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C O N F I D E N T I A L SECTION 01 OF 04 TEGUCIGALPA 001077 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD, WHA/EPSC, INR/IAA, DRL/IL, AND WHA/CEN 
STATE FOR L/LEI, EB/OMA 
STATE PASS USTR 
JUSTICE FOR CRIMINAL DIVISION/FRAUD SECTION/MARK MENDELSOHN 
AND WILLIAM JACOBSON 
 
E.O. 12958: DECL: 06/15/2017 
TAGS: ECON ECPS EINV ELAB HO KJUS KPRV PGOV PINR
SUBJECT: HONDURAS: TELECOM LAW PROGRESS STALLED WHILE 
CORRUPTION CONTINUES 
 
REF: A. TEGUCIGALPA 271 05 
     ¶B. TEGUCIGALPA 838 07 
     ¶C. TEGUCIGALPA 782 07 
     ¶D. TEGUCIGALPA 925 07 
     ¶E. TEGUCIGALPA 736 07 
 
Classified By: CDA JAMES WILLIARD FOR REASONS 1.4 (B) AND (D). 
 
¶1. (C) SUMMARY:  Despite mounting pressure to agree upon a 
draft law to liberalize the telecommunications sector, the 
GOH and private industry representatives failed June 13 to 
come to an agreement.  The action now moves to Congress where 
congressional leaders have promised passage of a previously 
agreed version.  Meanwhile, more revelations of corruption at 
state telecom company Hondutel continues to demonstrate the 
strong ties that the company has with President Jose Manuel 
Zelaya's inner circle.  Post is working with the Federal 
Communications Commission and Department of Justice officials 
to investigate the accusations of bribery and extortion by 
Hondutel and GOH officials. END SUMMARY. 
 
STALLED TALKS ON NEW DRAFT 
 
¶2. (C) While a new, CAFTA compliant version of a 
Telecommunications law was sent to the GOH in December 2005 
(ref A), the lame duck Congress under former President 
Ricardo Maduro never acted on it.  Over the course of the 
next year and a half, the office of the Presidency under 
current President Jose Manual Zelaya submitted to Congress no 
less then two alternate versions, both of which, per industry 
sources, set back the telecommunications industry "several 
years."  Confusion continued to grow as the versions 
submitted to Congress were withdrawn quietly, with 
Congressional sources never quite sure which version was 
current. 
 
¶3. (C) To reinvigorate the process, Post hosted a roundtable 
discussion with stakeholders on May 11 (ref B). Over the 
course of this meeting and two others, the main blocking 
point boiled down to the requirement that licenses in long 
distance and international calling be approved by Congress. 
The President's team, lead by advisor Hector Rodriguez and 
CONATEL (the Honduran telecom regulator) president Rasel 
Tome, continued to argue that international access codes were 
a scarce national resource, and needed to be approved as a 
concession by Congress.  Private industry group ASETEL 
counter argued that international access codes do not have a 
realistic limit and to involve Congress would simply be a 
delay tactic.  The meetings appeared to be driving the two 
sides further apart.  (Comment: Post agrees with ASETEL; 
recent legislation has clearly excluded some classic 
concessions, such as mining, from Congressional approval. 
End Comment). 
 
¶4. (C) With the sides drifting apart, Post hosted an informal 
meeting June 12 between Rodriguez and ASETEL representative 
Jose Luis Rivera.  Rodriguez had previously contacted 
EconChief through a third party. (Comment: Rodriguez 
apparently was uncomfortable with the direction being set by 
the President and wanted to clear where he stood with Post. 
End Comment).  Over the course of two hours the two sides 
made considerable progress, and ended with a commitment to 
have Rivera present newly agreed upon remarks at a meeting 
scheduled for June 13. 
 
¶5. (C) On June 14, Rivera called EconChief and indicated that 
talks fell down once again over the role of the Congress, 
with Tome leading the charge about international access codes 
as concessions that require Congressional approval.  Rivera 
agreed at the end to supply a legal opinion of why the access 
codes did not qualify as concessions, and the sides agreed to 
meet again on June 22.  Rodriguez apparently watched the 
proceedings quietly.  (Comment: Calls to Rodriguez and the 
third party interlocutor have gone unanswered.  Rumors have 
surfaced that Rodriguez has recently been diagnosed with a 
severe medical condition, potentially a brain tumor.  End 
Comment). 
 
