Banking and Politics in Fraud – Fall of the Giant: Banco Intercontinental (or BANINTER

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.[1] 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.[citation needed]

Ramón Báez Figueroa and expansion of BANINTER

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.[2].

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.[citation needed] 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.[citation needed]

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.

Bank crisis

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.[3][4] Moreover, Báez had personal expenses of more than US$1,000,000 monthly.[citation needed].

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.[5]

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.

Aftermath and trial

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.[5] 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.”[2].

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.[6] 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.[7]

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.

Sentence and criticism

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.[8] 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“.[9] 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.

Court of Appeals and Supreme Court decisions

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.[10]

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.[11]


  1. ^ DOMINICAN REPUBLIC ECONOMY THREATENED BY MASSIVE BANK FRAUD. | Company Activities & Management > Company Structures & Ownership from
  2. ^ a b Hurricane Ramoncito: how Ramon Baez and his cronies broke the Dominican Republic’s largest bank—and almost brought down the country – Top 100 Banks | Latin Trade | Find Articles at
  3. ^ Dominican Government seeks failed bank’s assets in Grand Cayman –
  4. ^ Yacht Patricia
  5. ^ a b
  6. ^ Dominicant Today, April 3, 2006
  7. ^
  8. ^ Business finance news – currency market news – online UK currency markets – financial news – Interactive Investor
  9. ^ El Caribe, October 23, 2007.
  10. ^ Hoy
  11. ^ Diario Libre

External links

  • BANINTER promotion.

Nine U.S. banks seized in largest one-day haul !!! Ever since Recession

By Sam Mircovich and Edwin Chan

LOS ANGELES (Reuters) – U.S. authorities seized nine failed banks on Friday, the most in a single day since the financial crisis began and the latest stark sign that substantial parts of the nation’s banking industry are being crippled by bad loans.

The move brought the total number of failed banks in 2009 to 115 — their highest annual level since 1992 — with analysts expecting more to come. Among the lenders seized Friday was Los Angeles-based California National Bank, in what was the fourth-largest U.S. bank failure this year.

The largest institution to fail in the current financial crisis was Washington Mutual, which boasted $307 billion in assets when it was shuttered in September 2008.

U.S. Bancorp on Friday acquired the nine banks that had been held by FBOP Corp, picking up $18.4 billion in assets and $15.4 billion of deposits.

Visibly worried employees lined up to file into Cal National’s head offices in the heart of a deserted downtown Los Angeles on a chilly Friday evening, where they had their employers’ fate explained to them, regulators said.

“We’re getting ready to turn everything over to U.S. Bank,” said Roberta Valdez, a spokeswoman for the Federal Deposit Insurance Corp, which helped supervise the transfer of FBOP’s assets. “They will continue to operate as normal in the interim,” she added, referring to lenders acquired from FBOP.

U.S. Bancorp — which has been buying up distressed assets this year — is picking up the lenders once owned by FBOP, a private Illinois group with over $18 billion in assets that owned banks in Texas, Illinois, Arizona and California.

Cal National is FBOP’s largest bank by branches. Others that will now go under the U.S. Bancorp umbrella included BankUSA, Citizens National Bank, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, San Diego National Bank, and the Community Bank of Lemont.

“This transaction is consistent with the growth strategy that we have outlined many times in the past, which includes enhancing our existing franchise through low-risk, in-market acquisitions,” said Rick Hartnack, vice chairman of consumer banking for U.S. Bancorp.

“This transaction adds scale to our current California, Illinois and Arizona footprints.”


In the “near future”, all nine lenders’ branches will be re-branded U.S. Bank, which is the California-focused unit of U.S. Bancorp’s that operates a network of more than 770 branches across Illinois, Arizona and California.

U.S. Bancorp did not specify what would happen to the new employees it inherits.

Cal National operates 68 branches across Southern California with more than $7 billion in assets. As of June 30, the lender maintained five times as much foreclosed property on its books and twice as many non-current loans as it had a year earlier, according to the Los Angeles Times, which first reported news of its evening takeover on Friday.

Cal National lost about $500 million on heavy investments in Fannie Mae and Freddie Mac preferred shares, the newspaper added, referring to securities rendered nearly worthless by the government takeover of the mortgage firms last year.

According to FDIC data, Cal National was the fourth biggest bank failure this year in terms of assets, just edging out Corus Bank, seized Sept 11 with a flat $7 billion of assets.

A bank official who answered the main number at Cal National’s headquarters said they could not talk at the time.

Banks are still cleaning up their balance sheets from the recent credit boom that fueled banks’ appetite to extend loans, many with poor underwriting and triggers that caused borrowers’ payments to spike to unaffordable levels.

