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Smartmatic relinquished control of source code to Venezuela's Electoral Board in 2004

The following is part of a book I am writing on Venezuela's corruption. It explains Smartmatic's "success" in Venezuela. Donate £1 / $1 / €1 here, if you think I should continue.


The Miami Herald reported the following, on Friday May 28, 2004:

"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... 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 Chavez, according to records obtained by The Herald... 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"

Further, the Herald also shed light upon shareholders and registered addresses of Bizta and of Smartmatic:

Three companies will build and execute Venezuela's new touch-screen voting system. Two are incorporated in Florida, though neither does most of its business here.

- Smartmatic Corp., which will build the machines, incorporated in Florida in 2000 and lists its world headquarters at 6400 Congress Ave. in Boca Raton. Its president is Antonio Mugica Rivero, 30, and its vice president is Alfredo Anzola, 30.

- Bizta Corp.,which will provide software for the new machines, incorporated in Florida in 2001, and lists its address as 19591 Dinner Key Dr., Boca Raton, a residential property owned by Mugica's father. Mugica is listed as president, and Anzola is vice president, according to Florida records. Venezuelan records, however, indicate Anzola is president. In Caracas, Bizta shares its office with Smartmatic.

- CANTV, Venezuela's publicly held phone company, will provide phone lines to connect the system and election day technical support. It would have been part of any voting system selected for the elections contract.

Bizta R&D Software was a dad-son shell incorporated by the Mugica family (mum, dad and son) under a different name (Software Softer) in Caracas in 1997.  It wanted to be in the business of developing online accounting solutions, a model Quickbooks would later launch with great success. It was, however, a tiny concern with hardly any sales, a failed startup. It changed its name to Bizta in June 2001, when it admitted Anzola as shareholder through Bizta Corporation, a Florida shell owned by Mugica Jr and Anzola. In June 2003, Anzola “found” an investor, 300 million Bolivares (~$187,500). Bizta got the cash from FONCREI, a State owned institution, which extracted a 28% stake in return. The actor behind FONCREI was a company called Sociedad de Capital de Riesgo (SCR), whose director was Marieta Maarroui de Bolívar, same as in FONCREI.  Maarroui de Bolívar was the wife of Didalco Bolívar, then Governor (chavista) of Aragua State. FONCREI had the majority of SCR’s shares. A fundamental aspect of the set up was Omar Montilla.

Montilla was an active member of Unidad de Estrategia y Padrón Electoral del Polo Patriótico (UNEPAD), tasked with strategy during Chavez’s presidential campaign in 1998. UNEPAD’s director was Wilmer Castro Soteldo, acting Minister of Production and Commerce at time of FONCREI’s funding of Bizta. FONCREI, being a State entity, was under remit of Minister Castro Soteldo when Bizta took the cash. Bizta and Smartmatic had the same founders / owners: Antonio Mugica and Alfredo Anzola. FONCREI’s cash not only meant that a 28% stake was under Chavez’s control, for all practical purposes, but Montilla was appointed to Bizta’s board.

Smartmatic, on the other hand, had been first registered in Florida by Mugica and Anzola. It had various shareholders in Venezuela, basically family and friends. Mugica Sr. was part of it. Another important partner was Jorge Massa. Massa had married Gustavo Cisneros’ sister (Anita). That connection launched Massa into the world of Group Cisneros companies, where he was given roles thanks to marital reasons. Massa continued to be a Smartmatic shareholder, and according to AB’s sources was seen by Mugica as a mentor of sorts. The jump from flogging online accounting solutions (Bizta) to electronic voting came (Smartmatic), however, via Anzola’s father in law. This gentleman (Antonio Jose Herrera), was very close to Jose Vicente Rangel, at the time Vice President of Venezuela, and was cousin of Bernardo Alvarez Herrera, at the time Venezuela’s Ambassador to the U.S. Herrera introduced Smartmatic to family / friends, and these worked the lines and pitched it to Rodriguez. The stake purchased by Montilla was just the first of many deals Smartmatic would end up doing with chavismo.

