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P 122157Z MAR 09
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S E C R E T LIMA 000345 

NOFORN 
SIPDIS 

E.O. 12958: DECL: 03/13/2034 
TAGS: PGOV PREL PINR PTER SNAR KCRM PE
SUBJECT: ALLEGED ARMY CORRUPTION -- A PERSPECTIVE 

REF: A. LIMA 1865 
¶B. IIR 6 876 0037 08 
¶C. LIMA 1640 
¶D. IIR 6 876 0018 09 

Classified By: Amb. P. Michael McKinley. Reasons 1.4 (b) and (d). 

¶1. (S/NF) Introduction and Summary: The Garcia 
Administration's efforts to combat narcotrafficking have been 
stronger than under past administrations, and have included a 
National Anti-Drug Strategy partly supported with government 
funds, solid progress combatting coca production in the Upper 
Huallaga Valley, and better police cooperation. And while 
corruption has long plagued Peruvian government institutions, 
few observers believe the problem today is anywhere near as 
deep or extensive as during the shadowy (1990-2000) reign of 
former President Fujimori's intelligence chief Vladimiro 
Montesinos. XXXXXXXXXXXX as claimed to Poloffs that
remnants of  the Montesinos narco-corruption web still exist
within the  military. XXXXXXXXXXXX argues that some senior
 military  officials receive lucrative payoffs from drug traffickers 
operating in the Apurimac and Ene River Valley (VRAE), which 
is also the base of one of the most important remnants of the 
Shining Path guerrillas. He contends that the army -- for 
fear of disrupting these drug trafficking networks and losing 
access to payoffs -- is unwilling to commit the large force 
needed to pacify the VRAE. As a result, he argues, ongoing 
military operations against the Shining Path are destined to 
fall short. Some of XXXXXXXXXXXX ' accusations are
corroborated  by other Embassy contacts, press reports, and
internal  documents as well as circumstantial evidence. Although
XXXXXXXXXXXX clearly has an axe to grind against some
of his colleagues, the evidence calls for close monitoring. In the 
meantime, it is apparent that Defense Minister Antero Flores 
Araoz is continuing to push the military to build on and 
expand new counter-terrorism efforts in the VRAE. (Note: 
This cable focuses on military, rather than police corruption 
because the military retains principal authority in the VRAE. 
The military's recent operations against the Shining Path in 
the VRAE are discussed Septel. End Note.) End Introduction 
and Summary. 

Army Command Dismantles Military Operations in the VRAE (2004) 
--------------------------------------------- ------------ 
¶2. (S/NF) Corruption has long plagued Peruvian government 
institutions, including the security services -- military, 
police and judicial. Former President Alberto Fujimori's 
(1990-2000) intelligence chief Vladimiro Montesinos, for 
example, collaborated with top army and other security 
officials to develop a web of protection for favored drug 
traffickers while cooperating with U.S. officials to combat 
others. To many observers, that was Peru's "heyday" of 
narco-corruption -- a time when the government of Peru verged 
on becoming a kind of "narco-state" in which those who 
controlled the main criminal trafficking networks were in 
fact high government officials. While most observers 
acknowledge that Peru has come a long way since that time, 
sharply reducing the extent of such subterranean influences, 
few believe that drug-related corruption has been eliminated 
and some believe it may now again be on the rise. 
XXXXXXXXXXXX for one, argues that significan
 elements  of this corrupt network continue to exist and t
 operate -- now under the control of second-tier officers
from the  Montesinos period. 

¶3. (S/NF) Many of XXXXXXXXXXXX principle accusations 
stem from corruption he says he witnessed while serving in 
2004 as Army Commander in Ayacucho (which includes part of 
the VRAE). At that time, he said, he launched a counter
insurgency operation that he claimed some senior army 
officers later dismantled when it threatened their own  corrupt
 interests. XXXXXXXXXXXX said that when he first took 
command in Ayacucho, his military aide offered him an 
expensive vehicle as a gift from local drug traffickers. He 
said he refused the bribe and instead used a small salary 
increase approved by then-President Alejandro Toledo to 
recruit auxiliary troops from local self-defense groups in 
the VRAE to build his forces from 300 to 3,500 troops. 
XXXXXXXXXXXX deployed these troops to small bases 
of about 100  soldiers each, spread throughout the VRAE in 
Ayacucho. He  told Poloff he believed that such bases would
be better positioned to resist insurgents and drug traffickers
than the  isolated outposts of five to seven soldiers -- the model
in  use at the time -- who regularly accepted bribes rather than 
risk confronting superior forces. (A variety of articles and 
investigative news programs from 2004 confirmed this 
description of XXXXXXXXXXXX strategy, characterizing
it as  both effective and economical.) 

