MARBELLA CLUB

Juan Antonio Roca was arrested for corruption in March 2006, police seized assets worth 2.4 billion euros ($3.4 billion), including a century-old palace in Madrid, a country estate equipped with a helipad overlooking the Rock of Gibraltar and a stud farm guarded by a tiger. According to a 451-page July 2007 indictment by Marbella prosecutor Miguel Angel Torres, Roca also owned a ranch to raise fighting bulls, a private jet, a helicopter and a painting by Spanish master Joan Miro.

Known in Marbella as “The Boss,” Roca has become Spain’s national symbol of municipal corruption amid the boom and bust of the country’s real estate industry.

“Marbella is a special case, but the conditions which allowed it to occur exist across the country,” says Jesus Sanchez-Lambas, a law professor and general secretary of Madrid’s Ortega y Gasset University Institute. “Corruption in town planning is institutionalized.” Roca, 55, who was convicted of bribing a judge in August by the High Court of Andalusia in Granada, is currently standing trial at Spain’s National Court in Madrid where, along with five other defendants, he’s charged with embezzling 36 million euros of public funds. Prosecutors are preparing to go to trial in connection with the 2007 indictment, dubbed Operation Malaya, against Roca and 85 others in Marbella, Madrid, Barcelona and San Sebastian. The charges include embezzlement, money laundering, dereliction of duty and bribery.

Roca’s lawyer, Jose Anibal Alvarez, said in December that none of the evidence proves that Roca took bribes, embezzled from city hall or laundered money. Spanish officials are making him a scapegoat for the corruption that’s widespread in city halls across Spain, he says. In December, Roca was in prison in Alhaurin de la Torre, a village outside Marbella.

Graft and bribery thrived along the Costa del Sol as the country rode a 15-year real estate boom, fueled by a plunge in interest rates, rising incomes and strong demand for second homes by sun-starved Northern Europeans. In 2006 -- the peak of Spain’s real estate surge -- municipalities issued 911,000 building permits, more than the U.K. and Germany combined. “They are swallowing up the coastline and the countryside,” Sanchez-Lambas says. “This is the legacy we will leave for our children.” Many of these homes have come onto the market in the past year after the global credit crunch curbed the supply of loans. R.R. de Acuna & Asociados, a Madrid-based real estate research firm, estimates that there are more than 1.6 million unsold homes in Spain, while annual demand for housing fell to 220,000 units in 2008 from a peak of 590,000 in 2004. Spain’s economy contracted for the first time in 15 years in the third quarter of 2008, after growing 3.9 percent in 2006. This year, it faces its worst recession since 1959, according to Dominic Bryant, an economist at BNP Paribas SA in London. Unemployment soared to 12.8 percent in October from 8.5 percent a year earlier. Spanish bank loans in arrears as a proportion of total lending climbed in October to 2.9 percent, or 54.2 billion euros from 0.9 percent a year earlier, according to the Bank of Spain. “We are seeing an intense increase in the ratio of bad loans,” Bank of Spain Governor Miguel Angel Fernandez Ordonez said on Oct. 30. “This has been particularly notable in the construction and real estate sectors.” Spain sowed the seeds of its real estate boom when it agreed to swap its currency for the euro. Before joining Europe’s monetary union in 1999, Spain had to impose economic discipline and bring down its inflation rate to European Union standards. After it did, the cost of home loans tumbled as the central bank slashed its benchmark rate to less than 3 percent at the end of 1998 from 13 percent in 1993. Household incomes rose as Spanish women began to enter the workforce, and foreign investment jumped more than 10-fold at its peak in 2007 as the euro brought financial stability. The newfound wealth and borrowing power created a potential bonanza for Spain’s 8,111 town halls, which have limited powers to raise taxes yet have to pay for local police, garbage collection and sports facilities. Spanish law does give the municipalities power to grant all permits for new homes, shopping centers and factories. “All they’ve got is land,” says Lorenzo Fernandez Fau, a former mayor of El Escorial, near Madrid. “So they’ve sold it.” Even many legal projects involve the mayor’s cutting a deal with developers, who may agree to build fire stations or put up street lamps in addition to paying for building permits.
Some officials also demand bribes. “Local administrators have the power to decide who gets rich and who stays poor,” says Victor Torre de Silva, a professor of law at Madrid’s Instituto de Empresa business school. “There’s a great temptation to share in the wealth that you can create.” That temptation may have ensnared Roca, who began his career as anything but wealthy. A native of Cartagena in the region of Murcia, which neighbors Andalusia, Roca trained as a mining engineer and then set up a property development company called Comarsa that was declared bankrupt in 1990. The following year, he moved to Marbella. At the time, the town was known for its celebrity residents, including King Fahd of Saudi Arabia, who built a palace modeled after the White House in Washington, except that the bathroom fittings were made of gold, according to Gorka Zamarreno, communications director of real estate company Aifos SA, who attended a party there.