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San Diego-based Sempra Energy is one of the largest private energy companies in Mexico. But its biggest investment there has been dogged by corruption allegations for years.
This is Part II of a three-part series. To get started, click here.
The race was on and Sempra Energy was losing.
In the early 2000s, with the United States and Mexico ravenous for natural gas, a coterie of large energy companies competed to build the first liquefied natural gas plant on the west coast of North America in Baja California, Mexico.
By 2003, Sempra, a Fortune 500 company headquartered in San Diego, was neck and neck with Marathon Oil. Marathon was first to secure a key permit from the Mexican government for its project, a plant on the outskirts of Tijuana. Sempra soon got its own permits for a coastal plant about 15 miles north of the port city of Ensenada. Billions of dollars in potential profits hung in the balance.
Then, disaster struck for Marathon. In early 2004, Baja California Gov. Eugenio Elorduy Walther suddenly condemned Marathon’s land, saying the government needed the property to provide housing for low-income families. The next day, Marathon announced its project was dead.
With Elorduy’s decision, Sempra sprinted ahead of the pack. Today, its mammoth $1 billion project is still the only liquefied natural gas plant on the West Coast.
At the time Marathon’s bid was squashed, few people knew that Sempra once had a connection to the man who had ordered the land condemned. Years before he became governor, Elorduy had a financial relationship with Sempra’s business partners in another Mexican project, a natural gas pipeline in Mexicali, Mexican corporate documents and interviews with key officials show. The depth of Elorduy’s relationship with Sempra remains unclear.
The FBI has investigated Sempra’s activities in Mexico. But despite finding ample evidence Sempra executives might have broken the law, federal authorities didn’t charge the company at the end of their probe.
Instead, they cracked down on one of Sempra’s biggest enemies: Mexican tycoon José Susumo Azano Matsura.
Azano has battled with the company for years on both sides of the border. Last February, following a lengthy FBI investigation, prosecutors charged Azano with violating federal campaign finance laws for allegedly illegally donating to San Diego politicians. Azano claims Sempra engineered the charges to distract authorities from the company’s own corruption. Beyond a shady relationship with the Baja California governor, the allegations against Sempra include a $7 million bribe to other Mexican politicians and a fraudulent land deal involving a dead woman.
Sempra officials say the only reason anyone is still talking about the allegations is Azano.
“They are baseless claims,” Sempra spokesman J.C. Thomas said. “In fact, Sempra has been fighting a well-funded campaign that is misusing Mexican judicial and executive branches, to extort funds from Sempra.”
But there’s another reason for those lingering allegations against the company: Too many questions about Sempra’s actions in Mexico remain unanswered for them to go away.
Elorduy’s decision to condemn Marathon’s land came out of nowhere.
“It was totally unexpected,” said Diane Lindquist, who covered the natural gas race for the San Diego Union-Tribune. “We got a big headline in the paper.”
Speculation began immediately.
“A lot of people wondered about the closeness between Elorduy and Sempra,” Lindquist said.
Investors in Marathon’s project were among those wondering. The investors hired Interfor, an international security firm, to do a secret investigation of Sempra in Mexico. The investigation centered on Elorduy.
A confidential source described in the report as someone who saw the governor and his family every day told Interfor that Elorduy had been overheard talking about bank deposits in the Cayman Islands and that the governor made 3 a.m. telephone calls to Switzerland to discuss bank accounts there. The source also witnessed Elorduy’s wife ironing old $100 bills to remove the smell of mold from them. Beyond these scandalous and anonymously sourced details – Elorduy has denied them all – Interfor also connected Elorduy’s decision to confiscate Marathon’s land to bribes from Sempra.
Over the previous decade, Sempra had partnered with a Mexican company called Próxima Gas to build a natural gas pipeline in Mexicali and similar projects in other border communities. Elorduy was an investor in a Mexican company that once owned Próxima Gas, according to a bank loan document and the chairman of Próxima Gas’ board. But the extent of Elorduy’s involvement in the company and his financial ties to Sempra remain unclear. (We followed the relationship between Sempra and Elorduy as far as we could in this follow-up.)
In early 2003, a year before Elorduy condemned Marathon’s land, Sempra bought out Próxima Gas’ stake in the Mexicali pipeline and other projects for $32 million. Interfor zeroed in on this transaction.
“Two reports from confidential sources report the sale of Próxima Gas shares was the vehicle used to make funds available to pay off the governor for ‘help and support,’” the firm’s report said.
Sempra officials deny they bribed Elorduy and Elorduy denies being bribed. Elorduy and Sempra also deny that they were ever business partners.
