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Wednesday, August 5th, 2020

A well-connected Mexican tycoon stashes a fortune overseas

by April 3, 2016 General

One of Mexico’s wealthiest tycoons, a burly civil engineer who built his fortune on government contracts, sought to conceal his wealth in this past year in an elaborate chain of offshore trusts and companies.

Juan Armando Hinojosa Cantú has a golden touch at winning government business, and has become successful under the protective wing of President Enrique Peña Nieto.

A security breach at a Panamanian law firm that specializes in registering offshore companies around the globe revealed the efforts of Hinojosa’s advisers to create a chain of offshore entities that stretches to New Zealand.

Hinojosa, a 59-year-old native of Reynosa, a crime-ridden city abutting the border with Texas, is both renowned and mysterious in Mexico.

His name first surged into the news a year and a half ago when a Mexican investigative news team revealed that one of his companies provided a posh $7 million mansion for Mexico’s first lady, a former soap opera star. She later said earnings from her acting career allowed her to repay the tycoon.

Following that report, and another about a sweetheart housing deal for Mexico’s finance secretary, opposition members of Congress began a study that found that Hinojosa’s companies or those managed by his closest associates had been awarded 99 contracts with government-linked entities since 2005, making his group a clear favorite with authorities.

Media reports gave Hinojosa a moniker: the “duke of privilege.”

About nine months after the scandal broke over the first lady’s opulent mansion known as the “white house,” Hinojosa’s advisers designed offshore trusts and shell companies to protect – and perhaps conceal – his wealth far from Mexico.

His advisers created corporate entities in the Netherlands and Britain and even New Zealand, with investment accounts in Germany and New York. A Bulgarian woman was brought on board as one of several proxy directors.

The various companies under Juan Armando Hinojosa Cantú racked up contract after contract with the state for highways and public works projects, hospitals, athletic facilities and air taxi services. Media reports gave him a moniker: the “duke of privilege.”

A Miami-based adviser trying to snare Hinojosa’s business expressed amazement at his own good fortune in emails describing Hinojosa’s assets to lawyers at Mossack Fonseca & Co.

“Please note that we have been working together with the advisor of a very high profile client for some time,” Filipe Miguel Fernandes de Matos Marcelo wrote to the law firm in an email dated July 1. He noted that the client had “portfolio accounts in four banks,” listing the banks as J.P. Morgan Chase & Co., UBS Group AG, Deutsche Bank AG, and Morgan Stanley and Wells Fargo & Co., and putting the sums at “circa USD 100m.”

The $100 million “is only a small part of the client’s portfolio,” de Matos added, requesting the “utmost confidentiality” in discussing potential business with Hinojosa.

“He is one of the most prominent business man in Mexico. Unfortunately due to his success and high profile, he has quiet of number of people whom greatly dislike him and unfortunately there is a great deal of negative publicity surrounding the client,” de Matos said, mangling his English spelling and syntax.

The duke of privilege. The moniker given to Juan Armando Hinojosa Cantú, known for his close ties with Mexican President Enrique Peña Nieto and his golden touch at winning government business.

The email from de Matos set off a burst of activity that drew in lawyers and accountants in multiple countries. Emails that surfaced in the massive data breach of Mossack Fonseca show the steps they took.

Hinojosa built his fortune in the state of Mexico, a center of political power for the ruling Institutional Revolutionary Party, known locally by its Spanish initials: PRI. One of the nation’s 31 states, it wraps partially around the densely populated capital of Mexico City, and has been ruled by the PRI without interruption for nearly a century.

It has also been where politicians have amassed fortunes while in public service. Among them was former Gov. Carlos Hank González, who is credited with saying, “A politician who is poor is a poor politician.” Forbes had estimated the fortune of González, a former schoolteacher, at $1.3 billion before he died in 2001.

Peña Nieto, a fresh-faced lawyer and nephew of another former governor of the state, seemed to be from a different, more transparent, mold. During his 2005-2011 term, Peña Nieto fostered a close relationship with business owners eager to tap into his ambitious public works agenda.

Chief among them was Hinojosa, head of Grupo Higa, a construction concern. Hinojosa had arrived in the state from Reynosa nearly three decades earlier, leaving behind a family funeral and cemetery business. Over the years, Hinojosa grew close to Peña Nieto, a decade his junior. Peña Nieto became godfather to his son, a lifelong bond in Mexico rooted in Catholicism.

The various companies under Hinojosa racked up contract after contract with the state for highways and public works projects, hospitals, athletic facilities and air taxi services.

