An extensive scheme of illegal espionage is slowly coming to light in Spain, and the timing is impeccable.

Madrid was already in the middle of a massive corruption scandal, which may reach as high as beleaguered Prime Minister Mariano Rajoy. The economic situation is desperate, with growth suppressed under the burden of monumental debts.

And now, police investigations into illegal spying -- allegedly sponsored by leading officials -- make for a perfect storm on the Iberian Peninsula.

Some of the details in this case are the stuff of telenovelas. A leading character is Maria Victoria Alvarez, who once dated Jordi Pujol Ferrusola, who is the son of Jordi Pujol, former leader of the Convergencia Democratica de Catalunya, a center-right Catalan nationalist bloc.

Alvarez maintains that she once saw Pujol Ferrusola -- now an ex-flame -- take piles of cash from the trunk of his car and deposit the bills at a bank in Andorra, the tiny state wedged between Spain and France in the Pyrenees. Assuming she had witnessed illegal activity -- perhaps money laundering to benefit the CDC -- she feared for her safety.

But Alvarez soon gathered the courage to speak out. In 2010 she sat down to lunch with Alicia Sanchez-Camacho, head of the Catalonian branch of Rajoy's ruling Partido Popular. They met at La Camarga, a restaurant on the Carrer d'Aribau in Barcelona, famous for standout dishes like the baked sea urchin. It has long been a popular meeting spot for business people and politicians.

As Alvarez explained her situation to Sanchez-Camacho, she thought the exchange was private. But in fact, an investigative agency based in Barcelona, called Metodo 3, had set up a hidden microphone to record the conversation.

Alvarez would eventually share her story publicly. Last month, she revealed what she’d seen in Andorra to Spanish prosecutors -- just as a major corruption scandal in was intensifying in Madrid.

It was mid-January when the Spanish courts caught wind of some very suspicious offshore activity: Luis Barcenas, the former treasurer of the PP, had about US$29 million stashed in Swiss accounts. Two weeks later, an incriminating balance ledger was unearthed and published by the leading newspaper El Pais. It seemed to show that illicit payments were being doled out to party leaders -- including Rajoy himself.

Rajoy asserts his innocence, as does Barcenas. Only one PP member -- Jorge Trias Sagnier, a former deputy -- has gone on record to affirm underhanded payments within the governing party. Investigations into the alleged slush fund continue, as do hundreds of other examinations of corruption in the country. Many cases center on crooked business deals made between contractors and government officials during the Spanish property bubble, which burst spectacularly in 2008.

It was into this charged atmosphere that news broke in February that a treasure trove of files and recordings amassed by Metodo 3 had been handed over to the National Police. It seems that a former employee of the agency was laid off in September and sought to get back at the firm by releasing sensitive information to the authorities.


“The police have already arrested people responsible -- managers of Metodo 3 -- and will continue with the investigation,” says Antonio Barroso, an analyst with the Eurasia Group. “It takes a while; the Spanish legal system works well, but past cases show that it takes some time for the courts to make a decision.”

The lunch between Alvarez and Sanchez-Camacho was the first espionage incident to be splashed across Spanish headlines -- but according to El Pais, it is only one of a great many. La Camarga may have been the scene of any number of crimes; one source told the paper that “Paco Marco [the director of Metodo 3] was a close friend of the owner of the restaurant and he would eat there almost every day,” adding that the spy agency worked on behalf of more than one political party.

The implication -- that Spanish politicians of all stripes were actively engaged in the illegal invasions of privacy -- won’t do much to help the reputation of an already much-maligned government.

“What this tells us about Spanish and [Catalonian] politics is certainly not very nice,” says Alfredo Pastor, a professor of economics at Spain’s IESE Business School. “Most of it comes from the excessive power in the hands of the main political parties.”

The scandal is further complicated by its origins in Catalonia, a region itching to secure greater autonomy from Madrid. Catalonia, whose capital city if Barcelona, produces about one-fifth of Spain’s wealth, and most of its residents favor independence -- partly due to the fact that they don’t want to see their tax dollars propping up the entire country’s struggling economy, and partly due to longstanding linguistic, cultural and historical differences.

The Catalonian parliament is controlled by a coalition called Convergence and Union, or CiU, a center-right nationalist party. That coalition is dominated by the CDC -- the party of the man who, as Alvarez attested, stashed wads of cash in an Andorra bank years ago.

In Madrid, the national parliament is comfortably controlled by Rajoy’s party, the PP. The prime minister vehemently denies Catalonia’s right to separate itself from Spain.


El Pais notes that officials from the Socialist Party of Catalonia, or PSC -- which is connected to Madrid’s own socialist party, the Spanish Socialist Worker’s Party, or PSOE -- may have contracted Metodo 3 to record the conversation between Alvarez and Sanchez Camacho at La Camarga. La Vanguardia, a Catalonian newspaper, noted on Wednesday that Metodo 3 won grants from the tripartite government then in control of the region, a leftist coalition of which PSC was a member.

“It has emerged that the Catalan government was paying Metodo 3 for a number of consulting projects,” says Barroso. “The former tripartite government was basically commissioning the studies.”

But it is also worth noting that the PP had ample motivation of its own to keep tabs on Alvarez’ confession, due to the ruling party’s longstanding conflict with the Catalonian nationalist politicos of the CiU.

“It seems that the objective of the plot was to record nationalist representatives admitting illegal practices,” says Laura Gonzalez, a native of Spain who now works as an assistant finance professor at Fordham University in New York.

“Historically, the PP, being conservative, has been much harsher and openly hostile towards the different nationalist movements in Spain than the PSOE. ... Currently, the party on the front page of the newspapers is the conservative PP, so they would be to benefit the most from obtaining proof of corruption among the nationalists.”

The allegations and suspicions are dizzying, partly because espionage and political corruption have deep roots in Spain.

“About 20 years ago it became fashionable here to collect files about all sorts of important people, but I thought this had died a natural death,” says Pastor. “I see now that I was wrong. In my view, the most recent developments should lead to a few dismissals and resignations, beyond those that have already taken place.”

In other words, it’s still business as usual in Madrid and Barcelona. The espionage investigation will continue to unfold over coming weeks and months -- and it may take a while. The files handed over to the authorities by the Metodo 3 whistleblower are reportedly extensive, fingering everyone from politicians to business execs to judiciary professionals. As Interior Minister Jorge Fernandez put it last week, according to El Pais, “We have a lot of information.”

As all of this plays out, the Spanish people will continue to struggle through a prolonged period of economic distress. Though measures to prop up investor confidence -- including a system of bank recapitalization and a redistribution of toxic real estate assets -- have had some success, the general population is still dealing with a 26 percent unemployment rate and biting austerity measures. Consumer spending continues to fall, and the economy as a whole is constricting. The prospect of demonstrable growth remains quite distant.

In this context, the espionage scandal is just one more dark spot on an endemically shady system.

“Spaniards have lost faith in politics and institutions, in general,” says Gonzalez. “They really do not have anybody to turn to with the hope of getting the country out of the crisis, generating employment and cleaning the power spheres.”