Exclusive: Cuba probes British fund, arrests top executive

HAVANA Mon Oct 17, 2011 10:21am EDT

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HAVANA (Reuters) - A British investment fund has become the latest company swept up in an investigation by Cuban authorities of corrupt practices among the Communist island's state businesses and their foreign partners.

Police closed the Havana offices of the Coral Capital Group Ltd last week and arrested chief executive Amado Fakhre, a Lebanese-born British citizen, sources close to the company said.

The offices were sealed and cordoned off with police crime scene tape during the weekend.

Andrew Butchers, the fund's finance director, told Reuters from Coral Capital's London office that the company had no comment now but would release a statement soon.

A month ago, authorities shut down one of the most important Western trading companies in Cuba, Canada-based Tokmakjian Group, after doing the same in July to another Canadian trading firm, Tri-Star Caribbean.

The top executives of both companies and a number of their Cuban employees and business partners were arrested.

A vice minister for sugar, Nelson Labrada, was arrested in late September for signing off on purchases from the Canadian companies, a source close to his family said.

Just as in the Canadian cases, the precise allegations against Coral Capital are not known and have not been reported in Cuba's state-run media but they are evidence that the government's corruption sweep is widening.

Coral Capital, registered in the British Virgin Islands in 1999, is best known in Cuba as the joint venture partner in Havana's upscale Saratoga Hotel and another hotel complex on the resort key of Cayo Coco.

It had plans to build golf courses and related real estate developments near Havana, for which it had begun raising equity capital, and expected to sign a final agreement with the Cuban government by 2012.

The fund diversified into trade financing and importing heavy equipment and other merchandise in recent years and this, rather than its real estate ventures, may have led to its problems, foreign business sources said.

The company represents various international brands in Cuba, among them Liebherr Earth Moving, Yamaha Motor Corporation and Peugeot Motorcycles, according to its Internet site. The site says Coral Capital has invested some $75 million in Cuba, with more than $1 billion of projects in the works.

ANTI-CORRUPTION CAMPAIGN

Cuban President Raul Castro has made fighting corruption a top priority since taking over from his ailing elder brother Fidel in 2008, attacking high-level graft in food processing, civil aviation and the cigar and nickel industries.

Investigation into shipping and the communications sector are also under way.

"In a country where small-scale but widespread corruption is the rule, if the government is to be seen to be serious about rooting out the scourge, it must show it is doing so at the very top and doing so in a dramatic way," said Hal Klepak, a Canadian military historian and author of two recent books on the Cuban military and Raul Castro.

"I do not see it as bad at all for foreign business in Cuba, probably just the opposite in the mid- to long-term," he said. "But there is also little doubt that it does make many jittery when the problem is such a generalized one."

Raul Castro, a general who led Cuba's Defense Ministry for 49 years, has cracked down on corruption in tandem with efforts to revive the sagging Cuban economy through more market-oriented policies. He has been less active in tackling problems such as low salaries and lack of transparency.

There is no open bidding in Cuba and officials and their employees who handle multimillion-dollar contracts earn the equivalent of just a few dollars per month.

Castro has moved military officers into key political positions, ministries and export-import businesses and in 2009 established the Comptroller General's Office with a mission to attack corruption and a seat on the Council of State.

"The Cuban regime hits away at individuals but is reluctant to make changes in the mechanisms that bred opportunism and corruption. As a result why should people believe that these 'cases' should end the generalized practices of corruption?" said Bert Hoffman, a Cuba expert at the German Institute for Global and Area Studies in Hamburg.

(Editing by Jeff Franks and Bill Trott)

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