This is an interesting piece of Fraud case listed on Wikipedia that catches our attention upon how the econo-political environment of a country can damage giant business entitites
Banco Intercontinental (or BANINTER) was the second largest privately held commercial bank in the Dominican Republic before collapsing in 2003 in a spectacular fraud tied to political corruption. The resulting deficit of more than US$2.2 billion was equal to 12% to 15% of the Dominican national gross domestic product. The size of the bank meltdown and the mishandling of it by the administration of former President Hipólito Mejía contributed materially to the Dominican economy entering a prolonged steep decline. However, the underlying fraudulent bookeeping and political influence peddling had been ongoing for many years and through the administrations of all major Dominican political parties. Current President Leonel Fernández had previously been hired as an outside counsel for the bank.
Banco Intercontinental was created in 1986 by Ramón Báez Romano, a businessman and former Industry Minister. His oldest son, Ramón Báez Figueroa, took over the small bank and helped build it into the country’s number two private commercial bank. BANINTER grew quickly into a typical family-run conglomerate, buying up companies or controlling interests in firms that touched on nearly every aspect of Dominican life.
In the process, Báez Figueroa amassed an empire of varied businesses. Through BANINTER Group, he managed to control the country’s largest media group, including Listín Diario, the oldest and leading newspaper; four television stations, a cable television company, and more than 70 radio stations.
Báez Figueroa became a man of great influence and power. At his lavish wedding, former Presidents Joaquín Balaguer and Leonel Fernandez signed the marriage document as witnesses. In late 2000, Báez even proposed a “national economic program”, which earned him much praise from President Mejía.
“Risk, and I’m talking about calculated risk, is proper of all business and of any human activity. “Whoever doesn’t understand this can’t triumph” Báez said in a 2001 interview in a Dominican business magazine Mercado..
His more than generous gifts to friends, business partners, journalists, commentators, models, beauty queens, military personnel, judges, and politicians over the years became legendary, as were his patronage for many events. former president Mejía got a bulletproof Lexus sports utility vehicle; so did his successor, Leonel Fernández. Colonel Pedro Julio Goico Guerrero (a.k.a. Pepe Goico), who served as Mejía’s Head of Security and who guarded former U.S. president Bill Clinton on visits to the United States, got ten solid-gold President Rolex watches worth US$15,000 each and use of a credit card that the bank would pay off.
Later on, Báez himself would denounce that he called a US$2.4 million credit-card fraud on the part of Colonel Pepe Goico. Although the credit card was issued in Goico’s name, it was meant solely to finance presidential trips. Instead, Báez charged, Goico and his cronies used the card for personal purchases, including planes and helicopters, luxury housing and jewelry. The “Pepe-Gate” may have been the spark, but a mountain of kindling had been piling up for years around BANINTER.
BANINTER’s octopus-like acquisitiveness raised some eyebrows, as did Báez’s luxurious tastes. In 2002 he bought a US$14,600,000 yacht, the Patricia. Moreover, Báez had personal expenses of more than US$1,000,000 monthly..
Speculation about the source of Báez’s fortune ran wild, but nobody considered the explanation being given nowadays by the Dominican authority, that Báez was robbing his own bank.
Rumors that BANINTER might’ve been in trouble began circulating during the fall of 2002, and depositors started to withdraw their savings. The Dominican Central Bank stepped in to support the bank by providing new lines of credit. Anxious for a permanent solution, the government announced in early 2003 that Banco del Progreso, run by Pedro Castillo Lefeld, the brother of Mejía’s son-in-law, would acquire BANINTER. But Banco del Progreso abruptly withdrew from the deal. Government officials said that two-thirds of the money that customers had deposited in BANINTER was kept off its official books by a custom-designed software system.
On April 7, 2003, the government took control of BANINTER. Báez Figueroa’s family owned more than the 80% of the bank, and soon after, a deeper examination supported by the International Monetary Fund and the Inter-American Development Bank, revealed the scale of the meltdown.
Báez Figueroa was arrested on May 15, 2003 along with BANINTER vice presidents Marcos Báez Cocco and Vivian Lubrano de Castillo, the secretary of the Board of Directors, Jesús M. Troncoso, and wealthy financier Luis Alvarez Renta, on charges of bank fraud, money laundering and concealing information from the government as part of a massive fraud scheme of more than RD$ 55 billion (USD $2.2 billion). This sum would be big anywhere, but it was overwhelming for the Dominican economy, equivalent to two-thirds of its national budget.
The resulting central bank bailout spurred a 30% annual inflation and a large increase in poverty. The government was forced to devalue the peso, triggering the collapse of two other banks, and prompting a US$600 million (euro$420 million) loan package from the International Monetary Fund.
