SANTO DOMINGO — When the U.S. Embassy set out to press the Dominican government over a long-stalled contract to provide port security, American officials took on some tough opponents. The deal had languished for more than a decade amid stiff resistance from the American Chamber of Commerce, which represents the interests of American and local businessmen in the Dominican Republic, and the country’s customs authorities.
Ambassador Raul Yzaguirre’s team pushed the government to enforce the contract — which calls for operating X-ray scanners to screen cargo at the country’s ports — despite objections over its merits and its price tag.
The port deal has come under heightened scrutiny in the United States in recent weeks because of its chief investor, a wealthy Florida eye doctor named Salomon Melgen who stood to gain a windfall if the contract was enforced, and his close friend Sen. Robert Menendez (D-N.J.).
Menendez, whose relationship with Melgen is the subject of a Senate ethics inquiry, was a major beneficiary of the doctor’s generosity, repeatedly flying on his private plane to the Dominican Republic, staying as a guest at his seaside mansion and receiving large campaign contributions. Melgen donated $700,000 to Menendez and other Senate Democrats last year. The senator was also the most powerful champion of the port deal, publicly urging U.S. officials to pressure Dominican authorities to enforce the contract.
Menendez pointed to the port security deal at Yzaguirre’s confirmation hearing to become ambassador, an aide to the senator said, asking him to put a priority on security efforts aimed at countering drug trafficking through the Dominican Republic. Melgen, too, sought Yzaguirre’s help in enforcing the contract.
Yzaguirre, for his part, received help from both men in becoming ambassador. They had provided a crucial boost to his nomination when it ran into trouble.
The details of efforts by Yzaguirre and embassy staff on behalf of the port security contract remain sketchy. But the ambassador spoke approvingly of stepping up drug interdiction measures when Dominican reporters specifically asked him about the port deal. And embassy officials told the American Chamber of Commerce that they were seeking a resolution of the contract favorable to an American investor, according to William Malamud, the chamber’s executive vice president.
Though it was unusual for a U.S. Embassy to cross swords with the local American chamber, embassy officials said they were doing what U.S. diplomats around the world do when American investors get ensnared in legal or bureaucratic problems.
But this was no routine case because of the relationship among the three men: the senator, the eye doctor and the envoy.
When Yzaguirre’s nomination in 2009 to become ambassador to the Dominican Republic was held up by Republicans in Congress over other disputes with the State Department, Melgen and Menendez came to his aid. At the time, Menendez chaired the subcommittee of the Senate Foreign Relations Committee that handled Caribbean affairs. With the nomination stalled, Melgen spoke with the senator and registered once again his support for Yzaguirre being confirmed, according to Melgen’s lawyer.
“Given his credentials and commitment to the United States, Dr. Melgen supported and advocated on behalf of Raul Yzaguirre given his belief that Mr. Yzaguirre would be an ideal representative of the United States in the Dominican Republic,” Melgen attorney Kirk Ogrosky said in a statement issued Thursday.
Menendez, who now chairs the Senate Foreign Relations Committee, helped break the logjam over the nomination, his aides said, though they added that Melgen was not a factor. They said Menendez’s efforts on behalf of Yzaguirre, a veteran civil rights advocate in the Latino community, reflected the senator’s admiration for him.
“In light of Republican opposition, Senator Menendez was asked by the Democratic leadership to help work through the issues causing the delay on the Yzaguirre nomination,” the senator’s aide said in a statement.
In response to a reporter’s question, the senator’s office initially said in a statement that Melgen never approached Menendez about supporting or pushing the nomination forward. Later, an aide to the senator said Melgen never pushed Menendez to help confirm the nominee but may have informally mentioned his support for Yzaguirre.
Staffers on the Senate committee said they were struck by Menendez’s efforts on behalf of Yzaguirre. Two former Senate staffers, a Democrat and a Republican speaking anonymously to address nominee deliberations, said it was odd that Menendez had made this a priority at a time when there were more important posts for the committee to fill, including the U.S. envoy to Mexico.
“His staff and he were pushing for [Yzaguirre] in every single way,” said the former Republican staffer. “With all these other things happening, why was Yzaguirre the one he wanted so badly? The chief concern was: Why is he pushing so hard for a country that isn’t really that important?”
A Menendez aide said the senator’s handling of the nomination was not unusual and that he had pushed just as hard, if not harder, for another nominee tapped as the envoy to El Salvador, another small country.
Menendez chaired Yzaguirre’s confirmation hearing in March 2010 and, according to an aide to the senator, specifically alluded to the dormant port security deal in asking about efforts to interdict drug trafficking through the Dominican Republic. The aide said Menendez was citing the port deal when he asked Yzaguirre: “Can we get your commitment to put this in your portfolio as our ambassador in pursuing these interests which are critical to the United States in terms of our overall counternarcotics efforts?”
Menendez’s aides have said that his efforts on behalf of port security in the Dominican Republic were justified and that the senator remains committed to fighting drug trafficking.
The nomination of Yzaguirre in 2009 came the same year that Melgen registered the company Boarder Support Services, which later partnered with the Dominican family that had initially secured the port security contract in 2002.