¶4. (S/NF) After five months on the job, however, the army 
high command removed XXXXXXXXXXXX and replaced him 
with Edwin  Donayre (the recently retired commander of the
Army), who  dismantled XXXXXXXXXXXX operation and
reduced troop levels to  700. XXXXXXXXXXXX claimed he
was fired because his operation  threatened lucrative sales
of excess fuel by senior army  officers to drug traffickers.
He said he had received prior  warning about the practice from
the counter-drug police  DIRANDRO and used his command to
aggressively combat the  sales. When asked if another part of the
GOP could have  demanded his removal, XXXXXXXXXXXX
said that it had to be a  military decision because he had coordinated 
his mission with  both President Toledo and Congress, where his 
father-in-law  headed the Defense Commission. (Note:
XXXXXXXXXXXX himself was  accused of corruption and
dismissed from the military after  being removed from his post
in Ayacucho. The charges were  dismissed after six months, however, 
and he was reinstated.  End Note.) 

Excess Fuel Scandal Implicates Top Generals (2006) 
--------------------------------------------- ----- 
¶5. (S/NF) XXXXXXXXXXXX contends that the excess military
fuel  scandal that erupted in 2006 is linked to the army's drug 
trafficking ties in the VRAE. The scandal broke when the 
press denounced a scheme by some senior generals to request 
hundreds of thousands of gallons of fuel in 2006 for sale and 
personal enrichment. XXXXXXXXXXXX said that about
half this fuel  was sold to companies like Repsol, while the rest
 in the  form of kerosene, was sold to drug traffickers in the
VRAE.  One prominent counter-narcotics analyst told 
Poloff he had  seen evidence that the military had sold
kerosene to drug  traffickers in northern Peru, and – although
he did not have evidence -- believed it plausible they have also
sold to  traffickers in the VRAE. Prosecutors have since 
implicated  dozens of Generals in the scheme to commercialized
 fuel,  including then Army commander Cesar Reinoso -- who was
forced to resign -- and his replacement Edwin Donayre. Reinoso 
later claimed that the scheme was nothing new and that nearly 
all senior generals participated. (Note: Officers are 
officially provided periodic fuel allotments, usually more 
than can be reasonably consumed, and consider this a 
perquisite that complements their base salary. End Note.) 
Army Commanding General Donayre retired from the military on 
December 5 -- putatively for his politically inflammatory 
comments relating to Chile (Ref A) -- but in the view of some 
observers for other reasons as well, including his alleged 
involvement in the fuel skimming scheme. (Comment: This is 
probably the weakest link in XXXXXXXXXXXX argument.
Although  the fuel theft is real, we have so far found no other
source  to confirm that the military is selling kerosene in
bulk to  narcotraffickers. End Comment.) 

¶6. (S/NF) Peru's Public Ministry is currently investigating 
the fuel scandal, so far without results. In a series of 
recent articles published in the political weekly "Caretas," 
prominent investigative journalist Gustavo Gorriti has 
alleged an army cover-up. Gorriti reported that General 
Donayre declined to meet Public Ministry investigators on six 
separate occasions, and that he reassigned the army's 
internal inspector to a remote jungle posting after the 
inspector issued a damning report on the scandal. Gorriti 
also reported that the GOP's independent Comptroller in 2008 
completed an investigation that said the military used clumsy 
counterfeit documentation to "justify" over $2 million in 
excess fuel. XXXXXXXXXXXX told Poloffs that the
army is  withholding internal accounting documents that
would help prove the investigators case. He gave Poloff what
he said were copies of these documents, marked "Secret", that
showed  hundreds of thousands of gallons of "extraordinary fuel" 
allotments to various generals in 2004 and 2005. 

Cocaine Exported Via Army Base in Northern Peru (2004) 
--------------------------------------------- ------ 
¶7. (S/NF) XXXXXXXXXXXX told Poloff he believed a drug 
trafficking operation uncovered by police in 2004 at an army 
base in Piura in northern Peru was also linked to some senior 
military officials and drugs exiting the VRAE. According to 
a series of investigative reports by a prominent newspaper, a 
junior officer gave traffickers linked to a Mexican cartel 
free rein to use the base and its military vehicles to 
transit cocaine shipments to a military port where the navy 
ran a fish-packing operation. At the port, the traffickers 
packed the drugs in with the fish for export. In the 2004 
bust, police captured 700 kg of cocaine. The commander of 
the base at the time, General Williams Zapata -- now Peru's 
representative at the Inter-American Defense Board in 
Washington -- refused to comment beyond claiming that the 
military was not involved with drug trafficking.
XXXXXXXXXXXX however, told Poloff  that the
implicated junior officer as well as another  perpetrator
privately alleged that both General Zapata and  another
unnamed senior general had participated in the drug 
operation. (Note: Currently, the junior officer is detained 
in Brazil, awaiting possible extradition, and the other 
offender is in prison in Piura awaiting trial. End Note.) 

