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Former Secret Police Chief Arrested in Chilean ‘S&L’ Scandal

December 28, 1990

SANTIAGO, Chile (AP) _ A former secret police chief under the military regime was arrested Friday for his alleged involvement in a financial scandal that has shaken the Chilean army.

Gen. Gustavo Abarzua was held incommunicado by judge Marcos Libedinsky, who has five days to either charge or release him, said Abarzua’s lawyer, Marcelo Cibie.

Two other generals, Patricio Gualda and Patricio Varela, were briefly detained and questioned by Libedinsky, but were not charged.

Libedinsky was appointed two months ago to investigate an illegal savings and loan scam in which hundreds of soldiers, lured by interest rates of up to 30 percent, deposited their savings with army officers.

The bank, called La Cutufa after the name of a dog reportedly owned by one of its officers, collapsed when the operators fell short on payments.

So far eight officers have been charged with breaking the banking law.

News coverage of his investigation has clearly upset former dictator Gen. Augusto Pinochet, who turned over the government to elected President Patricio Aylwin in March after a 16-year dictatorship.

Pinochet put the army on alert for several hours Dec. 19 to protest the investigation. The government, sensitive to the military’s anger, has tried to keep a lid on the affair.

But Pinochet did order an internal army investigation of the bank, and has given Libedinsky a list of 150 officers and non-commissioned officers who were punished by the military as a result of the probe. Many were discharged.

Abarzua was the last chief of the feared military intelligence agency, known by its Spanish initials CNI, which was disbanded shortly before Pinochet stepped down.

Abarzua, Gualda and Varela were retired in October by Pinochet, who remains commander of the 60,000-man army.

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