Sunday, February 03, 2013

Spain's Rajoy denies wrongdoing in kickbacks scandal

By Sarah White and Fiona Ortiz

MADRID (Reuters) - Spanish Prime Minister Mariano Rajoy on Saturday denied wrongdoing in a growing corruption scandal that threatens his credibility just as he makes headway against economic crisis.

Spanish Prime Minister and the ruling People's Party (PP) leader Mariano Rajoy gestures as he presides over his party's national executive committee in Madrid February 2, 2013. REUTERS/Susana Vera

The ruling People's Party (PP) has been buffeted all week by media reports alleging its former treasurers operated a slush fund with donations from construction industry executives that were then doled out to Rajoy and other party leaders.

"I need only two words: it's false," Rajoy said in a televised address after an extraordinary meeting of party leaders to discuss the allegations.

Rajoy, who has had a reputation for being boring but clean, welcomed an investigation into the affair and said he would publish his tax declarations on the internet.

Last week El Pais published extracts from what it said were secret ledgers by PP treasurers over 20 years.

"It is not true that we received cash that we hid from tax officials," Rajoy said. He did not take media questions.

The PP on Saturday also released findings from an internal probe into party accounts back to 1995, concluding payments to members and income from donations were correctly declared and legal. An external investigation would begin in weeks, the report said, and three auditing firms would pitch for the job.

Dozens of police in riot gear guarded PP headquarters in central Madrid on Saturday. A small gathering of demonstrators shouted "resign" outside the building after several hundred people protested there on Thursday and Friday nights.

The scandal has hit Rajoy, 57, just as he had appeared to make some headway in the country's financial crisis. Last year doubts over Spain's solvency forced state borrowing costs dangerously high and Rajoy looked to be on the brink of seeking an international bailout as Greece, Portugal and Ireland have.

But market attacks have abated since the European Central Bank pledged it would back Spain.

Rajoy has asked Spaniards for sacrifices and cut spending. His popularity has sunk during 13 months in office as austerity measures aggravate a deep recession and 26 percent unemployment.

The small United Left party urged him to resign and call early elections over the scandal. But the PP has an absolute parliamentary majority and has shown no sign of any split that might allow opponents to carry a vote of no confidence.

The main opposition Socialists demanded explanations but not his resignation. Polls show they would not win an election now.

CORRUPTION "PERVASIVE"

Bankers called for a rapid response to the scandal. Spain has taken 40 billion euros in European rescue money to clean up its financial sector.

Francisco Gonzalez, chairman of the country's second-biggest lender BBVA, defended Rajoy at a news conference on Friday, saying he knew him well and that he was honest.

"There are clearly many bad practices in many parts of our country and these practices need to be eradicated," he said.

"This is an opportunity for Spain to come out much cleaner."

The anti-corruption prosecutor's office said on Friday it was investigating the alleged payments to PP members. Newspaper El Pais says it has photocopies of ledgers showing annual payments to Rajoy of 25,200 euros ($34,200) over 11 years.

If he reported the income to tax authorities and they appear in public PP accounts, the payments may not be illegal.

If the prosecutor finds evidence of a crime, he will report to the High Court, which will then decide whether it opens a judicial investigation, the first step to any criminal trial.

A judicial probe could take many years to conclude.

In the meantime, Rajoy may struggle to turn around public opinion. A poll before the scandal broke found 96 percent of Spanish adults see corruption as pervasive in politics. Tax evasion and unemployment benefits fraud are rife.

Education and healthcare cuts have soured the public mood. Protesters march in Madrid and other cities almost every day.

Around 10,000 people, many pensioners, protested across Spain on Saturday over how their savings, invested in complex securities, will be wiped out in a bank bailout.

Spain's rescue of its lenders is a common complaint, as the government goes further into debt to help banks that lent recklessly to builders during a property bubble.

A prolonged economic boom, which went into reverse in 2008, was fed by construction. Courts have probed cases of builders accused of paying politicians in exchange for public works contracts or for re-zoning rural land to allow development.

THE BARCENAS PAPERS

Former PP treasurer Luis Barcenas has been under investigation since 2009 for alleged involvement in a kickbacks scheme known as the Gurtel Case. A number of PP mayors and city councillors have had to resign in the Gurtel probe, but the case has bounced from one judge to another and never gone to trial.

The affair returned to the public eye in January when court officials said they had discovered Barcenas had a Swiss bank account that once held as much as 22 million euros.

Barcenas's lawyer said the money came from legitimate businesses and has now been reported to tax authorities.

"The People's Party does not have and never had accounts in a foreign country and has never issued orders to open accounts in a foreign country. We have nothing to do with it," Rajoy said on Saturday.

El Pais said last week it had 20 photocopied pages of Barcenas' secret ledger, allegedly showing almost 20 years of cash donations from executives and a stream of payments. The ledger also allegedly detailed expenses such as suits for Rajoy. Barcenas denied any wrongdoing and called the reports "false".

(Additional reporting by Iciar Reinlein and Rodrigo de Miguel; Writing by Fiona Ortiz; Editing by Andrew Roche and Jason Webb)