More lenders are expected to go under this year as the industry tries to get a handle on commercial real estate loans that will continue to worsen, as more strip malls go vacant and residential developments stall.

Banks held about $1.7 trillion in commercial real estate loans at the end of September, according to Federal Reserve data, or about 15 percent of their total assets. But to the extent these loans weaken, small banks are likely to be hit the hardest because larger banks were better diversified.

Banks that analysts say could risk big losses include Salt Lake City’s Zions Bancorp, Columbus, Georgia’s Synovus Financial Corp and Dallas-based Comerica Inc.

Before FBOP, U.S. Bancorp bought Downey Savings of Newport Beach and PFF Bank & Trust of Pomona when those thrifts failed last November, the newspaper said. Just this month, U.S. Bancorp bought 20 Nevada branches from BB&T Corp, which had acquired them as part of its deal to buy Colonial BancGroup Inc, it added.

(Additional reporting by Mary Milliken; Editing by Bernard Orr and Dean Yates)

Will Business Schools Learn from Wall Street’s Crisis?

Even as the carnage at Lehman Brothers left thousands of employees stranded, the next generation of Wall Street hopefuls began filing back to class this month at business schools across the country. The storied banking giant’s demise was an illustrative lesson for the industry and for academics — one that may lead to lasting changes in business-school curriculums. “I predict that people will spend a lot more time than they used to learning about risk management and understanding the subtleties,” says Awi Federgruen, chair of the Decision, Risk and Operations Division at Columbia Business School.

For more than half a century, business schools have taught the fundamentals of risk management — the study of policies and procedures to analyze and control risk — but the availability of more comprehensive electives is a relatively recent development, a direct response to the faltering U.S. financial markets. Enrollment in the University of Mississippi’s risk-management-and-insurance program, one of the oldest in the country, jumped to 130 students in 2007, up from just 19 in 1995. And the number of U.S. business schools offering a concentration in risk management nearly doubled between 2005 and 2007, according to the Association to Advance Collegiate Schools of Business, while degrees in risk management are increasingly being offered at business schools around the globe.

Credit Crisis Indicator

Credit Crisis Indicator

“Maybe this [crisis] will force a number of the business schools, including our own, to rethink whether we should make this part of the complete requirements,” says Federgruen, referring to in-depth risk-management coursework, “rather than just counting on the students themselves to understand that this is material that they’d better learn.”

Other experts think b-schools should go even further, by not only increasing the number of courses they offer but also revising their syllabi, which currently focus heavily on mathematical modeling (a forecasting technique that uses historical data and assumptions). “People shouldn’t bury themselves in the mathematics, because the mathematics are only tools,” says Kenneth Froot, a professor at Harvard Business School who teaches courses in risk management. “One needs to have a wide and robust vocabulary to talk about risk, simply because no single mathematical formula is going to capture all of what risk is.”

One way to make better use of mathematical modeling, some educators say, is simply to devise better models — specifically, models that are capable of accounting for seismic, unexpected and not easily explainable shifts in the market. In recent years, “prices have behaved in a way that no one has ever really seen before,” Froot says. “You don’t want to rely on models that just use historical information in prices … It’s probably possible to come up with better measures of risk in real time.”

Olivia Mitchell, chair of the Insurance and Risk Management Department at the Wharton School of business, agrees. “I wouldn’t say we’ll put any of the modelers or mathematicians out of a job,” she says, but still, “every time there’s a shift in the landscape, we realize we have to enrich the models, make them more complete, more complex, and bring in some of the richness that the real world can throw at us.” Indeed, on Sept. 16, at the request of students, Wharton faculty held a “teach-in” to examine the current financial crisis in the wider context of risk management, among other topics.

Of course, better models won’t work unless people learn how to use them. McKinsey directors Ron Hulme and Kevin Buehler and senior risk expert Andrew Freeman argue in the Harvard Business Review this month that “a growing emphasis on mathematical modeling has rendered much of the risk-management debate and research incomprehensible to those outside the finance function and the financial services industry.” The upshot, they say, is that corporate managers who aren’t already experts at risk aren’t prepared to factor it into their decisions.

On the other hand, says Peter Morici, a professor of international business at the University of Maryland, finance concentrators — that is, the students who are specially trained to grasp the models — are so steeped in the particulars that they don’t always see the forest for the trees. They get the math, but they don’t pay attention to systemic issues within the broader economy; it’s a by-product of degree programs that encourage students to take a narrow focus too early on in their studies. “In medicine you become a doctor first, and then you become a specialist,” Morici says. “In finance, you just become a specialist.”

