The Chilean Law N° 13.196, known as the Ley Reservada del Cobre (Spanish for "Copper Reserved Law" or "Secret Copper Law"), was a highly controversial secret law — "reserved" in this context meaning it was not freely published — issued in 1958 under the second administration of President Carlos Ibáñez del Campo. The law allocated a fixed share of revenue from the sale of copper — Chile's principal export — to the purchase and maintenance of materiel for the Chilean armed forces, outside the ordinary national budget and free of oversight by either the Office of the Comptroller General or the National Congress.

The law was promulgated on 20 October 1958 and published only in a restricted edition of the Diario Oficial (Official Gazette), making it a de facto secret law whose text was unavailable to the public. It was amended by further secret decree-laws and laws in 1973, 1974, 1975, 1976, 1981, 1985 and 1987, mostly during the military dictatorship of Augusto Pinochet. The law's secrecy was lifted in December 2016, and the law itself was ultimately repealed by Law 21.174 of 26 September 2019, which replaced the copper-revenue mechanism with a multi-year defense budget subject to congressional and executive oversight, effective from 1 January 2020. Under the new law, the 10 percent levy on CODELCO's export revenue was maintained for a further nine years before being phased out over four additional years, with defense financing to be fully absorbed into the ordinary national budget by around 2029.

Background Automatic military funding drawn from natural-resource revenues in Chile can be traced back to the 1880s.Michael Radseck, Rohstoffe und Rüstung. Hintergründe und Wirkungen ressourcenfinanzierter Waffenkäufe in Südamerika , in Lateinamerika Analysen N° 16, 1/2007, pp. 203–241, Institut für Lateinamerika-Studien, Hamburg, Germany

On 7 January 1938, Law N° 6.152, known as the Ley de Cruceros ("Cruisers Law"), transferred 90 percent of the state's leasing receipts from South Patagonian territories to arms purchases. Later, on 5 January 1942, the government of President Juan Antonio Ríos, concerned about the ongoing Pacific War and national defense, created the Consejo Superior de Defensa Nacional (CONSUDENA, "Higher Council for National Defense") through Law N° 7.144. CONSUDENA was empowered to allocate revenue from foreign-currency dealings, alcohol and tobacco taxes, and the earnings of the large copper-mining companies to weapons purchases without parliamentary approval.Julio E. Soto Silva, "La conducción de la defensa en Chile 1960 al 2010: ¿Un problema de los militares o de todos los chilenos?" in Política y Estrategia, N° 115, 2010, p. 104

Enactment and provisions The Ley Reservada del Cobre was enacted in 1958, in the aftermath of the Snipe incident on a disputed islet in the Beagle Channel, by the administration of President Ibáñez, in order to redirect tax revenue from the large copper-mining corporations directly to the armed forces. The Chilean nationalization of copper transferred the properties of Anaconda Copper Company and Kennecott Corporation to the Chilean state in 1971, and in 1976 the state-owned firm Codelco was created to manage copper production going forward.

The law stipulated that 10 percent of Codelco's foreign-currency export sales were to be transferred to the armed forces. Each year, Codelco deposited the earmarked resources in US dollars into three secret accounts (for the army, air force and navy) at the Central Bank of Chile. These accounts were kept outside the treasury's single account and outside parliamentary oversight, fragmenting government cash management. Article 1 of the law, in the definitive text fixed by Decree Law 1.530 of 1976, provided that 10 percent of Codelco's foreign-currency revenue from copper exports, plus 10 percent of the value of Codelco's contributions in copper abroad, were to be deposited by the Central Bank of Chile in United States dollars for the purposes of CONSUDENA; a second article specified that the disbursement, accounting, and investment of these funds were to be conducted "in a reserved [i.e. secret] manner", through secret supreme decrees exempt from the ordinary comptroller review process.

The expected minimum contribution was set at US$180 million annually (the "floor"), to be adjusted for inflation according to the U.S. Producer Price Index. Whenever actual revenues fell below that floor, as occurred in 1986 and 1987, the treasury was required to make up the difference (US$38 million and US$25 million, respectively). During 1995–2005, the government restricted the armed forces' annual investment spending by imposing a ceiling intended to keep expenditures consistent with the structural fiscal balance, although the ceiling did not reduce total receipts: any surplus revenue simply accumulated in the defense sector's bank accounts. In 2011, the Ministry of Finance took over administration of the military's copper fund from the Ministry of Defense, after Law 20.424 of 4 February 2010 dissolved CONSUDENA and transferred its rights and obligations to the Ministry of Defense, effective 4 February 2011.

