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How SFO officials used city employees and money -- in apparent violation of state and federal law -- in a very odd attempt to privatize the airports of Honduras

Wednesday, Sep 12 2001
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Jorge Arturo Pineda, a laconic, ruddy-faced investigator with Honduras' federal Attorney General's Office, sits in front of Docucentro, a photocopy shop in Tegucigalpa, the capital of Honduras, staring at the crumbled asphalt at the edge of Boulevard Morazán. "It's dirty here," Pineda observes. "Everything's really, really dirty."

He isn't talking about the street.

Today, one of Pineda's co-workers resigned angrily upon determining that a former boss in the AG's Office would not be prosecuted on allegations of stealing $5 million from his own political party. Yesterday the attorney general himself announced that 14 prominent government embezzlement cases had been derailed by corrupt judicial officials.

For a century, corruption's been a ubiquitous part of Honduran life. It will remain so, Pineda says, and nothing a pencil-pushing attorney general's investigator does will change the situation. For this reason, Pineda and his sidekick, Walter Hernández, a literature-quoting lawyer also employed by the Attorney General's Office, have agreed to spend this, their workday afternoon, at Docucentro helping me photocopy binders full of government files on an unusual plan to privatize the country's airports. Pineda had lobbied the attorney general, that I might gain access to the binders; Hernández came along to ensure that Pineda would have no trouble getting the files past a lobby guard.

Just once, Pineda and Hernández told me time and again during my recent visit to Tegucigalpa, they'd like to get their hands on government officials who had abused the public trust. Now, as the copy machines at Docucentro churn out page after page of copies -- pages containing names such as San Francisco Mayor Willie Brown, San Francisco International Airport Director John Martin, SFO Deputy Director John Costas, SFO Special Assistant Leonardo Villarroel Fermin Jr., and city Treasurer Susan Leal -- I assure them that this time, they did.

Later that evening, Daniel Rivera, the lawyer who had resigned in disgust earlier in the day from the AG's Office, joins Hernández, Pineda, and me to help celebrate our afternoon's enterprise. "There are two types of corrupt people," says Rivera, portentously raising his brown bottle of Salva Vida beer. "There are those who lack imagination -- corruption falls in their lap and they don't know what else to do. And then there are those who are corrupt because of imagination; their force of will is consumed by conjuring ways to steal.

"It's the imaginative ones who scare me."


The files spirited from the Honduras Attorney General's Office, when combined with a variety of other documents and a series of interviews conducted in San Francisco and Tegucigalpa over the past four months, detail the activities of a group of SFO bureaucrats who can truly be said to have shown expansive imagination.

In 1997, at the suggestion of SFO executives Martin and Costas, the San Francisco Board of Supervisors approved the creation of a private, for-profit corporation that would have a single shareholder -- the City and County of San Francisco -- and would carry out foreign airport consulting projects. This authorization included one infusion of taxpayer funds, a $10,000 chunk of start-up capital from the city's General Fund. From that time forward, the bureaucrats insisted, the company would be self-funding. The basic notion: This new firm would win contracts at airports around the globe, earning enough money to expand and to repatriate, at some point, profits to the city. The corporation's books and activities would be kept secret from most city officials, and the city would not be allowed to intervene in the company's activities. By shielding the city from knowledge of the corporation's actions, the logic went, San Francisco would be protected from liability.

Costas and his co-workers took the idea and ran wild, ignoring the promises that the firm, SFO Enterprises LLC, would support itself and turning it into a vacuum that sucked city time and money into a private money sack. Over time, SFO officials diverted at least $900,000 in city funds to the benefit of SFO Enterprises without obtaining specific permission from the Board of Supervisors, in apparent violation of the state laws on official misconduct and federal law on the use of airport money.

SFO Enterprises attempted to win contracts all over the world, and SFO officials spent tens of thousands of city dollars traveling to Paris and Rome for airport-privatization conferences, and to Peru to discuss business deals. In the end, Costas and his cohorts apparently won only one major deal, an agreement, in the year 2000, on the privatization of the international airports of Honduras. In attempts to implement that agreement, Costas and his underlings inappropriately used city employees, costing the city -- and saving SFO Enterprises -- hundreds of thousands of dollars in personnel costs. Working on behalf of Costas, Airport Special Assistant Leo Fermin obtained a highly unusual $40,000 city cash advance to buy a car and rent an apartment in Tegucigalpa. Because it was funded in large part by the city, the Honduran "success" may also have exposed the city to millions of dollars of potential civil liability. And during the Honduras operation, airport money was clearly used for the benefit of the private firm, potentially exposing the city to federal anti-diversion penalties that could restrict future access to federal funds.

Costas, Fermin, and other airport bureaucrats were able to make these diversions under the gaze of city officials expressly tasked with protecting the San Francisco treasury.

City Treasurer Susan Leal was, until recently, a director of SFO Enterprises. To this day, Leal defends Costas' operation, claiming it is a sound investment for the city despite documentation to the contrary.

Deputy City Attorney Mara Rosales served as corporate secretary for SFO Enterprises while simultaneously holding down her city job. As a result, the City Attorney's Office appears to have actively enabled a type of misconduct -- the diversion of public resources to private benefit -- that it is ordinarily expected, even required, to advise against.

Deputy City Attorney Nathan Ballard says his office does not believe Rosales' dual roles conflict. The office asked for a state attorney general's opinion on exactly this matter in 1998, he says. The response: no conflict.

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Matt Smith

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