By the end of Peña Nieto’s term as governor, Hinojosa had built a conglomerate that included Constructora Teya (construction), Mezcla Asfáltica de Calidad (asphalt), Bienes Raíces H&G (property development), Eolo (air taxi and charter) and interests in publicity, printing, and opinion polling.

Pena Nieto won the presidency in 2012, and Grupo Higa began to reap contracts across the country and to tend to investments as far away as Peru.

Today, Grupo Higa operates out of a three-story white building with blue windows near the airport in the state capital Toluca, some 40 miles west of Mexico City. Online, the company says its finished website is “coming soon.” No telephone number or email address is provided.

Pena Nieto won the presidency in 2012, and Grupo Higa began to reap contracts across the country and to tend to investments as far away as Peru.

On a recent day, a receptionist summoned an armed guard when a journalist arrived. The guard said Hinojosa was unavailable and no one could speak on his behalf. Asked for a telephone or email contact, the guard said, “Under orders of management, we cannot give you that information.”

In recent years, Hinojosa’s good fortunes have accelerated, netting contracts with the national electric utility, the federal highway authority, the state oil company exploration unit, the social security institute, the national mint, the airport authority and various parastatal banks.

The scandal that flared in late 2014 about Hinojosa’s companies providing luxury housing deals to top levels of government hurt Peña Nieto, who had come to office promising transparency and reform, and had landed on the cover of Time Magazine under the headline: Saving Mexico.

But Peña Nieto did not retreat, and Hinojosa remained nearby.

“He still travels on the presidential plane. He was invited to the state of the union speech. It’s really amazing how they still don’t get it,” said Juan E. Pardinas, head of the Mexican Institute for Competitiveness, a leading free-market think tank in Mexico City.

A leftist federal deputy, Manuel Huerta Ladrón de Guevara, took the lead in a congressional probe to tally Hinojosa’s contracts before leaving Congress late last year.

“We were able to find close to 60 billion pesos,” Huerta said, an amount worth about $3.5 billion at current exchange rates.

Among the deals was a $74 million no-bid contract to renovate the presidential hangar to accommodate Peña Nieto’s Boeing 787 Dreamliner, reportedly the most expensive presidential aircraft in the world, which was delivered earlier this year.

Hinojosa’s conglomerate was part of a Chinese-led consortium to build a $3.7-billion high-speed rail link between Mexico City and Queretaro. But the government cancelled the contract days before publication of the media probe into the first lady’s mansion.

The Mossack Fonseca archive shows that brokers and lawyers relished doing business with Hinojosa.

“This gentleman knows many UHNWI in Mexico,” one email to Mossack Fonseca said, using the acronym for “ultra-high-net-worth individuals,” the mega-rich class of people with at least $30 million in investable assets. The email came from an adviser at the Miami branch of D’Orléans, Bourbon & Associates, which purports to be a global advisory firm.

In order to satisfy basic requirements in international conventions to ensure they weren’t dealing with criminals or terrorists, lawyers at Mossack Fonseca sought and received letters from Hinojosa’s bankers and advisers before designing a complex offshore strategy for him.

One of the letters came from a man who identified himself as the country manager for D’Orléans Bourbon in Mexico.

“Engineer Juan Armando Hinojosa Cantú has distinguished himself as a serious person with a very high sense of responsibility and absolute moral standing, so I have no problem in recommending him more broadly for whatever he deems convenient,” manager Rodrigo de Santiago wrote.

Emails between D’Orléans Bourbon and Mossack Fonseca indicate that in mid-2015, Hinojosa wanted to liquidate at least five offshore corporations he maintained in the British Virgin Islands and on the tiny Caribbean island of Nevis.

The firms implemented a plan to create three trusts where Hinojosa could transfer some of his wealth and guarantee income for both his mother and mother-in-law. They gave the three New Zealand trusts names taken from the language of the ancient Incas: Huiracocha, Huanca and Khuno. Foundations in Holland were linked to the trusts, and the agents opened corporations in Britain to handle assets. The plan called for investment accounts to be created at a Hamburg branch of UBS and at Credit Suisse in New York City.

As the transactions rolled along, Hinojosa surged into the headlines again.

Peña Nieto’s handpicked auditor, Virgilio Andrade, said on Aug. 21 that he had concluded a six-month investigation, clearing the president and the finance secretary of any wrongdoing over acquiring homes from Hinojosa’s companies, saying the two had done nothing illegal because they were not in public office at the time of their actions.

Peña Nieto acknowledged that some Mexicans felt “hurt and outrage” and he offered a “sincere apology.”

