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Nicaragua takes great pride in claiming to be "the safest country in Central America." Nicaraguan military and police leaders insist they've created a "firewall" against the western hemisphere's more than $40 billion drug trade and the ultra-violent narco-gangs pushing in from both the north and the south. Statistics suggest Nicaragua has indeed done an admirable job holding the line: the country is a leader in drug busts and has managed to reduce its homicide rate to the second-lowest in the region behind Costa Rica. That's a remarkable accomplishment considering neighboring El Salvador and Honduras have the two highest murder rates in the world, while nearby Guatemala and Belize are rushing to catch up. Managua averages only one intentional killing every two days compared to as many 20 per day in neighboring capitals.

But the recent detention of a high-ranking official in Nicaragua's Supreme Electoral Council (CSE) has punched a hole in the country's firewall image — and sent an ominous signal that the drug gangs terrorizing Central America's northern triangle are moving into the rest of the isthmus. Substitute Magistrate Julio César Osuna, who was arrested May 27, is accused of using his government post to smuggle drugs, launder money and sell fake Nicaraguan IDs to foreign drug traffickers. (Osuna denies the charge.) The scandal — the first serious indication of narco-infiltration in the upper echelons of Nicaragua's central government — has sent shockwaves through a country that thought it was keeping the barbarians at the gate.

For others, Osuna's arrest is an overdue wake-up call in a nation where critics say corruption inside the authoritarian administration of left-wing President Daniel Ortega — starting with what most constitutional experts call his illegitimate re-election last year — too often gets a pass. "It was just a question of time before this happened," says Roberto Orozco, a Nicaraguan security expert at the Managua-based Institute for Strategic Studies and Public Policy (IEEPP). "We had already identified narco-penetration in lower levels of government, where municipal and local officials have been bought by organized crime. This is especially true along the principal drug-trafficking routes, where we've seen the worst corruption among police and local judges. Nicaragua is not an island — it's the bellybutton of Central America."

And the narco-navel contemplation is intensifying. Osuna allegedly provided key logistical support — falsified documents and transportation — to a regional drug cartel led by Costa Rican kingpin Alejandro Jiménez, a.k.a. "El Palidejo" (Paleface). Jimenez was arrested last March in Colombia and extradited to Guatemala to stand trial as the intellectual author of the high-profile 2011 murder of Argentine folk singer/songwriter Facundo Cabral in Guatemala City. Osuna is also accused of using his influence to set up a Nicaraguan import/export business for another Mexican-led Central American cartel known as "Los Charros" (The Cowboys). It's unknown how many fake Nicaraguan IDs Osuna peddled over the years.

The other magistrates in the CSE — a controversial organization that is controlled by Ortega's Sandinista Party and has been strongly criticized by the U.S., the E.U. and the Organization of American States for its dubious handling of recent elections — now find themselves under heavier scrutiny. Nicaraguan Controller General Guillermo Argüello Poessy tells me his previous effort to audit the fortune of CSE President Roberto Rivas — reported to include two planes, various million-dollar mansions in Nicaragua and Costa Rica, a small private island and a fleet of luxury cars, none of which exactly jives with Rivas' government salary — was blocked by Nicaragua's other four Controllers General.

But pressure is now building for a probe. Rivas says he and the other CSE magistrates have nothing to hide and that Osuna's arrest is an "isolated" case. "I can tell you with certainty that none of us are involved in this," Rivas says. "We have no problem with any one of us being investigated because none of us are involved in illicit activity." Still, Police Chief Aminta Granera said this week that her officers maintain an open investigation into the CSE and have orders to get to the bottom of this. "More could still come out of this," she said.

Those who know the inner workings of the CSE say it's highly unlikely that Osuna, who is accused along with 21 other people who are not public officials, was working alone inside the government. "It's very difficult to think only one person was involved in this, especially when so much money was at play," says former CSE President Rosa Marina Zelaya. "This uncovers a very serious problem — Nicaragua's national ID system is broken, and this is more widespread than we realize yet."

Former Nicaraguan Foreign Minister Dr. Emilio Alvarez agrees: "The problem of Nicaraguan passports and IDs is endemic and chronic and historical," he says. "This is not a problem of one magistrate." In the final months of Ortega's first Sandinista government in 1990, when party apparatchiks were busily divvying up confiscated properties and other spoils of their decade-long revolution, the National Assembly quietly passed a decree granting Nicaraguan citizenship to some 600 foreign revolutionaries, extremists and other political misfits who were being harbored by Nicaragua as an act of "solidarity." From one day to the next, members of terrorist bands like ETA, Italy's Red Brigade, the FARC, the IRA, various Arab groups, Iranian militants, and a mishmash of other Latin American guerrillas were all given Nicaraguan citizenship. Several years later, U.S. investigators found five Nicaraguan passports linked to the 1993 World Trade Center bombing.

While the Sandinistas' strong central government has slowed the narco-contamination of Nicaragua, the country's democratic institutions are extremely weak and vulnerable to corruption, analysts warn. It remains to be seen how far police will go — or be allowed to snoop — behind the thick curtain of secrecy that has shrouded the Sandinista government for the past five years. For the moment, however, the curtain has parted just enough to reveal some uncomfortable truths and raise serious questions.

Tim Rogers is editor of Nicaragua Dispatch. Reporting for this story was supported by a grant from The Pulitzer Center on Crisis Reporting.

• Tim Rogers / Managua