Though required by the country’s Monetary Laws to only guarantee individual deposits of up to RD$500,000 Dominican Pesos (about US$21,000 at the time) placed within the country, the Dominican Central Bank (Banco Central Dominicano) opted to guarantee all $2.2B in unbacked BANINTER deposits, regardless of the amount, or whether deposits were in Dominican Pesos or American Dollars and without apparent knowledge whether the deposits were held in the Dominican Republic or in BANINTER’s branches in the Cayman Islands and Panama. The subsequent fiscal shortfall resulted in massive inflation (42%) and the devaluation of the DOP by over 100%.
Former president Mejía and the Central Bank (Banco Central) stated that the unlimited payouts to depositors were to protect the Dominican banking system from a crisis of confidence and potential chain reaction. However, the overall consequence of the bailout was to reimburse the wealthiest of Domincan depositors, some of whom had received rates of interest as high as 27% annually, at the expense of the majority of poor Dominicans—the latter of whom would be required to pay the cost of the bailout through inflation, currency devaluation, government austerity plans and higher taxes over the coming years.
The banking crisis ignited harsh fights over BANINTER group’s media outlets, including the prominent newspaper Listín Diario, which was temporarily seized and run by the Mejía administration following the bank collapse. In 2003, TV commentator Rafael Acevedo, president of the opinion polling firm Gallup Dominicana, had said that in the BANINTER scandal “there has been much complicity at every level of society: the government, the media, the church, the military.”.
In November 2005, Alvarez Renta was found liable by a federal jury in Miami of civil racketeering and illegal money transfers in a conspiracy to loot BANINTER during its final months of existence. Alvarez Renta was ordered to pay $177 Million to the Dominican state. To this date, he still hasn’t paid that sum.
The main executives of BANINTER, Báez Figueroa, his cousin Marcos Báez Cocco, Vivian Lubrano, Jesús Troncoso Ferrúa, as well as the aforementioned Alvarez Renta, were prosecuted by the Dominican state for fraud and money laundering, among other criminal charges. Báez Figueroa’s main attorney is Marino Vinicio Castillo, who at the present time holds the position of President Fernandez’s Drugs Consultant.
With 350 prosecutions and defense witnesses slated to testify, ex- president Hipólito Mejía among them, the criminal proceedings against Báez Figueroa began on April 2, 2006. However, the Court decided to postpone the first hearing for May 19, 2006, accepting a motion by the defense lawyers. It was prompted, as detailed at length in the trial by a scandal involving debt writeoffs and sweetheart loans or other financial deals suspected of having favored leading politicians and others.
What remains most curious was that the fraud went undetected for 14 years by the country’s supposed financial gatekeepers—the Central Bank, the Superintendent of Banks and U. S. accounting company PricewaterhouseCoopers. How Báez Figueroa and his cronies were accused and some convicted of pulling it off provided a glimpse into the gift-giving and favor-swapping common between private business and top government officials in the Dominican Republic.
The first trial ended in September 2007.
On October 21, 2007, Báez Figueroa was sentenced by a three-judge panel to 10 years in prison. Additionally, he was ordered to pay restitution and damages totalling RD$63 billion. The laundering charges were excluded, but the other suspected mastermind of the fraud, Luis Alvarez Renta, was convicted and sentenced to 10 years in prison for money laundering. Marcos Báez Cocco, ex-vicepresident of the Bank, was also found guilty, and sentenced to 8 years.
The accusations against two other defendants, former BANINTER executive Vivian Lubrano, as well as the secretary of BANINTER Board of Directors Jesús M. Troncoso, were dismissed for lack of evidence.
The sentence has been widely criticized for its severe contradictions, but more specially because it’s been alleged that the judges were pressed by “the powers that be”. Noted journalist Miguel Guerrero wrote in his column of the daily El Caribe that the defrauders of BANINTER have been protected “by a dark combination of political, economic, mediatic and ecclesiastical powers” and that the sentence was a mamotreto“. In fact, Guerrero went to the extent of saying that everything was fixed beforehand, and the defendants and their lawyers knew it, as did those representing the Central Bank.
In February 2008, the case went to the Court of Appeals of Santo Domingo and the Court upheld the sentence against Báez Figueroa, Báez Cocco and Alvarez Renta. The decision that had favored Vivian Lubrano was reverted, and she was sentenced to five years in prison and RD$18 billion in damages. Charges against Troncoso Ferrua were definitely dropped.
In July 2008, the Dominican Supreme Court confirmed the decision against the defendants.
Nevertheless, Lubrano allegedly fell into a “deep depression” and suffered from “panic attacks”, and she never went to prison. After much debate, President Leonel Fernández gave her full pardon, on December 22, 2008.