DoJ says voting machine maker funneled LA county money into slush funds used to pay bribes

The Guardian

a day ago

The justice department is alleging in a new court filing that three Smartmatic executives who were indicted last year on bribery and money-laundering charges transferred money from a 2018 voting machine contract with Los Angeles county into slush funds that were originally set up to pay bribes to election officials in Venezuela and the Philippines between 2012 and 2016 to obtain and retain lucrative election contracts.
Prosecutors say one of the executives transferred an undisclosed amount from the $282m LA county contract into the slush funds in 2019 but did not say if anyone actually received bribes from the county's money at that point. The government is seeking to prove the funds were part of a long pattern of bribing election officials by Smartmatic, the voting machine company, which sued Fox News for defamation after the 2020 election.
A separate court filing in a lawsuit brought by Fox News against LA county to obtain records about Smartmatic's relationship with Dean Logan, LA county's registrar-recorder and county clerk who oversees elections and the Smartmatic contract, Fox News asserts that Logan may have received inappropriate gifts from the company in the form of business-class travel and upscale restaurant meals. Logan is supposed to report vendor gifts above $50 on annual disclosure forms, but records obtained by Fox News and included in the court filing show he did not report some gifts from Smartmatic. Logan maintains he was not required to report the travel or a meal that Fox highlights in its filing. Fox News is seeking the records from LA county to support its defense against a defamation suit filed against it by Smartmatic in 2021.
Last year, prosecutors in Florida filed corruption charges against the president of UK-based Smartmatic, along with two other current and former executives, for allegedly operating a years-long bribery and money-laundering scheme that paid bribes to an election official in the Philippines. The justice department has since said that the scheme involved payments to officials in Venezuela as well, where the company obtained its first elections contract in 2004.
US election integrity activists have long been concerned about Smartmatic's contract with LA county, due to the company's controversial history, the founders' ties to Venezuela and a lack of transparency over company ownership. The company first tried to get into the US elections market in 2006, but a federal investigation into its ownership and potential ties to the Venezuelan government at the time put a halt to its US ambitions until it obtained the contract with LA county in 2018. Concerns about the company and its role in US elections increased last year when the justice department indicted its executives.
The new revelations about the LA county money raise even more questions about the county's contract. Prosecutors allege that the Smartmatic executives conspired for years with the owner of Jarltech International, a hardware maker in Taiwan that manufactured voting machines for Smartmatic, to overcharge customers for the systems it built then used the excess money to pay bribes to election officials in the Philippines and Venezuela. Prosecutors do not say if they overcharged LA county as well or if any LA county money actually got paid out in bribes to anyone – only that some of that money made it into slush funds that had been used in the past to pay bribes. The justice department declined to answer questions about the case but said in a court filing that it has documents and witness testimony to support its claims about LA county's money.
Smartmatic itself has not been accused of wrongdoing, only the three executives. But a Smartmatic spokesperson says the justice department allegations are 'filled with misrepresentations' and also says the company operates 'ethically' and abides 'by all laws always, both in Los Angeles county and every jurisdiction where we operate'.
The new allegations are not part of charges the justice department brought against the Smartmatic executives. Prosecutors are only asking a Florida court to allow evidence about the LA county money to show a pattern in how the executives managed their alleged bribery and money-laundering scheme.
After news of the indictments broke last year, the county barred the three executives from any further association with its Smartmatic contract but did not 'debar' the company itself, something it can do if a contractor shows a lack of 'business integrity or business honesty'. The county can also terminate a contract if a vendor gives any county officer or employee 'improper consideration' in the form of travel, entertainment or tangible gifts to secure favor. But Logan's office says it stands by its work with the company. With regard to the implication that LA county money that got into the slush funds might have come from overcharging the county, Logan says the county's contract with Smartmatic uses fixed pricing.
'The alleged actions in the federal matter are unrelated to the work performed under contract by Smartmatic for Los Angeles County,' according to a statement sent by Logan in an email. 'The County has no knowledge or visibility into how Smartmatic USA used proceeds from that contract; however, the County does validate work performed and deliverable requirements aligned to the fixed price structure of the contract prior to making any payments.'
The contract runs through March 2027, but has three, two-year extension options that, if exercised, would stretch the agreement to 2033. It also does allow for changes in pricing up to 10% of the contracted amounts.
The three indicted executives include company president and co-founder, Roger Alejandro Piñate Martinez Jr; Jorge Vasquez, former vice-president of hardware development for Smartmatic's US division; and Elie Moreno, who oversaw the company's contracts. According to a company bio, Piñate, who goes by Roger Piñate, played a 'critical' role in winning the LA county contract and was chief operating officer until becoming president in 2018, the year Smartmatic won the Los Angeles contract.