+ History of the law Law or decree Floor Percentage tax or receipts Changes Ley de Arrendamiento de Magallanes, Ley del CONSUDENA Ley 6.152 (7 January 1938) unknown 90% of state leasing receipts in South Patagonia Ley 7.144 (5 January 1942) 4,000,000 CLP as above, plus currency dealings and alcohol/cigarette taxes Creation of CONSUDENA Ley Reservada del Cobre Ley 13.196 (19 November 1958) US$8.5 million 15% of the tax revenue from the large copper corporations (the tax itself was 50%) Introduction of a compensation payment if the minimum could not be reached; conversion to US dollars Amendments 1973–1990 under Pinochet Decreto Ley 239 (31 December 1973) US$90 million 10% of the total foreign receipts of the large copper corporations Division into equal parts for army, navy and air force D.L. 1.530 (21 July 1976) US$90 million 10% of Codelco's gross receipts from copper sales abroad, plus 10% of Codelco's deposits abroad Implementation of secret accounts for the navy, army, air force and CONSUDENA; CONSUDENA could request 10% of the income Ley 18.445 (17 October 1985) US$180 million As D.L. 1530, plus 10% of gross receipts from sales abroad of Codelco's byproducts Annual inflation adjustment of the basic allowance pegged to U.S. inflation, effective from 1 January 1987; implementation of a reassignment plan for surpluses Ley 18.628 (23 June 1987) unmodified unmodified Fund allocation required the favorable vote of the commanders-in-chief of the army, navy and air force Amendments 1990–2006 Official ruling of the Contraloría General de la República de Chile (December 2002) unmodified unmodified Confirmed that the distribution among navy, army and air force did not affect CONSUDENA's right to decide on the totality of the revenues; implementation of a surplus fund Declassification and repeal Ley 20.977 (22 December 2016) unmodified unmodified Ended the secret status of Law 13.196 and its amendments, requiring their publication in the ordinary Diario Oficial Ley 21.174 (26 September 2019) phased out phased out over 2020–2029 Repealed Law 13.196; created a multi-year strategic-capabilities fund and a strategic contingency fund financed through the ordinary national budget

Secrecy and legal status Because of its status as a secret law, the text of Law 13.196 was not officially available; the page devoted to the 1958 statute on the website of the Library of the National Congress of Chile stated only that "the present law has the character of reserved and, consequently, its text has been published in a restricted edition of the Official Gazette." The same applied to its later amendments, including the consolidated text fixed by Decree Law 984 of 1975 and the definitive text fixed by Decree Law 1.530 of 1976.

Transparency Council rulings In 2010, freedom of information complaints brought before Chile's Council for Transparency (Consejo para la Transparencia) sought access to the full text of the law. In one such case, the Ministry of Defense told the Council that it could not release the text because doing so would affect national security, and the Council's president and a fellow councilor traveled to the Ministry to review the law's content in person; the complaint was ultimately rejected, but the Council formally noted its concern that a secret law was incompatible with the constitutional principle of publicity and the right of access to public information. In March 2016, the Council ruled on a further complaint and found that the Ley Reservada del Cobre was public in its entirety except for the first paragraph of Article 3, which it held should remain classified for reasons of national security; it ordered the Undersecretariat for the Armed Forces to deliver a complete copy of the law and its amendments to the requester. The ruling, which the government did not appeal, drew criticism from members of the Chamber of Deputies of Chile, who argued that the Council had overstepped its authority by deciding a question — whether a law is secret — that belonged to Congress alone.

2016 leak and declassification In May 2016, the digital newspaper El Mostrador published a leaked copy of Decree Law 1.530, as it had appeared in the Diario Oficial of 29 October 1976, revealing the definitive nine-article text of the Ley Reservada del Cobre for the first time, along with the later amending texts of Law 18.445 (1985) and Law 18.628 (1987). On 14 January 2016, a group of deputies had already introduced a bill to strip the law of its secret status and require its publication in a regular edition of the Diario Oficial; Congress approved the measure on 23 November 2016, and it became Law 20.977. The consolidated, declassified text of the Ley Reservada del Cobre, together with the decree-laws and laws that had amended it, was published in the Diario Oficial on 22 December 2016.

Milicogate

In 2015, journalist Mauricio Weibel revealed in a series of articles for The Clinic that officers of the Chilean Army had for years used false invoices for nonexistent military supplies and services to embezzle funds channeled through the Ley Reservada del Cobre, in a scandal that came to be known as "Milicogate." By March 2019, judicial investigations estimated that at least 6.1 billion Chilean pesos (roughly US$11 million) had been diverted for the personal enrichment of military officers and colluding suppliers, and defendants eventually included a former Army Commander-in-Chief, Juan Miguel Fuente-Alba, along with several retired generals who had overseen the Army's Support Command (Comando de Apoyo a la Fuerza), the unit responsible for controlling the law's funds. The scandal, along with a related case involving the navy's purchase of Dutch-built frigates and another involving the air force's acquisition of Mirage fighter jets, fueled the argument that the law's secrecy and lack of institutional oversight made the funds especially vulnerable to fraud, and added momentum to the push to repeal it.

Criticism

Funding the Chilean military with off-budget revenue from a state-owned company was controversial and out of step with the practices of most developed countries because:Israel Fainboim, Changing the Financial Management of the Defense Sector in Chile: Leaving Expenditure Earmarks Behind , 25 November 2009, International Monetary Fund it was outside democratic control; it did not compete with other sectors for funds; it did not necessarily reflect the government's priorities and sectoral strategies; it was not subject to supervision or accountability over how the funds were used; and it imposed an unequal burden on Codelco alone, since private copper-mining companies were not subject to the same levy.