¶6. (C) Rivera indicated to EconChief that he believes that 
 
TEGUCIGALP 00001077  002 OF 004 
 
 
once again this is a delay tactic, but will follow through so 
that the President's team doesn,t accuse ASETEL of walking 
away from the table.  His contingency plan is to work with 
President of Congress Roberto Micheletti, who has threatened 
to present, in the first days of the new Congressional 
session, the earlier version of the law that was agreed by 
all parties if President Zelaya cannot gain agreement on a 
new version.  EconChief has consulted with Congressional Vice 
President Lizzy Flores, Liberal party Congresswoman Marcia 
Villeda, Micheletti's chief telecom advisor, and National 
party secretary Juan Orlando Hernandez about presenting the 
prior version in Congress, and all confirm it is a real 
possibility.  (Comment: Post is now convinced that a new 
version cannot be approved without allowing the President's 
team to incorporate a series of clauses that will restrict 
free competition through bureaucratic bottlenecks.  Success 
through the contingency plan with Congress is by no means 
assured, particularly since many Congressmen, potentially 
Micheletti himself ) a former manager of Hondutel ) may be 
benefiting from the on-going corruption.  End Comment). 
 
CORRUPTION CONTINUES AT HONDUTEL 
 
¶7. (C) EconChief met June 13 with Henry Salgado, the Chief 
Anti-Corruption prosecutor at the Public Ministry, on the 
status of their on-going investigations of Hondutel.  Salgado 
has focused his efforts on Hondutel interim manager Marcelo 
Chimirri (ref C), who has launched a high profile campaign 
against illegally pirated international calls, or "grey 
lines," yet is considered by many to be the main abuser of 
the illegal scheme.  Salgado confirmed that Chimirri is 
operating a high powered network out of his house, which is 
directly connected to another network in the nearby house of 
President Zelaya (ref D).  Chimirri also controls several 
cable companies that are suspected of receiving illegal 
international calls, which are distributed locally through 
Liberal party godfather Jaime Rosenthal's company Cablecolor. 
 (Note: Rosenthal is also the father of Minister of the 
Presidency Yani Rosenthal.  End Note). 
 
¶8. (C) Salgado indicated that he is proceeding with the 
investigation along several lines: (1) How is the legitimate 
international traffic being terminated in Honduras, through 
what contracts and terms, and how public bids for services is 
being conducted; (2) an internal audit of Hondutel, which he 
is directing through a GOH government audit agency (TSE); (3) 
a technical audit of Hondutel facilities to determine how 
much traffic is reported versus actually terminated, 
conducted by an independent team from the International 
Telecommunication Union (ITU); and (4) an investigation of 
flows of money to key Hondutel managers.  The investigations 
are now underway and he expects a team from the ITU to arrive 
as early as June 20. 
 
¶9. (C) In terms of money to corrupt officials, Salgado is 
currently investigating rumors of a deposit of USD 10 
thousand in late 2006 to Chimirri from Huntington Telecom, a 
carrier that contracted with Hondutel, through an account he 
controls called Inversiones Chicas.  Salgado also informed 
EconChief that key Presidential advisor Raul Valladares 
declared to the Public Ministry before joining the 
President's team that he was owed USD 120 thousand by yet 
another carrier, Worldwide Telecom.  Overall, Salgado is 
sending a request to the GOH Financial Investigations Unit 
(UIF) to identify and report on money flows out of more than 
15 high ranking officials accounts.  (Comment: The former 
head of the UIF, a strong manager that worked closely with 
Post, was recently dismissed in lieu of a more politically 
based manager.  Post questions whether these requests, which 
strike at the heart of President Zelaya,s inner circle, will 
be responded to in a timely and accurate manner.  End 
Comment.) 
 
A HISTORY OF CORRUPTION 
 
¶10. (C) Since even before the high profile activities of 
Chimirri, corruption and Hondutel appear to have enjoyed a 
long and fruitful relationship.  It is common knowledge that 
the state telecoms company has always been a source of 
 
TEGUCIGALP 00001077  003 OF 004 
 
 
campaign financing and employment for political supporters, 
and for many years was tolerated at an acceptable level.  The 
former head of Hondutel under President Ricardo Maduro, Jesus 
Castanos, explained to EconChief June 8 that grey lines have 
always been a problem, but was manageable as long as certain 
key "accounts" were not touched.  Castanos reported a "rumor" 
he had heard, that EconChief has heard through other sources, 
that President Maduro himself operated a grey line operation 
out of his house.  (Comment: Not so far fetched when it's 
clear current President Zelaya is operating a considerable 
network in his own house.  Operations within the President's 
house apparently have always been historically untouchable. 
Perhaps these spoils always went to the current election 
cycle winner.  End Comment). 
 