Piñate is a Venezuelan citizen and permanent US resident, and Elie Moreno is a Venezuelan-Israeli. The company put Piñate and Moreno on administrative leave after the announcement of their indictments last year, and currently Ruliena Piñate, Roger's cousin, oversees Smartmatic's LA contract with another employee. She was co-president with her cousin before his indictment. Vasquez, a US citizen, left Smartmatic in 2021 in the midst of the justice department investigation. The justice department accuses him of receiving direct kickbacks for his role in the alleged scheme.
Smartmatic has been dogged by controversy almost since its founding in Florida in 1999 by Piñate and two fellow Venezuelan engineers – Antonio Mugica and Alfredo José Anzola – as a network applications developer.
The company shifted to voting machines in 2004 when then-Venezuelan president Hugo Chávez was threatened with a recall referendum. Months before the recall election, Venezuela's National Electoral Council announced it would replace the country's six-year-old voting machines with new ones under a $91m contract awarded to Smartmatic, Bizta – a small software firm owned by Mugica and his father – and the state-run telecom CANTV. Smartmatic and Bizta got the contract despite having no experience in voting machines or elections. There were other concerns about the deal as well: the Venezuelan government owned 28% of Bizta through a $200,000 investment in the firm, a close associate of Chávez was on Bizta's board, and two of the five members of the electoral council denounced the contract, citing irregularity with the bidding process.
Chávez survived his recall battle, though not without additional controversy: he and his supporters were accused of rigging the election based on an outcome that differed from an exit poll. However, after an audit of the results, the US-based Carter Center, which monitors overseas elections, supported the outcome, as did the US state department.
Riding its success in Venezuela, Smartmatic tried to enter the US elections market in 2006 by using money from the Venezuela contract to buy the California-based Sequoia Voting Systems, whose voting systems were used across the US. The purchase caught the attention of the Committee on Foreign Investment in the United States, which launched an investigation into Smartmatic's ownership and possible ties to the Venezuelan government. But rather than cooperate with the federal inquiry, Smartmatic quickly sold off Sequoia.
The company then turned to Europe and other election markets, moving its headquarters to the UK in 2012. It won a contract worth more than $180m to supply the Philippines with more than 90,000 voting machines for its 2016 elections, with Jarltech International on board to manufacture the machines. But the company became embroiled in more controversy almost immediately after the election when Philippine authorities charged the head of Smartmatic's technical support team and two subordinates with accessing a system on election night used to transmit unofficial results and making an unauthorized change to code. The case was later dismissed.
Two years after the Philippines election, Smartmatic won the Los Angeles contract. Smartmatic hoped to parlay this win to expand across the US. But after its machines were used for the first time in the 2020 presidential primary and general election, Donald Trump, who lost the election, falsely accused Smartmatic and Dominion Voting Systems of manipulating the results to give the election to Joe Biden.
These claims were amplified by Fox News and other media outlets sympathetic to Trump, and in 2021, Smartmatic filed a series of defamation lawsuits against media outlets and Trump supporters who they say encouraged and amplified the vote-rigging assertions, including a $2.7bn defamation suit against Fox News. Smartmatic claims Fox News reporting decimated its US business prospects, causing other election jurisdictions to shun it. But Fox News says it simply covered newsworthy claims made by Trump and others.
Last year Smartmatic settled a similar suit against Newsmax for $40m and against One America News for an undisclosed sum and seemed to be on path to win or settle the Fox News suit as well until the indictment of its executives. Fox News has used the indictments and alleged bribery scheme to support its defense in the defamation suit, saying in court documents that if the company has had trouble expanding its business in the US, it's due to these allegations and the company's troubled history, not Fox News reporting.
Prosecutors from the southern district of Florida allege that the three Smartmatic executives and Jarltech owner Andy Wang engaged in a years-long conspiracy to overcharge the Philippines government for voting machines, then used the fraudulently obtained funds to pay more than $1m in kickbacks to Juan Andres Bautista – chair of the Philippine elections commission at the time – to win and retain a contract to supply systems for the 2016 elections there.
Jarltech allegedly overcharged the Philippines government $10-$50 per voting machine in 'extra' or 'rush' fees, amassing about $6m in a slush fund to pay the bribes. Wang allegedly managed the funds in Hong Kong bank accounts, and Smartmatic executives directed the payments, using bogus purchasing agreements, shell companies and banks in Europe, Asia and the US. Bautista passed the money to a family member who then bought a condo in San Francisco, prosecutors say.
Wang did not respond to questions from the Guardian.