What they are saying is, ‘I’m sorry. It looks terrible. But it’s legal.’ Eduardo Bohórquez, head of Transparencia Mexicana, on the Mexican president and finance secretary acquiring homes from a government contractor’s companies

“It sends a clue to how they perceive the world,” said Eduardo Bohórquez, head of Transparencia Mexicana, a chapter of Transparency International, a global anti-corruption watchdog group. “In the tradition of the (Institutional Revolutionary Party), being legal is more important than being legitimate. What they are saying is, ‘I’m sorry. It looks terrible. But it’s legal.’ ”

Pardinas, the think tank director, said the ethics probe was a whitewash and that Hinojosa’s company granted MIT-educated Finance Secretary Luis Videgaray a mortgage “60 percent below market rate.”

“It’s a conflict of interest the size of the Peninsula of Yucatan,” Pardinas said.

The lifting of the ethics probe and clearing of Peña Nieto’s name triggered international headlines. Internal auditors at Mossack Fonseca raised questions about the relationship between Hinojosa and Peña Nieto, asking the Miami adviser for D’Orlean Bourbon to address them.

“Does any relationship, including an economic one, exist between the two? Why have these complaints come forth?” asked Mossack Fonseca assistant Daniel Leon in an email.

Filipe de Matos, the Miami adviser, responded in a Sept. 30 message.

“There is indeed adverse information regarding the beneficiary in newspapers (many of these newspapers are owned by some business rivals such as the NY Times Slim),” wrote de Matos, referring to Mexican telecom magnate Carlos Slim, who owns a 17 percent stake in The New York Times but has no editorial control.

“All allegations regarding any conflict of interest were investigated last month and all these accusations … were dismissed,” de Matos wrote.

McClatchy wrote to de Matos at the email address he routinely used while handling Hinojosa’s affairs. He did not write back.

On its letterhead, D’Orléans Bourbon & Associates says it has offices in Lisbon, Amsterdam, London, Mexico City, Miami and Panama City. Its logo with two eagles clutching a coat of arms harkens to centuries-old European royalty and conveys an image of stability and history.

Yet no such group is registered with that name in the Netherlands. Nor is there any trace of an office in Miami, nor a business license in its name. In Panama, it registered as a corporation only in 2013. It has an office in Mexico City on the seventh floor in a building at the edge of the fashionable La Condesa district.

The office is shared with Facifin Financial Group, which offers short-term personal and auto loans. Clocks on the wall offer the time in New York, Singapore, London and Mexico City. A receptionist said no one could meet with a journalist, then took down contact information.

No one called back or responded to email queries.

It takes almost superhuman powers to penetrate the secrecy of those entities that are established in those offshore havens. Charles A. Intriago, a former federal prosecutor and money laundering expert based in South Florida

Peña Nieto’s office appeared reluctant to talk about the president’s relationship with Hinojosa. An email to spokesman Eduardo Sanchez was forwarded to foreign press liaison Paulo Carreño King, who said he was too busy to meet with a journalist during a recent four-day trip to Mexico City.

Some experts on offshore companies, trusts and foundations say the kinds of complex “layering” of entities, as Mossack Fonseca designed for Hinojosa, has one main purpose: to thwart an investigation of wealth. For most owners of its shell companies, Mossack Fonseca provides nominee directors – stand-ins who do the owner’s bidding while providing him or her cover and anonymity. When such companies are interlocked in multiple offshore havens with secrecy provisions, tracing the real owners becomes a Herculean task.

“It takes almost superhuman powers to penetrate the secrecy of those entities that are established in those offshore havens,” said Charles A. Intriago, a former federal prosecutor and money laundering expert based in South Florida.


“Why would a person want to have multiple offshore entities? … There is no legitimate business reason for that,” Intriago added.

In the case of Hinojosa, a mix of Panamanians, Dutch, New Zealanders and even a Bulgarian, Svetla Pencheva, age 39, were listed as directors of his various entities and trusts.

A former criminal investigator for the Internal Revenue Service, Thomas D. Lasich, said the use of nominee directors effectively shields the real owners.


“When you go to find out who is really running this company, you’re just talking to employees of the service provider ,” Lasich said. “So you can see where you can just keep going and going and going, and then the more layers you have, the more difficult it is.”

Mexicans, just like U.S. citizens, must report income earned overseas to tax authorities, including for offshore companies or trusts they control.

“Having money abroad is not illegal by itself,” said Oscar Molina Chie, head of the Large Taxpayers’ Unit of the Mexican tax authority. “What is a crime is if you have income abroad … and you don’t report the income to this government.”

Tim Johnson: 202-383-6028, @timjohnson4