(Bloomberg) -- A sprawling criminal probe called Caso Audios is sending shockwaves far and wide throughout Chile. What started as a leaked recording of a top lawyer allegedly discussing bribery payments has ballooned into a full-blown scandal that has ensnared companies, Supreme Court justices and former government ministers. It’s proving a stain for a country that’s seen as a safe place to invest due in part to its reputation for transparency and rule of law.
What’s the Caso Audios case about?
About a year ago, voice recordings emerged from Luis Hermosilla, one of the country’s best-known criminal lawyers with close ties to the political and business worlds, with him allegedly telling a former client about bribes owed to officials at the financial regulator and the tax agency. Initial excerpts from the “audio case” went out on the local investigative news website Ciper Chile and the recordings captured the country’s attention. Hermosilla can be heard suggesting the creation of a “black box” with money for these expenditures.
Hermosilla was jailed in late August while he awaits trial for charges including money laundering, bribery and tax fraud. He has not disputed the authenticity of the recordings. After the recordings became public in November 2023, Hermosilla denied paying bribes and said the accusations were part of a political conspiracy. His defense has said he’s innocent.
Authorities launched a probe, obtained what they said was evidence from Hermosilla’s seized phone and implicated many powerful people, including a Supreme Court justice and the head of Chile’s investigative police force.
Why does the scandal matter?
The scandal undermines the reputation of the country for being one of the most transparent and least corrupt in Latin America. Transparency International’s corruption perception index for 2023 places it behind only Uruguay in South America and 29th in the world for least corrupt countries among 180 in its rankings. Neighbors Argentina, Peru and Bolivia rank 98, 121 and 133 respectively.
The audio recordings threaten to shake Chile’s business community after political turbulence in recent years. As the case continues to unravel, it could startle foreign investors, according to Credicorp Capital’s Portfolio Solution Director Klaus Kaempfe. “Though the case has not yet had a relevant impact on the business climate, if it continues to escalate, foreign investment could slow down,” he said.
What has the scandal meant for the current government?
The administration of leftist President Gabriel Boric has so far faced no accusations of direct involvement in the incident.
The head of state is facing pressure to crack down on corruption and is likely looking to use the incident to his political advantage. Polls show that voters associate the case more with right-wing parties.
Boric’s support rate, meanwhile, has fallen to 33% from 48% when he took office in March 2022 due to voter concerns over crime, as well as matters such as the economy and clandestine migration, according to a Cadem survey in September. The margin of error was plus or minus 1.8 percentage points.
The graft scandal is set to cloud local elections in October and may linger over next year’s presidential vote. Boric has been trying to increase pressure on the opposition as he seeks to push through his marquee proposals to boost pensions and raise tax revenues.
On Sept. 3, Boric said “the elite think that powerful people can’t be touched.” About two weeks later, his Interior Minister Carolina Toha said the political parties involved “have to provide an answer to the country.”
The administration has been looking to reform the appointment system in the judicial branch to bring greater oversight and prevent conflicts of interest.
Who else has been implicated and how far could it go?
Among those implicated are:
- Supreme Court Justice Angela Vivanco. The top court suspended her in September on suspicion of violations including intervening in court cases and the nomination of judicial officials at Hermosilla’s request, according to a statement. Her lawyer told local media the judge “never requested anything that was irregular.”
- Investigative police force head Sergio Muñoz, who resigned after prosecutors said they found phone messages in which he shared confidential information with Hermosilla. A lawyer for Muñoz acknowledged that his client had contact with Hermosilla but said no investigations were harmed as a result of those conversations.
- Daniel Sauer, a partner at factoring company Factop as well as STF Capital, the latter of which is now defunct. The original recordings that started the uproar were between Sauer and Hermosilla. Financial regulator CMF ordered the suspension of STF Capital in May 2023 after it failed to fulfill auditing requirements. Sauer, currently in jail awaiting trial, has said that Hermosilla represented him through July 31 and he is willing to cooperate with authorities
Among the other important figures suspected of wrongdoing are:
- Andres Chadwick, who had served as interior minister under center-right then-President Sebastian Pinera. Chadwick’s name was mentioned in chats on Hermosilla’s phone, raising suspicion among prosecutors and current lawmakers that he committed influence peddling. Chadwick also received payments from the powerful lawyer between 2020 and 2023, according to Ciper Chile. Chadwick has said he declared the money to tax authorities and always abided by regulatory standards.
- Felipe Ward, who had served as housing minister under Pinera. Prosecutors are investigating Ward on suspicion of having facilitated construction permits at Hermosilla’s behest. He denies those allegations.
--With assistance from Valentina Fuentes.
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