The no-bid contract had been issued by the armed forces to Belinda Beauchamps, the widow of a Dominican general, and would have allowed the company to charge $25 to $90 per vehicle and container scanned through X-ray machines. In total, the 20-year contract could be worth $500 million.
But the American Chamber of Commerce warned that such fees would stifle the competitiveness of businesses in the Caribbean nation, and Dominican customs officials argued that they, and not a private company, should be inspecting cargo at the port. A new Dominican government elected in 2004 suspended the contract, leaving it in limbo until recently.
Not long after Yzaguirre was confirmed as ambassador in September 2010, Melgen contacted him for help. He asked the ambassador to push the Dominican government to honor the contract with Melgen's company, according to Ogrosky.
“Boarder Support Services has in place a legally binding contract with the Dominican Republic to provide x-ray inspection services at ports in the Dominican Republic. Dr. Melgen asked Ambassador Raul Yzaguirre in his capacity as Ambassador to advocate on behalf of Boarder Support Service for enforcement of the contract law,” Ogrosky said in a statement.
After long remaining dormant, the port security contract began to gain traction as a Dominican government commission started to consider whether to enforce the agreement.
Last spring, as the commission was conducting its review, Yzaguirre nominated Melgen for membership in the New America Alliance, a group composed of prominent Latino American businessmen and entrepreneurs, according to an announcement touting three new members. Yzaguirre had been one of group’s founders in 1999, cutting his ties with it after becoming ambassador.
The alliance requires members to pay $10,000 per year in dues, according to its Web site, which says they must “immediately begin to invest in the organization.” In a statement, Melgen said Thursday that he had paid his dues to the alliance. His membership, he added, is “representative of his professional accomplishments and his desire to give back to the community.” (After receiving an inquiry from a reporter, the New America Alliance deleted Yzaguirre’s name as the reference for Melgen on the Web page announcing his membership.) A spokeswoman would not answer questions about Yzaguirre’s current involvement in the organization, nor would the U.S. Embassy in Santo Domingo comment on his role.
Last spring, Melgen was also ramping up his political contributions. Over the course of 2012, he made three donations totaling $700,000 to a PAC affiliated with Senate Majority Leader Harry M. Reid (D-Nev.) — two in June and one in October — which in turn contributed $600,000 to Menendez’s successful reelection bid, according to campaign finance records.
In the meantime, the Dominican government was easing its resistance to the port deal. In addition to U.S. supporters, Melgen had influential backers in the Dominican Republic advocating for the deal, including a relative: the nation’s anti-drug czar.
A crucial breakthrough for Melgen came in August, when the government commission tasked with revising the terms of the contract recommended to the Dominican president that the deal be honored, with certain changes, including lower tariffs.
In November, responding to a question from a Dominican reporter about the port contract, Yzaguirre seemed to publicly endorse the deal. “We are going to step up efforts and resources to face the issue of drugs. It is a serious problem,” he said in Spanish.
Those remarks were trumpeted online by Voxxi, a news Web site run by Melgen.
Still, the contract’s opponents continued to object, saying that it had been improperly awarded to the Beauchamps family as a sweetheart deal and that Melgen’s more-recent investment in the firm did not change that.
Jean and Juan Beauchamps, the general’s sons, who have acted as representatives for the company in the past, did not respond to requests for interviews.
Critics of the contract said they considered it unusual that the embassy would back the arrangement over the objections of the customs agency, business leaders and the American chamber. But Terry Heinsen, president of the Dominican Shippers Association, who has strongly opposed the deal, said in an interview, “We all knew Melgen had a team of heavy-hitters behind him.”
The U.S. government has had a keen interest in port security in the Caribbean since the Sept. 11, 2001, attacks. The Dominican Republic is among the countries that participates in a program called the Container Security Initiative, which gives American personnel the ability to screen certain cargo bound for the United States abroad. The United States donated $7.4 million in September to the Dominican government for a range of security initiatives, including enhancing port security. The U.S. government had not expressed a public opinion about the private port security contract before Melgen became involved.
Responding to a reporter’s questions about the embassy’s policy on the port matter, an embassy representative released a statement saying the State Department routinely helps U.S. businesses abroad. The spokeswoman and the State Department declined to answer questions about Yzaguirre’s role in the port deal.
Just as the fortunes of the port deal were looking up, the contract ran into trouble again in the past few months as questions about Menendez and Melgen surfaced in public.
Last month, Menendez reimbursed Melgen $58,500 with a personal check for two flights the senator had taken in 2010 to the Dominican Republic on the doctor’s private plane.
Menendez had not previously reported the trips as gifts or reimbursed Melgen, as required by Senate rules. The senator said the error was the result of sloppy paperwork.
Melgen, meanwhile, is under federal investigation, according to two law enforcement officials. FBI agents and federal health-care fraud investigators raided his Palm Beach medical offices last month as part of what law enforcement sources say is a probe into allegations of fraudulent Medicare billing.
As the international spotlight has turned on Menendez and Melgen, momentum for the port security deal has again slowed.
Alice Crites contributed to this report.
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