A consortium formed by Smartmatic, Bizta and CANTV (SBC) was to implement electronic voting through touch-screen machines in the coming referendum. Before the Recall Referendum, neither Bizta nor Smartmatic had participated as purveyors of electronic voting hardware or software in any electoral process, anywhere on earth. This, however, did not stop the Electoral Board controlled by Rodriguez from granting Smartmatic over $131 million worth of contracts from February 2004. Bizta would develop the software and Smartmatic would provide the hardware. CANTV, wherein Venezuela was also a shareholder, would provide its telecoms network and infrastructure.

Hence, Montilla in board of Bizta. Hardware, i.e. the touch-screen machines, were bought from Italy’s Olivetti. Olivetti did not sell touch-screen, electronic voting machines at the time. Neither Mugica nor Anzola negotiated the purchase with Olivetti. Jorge Rodriguez, leading board member of Venezuela’s National Electoral Council (CNE), traveled to Smartmatic's 'factory' in Italy, in early in 2004, to check the progress of the production of the electronic voting machines. These were purchased to Tecnost Sistemi Olivetti for $57.968.040. However Italian news agency ANSA posted on the economy section on April 15, 2004 that the total amount of the contract was just over $24 million:

"Olivetti Tecnost, la Business Unit "Office & System Solutions" del Gruppo Telecom Italia, si e aggiudicata una commessa del valore di oltre 24 milioni di dollari, per la fornitura complessiva di 20.000 terminali di voto elettronico in Venezuela, che saranno utilizzati per la prima volta nelle elezioni del prossimo agosto". (bold added)

Venezuelan media reported 20.000 AES300 machines were bought to Olivetti by Smartmatic, however the Italian firm did not have that model in its catalog of products, but one called MAEL 205, which was designed to play lottery. 

On Chavez’s orders, Rodriguez had been looking for an automated electronic voting solution for a while. The deciding factor in contracting a provider, Smartmatic or any other, hinged on one fundamental: Rodriguez wanted absolute, unsupervised, unrestricted control of the source code (operative system) of the voting platform. No serious company could agree to such demand. INDRA, a well established Spanish electronic voting provider that had been contracted by CNE in past elections in Venezuela, couldn't agree to Rodriguez’s demands. No serious company could, really, as it amounted to ceding control of trade secrets and intellectual property to Venezuela’s CNE. Smartmatic was different though. It did not have intellectual property or commercially successful source codes or operative systems to protect. It was an empty shell. It had nothing. It became the company that built -from scratch- a bespoke electronic voting solution to fit Hugo Chavez’s epic revolution.

Acting, effectively, as CNE’s ultimate controlling party, Rodriguez got Smartmatic to surrender control of whatever source code to be developed, before granting the first contract ($112 million on 16 February 2004). Thus, Mugica and Anzola went from failed startup to getting $112 million, the first of many contracts they got from CNE. Mugica eventually admitted that this was, in fact, the case. In an interview in October 2004, Mugica said an agreement had been reached with CNE to give control of source code, but then lied about having revoked it. It never was revoked. The differential (~$33 million) between what local press in Venezuela reported as cost of voting machines, and what was actually paid to Olivetti, was Smartmatic’s surcharge from which a thank you bribe to Rodriguez was drawn.

In the afternoon of 12 August 2004, just three days before the Referendum, Mugica sent an email to his Smartmatic colleagues. Thanking the arduous work of his team, he went on to claim that the opposition, chavismo, the Carter Center, the OAS and CNE had “publicly expressed their trust on Smartmatic, on its technical staff and on the electoral technology that would be used in the Referendum.” He added that such a momentous achievement was made possible only owing to Smartmatic’s “innovation, execution, impartiality and responsibility.” Mugica continued his victory lap by recognising his team’s “maturity to carry on with the project under conditions that, at times, were adverse, unusual and unexpected”, adding he was “proud of all of you for having navigated muddled waters, and for having overcome obstacles that were imposed by chance or force.” In closing, Mugica warned his team “The following days are going to be hard. Days of much tension, of much responsibility, and of multiple situations with difficult decisions… We’ve managed the hardest bit, now it is just the final act what’s left.” Then, he ended with “Hari Om Tat Sat”.