¶11. (C) Castanos sized the amount of illegal grey line 
traffic at about 10 percent.  Working with the Federal 
Communications Commission (FCC), Econchief has learned that 
of the total of around 715 million minutes that the U.S. sent 
to Honduras in 2005, only 656 million (about 92 percent) was 
legitimate traffic.  The other 8 to 9 percent of the traffic 
was terminated by companies that did not have official 
contracts with Hondutel, principally two named U.S. 
companies.  The level of grey line trafficking was almost 
exactly the amount estimated by Castanos.  (Comment: It is 
unclear under what agreement these two companies terminated 
traffic to Honduras.  Would a carrier question a deal 
negotiated directly with the President of a country?  End 
Comment). 
 
¶12. (C) When the new administration of President Zelaya came 
to power, the first manager of Hondutel, Jacobo Regalado, 
consequently inherited an enterprise that held grey line 
trafficking at an acceptable, albeit profitable, level. 
Regalado explained to EconChief in a June 8 meeting that he 
attempted to make grey line trafficking legitimate by 
contracting directly with suspect carriers, reasoning that 
bringing them into the open was worth negotiating a lower 
formal rate.  The number of international carriers 
terminating traffic to Honduras then jumped from five to 
nineteen under his watch. Interestingly, the two named U.S. 
companies did not sign formal contracts.  (Comment: This may 
be because they already had strong, yet informal, 
relationships.  End Comment). 
 
¶13. (C) EconChief obtained copies of the fifteen new 
contracts signed under Regalado, and the level of 
incompetence, or most likely outright corruption, is 
astonishing.  Each contract was negotiated with a standard 
rate of around 17 U.S. cents per minute for termination, yet 
each contain at least one, sometimes three, "confidential" 
clauses that arbitrarily changes the rate to as low as 14 
U.S. cents per minute.  Interestingly, EconChief obtained an 
internal Hondutel accounting sheet that demonstrates that 
many times the actual rate charged to the carriers is even 
lower, indicating that yet more confidentiality agreements 
exist.  Regalado agreed that he made "some mistakes" in 
contract negotiations.  (Comment: The manager tha replaced 
Regalado, Jacobo Lagos, indicated thatanother scheme used by 
the carriers is to identiy a portion of traffic "in dispute" 
every month,then never resolve or pay the disputed amount. 
Pe Post sources, every single active carrier owes moey to 
Hondutel, with one owing more than USD 2 mllion.  When Lagos 
threatened to cut service to he carriers, he was summarily 
fired by PresidentZelaya.  End Comment). 
 
¶14. (C) Post is working wth Department of Justice (DOJ) 
officials regardig the fifteen carriers and potential 
violations f the Foreign Corrupt Practices Act (ref E). 
Intrestingly, one high profile Washington lobbyist tht has 
been working with Post on the Hondutel issu over the last 
year also seems to be involved wih one of the carriers, LD 
telecom.  In a converstion June 14, EconChief asked him 
whether his copany was still sending traffic to Hondutel. 
"We ave never have had an agreement with Hondutel," he 
responded.  When EconChief began to describe the raceful 
arcs of his signature on the contract, te lobbyist responded 
with "Oh that contract," an proceeded to detail how they had 
signed a serie of confidentiality clauses to lower their 
 
TEGUCIGALP 00001077  004 OF 004 
 
 
rate. (Comment: LD Telecom is one of the companies with the 
infamous missing confidentiality clauses.  End Comment). 
EconChief passed the lobbyist's name and number to DOJ 
officials. 
 
¶15. (C) COMMENT:  While Post has gamely tried to bring the 
telecom law negotiators closer to an agreement, President 
Zelaya and Chimirri have always been in the background 
holding the trump card.  It is clear that several people in 
the President's circle, including perhaps President Zelaya 
himself, are benefiting from the grey line profits, 
reportedly as high as USD 500 thousand per month.  And, while 
congressional leaders talk tough, ramming a bill through 
Congress is at best a risky venture.  Post will continue to 
monitor events closely.  END COMMENT. 
WILLIARD