Political leaders feeling the heat as Spain gripped by corruption scandal

Spain is only a month away from local elections in which a new generation of young politicians promising sweeping changes is expected to burst onto the scene.

And yet the figure currently hogging the headlines is a 66-year-old former economy minister and IMF managing director, Rodrigo Rato, who is deeply mired in a corruption scandal.

Customs officials searched Rato's home and office in Madrid on April 16th and he was briefly placed under arrest as part of an investigation into money laundering and tax fraud.

The case is linked to a tax amnesty introduced by the conservative Popular Party (PP) government of Mariano Rajoy in 2012. It has emerged that Rato, who was a senior minister in a previous PP administration, took advantage of the amnesty to legalise assets he held abroad. His subsequent movement of investments and deposits raised suspicions in the tax office.

Authorities have frozen a total of 78 bank accounts belonging to Rato as part of the probe. While the former IMF chief has denied media reports that his foreign assets total as much as €26.6 million, the scandal has been a huge blow to his already heavily-stained personal reputation and his former party.

Economic growth

"The image of Rato surrounded by tax officials and being escorted to a police car, as if he were a common, dangerous crook, will linger in the minds of millions of Spaniards forever," noted Casimiro García-Abadillo, editor of the conservative El Mundo newspaper.

García-Abadillo hailed Rato as someone who had been “a great economy minister, who for a long time represented the best values of Spain’s centre-right”.

For many years that was a widely held opinion of Rato, whose tenure as economy minister and deputy prime minister lasted from 1996 until 2004, a period during which Spain enjoyed consistent and rapid economic growth on the back of a booming property sector.

He would further burnish his credibility by heading the IMF, until suddenly announcing his departure for personal reasons in 2007.

The recent revelations therefore cast a shadow over Spain’s last sustained economic boom and have led to the re-evaluation of the credibility of Rato, who prioritised the pursuit of tax evaders when minister.

Unregistered credit cards

In an editorial, El País newspaper pointed to "the regrettable impression that Rato's vigorous stance against financial crimes when he was minister and deputy prime minister [. . .] contrasts with the serious suspicion that he himself betrayed that very same stance".

But before his recent arrest, Rato was already facing corruption allegations linked to his role as CEO of Bankia, the result of the 2010 merger of seven savings banks. The lender required a bailout in 2012 and Rato has been accused of misleading the authorities over the bank's accounts ahead of its disastrous stock exchange listing.

On Friday, there was a rare piece of good news for Rato as the high court reduced the bail he and three other former Bankia directors are required to post, from a total of €800 million to €34 million.

Rato is also being probed over the distribution of unregistered credit cards to Bankia’s senior employees, who used them to spend more than €15 million in personal expenses. That case saw him resign from the PP in October 2014.

The current money laundering scandal, however, is seen as the most damaging for the governing PP, particularly for finance minister Cristóbal Montoro – the tax amnesty’s mastermind and a protégé of Rato.

The opposition is pressuring Montoro to justify the measure, given that it was exploited by his former mentor and has only brought in about half of the €2.5 billion in tax revenue the government had planned.

The head of the tax office, Santiago Menéndez, told Congress last week that his department knew of €89 billion in assets belonging to Spaniards which were abroad, including €20 billion in Switzerland. He also revealed that Rato was one of 715 individuals who were facing a money laundering investigation.

Prime minister Rajoy, meanwhile, resisted opposition calls for the identities of the others being probed to be revealed. He did, however, acknowledge that the Rato case has hurt his party.

Legal wrangle

“Everyone knows that I am a friend of [Rato] and I can say that it was a heavy blow, but this was an independent action by the tax office and the police,” Rajoy told business leaders in Madrid. “The government had nothing to do with it and I found out about it through the media.”

The government has desperately tried to turn the crisis to its advantage, insisting that Rato’s very public humiliation demonstrates a healthy separation of powers in Spain. However, among those powers a legal wrangle has been played out, with the anti-corruption office and the High Court publicly arguing over which should handle the case.

In addition, the way in which details of the Rato investigation have been passed to the media has fuelled speculation that the leaks are a result of PP infighting.

A barrage of recent corruption scandals has left both that party and the main opposition Socialists struggling in polls and the Rato case is expected to have a major impact on regional and municipal elections to be held on May 24th.

Two relatively new parties, Ciudadanos and Podemos, have put the battle against corruption at the centre of the political agenda and are expected to wrest power from the two traditional parties in towns and regions in many parts of the country.