The 15 August 2004 Recall Referemdum was, at its most basic, a yes / no question on whether Chavez should remain as President of Venezuela. Rather than formulating the question in a simple, understandable and straightforward way, Electoral Authorities framed it in confusing terms: “Do you agree to leave without effect the popular mandate given through legitimate democratic elections to citizen Hugo Rafael Chavez Frias, as President of the Bolivarian Republic of Venezuela for the current presidential term?” 

There was a huge level of expectation. Continuation meant Chavez could deepen his “Bolivarian Revolution”, a rather fancy description for what it was already a de facto kleptocracy. It also meant that the free for all would continue. A yes vote, to recall Chavez, was akin to a reset that no one really knew how it would end up. There were no opposition candidates running, this was a plebiscite on Chavez.

The OAS and the Carter Center sent electoral observation missions to monitor the process. In theory, it was “access to all areas”, in practice, when the crucial crunch time of tallying results came, Jorge Rodriguez impeded observers from witnessing the count at National Electoral Council (CNE in Spanish) headquarters. Rodriguez pre empted other possible setbacks. Early in the voting day, he called a press conference to “denounce” that a “recording” of Francisco Carrasquero (head of CNE) announcing a victory for the yes vote was making the rounds. Carrasquero flanked Rodriguez, while latter decried unscrupulous actors seeking to “manipulate” results. Both made calls for a “thorough investigation” that would weed out perpetrators, which were never identified of course. 

Mugica’s prescience manifested in the early hours of 16 August, when in televised address to the nation, Carrasquero announced that the No vote, i.e. Chavez to stay in power, had obtained 59,25%. The yes vote got 40.74%. The heads of the international electoral observation missions, former U.S. President Jimmy Carter and by OAS’ Secretary General Cesar Gaviria, corroborated results announced by Carrasquero, not before disagreeing during a press conference on 16 August, on something as critical as presence of electoral observers at CNE headquarters during the final tally. Carter claimed observers had witnessed the count. Gaviria said they did not, stressing that a detailed audit of the final count was necessary. Chavez and his electoral minions did not even try to allay suspicions. Despite winning by almost 20%, every obstacle and trick was used by officialdom to impede proper auditing of final results. Chavez was not the victor with a comfortable 20% spread, but someone who did everything within his not inconsiderable executive power to prevent scrutiny of results.

The Carter Center failed many of the tasks it was expected to conduct. Audits, crucial in any electoral process, were never done as agreed by the parties. Paper tickets, which Smartmatic machines printed out upon voting, were only counted in limited places, and in every single one of those places results were almost exact opposite of what Carrasquero had announced. On 15 August 2004, AB was in charge of coordinating, in London’s Venezuelan Consulate, electoral observers, witnesses and polling staff. Every voting station, whether in Venezuela or abroad, had representatives of both camps. The voting process was regulated, everywhere, by the same piece of legislation, which established parameters for voting, tallying, and auditing. It was expected that Venezuelans living abroad would, for the most part, vote to remove Chavez. London was no exception: of 743 votes, 689 were for removing Chavez.