The obvious solution is to teach risk management integrated with education in macroeconomic issues, corporate culoriciture and human factors, says Mitchell, and to make sure that more of those lessons reach more people within every company. “It used to be that risk management was off in some backwater or some broom closet in the company,” Mitchell says. “We all think of ourselves as risk managers now.”

Ultimately, however, skeptics say changes in the classroom won’t translate to an equal shift in the way real-world business operates. Morici says that Wall Street’s compensation structure rewards risky business, and that’s at the heart of the problem. “Until the banks are compelled to reform their business practices, training and risk management and ethics at the business-school level isn’t going to make a difference,” he says. “The business schools train what the banks want.”

By Laura Fitzpatrick Sunday, Sep. 21, 2008

The risk & compliance think tank — Identifying the next emerging risk

There is now a broad consensus that the credit crisis was sparked by a lack of appreciation of the risks being taken within the financial sector — and the wide-ranging impact they could have. Scarred by this experience, many businesses are upping their game in all aspects of risk management.

One question which continues to vex them however is how to spot the next big emerging risk; the risk which could do for one sector what sub-prime did for the banks. The answer to that question is out there — but does not come in one neatly packaged solution as John Farrell of KPMG’s Advisory practice explains.

After the traumatic events of recent months, it should be no surprise that a lot of time and effort is being expended on ensuring that we avoid a repeat of the sub-prime crisis.

Many businesses around the world are currently considering how they can improve their capabilities for identifying that next big emerging risk — long before it has time to manifest itself into something truly damaging and destructive.

However, I believe that much of the thinking in this area may be misdirected. Too many organizations are looking for that magic solution; the silver bullet which will home in on the gravest danger and eliminate it with a minimum of fuss.

They are wasting their time. There is no switch which can be flicked, no toolkit which can be installed, no crystal ball which can be relied upon. Rather, companies should seek to better understand their own risk capabilities as the answer lies within their existing risk management frameworks and risk culture. These should be redirected and refocused — as many businesses appear to be currently looking in the wrong places.

Emerging risks do not appear as a dust cloud on the horizon; something which the most eagle-eyed observer with the best telescope might hope to spot. Instead, these risks frequently emerge from within — as a direct consequence of management actions. The trick therefore is having the thinking and techniques in place to consider all the possible risk ramifications which can arise from key business decisions.

The genesis of a new emerging risk is not something nebulous or shrouded in mystery. They are created out of change. Business models change, technologies change, unemployment rises and falls, industries become fashionable while others are rendered obsolete. That change can be calm and slow or rapid and volatile. What matters is the ripple effect as dozens of variables then change throughout a business. Unless risk management capabilities can keep pace, then a new emerging risk is created, right under their noses.

The sub-prime crisis is a perfect example of this. It was years ago that banks first started lowering their lending parameters to include more potential borrowers. Very few people batted an eyelid at this shift in lending strategy or appreciated the damage that such a policy could cause if it went wrong. The risk sentry remained on the wall, his eye glued to the horizon but he was wasting his time. The enemy was already within the walls.

Looking to the future, the ability to spot how change has created a new risk should be the responsibility of all employees, not a select few in a risk function. Every employee must be able to articulate what they see as a growing risk issue, confident that their assessment of pending danger is being fed into a process which monitors such concerns.

Businesses should be asking whether they could do more in terms of training and awareness to improve their ability to spot new risks. Any who believe that they can simply install a new product or solution and thus circumvent all this are deluding themselves. The answer lies within a more self-aware risk culture with better trained employees able to get the right info to the right people in timely fashion. It also requires management to be far more aware of the chain of events which every single management decision can initiate.

They should also keep a much closer eye on the impact of events outside of their control. Increasingly, I am seeing a greater focus on systemic risk; the risks posed to businesses by things like economic meltdown, spiraling unemployment, rapid inflation or deflation — perhaps even the effect of a global pandemic. Scenario analysis will be a key tool in preparing for the fall-out of such risks, asking countless ‘what if’ questions and implementing contingency plans for the day that hypothesizing and speculating becomes reality.

This is the reality of spotting the ‘next big thing’ in the risk world. Anyone who comes to me asking for a simple, boxed-up solution to this problem will be disappointed. Businesses should develop a broader risk awareness — of systemic risk, of potential new sources of risk and of the impact of change within their business.

One of the best ways to deal with this is in enhancing and refocusing existing capabilities within an organization; it is nothing new. Perhaps the biggest risk we actually face is that too many businesses might not realize this.

— John Farrell is an Advisory partner with KPMG in the U.S.

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