U.S. Opens Inquiry Into Road Project at Center of Colombian Corruption Scandal

December 13, 2018

December, 12 2018 (Bloomberg)

One of the biggest corruption scandals in Colombian history took a new turn on Tuesday as a billionaire’s banking group said the investigation has spread to the U.S.

Grupo Aval Acciones y Valores S.A. said in a filing that it received an inquiry from the U.S. Department of Justice over its Ruta del Sol 2 road. Aval had a one-third stake in the project.

Shares in Aval have fallen 25 percent in dollar terms this year, wiping billions from the fortune of its founder Luis Carlos Sarmiento. Shares extended losses after a key witness and his son died in mysterious circumstances last month.

The market “may have been half-expecting this,” said Rupert Stebbings, an institutional equities adviser at Alianza Valores, a Colombian brokerage. “For investors the key is a swift resolution.”

Aval’s dollar bonds due 2022 were little changed in early trading on Wednesday, with the yield up one basis point to 6.57 percent.

Jorge Enrique Pizano, an auditor on the highway who had warned about suspicious payments died last month from what authorities said was a heart attack. His son, who returned from Spain for the funeral, died from cyanide poisoning three days later in circumstances that remain a mystery.

Secret Recordings

One reason Pizano’s death spooked investors is that local media reported that he’d given evidence to the U.S. Federal Bureau of Investigation, stoking fears the investigation could spread beyond Colombia, as it now has. Aval’s shares trade in New York, as well as Bogota.

Pizano, who had expressed fears for his safety, left audios he’d secretly recorded of conversations he’d had with Nestor Humberto Martinez, a lawyer who had represented Aval, in which he raised concerns about irregular payments from Ruta del Sol.

In an interview with a Colombian TV channel, Martinez said he passed on Pizano’s findings to Sarmiento in 2015, throwing doubt on Aval’s later statements that it had been blindsided by revelations of illegal activity related to the highway.

Construction Giant

Aval has repeatedly said that it was unaware of corruption on the highway project committed by Brazilian construction giant Odebrecht, the majority partner. Martinez, now the nation’s Attorney General, told senators that Pizano himself had not known for sure that the payments were illegal, or part of a bribery scheme.

The Department of Justice didn’t reply to a request for comment.

Aval’s subsidiary Corficolombiana partnered with Odebrecht to build a section of a 621-mile highway connecting the center of Colombia with the Caribbean coast. The partnership was liquidated after Odebrecht admitted to paying a bribe to win the contract.

The U.S. investigation is likely to “cause a lot of volatility” for Aval’s shares, said Carlos Rodriguez, head of equities at Ultraserfinco brokerage in Bogota.

— With assistance by Oscar Medina, and Ezra Fieser