Caracas Chronicles

From Today’s Miami Herald

Venezuela Has Stake In Ballots

The Venezuelan government has a 28 percent ownership of the company it will use to help deliver voting results in future elections.

BY RICHARD BRAND AND ALFONSO CHARDY

CARACAS — A large and powerful investor in the software company that will design electronic ballots and record votes for Venezuela’s new and much criticized election system is the Venezuelan government itself, The Herald has learned.

Venezuela’s investment in Bizta Corp., the ballot software firm, gives the government 28 percent ownership of the company it will use to help deliver voting results in future elections, including the possible recall referendum against President Hugo Chávez, according to records obtained by The Herald.

The deal to scrap the country’s 6-year-old machines — for a $91 million system to be built by two fledgling companies that have never been used in an election before — was already controversial among Chávez opponents who claimed it was a maneuver to manipulate votes amid growing political turmoil.

Chávez opponents told The Herald on Thursday they were stunned to learn the government has a proprietary stake in a company critical to the election process.

”The Venezuelan state? Are you kidding?,” said Jesús Torrealba, an official in the Democratic Coordinator opposition group. “It impugns the credibility of the process. That is shocking.”

Government officials insist the investment is an effort to help support private enterprise and its interest in a ballot software company is merely coincidental, one of a dozen such investments made to help struggling companies.

”The whole process led to a decision that was best for Venezuela,” said Bernardo Alvarez, Venezuela’s ambassador in Washington.

But Venezuela is a nation bitterly polarized by Chávez’s leftist populist rule. Nearly every move by the government is scrutinized by opponents who accuse Chávez of trying to impose an authoritarian regime.

GOVERNMENT FUNDS

Until a year ago, the Bizta Corp. was a struggling Venezuelan software company with barely a sales deal to its name, records show. Then, the Venezuelan government — through a venture capital fund — invested about $200,000 and bought 28 percent of it.

The government’s investment in Bizta made Venezuela Bizta’s largest single shareholder and, ultimately, its most important client.

The decision to replace the $120 million system built by Omaha-based Election Systems & Software was made Feb. 16 under unusual circumstances. Two of the five National Electoral Council members sympathetic to the opposition complained that they had been largely shut out of the process.

”The selection process was secret and it didn’t allow us to get any information about the bidders and their products,” board member Sobella Mejías said after the decision.

Other members knew about the government’s investment, according to one member who asked not to be identified.

The new system is to be built by the Smartmatic Corp., which is incorporated in Florida, and programmed by Bizta, which also is registered in Florida and Venezuela.

Pro-Chávez government officials and company executives interviewed by The Herald say the Smartmatic-Bizta machines are among the most secure in the world, and that the government’s investment in Bizta was unrelated to Bizta’s bid for the voting machine contract.

”The companies that were chosen have the highest technical capacity,” said Alvarez, the ambassador. “In Venezuela there have been many fair elections and there will be many more fair elections.”

But the Atlanta-based Carter Center, which has observed every major Venezuelan electoral process since Chávez’s election in 1998, said the disclosure of the government’s role in Bizta reinforces the need for independent election audits.

”What we look at in any electoral process is whether each of the components is transparent and auditable. In this case, we would include these new machines,” said Jennifer McCoy, who is leading the Carter Center’s mission in Venezuela. She said she was unaware of the government’s investment in Bizta.

Even without the political implications, the use of electronic voting machines has been widely debated since the United States’ 2000 presidential election. Stanford University Professor David Dill, who has studied voting machines but is not specifically knowledgeable about the new Venezuelan system, said almost any programmed electronic machine is subject to possible manipulation.

‘People just don’t understand how easily these machines could fail to record votes accurately — even by being `fixed,’ ” he said.

PAPER TRAIL

Smartmatic does produce a paper trail of votes as well, but Venezuelan government critics claim it will be useless since an election recount would be supervised by the Electoral Council, perceived as pro-Chávez.

The National Electoral Council members have hailed Bizta’s software-writing role as contributing to Venezuelan ”sovereignty” over their voting system, which replaces American-designed machines. Chávez, an outspoken critic of U.S. policy, is viewed as leftist and anti-American.

According to Bizta’s 2002 financial statement, the most recent one filed by the company in Venezuela, it was then a dormant firm that had no sales and was slowly losing money.

In June 2003, however, a venture capital company called Sociedad de Capital de Riesgo (SCR) invested about $200,000 in Bizta. The SCR is owned by the Venezuelan government’s Industrial Credit Fund.

In January, a top official in Venezuela’s science ministry, Omar Montilla, joined Bizta’s board of directors to represent the government’s three million shares, records show.

Montilla, who is one of five directors, canceled a meeting with The Herald and did not reply to repeated Herald queries.

One month after Montilla joined the board, the National Electoral Council awarded Bizta and partners Smartmatic and CANTV the $91 million contract to develop new voting machines. Bizta was hired to write the electronic code that configured the names and parties of candidates on the touch screens. Smartmatic would build and design the machines. CANTV, the publicly held phone company, would provide the phone lines for the system and election-day technical support.

The venture is largely the work of two little-known Venezuelan engineers: Antonio Mugica Rivero and Alfredo Anzola Jaumotte, childhood friends and recent engineering school graduates.

Mugica, 30, is the president of Smartmatic and a founder of Bizta. Anzola, 30, is the president of Bizta and the vice president of Smartmatic, corporate records from Venezuela show.

NO CONNECTIONS

Both executives say they have no political allegiances. Neither signed a petition drive seeking Chávez’s recall.

Anzola initially told The Herald that one of the reasons the electoral council selected the group was that it had no connection to either the government or the opposition.

When told in a subsequent interview in Caracas that Bizta papers showed the government had an investment in his company through SCR, Anzola and Mugica said they viewed the investment as a loan.

”We really don’t want to be involved in politics,” said Wladimir Serrano, head of the governments venture capital fund. “Our role is strictly financial and technical.”

Bizta ”remains a private company, with some government shares but without any say on our part on its day to day activities or its strategic programs and policies,” Serrano said.

SUBSTANTIAL POWER

But Harvard Professor Ricardo Hausmann, a former Venezuelan official who also has worked as the chief economist of the Inter-American Development Bank, said any investor holding a 28 percent stake in a company would likely have substantial power to make decisions.

”For example, Verizon is the largest shareholder in CANTV, holding 28 percent, and it has control of the company’s management,” said Hausmann, who sits on the CANTV board. With Bizta, “The government’s influence will depend on the arrangement between the government and other shareholders.”

SCR’s stock purchase in Bizta was part of a broader effort to help start-up companies that could bring Venezuela international prestige in a wide range of industries, Serrano said.

He provided a list of a dozen other companies in which SCR has invested.

Most of the 20,000 Smartmatic-Bizta machines will be delivered over the summer from the factory in Italy, officials say.

Reparos roundup

BBC: Chavez bristles amid fresh attack

Agence France Presse: Venezuela’s political impasse nears an end

State Dept: US Urges Chavez to Support ‘Fair’ Process in Resolving Venezuela Recall Dispute

Reuters: Chavez Blasts U.S. for Venezuela Referendum Pressure

AP: As Venezuela heads into recall vote count, Chavez seeks “dark-skinned utopia” in Mexico