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]

References

  1. ^ DOMINICAN REPUBLIC ECONOMY THREATENED BY MASSIVE BANK FRAUD. | Company Activities & Management > Company Structures & Ownership from AllBusiness.com
  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 BNET.com
  3. ^ Dominican Government seeks failed bank’s assets in Grand Cayman – DominicanToday.com
  4. ^ http://powerandmotoryacht.com/megayachts/0902patricia/index.aspx Yacht Patricia
  5. ^ a b http://news.yahoo.com/s/ap/20071021/ap_on_bi_ge/dominican_bank_fraud_trial_1
  6. ^ Dominicant Today, April 3, 2006
  7. ^ http://news.yahoo.com/s/nm/20071021/bs_nm/dominican_fraud_dc_2
  8. ^ Business finance news – currency market news – online UK currency markets – financial news – Interactive Investor
  9. ^ http://www.elcaribecdn.com/articulo_multimedios.aspx?id=141702&guid=EF04DB20333D4739BC301542550DEA80&Seccion=134 El Caribe, October 23, 2007.
  10. ^ Hoy
  11. ^ Diario Libre

External links

  • BANINTER promotion.
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US GDP Fraud … a report on user-generated Social News site www.nowpublic.com


The US government released GDP figures showing rosy 3.5% growth in the third quarter. But don’t be fooled: the books were cooked. This time by the cash for clunkers boondoggle, the first time homebuyers tax credit, and other forms of useless stimuli.

According to The Wall Street Journal, “fully 2.2 percentage points of the third quarter’s 3.5% growth figure related to vehicle purchases and residential construction, both juiced by government support. Federal spending added 0.6%.”

Spending Trend

Spending Trend

GDP Growth with & without Mortgage Equity Withdrawals (MEW)

GDP Growth with & without Mortgage Equity Withdrawals (MEW)

The Bureau of Economic Analysis says, “car sales shot up 157.6% quarter on quarter.” That means cash for clunkers accounted for 1.66% of total GDP.

So subtract fake demand (1.66%) from the official GDP figure (3.5%), and you’re left with 1.84% GDP growth. Not so great after all…

And if you take away other forms of stimulus, the GDP picture appears even darker. According to David Rosenberg, GDP would have been flat or negative without stimulus.

“Don’t believe the GDP hype,” Dan Denning cautions. “The big problems in the economy – too much debt, too much leverage, too much government – are still there. They didn’t go anywhere overnight. We’d suggest that getting sucked back into stocks now because of the US GDP figure is a very bad idea.”

“Of course, we could be wrong,” Dan, continues. “Maybe stocks will go up another 20% from here, or 30%, or 50%. But it’s not likely. It’s more likely that the recession is over, but that the Depression has just begun.”

“It’s begun because what the US GDP numbers actually show is a private sector in full retreat as its income shrinks, its assets fall in value and the cost of servicing debt rises. Into that terrible breach the public sector has stepped armed with an arsenal of inefficient and stupid programs that give the illusion of economic activity, but actually prevent the economy from liquidating excess capacity and bad debt (the two conditions required for a real recovery).”

“Never before did a gap between a 3.2% consensus GDP forecast and an actual print of 3.5% manage to elicit so much excitement in the equity market. It just goes to show how speculative the stock market has become.” The question is why the economy couldn’t do even better?

GDP Fraud

GDP Fraud

“Historically, the auto sector adds 0.1-percentage point or 0.2-percentage point to any given GDP report. In the third quarter, courtesy of cash-for-clunkers, the sector added 1.7 percentage points to the headline figure, which is less than 1-in-10 event in terms of probabilities. Tack on the rebound in housing and government spending and the areas of GDP that received the most medication from public sector stimulus contributed almost all of the growth in the economy. You read this right. If not for the entire government incursion into the economy in Q3, real GDP basically would have stagnated.”

Rosenberg puts the US “recovery” into perspective by comparing it to the eerily similar “recovery” experienced by the Japanese in the 1990s.

“While it seems very flashy, 3.5% growth is far from a trend-setter. Let’s go back to Japan. Since 1990, it has enjoyed no fewer than 19 of these 3.5%-or-better GDP growth quarters. That is almost 25% of the time, by the way. And we know with hindsight that this was noise around the fundamental downtrend because the Japanese economy has experienced four recessions and the equity market is down more than 70% from the peak. What is important for the future is whether the U.S. economy can manage to sustain that 3.5% growth performance in the absence of ongoing massive government stimulus.” In other words, it may be a little early to uncork the champagne.

The big risk going into Q4 is a renewed contraction in real final sales. That is not priced into the various asset classes right now. When good news starts generating the same volume as bad, then one can start with the champagne nibbling. Until then, be very careful with the interpretation of presented results. Don’t think easily that official GDP figures can be trusted like China does; most figures are cooked in the US too.

Look at the data from railroad traffic. Just like electricity demand, this indicator can’t be doctored. Statisticians eager to please the boss can’t massage those ones. Published last week, the Association of American Railroads reported a steep decline in rail traffic:

“Rail traffic remains down year over year for the week ended Oct. 24, 2009. U.S railroads reported originating 276,357 carloads, down 14.8 percent compared with the same week in 2008 and 17.3 percent from 2007.”

A 14.8% decline should cause concern to any bulls out there. One need to look beyond the government sponsored green shoots to see weeds sprouting up everywhere.

And this to think about:
“ If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State. ” (Joseph Goebbels)

Truth is the mortal enemy of the lie. This is a profound observation from such an evil man. The definition of truth is being in accordance with fact or reality. The Nazis were masters of using propaganda to manipulate facts and produce the reality that suited their wicked purposes. Other states have attempted to repress dissent and rule by using the Big Lie. The Soviet Union and Communist China come to mind.

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