¶8. (S/NF) XXXXXXXXXXXX  officers may have  continued
to cooperate with drug traffickers. His main suspicion
surrounded a visit XXXXXXXXXXXX by the Director of the 
National Chamber of Fishing of Piura, Rolando Eugenio Velasco
Heysen, to meet regional Army commander General Paul da Silva. 
XXXXXXXXXXXX peculated that Da Silva and Velasco
-- who was arrested in  October 2007 for attempting to export
840 kilograms of cocaine hidden in frozen fish -- were coordinating
drug shipments. An investigative journalist later reported that 
both Da Silva and General Edwin Donayre had met with Velasco, 
but that Velasco claimed he was merely promoting the 
consumption of high-protein squid by the army.
XXXXXXXXXXXX claims this argument makes no sense
because the Generals'  meetings with Velasco occurred outside
the time of year that  the Army signs new contracts. 

Counter-Drug Analysts on Possible Narco-Army Links 
--------------------------------------------- ----- 
¶9. (S/NF) A prominent Peruvian counter-drug analyst who 
travels regularly to the VRAE agreed with the assessment that 
some senior army commanders were complicit with drug 
trafficking. He further believed the military was beginning 
to recuperate the political power that it had in the 1990s 
under President Alberto Fujimori's spy chief Vladimiro 
Montesinos, when senior military officers worked 
surreptitiously and closely with (certain) drug traffickers. 
This analyst said that on his last trip to the VRAE, a local 
mayor told him the military controlled all the main riverine 
drug routes, and that officers charged protection money 
rather than staunch the flow. A second analyst who travels 
regularly to the VRAE said he had clear evidence that the 
military controlled at least one major drug route (through 
Cayramayo) and charged bribes from passing drug traffickers. 

¶10. (S/NF) The analysts also highlighted the case of a drug 
plane that crashed in October 2007 while trying to take off 
from a clandestine airstrip in VRAE. According to a report 
in the left-of-center newspaper La Republica, the airstrip 
was located in direct view of a military base. The paper's 
local sources said that no plane could take off or land 
without being spotted from the base. The first analyst said 
his sources in the area told him the army had actually built 
the airstrip. According to a DAO source, after the plane 
crashed, an army unit sought to destroy any evidence by 
cutting up the wreckage and dumping it in the river (Ref B). 
The national police received a tip about the army's actions 
and recovered the plane, but did not report the incident in 
order to avoid inflaming already tense relations with the 
military. Army sources told La Republica, however, that the 
plane was the first they had ever discovered in the area and 
that they immediately reported it to the police. 

Implications for Military Operations in the VRAE 
--------------------------------------------- --- 
¶11. (S/NF) XXXXXXXXXXXX and several analysts
argued  that the military are reluctant to implement a
serious plan  to pacify the VRAE because the payoffs from
drug traffickers are too profitable. These contacts dismissed
the recent  Operation Excellence in Vizcatan (Ref C and
Septel) as too  small to have any real impact in such a larg
 and harsh  terrain. The operation may temporarily displace
Shining Path  cells, they said, but it will not deter drug traffickers. 
One analyst described the operation as a smokescreen designed 
to deflect increasing political pressure on the army to show 
results. Another analyst argued that the operation appeared 
to be a serious effort to decapitate Shining Path while at 
the same time avoiding the disruption of profitable drug 
trafficking routes. XXXXXXXXXXXX 

Comment: A Series of Worrying Indicators 
---------------------------------------- 
¶12. (S/NF) XXXXXXXXXXXX clearly has an axe to grind,
and we  do not have enough evidence to prove that all his
allegations  are true. However, the limited and tentative
progress by the  military in the VRAE to date does give some
plausibility to  his argument that the some army officials may not
support the  larger objectives of the ongoing operations in the
VRAE. We  will continue to closely monitor evidence of drug
corruption  in the military and to encourage the government to 
consolidate and expand on the first steps taken during 
Operation Excellence. 
MCKINLEY