On 16 August 2004, AB was asked for comment regarding the recall referendum in Venezuela, by the BBC World Service. He could remember vividly having been greeted by BBC journalists in Bush House with the news that Jimmy Carter would give the imprimatur to referendum results. This was London, morning time (GMT), meaning many hours before Carter’s announcement in news conference in Caracas that the whole thing had been an exercise in transparency and fairness. The BBC knew, hours ahead, precisely what Carter would say. BBC’s Cindy Polemis wanted to hear AB's impressions about the process, but more importantly, she wanted to know whether the opposition would resort to violent means to reject results. Interestingly, in the week prior to the recall, Venezuela’s Minister of Energy Rafael Ramirez, union boss Ramon Machuca, and other revolutionary leaders had said that recalling Chavez would mean immediate disruption of oil supplies, instability and chaos in energy markets. Polemis, as customary with BBC journalists, had swallowed whole the chavista propaganda. She portended the opposition would get violent, and saw the U.S. empire, and its hidden agenda of taking control of Venezuela’s oil resources, as the backbone of opposition’s refusal to accept announced results.

AB had brought his copy of results produced in London vote. Three identical copies were made: one to be sent to CNE HQ, and one for each representative of yes / no camps (carbon copies). He explained how such copies were produced, upon end of voting and counting had taken place before witnesses. No such thing had happened in Caracas though. Final count had to be observed, by representatives of both camps, electoral authorities, Smartmatic staff and international electoral observation missions. Once count had concluded, all parties had to sign in agreement with results. Carrasquero’s had announced results that were the product of a tally that no one, but Rodriguez and his team, had overseen. How could anyone have the expectation that such results were acceptable?

Jennifer McCoy was the Carter Center’s head of mission in Venezuela. Eventually, the Carter Center produced a preliminary report that recognised some of the mission’s shortcomings, admitted that the Chavez regime had abused its powers in the run up to the referendum, and made some recommendations to CNE electoral authorities. AB decided to email questions to McCoy. There were too many unacceptable issues around audits, namely a) the software programme proposed by the Carter Center and the OAS to produce the randomized generation of an audit sample was not used, despite assurances given by both international observation teams to opposition representatives; b) Rodriguez unilaterally decided from which polling stations / constituencies the sample was to be drawn; c) in the limited number of polling stations where audits were conducted under opposition observation, the yes option was victorious by a margin almost identical to the one announced by Carrasquero for the no option; d) the Carter Center did not conclude the hot audit as it should have on 15 August; e) Carter Center and OAS representatives did not safeguard the integrity of ballot boxes for 60 hours, prior to second audit done three days after the vote.

There were two audits, one 15 August (hot audit) and another on 18 August. McCoy admitted that sites were restricted by the CNE for logistical reasons, read the Carter Center’s observers did not have access to all areas. McCoy further clarify some of AB’s questions:

In Venezuela, despite a pattern of 3:2 votes in the CNE, sufficient signatures were validated to hold a recall referendum. The spread was 19%, or 1.8 million votes. There were many issues that needed significant improvement before the next election, including greater openness and more extensive audits to reassure voters about the performance of new technology that would not have been necessary had they been done the first time the machines were used. The Carter Center and the OAS made recommendations to improve the process the next time around. Neither organization found any evidence that would have overturned the results.

With regard to the audit: as we have reported, the OAS and Carter Center statisticians and computer engineers from Brazil, Uruguay, Bolivia and Germany tested the sample program before and after the sample drawings on both August 15 and August 18. Extensive tests demonstrate it was indeed random. You are right these audits were both under the control of the CNE. In fact, the international observers did not plan to observe that audit to any significant degree because, as we have explained, we focused our efforts on a different sample -- to collect our quick count results. WE viewed the presence of the parties as sufficient for the "auditoria en caliente."

It is precisely because that first audit on the night of August 15 was not completed that we began to propose the second audit late on Monday as soon as we had information that the first audit was not completed and the beginnings of concerns from the Coordinadora about the machines. Prior to the recall, almost all of the concerns were focused on the transmission and tabulation, not the performance of the machines, and the former is what our quick count and other tests we ran focused on.