If there was proof Sempra had paid him off to take down Marathon, Elorduy said, both Marathon and Mexican authorities would have gone after him.
“It’s a lie,” Elorduy said. “If they had, as we say in Mexico, los pelos de la burra en la mano, the donkey’s hairs in the hand, they would have filed a suit.”
The Elorduy connection is one red flag about Sempra’s dealings surrounding its Mexican liquefied natural gas plant. But it’s hardly the only one.
Sempra needed the nearby city of Ensenada to sign off on the plant. That forced the company to court another Mexican politician: Ensenada Mayor Jorge Catalán Sosa. After a series of meetings that company officials held with Catalán starting in 2002, the demand became clear: The mayor wanted Sempra to pay for civic projects in Ensenada and he wanted a role in deciding where the money would go, according to a 2005 internal memo from a Sempra executive obtained by Voice of San Diego.
Sempra agreed to the deal, creating a $7 million charitable trust for Ensenada. But in the internal memo, the Sempra executive said there was a string attached: Most of the cash would come only if the company’s permits didn’t face any hold-ups.
That looked like a textbook quid-pro-quo, and FBI agents who later investigated Sempra initially believed the charity constituted a bribe to Ensenada politicians. Thomas, the Sempra spokesman, said the charity followed the law and emphasized that Sempra was never charged.
The charity brought benefits to both Sempra and Ensenada. The city allowed Sempra to build its plant and Ensenada officials later bought 26 police patrol cars, a Dodge hatchback and other goodies with the company’s donations.
A Mexican rancher named Ramón Eugenio Sánchez Ritchie didn’t fare as well. Sempra evicted him from land he claimed to own. Then Sánchez Ritchie found a powerful ally: Azano.
In early 2006, Sempra was still trying to round up land near its liquefied natural gas plant, despite having already broken ground on the project.
Sánchez Ritchie was living on the property and believed he owned it. But Sempra struck a deal with three others who said they had title to the same land. One claimed power of attorney for a co-owner named Elodia Gomez Castañón. This was a problem.
Gomez was dead. And like in the United States, power of attorney in Mexico typically expires when someone dies. Thomas said Sempra officials didn’t know Gomez was dead when they bought the property. And besides, Thomas said, the sale was still legitimate.
“Elodia Gomez’s heirs ratified the sale of her parcel,” Thomas said. (Thomas didn’t respond to a request for documents to support this claim.)
Sánchez Ritchie contends the fact that Sempra bought land from a dead woman is just one example of how the company’s purchase was fraudulent.
In late 2006, Sempra used the title purchased from Gomez and the two others to win a court order to kick Sánchez Ritchie off the land. The company bulldozed Sánchez Ritchie’s house.
This is where Azano enters the picture. Azano and Sánchez Ritchie had done business together before and Azano said he was troubled by the rancher’s plight. In 2008, the two signed a contract: Azano would finance Sánchez Ritchie’s legal battle against Sempra in exchange for a major share of any winnings.
That pact, and the protracted courtroom fight that would follow, set Azano and Sempra against each other for the first time. Everything that came after – an armed police raid on Sempra’s plant, numerous FBI investigations and intervention from the American and Mexican embassies – stems from this dispute over the mostly uninhabited piece of property on Baja California’s coast.
In that feud, Azano had early success.
In 2010, Mexican courts allowed Sánchez Ritchie back onto the land, though Sempra has successfully argued so far that it can continue to run the plant. These days, Sánchez Ritchie has made his control over the property clear, even though it sits inside the gates of Sempra’s plant. Large, stone, anchor-shaped objects block the path to the land. A small shack surrounded by litter stands at the front of the path. Someone has painted a sign on top of the shack that reads, “Private property, No trespassing” in Spanish.
For Sempra, the most frenetic period in the fight happened in the beginning of 2011.
Just a week after armed Ensenada police officers attempted to shut down the company’s plant, agents from the FBI, Securities and Exchange Commission and the Department of Justice hauled Sempra’s lawyers in for a meeting. They had some questions about that $7 million Sempra had donated to the city of Ensenada.
Sempra had another idea. Company attorneys decided to use their time with the FBI to turn agents against Azano.
Disclosure: A member of Voice of San Diego’s board of directors serves as vice president for SDG&E and SoCalGas, two Sempra subsidiaries. Tijuanapress.com’s Vicente Calderón contributed to this story. Ari Bloomekatz, Matthew Hose, Michelle Monroy and Gwyneth Shoecraft also contributed.