Chinese business in the Amazon generates controversy

In the last decade, the Pan Amazon has seen a substantial increase in the presence of Chinese companies, either as direct investors or as contractors building infrastructure for governments financed by loans from China. The lack of transparency that characterizes their homeland fosters an environment that allows Chinese companies to escape scrutiny. Many analysts assume their contracts have been tainted by bribes and kickbacks, an assumption based on Chinese and Latin American reputations for corruption. Very few scandals have been exposed by the press, however, and most of the purported malfeasance is based on conjecture of what constitutes a good deal and a fair price. Nevertheless, there are several exceptions.

In 2016, an unusual set of circumstances revealed a bribery network in Bolivia that linked a major Chinese construction company with functionaries in the Bolivian government.  China CAMC Engineering (CAMC), a subsidiary of the China National Machinery Industry Corporation (SINOMACH), had signed contracts with the Bolivian government for approximately US$ 576 million, including:

• The sale of three oil drilling rigs in 2009 to the state-owned Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) for US$ 60 million.
• The design and construction of a sugar mill in San Buenaventura, La Paz, for a state-owned commodity company (Empresa Azucarera San Buenaventura) for US$ 167 million in 2012.
• The construction of the Bulo Bulo–Montero railway to connect the rail network with a urea factory in the Chapare, a project that was abandoned in 2015 after the company received a down payment of US$ 20 million on a total bid of US$ 104 million.
• The Misicuni dam and reservoir in Cochabamba for US$ 70 million in 2015; cost overruns eventually added another US$ 48 million to the project which was finished in 2017.
• A potassium fertilizer plant in Potosí for US$ 179 million built between 2015 and 2018.

The YPFB purchase was financed by a loan from the ExIm Bank of China, while the others relied on funds from the Central Bank of Bolivia. In other words, CAMC was competing with Bolivian and Brazilian companies and could not depend upon the political leverage of a Chinese bank that could condition the loan on the procurement of Chinese goods and services.

The scandal that enveloped these contracts had nothing to do with an audit or an anti-corruption investigation; instead, public attention was focused on a former girlfriend of President Evo Morales, who was hired by CAMC as a senior executive in their Bolivian subsidiary. The woman, Gabriella Zapata, had no obvious qualifications; however, she had in her possession a birth certificate that showed Evo Morales to be the father of her child, which she used to gain influence with her superiors at CAMC and with government functionaries.

Her influence evaporated when it was revealed that the child did not exist and that she had hood-winked the president into signing a fraudulent birth certificate. The exact amount of money that was diverted into kickbacks has never been ascertained, but a five per cent commission would have generated about US$ 30 million. Ms Zapata initially threatened to implicate senior government officials, but eventually confessed to document fraud and assumed responsibility for the imbroglio. As of January 2024, she was serving a ten-year sentence in a Bolivian penitentiary.

There have also been allegations of bribery by CAMC in Peru, where the Ministerio de Energía y Minas signed a contract in January of 2023 to build an electrical grid in Amazonas state for US$ 31 million. Evidence of wrongdoing has been uncovered in Ecuador, where the company was awarded a series of contracts between 2012 and 2018 to build several state security service offices, five state-of-the-art hospitals and an urban housing project for a total of US$ 850 million. A money laundering investigation in the United States revealed that CAMC had paid US$1.3 million to the brother of the comptroller (Pablo Celi de la Torre), who allegedly manipulated the public contracting system to favor the company.

An even higher-profile scandal involves Sinohydro, the Chinese company that built the Coca Codo–Sinclair hydropower facility between 2005 and 2016 and Lenín Moreno, who served as vice president (2007–2013) and president (2017–2021). The bribes were allegedly made to Moreno’s family via intermediaries in Panama while the country was negotiating the settlement of more than US$ 1.9 billion in cost overruns associated with the controversial dam located on the Río Coca in Amazonian Ecuador. On 5 March 2023, the attorney general formally accused Moreno, his wife, two daughters, a son and 14 co-conspirators of defrauding the state for a total of US$ 76 million.

Just as the Lava Jato case revealed the ubiquity of the kickback system encrusted within the Brazilian construction cartel, these examples show the potential scale of corrupt practices associated with Chinese companies. In Bolivia, their criminal activity was exposed by happenstance, and the subsequent penalty had nothing to do with the crime of embezzlement. In Ecuador, the crimes were uncovered by internet hackers, but the criminal charges were brought by an attorney general, Diana Salazar, first in her role as a prosecuting attorney, and then as the country’s attorney general.

Corruption is a cultural trait common to all human societies; nonetheless, some nations have managed to control it better than others. They have succeeded because they have adopted governance mechanisms that fortify their institutions, ensure transparency in state operations and enjoy judicial systems that hold individuals responsible for acts of malfeasance.

Banner image: Canyon in Sumaco National Park. Image by Rhett A. Butler.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0).

To read earlier chapters of the book, find Chapter One here, Chapter Two here, Chapter Three here, Chapter Four here and Chapter Five here.