DOMINICAN BANKING SERIES #1: BANINTER CASE - WILL

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 006671

SIPDIS

SENSITIVE

DEPT FOR WHA, WHA/CAR, WHA/EPSC, EB/IFD; DEPT PASS USAID;
NSC FOR SHANNON; TREASURY FOR U/S TAYLOR, NLEE, LLAMONICA;
DHS PASS CUSTOMS FOR MIAMI:FUENTES; BRIDGETOWN FOR D CHAINER

E.O. 12958: DECL: 11/18/2010
TAGS: EFIN PGOV EAID CJAN DR
SUBJECT: DOMINICAN BANKING SERIES #1: BANINTER CASE - WILL
IT GET PROSECUTED?

Classified By: DCM Lisa Kubiske. Reason: 1.4 (b) and (d).


1. (U) Following is the first in a series of reports on the
Dominican banking sector.

(Begin Text)

BANINTER CASE -- WILL IT GET PROSECUTED?

(C) Dominican banking officials have been gratified by USG
interest in the investigation of the case of "Ramoncito" Baez
Figueroa's Baninter, which collapsed last April and left
behind it bad debts of more than USD 2.1 billion. They and
others remain deeply pessimistic that the Dominican judiciary
will stay the course and obtain convictions of Baez and his
colleagues. The best outcome, many Dominicans muse, would be
for the United States to extradite the whole lot and try them
in the United States.

(SBU) The Ambassador and embassy staff have discouraged such
expectations and challenged Dominicans to demonstrate to a
doubting public the firmness of their intentions. Even so,
many remain convinced that the upcoming elections season will
provide enough distraction for a deal to be struck by
someone, somewhere.

(C) In early September, President Mejia passed to the Embassy
six thick binders of Baninter material, including summary
reports of the documented activities. That same week, at the
conclusion of a working visit by Homeland Security (Customs)
regional attache Bob Fuentes and Treasury's regional
contractor David Chainer, the Monetary Board authorized
Central Bank Governor Jose Lois Malkun to make a formal
request for cooperation with their agencies. Informal
exchanges have been cordial and effective since then; for
example, on October 18-20 Central Bank contractor Jose Duarte
and an emboff went to Miami to talk business with Homeland
Security, with the law firm hired by the GODR to pursue asset
recovery, and with the U.S. attorney's office.

(C) Central Bank Governor Lois Malkun and Banking
Superintendent Julio Cross have been dogged in their pursuit
of the Baninter case. They persist in the face of the lack
of technical expertise to guide investigators, the obvious
inexperience of the Dominican jurists in defining and proving
a case, and the misgivings of those many individuals inside
the government and out who accepted Baez's favors in the
glory days. Ramoncito had his hooks into almost everyone.

(C) Embassy officers got to interview the Central Bank
contractor who walked into the bank last May with nothing
more than verbal instructions to begin the intervention, and
we have spent a lot of time with lawyers and managers from
the Bank superintendency. They tell us that the evidence of
fraud is ample and undeniable. Even so, we are concerned to
find that while lots of time is being spent combing through
the files, not enough is being done by the Dominicans to
track assets, to assure an air-tight case against the
culprits, or to identify the sources of funds. An Amcit
consultant we brought in with NAS funds for a two-week
assessment in October confirmed this impression. Most of
Baninter's physical assets have been sold off, but it appears
that to date almost none of Baez's personal assets have been
seized, even though the Money Laundering Law effective
September 2002 provides for that possibility. The only
significant exception is the "Listin Diario" newspaper, under
government-appointed management since June.

The investigation

(SBU) Magistrate Eduardo Sanchez Ortiz was assigned by lot
last June to investigate the case. The law provides in most
cases for only 60-90 days of investigation; Sanchez Ortiz
recently received his fifth 30-day extension, in recognition
of his need to consult banking experts to make sense of the
voluminous material from the bank, drawn not only from
Baninter headquarters but also from 29 filing cabinets found
tucked away in a distant warehouse. Almost all the records
are still available and are stored in a location which the
experts refuse to name, even to us. Sanchez acknowledges
being seriously challenged by the complexity of the task. We
understand that one of his first sessions in May was a
two-hour tutorial in double-entry bookkeeping. He
subsequently received tutoring and extensive study materials
on the 2002 Money Laundering Law. He recently attended a
workshop given at the Judiciary School on the legal aspects
of money laundering and complex fraud cases. In October the
Supreme Court contracted an expert accountant with banking
experience to work with Sanchez; he had requested two
experts. Baez Figueroa's attorneys challenged the expert last
week as potentially biased, since their client had fired the
accountant's wife from Baninter.

(SBU) Appreciation of the fine art of accounting is essential
in this case. For more than a decade Baez Figueroa and
several close associates systematically ran overdrafts of
client accounts and covered them up by creating phantom
certificates of deposit (instruments that until very recently
were not tracked or verified by the regulatory authorities).
The complex scheme was tracked in specially created software
which comprised a "covert" bank, reintegrated daily with open
accounts but accessible during workhours only to Baez and his
confederates.

(SBU) Presentation of the facts will be vital. Under
Dominican procedure the case against the Bantiner crew will
be judged exclusively on documents and observations delivered
by Sanchez Ortiz to the sitting judge; there is no provision
for the judge to obtain further evidence. If Sanchez Ortiz
fails to file an adequate brief -- for whatever reason -- the
case will be full of holes, making it all the more likely
that Baez Figueroa and friends will go free.

"Ramoncito" Down and Out?

(C) Baez Figueroa became notorious in the late 90's for his
flamboyant spending, high profile publicity campaigns and
generous handouts to individuals, institutions and good
causes. There appears to be no Dominican law prohibiting
officials from accepting such donations. The bank collapse
made a lot of people nervous, as they wondered how far
prosecutions might extend. In contrast to that high
lifestyle, Baez has been sitting in jail since last May,
despite persistent rumors that his political connections and
vast funds will get him sprung. President Mejia declared to
the Ambassador earlier this month that Baez deserved to be in
jail and would damn well stay there. Of the four bank
officials originally arrested, only Baez and Marcel Baez
Cocos remain in jail. Amcit Luis Alvarez Renta was freed in
the first week of September to seek medical treatment --
which he promptly sought in Miami and Boston. Despite his
attorney's pledges of good faith, Alvarez Renta remains in
the United States. Vivian Lubrano, also released on medical
grounds, is still in the Dominican Republic.

(C) Baninter is the grandest bank fraud and collapse in
Dominican history, but other bank failures are likely to give
rise to court cases. Dominicans are watching these cases
with growing cynicism and with the expectation of being
severely disappointed by their government and judiciary.
Knowledgeable observers comment that the institutions to
maintain, regulate and police the financial system here
simply do not exist yet. President Mejia and his
administration have done more than many expected, but the
wily Baez has lots of resources -- and many speculate that in
the current electoral climate, time is on his side. The
matter-of-fact acceptance of corruption across Dominican
society is a continuing sore. Much more must be done to
strengthen investigations and to provide prosecution
expertise, so as to demonstrate to the many bad guys, to
complaisant officials and to the Dominican public that
corruption can - - and should - - be detected and deterred.



KUBISKE