The second audit was also an exercise of the CNE, but this time observed very carefully by the international observers. We did originally propose to use an Excel program, and discussed that with the Coordinadora and Sumate. However, by the time we reached the final detailed discussion with the CNE about the procedures, the Coordinadora had already rejected the audit and declined to participate. At that point, the CNE technicians discussed with the OAS/Carter Center technicians which program to use, the OAS/Carter Center technicians assured me it did not make a difference, the programs were of equal merit, and we accepted the CNE decision to use the Pascal program, which we previously had a copy of and had already tested (We also ran additional tests immediately before the drawing of the sample on the CNE computers.)

In retrospect, I wish we would have insisted on the Excel program, not because I doubt the randomness of the Pascal program, but because of the perception problem and the greater confidence it would have given. I also wish we had insisted on more direct negotiations between the CNE and the Coordinadora on the conditions of the second audit. We believed at the time that it was important to hold the second audit as soon as possible to address the Coordinadora's expressed concerns that the boxes not be tampered with in the interim and to provide a fuller answer to the country.

Regarding why the CNE doesn't open up the machines now to a full recount: if they did, would anyone accept the results after having been under the custody of the Plan Republica for weeks, instead of 3 days, when the second audit was conducted and some still feared that the military could have changed the paper ballots?

Shock, amazement, would not begin to describe reaction to McCoy’s arguments. She basically admitted that the work for which the Carter Center had been contracted was done shoddily. She admitted that when audits were done (hot audit) it weren’t done properly, to then add insult by saying they didn’t have plans to observe audits. She admitted that boxes containing paper print outs issued by voting machines that were to be audited had been out of Canter Center’s mission’s sight for about 60 hours. But the gravest issue had been her final question: admission that ballots in the custody of Venezuelan military could have been tampered with. McCoy’s candid admissions to AB ran counter to her defence of the Carter Center’s job elsewhere. She was, basically, caught in a web of lies.

For Chavez, everything went according to plan. He had agreed to a meeting with Jimmy Carter in June 2004, brokered by mogul Gustavo Cisneros, where reconciliation with the opposition plans were discussed. To date, many believe that the opposition’s meek reaction after Carrasquero’s absurd, and unverified recall referendum results’ announcement, had been agreed in advance. Cisneros had considerable ascendancy over many opposition leaders. He owned one of Venezuela’s two main TV networks, which gave him enough leverage with all sorts of politicians. Cisneros’ employees and associates had vast reach within the no camp. Cisneros’ brother in law was one of Smartmatic most powerful shareholders.

Not only had the process all but bestowed Chavez with a fresh mandate, but since that day Venezuelans knew electoral authorities could not be trusted, neither could they trust its contractors (Smartmatic), nor expect international observation missions to force scrutiny on CNE. The issue of transparency and fairness of elections in Venezuela got to such a point in subsequent elections, that a report from the European Union mission of electoral observers confirmed, in unequivocal terms, what Mugica had admitted:

“The Venezuelan electronic voting system was developed by Smartmatic who was in charge of all programming of the VMs and the development of the Results Aggregation Center software. The CNE, however, owns the source code of all Smartmatic software they use. An IT team at the CNE fully audited the source code, both to verify functionality and to identify areas that  need improvement or redesign. Requests for redesign by the CNE included improved  randomization methods to hide the sequence of the stored votes and the need for confirmation when casting blank ballots. In the future, the CNE plans to take over all the software  development work from Smartmatic. After that Smartmatic will only be in charge for logistics and hardware service and assembly. While the source codes are owned by the CNE they are for commercial reasons not made available for public scrutiny and no independent third party audits have been conducted on any part of the electronic voting system.” [bold added]

The doubt about CNE control / ownership of Smartmatic’s source code was laid to rest. Absolute absence of transparency notwithstanding, Smartmatic became Chavez’s partner of choice in every future election. As per Rodriguez, his role in the recall referendum and, more importantly in setting a non auditable electoral system, catapulted him within chavista ranks.

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