (IFAs). To all intents and purposes, the CNMV has been awarding or denying these firms licenses not based on objective criteria but on the payments or favors offered to senior officials within the organization. In some cases firms may have even been denied licenses as a result of bribes paid by their direct competitors.

The supervisor also has significant disciplinary powers. It can issue fines and even withdraw operating licenses, not just from companies directly operating in the market but also firms that issue financial instruments such as bonds and shares. In other words, the CNMV, like the SEC, has more influence over how Spain’s financial markets function (or in this case, malfunction) than just about any other market player.

More Concentrated Power

That power could be set to grow even further if, as El Economista reports, the CNMV is given the go-ahead to operate a new risk-rating system designed ostensibly to help retail investors better understand the risks posed by complex financial instruments. If the new legislation is passed, the regulator will have the power to categorize the level of risk of just about every financial instrument on the market.

Granted, such assistance is both welcome and long overdue, especially given the prevalence of “misselling” scandals in post-crisis Spain. Most notorious of all was the “preferentes” scam, in which Spain’s retail and savings banks deliberately offloaded tens of billions of euros worth of hugely complex financial instruments called preferentes on hundreds of thousands of unsophisticated investors, including pensioners and children, telling them that the investment was as safe as a deposit account.

Most investors lost their shirts. All the while, the CNMV did what financial regulators invariably do in such morally challenging circumstances: it looked the other way.

Now, the CNMV wants to help retail investors avoid losing their shirts in the future. At least that’s what we’re led to believe. The problem is that as financial scams go, few are as big or as serious as the one allegedly being operated by the CNMV. By Don Quijones, Raging Bull-Shit.

Ah, the hypocrisy! Read… Spain Gets Bitter Costly Foretaste of its Beloved Trade Pacts

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