The justice department investigation began after Bautista's estranged wife told Philippine authorities in 2017 that her husband had $20m in 'unexplained wealth' and provided them with 35 passbooks for offshore bank accounts in Bautista's name. Bautista resigned as chair of the election commission two months later, and in 2023, news broke that the justice department had filed charges against him and was investigating unnamed Smartmatic executives as well.
But the scheme didn't start with the Philippines. Prosecutors say the conspirators had also inflated the cost of voting machines sold to Venezuela to amass $4m for bribes paid to unnamed Venezuelan officials between 2012 and 2014 , showing a pattern of illegal activity. In 2019, prosecutors say Piñate also transferred ownership of an upscale home in Caracas to Tibisay Lucena Ramírez, then president of the Venezuelan National Electoral Council, to secure her assistance with its business interests in that country.
A Smartmatic spokesperson calls the house claim 'untethered from reality'. She says Smartmatic 'ceased all operations in Venezuela in August 2017 after blowing the whistle on the government and has never sought to secure business there again'.
In 2017, Smartmatic accused the Venezuelan electoral council and the Nicolás Maduro regime of manipulating voter turnout numbers and election results and ceased business in the country. But prosecutors say Piñate hoped to repair the relationship with Venezuela with Ramírez's help and gave her the Caracas home as a bribe. Ramírez died in 2023.
The federal case against Smartmatic executives and the company's lawsuit against Fox News have now become intertwined due to the new allegations about the LA county money and questions about whether the executives used bribes to win favor around the county contract. Fox News says in its recent filing against LA county that it 'does not yet have evidence that slush fund payments or real estate title transfers were made to any L.A. County official', but it says that gifts Logan received from the company follow 'patterns of misconduct' that prosecutors have alleged occurred in other countries, and that Logan cultivated an unusually close relationship with Smartmatic executives that went 'well beyond typical business relationships.'
Logan took a nine-day trip to the Maldives and Taiwan in July 2019 that was partially funded by Smartmatic, including business-class air fare, accommodations and meals, according to text messages obtained by Fox News and included in its court filing. The Maldives portion was covered by an organization that invited Logan to speak there, but Smartmatic paid for Logan's travel to Taiwan. Based on another text message not included in the court filing but seen by the Guardian, Smartmatic played a role in coordinating the conference invitation to Logan as well.
Logan's wife accompanied him on the trip, but the text messages indicate he gave his credit card number to Smartmatic to cover her $5,000 air fare. Logan and his wife tacked on tourist activity to the Taiwan portion of their trip, and it's not clear how much Smartmatic paid for the entire excursion. Under California Fair Political Practices Commission regulations, gifts to state and local officials from a single source were limited to $500 a year when Logan took the trip. Smartmatic would not say how much it paid for the Taiwan trip, citing ongoing litigation.
An LA county spokesperson said in an email that the Taiwan trip was not a gift but a work trip to conduct oversight of the manufacturing process – the trip included a visit to Jarltech, the subcontractor that was making the hardware for LA county's machines. The spokesperson wrote: 'the lead from the County's VSAP design contractor was also part of the trip, which included detailed reviews and presentations of products that required approval prior to manufacturing, and onsite visits to multiple product and manufacturing assembly plants/operations.'
Approval of the manufacturing process was required as part of the contract, he says, and 'protocols for notification and approval of the travel were followed and are documented in the responsive records provided [to Fox News]'.
Asked why the project manager for the contract, whose job is 'inspecting any and all tasks, deliverables, goods, services, or other work provided by or on behalf of the Contractor' didn't visit the Jarltech facilities instead of Logan, spokesperson Michael Sanchez said that as chief elections official 'Logan had and continues to have clear responsibility for ensuring contract compliance.'
Fox News disputes that the travel was covered under the contract, noting that the contract only mentions paying travel expenses if county officials are auditing financial records related to Smartmatic's contract with the county and have to travel outside the county to view the company's financial records. Sanchez says the paragraph addressing travel expenses 'is not limited to the inspection of financial records for a financial audit' but includes travel to 'examine … any pertinent transaction, activity, or record' relating to the contract.
In addition to the Taiwan travel, Fox News says Smartmatic paid for an unknown number of meals in upscale restaurants for Logan, at least one of which Logan did not report on annual disclosure form in 2022. In a deposition in the lawsuit Fox has filed against LA county to obtain Logan's records, Logan disputes that he was required to report the meal because he says it was a personal meal with a Smartmatic employee.
He also rejects the suggestion that Smartmatic won its contract out of favoritism.
'The contract between Los Angeles County and Smartmatic USA was competitively bid, evaluated, and awarded in compliance with the County's open competitive public procurement processes,' Logan wrote in an email.