Identifier
Created
Classification
Origin
04SANTODOMINGO2223
2004-04-08 17:41:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Santo Domingo
Cable title:  

DOMINICAN BANKING SERIES #5; BANINTER/BANCREDITO

Tags:  EFIN ECON PGOV PREL DR 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 SANTO DOMINGO 002223 

SIPDIS

SENSITIVE

DEPARTMENT FOR WHA/CAR (MCISAAC),WHA/PPSC, EB/OMA;
TREASURY FOR LLAMONICA, RTOLOUI; DHS PASS MIAMI FOR
RFUENTES; DHS ALSO FOR CIS - CARLOS ITURREGUI

E.O. 12958: N/A
TAGS: EFIN ECON PGOV PREL DR
SUBJECT: DOMINICAN BANKING SERIES #5; BANINTER/BANCREDITO
IN THE NEWS AND IN THE CAMPAIGNS

REF: SANTO DOMINGO 00745

UNCLAS SECTION 01 OF 03 SANTO DOMINGO 002223

SIPDIS

SENSITIVE

DEPARTMENT FOR WHA/CAR (MCISAAC),WHA/PPSC, EB/OMA;
TREASURY FOR LLAMONICA, RTOLOUI; DHS PASS MIAMI FOR
RFUENTES; DHS ALSO FOR CIS - CARLOS ITURREGUI

E.O. 12958: N/A
TAGS: EFIN ECON PGOV PREL DR
SUBJECT: DOMINICAN BANKING SERIES #5; BANINTER/BANCREDITO
IN THE NEWS AND IN THE CAMPAIGNS

REF: SANTO DOMINGO 00745


1. (SBU) This is cable # 5 in a periodic series on the
banking sector in the Dominican Republic. Sensitive but
unclassified, entire text.

SIPDIS

BANINTER and Bancredito Back in the News and in the
Campaigns

Presidential candidates are trading barbs over
responsibility for the massive Baninter fraud and the
defendants are lashing out against President Mejia's
party. The Government filed civil suit in Miami on March

26. The Dominican Supreme Court has dismissed defense
efforts to impugn the examining judge, so the case begins
to grind forward again. Defendants in the Bancredito case
are targeted by an increasing number of criminal complaints
filed by defrauded depositors.

-------------- --------------
--------------
Baez and Alvarez Renta Launch Counterattacks against
President's Party
-------------- --------------
--------------

The huge Baninter banking fraud case is making headlines
again in the Dominican Republic. The most recent volley
was fired by the defense team of Ramon Baez Figueroa, which
filed a criminal suit on March 31 against prominent PRD
party members (PPH faction) alleging extortion and misuse
of public office. Baez's attorneys claim that current PRD
campaign manager Eligio Jaquez, then Secretary of
Agriculture, along with two other PPH members, received RD
pesos 15 million in Baninter funds in the form of a
fraudulent loan. That loan went to fund the initiative for
constitutional reform that resulted in an amendment to
electoral law, allowing President Mejia to run for a second
term in office.

The defense team struck again on April 2, announcing to the
press that they would accuse presidential advisor Hernani
Salazar of taking a payment of RD 30 million pesos at the
same time. They say that economic advisor Andy Dauhajre
accepted USD 300,000 for his Foundation for Economy and
Development. They say that after Easter week they will
reveal more about "Emperor Malkun" (Central Bank Governor

Lois Malkun) "as a leading member of the perverse
conspiracy" against Baez Figueroa and about a former
Central Bank Governor (presumably current Foreign Minister
Guerrero Prats). One paper says that they will accuse Vice
Governor Felix Calvo of accepting funds from Baninter.

Meanwhile, Luis Alvarez Renta's defense team was busy
placing full page ads in the local dailies proclaiming his
innocence and damning the Central Bank. The "innocence
campaign" comes on the heels of local coverage of the law
suit filed March 26 in the Southern District of Florida by
the GODR (in the form of the Liquidation Commission of
Banco Intercontinental, S.A.) alleging Alvarez Renta
committed civil violations of the Racketeer Influenced and
Corrupt Organizations Act (RICO) and fraudulent
transactions under Florida state law.

--------------
BANINTER as a Political "Hot Potato"
--------------

The Baez Figueroa lawsuit makes good on his defense team's
threat to publish information potentially damaging to
President Mejia. Mejia first mentioned Baninter as a
campaign issue two weeks ago when he stated publicly that
current presidential front runner and former president,
Leonel Fernandez, must have been aware of irregularities
within the Bank during his term in office. The Baez
lawsuit answers, at least in part, Mejia's banter with the
press, challenging anybody with damaging information
related to Baninter to come forward with it. Jaquez is
trying to take the spotlight off the President, saying that
the RD $ 15 million loan that is the subject of the
complaint, was a loan to him, used for PRD activity, and
that he has regularly been repaying it.
Interior Minister Pedro Franco Badia called the
pro-government daily Listin Diario on April 1 and waved a
copy of a 1999-2000 report on Baninter done by a financial
consulting firm and delivered to Fernandez's Central Bank
Governor Hector Valdez Albizu and the Banking
Superintendent Vicente Bengoa Albizu. Franco Badia read
aloud from the conclusions, "The Bank has a highly
concentrated portfolio of risks, with 150 debtors
representing 75.5 percent of the commercial lending,
substantially increasing the level of risk. . The bank is
losing funds to the extent that its capital is eroding ten
percent per year." Badia asserted that the analysts
suggested that, in its dire circumstances, the bank should
elect either to provide a straightforward accounting of its
situation or as a temporizing measure should use an
artificial presentation of the data suggesting more
liquidity than actually existed. "In either case," he read,
"we face the sure demise of the bank" ("estamos ante la
cronica de una muerte anunciada"). Franco Badia challenged
Fernandez to explain the "millions of pesos" received by
Fernandez's Fundacion Global -- "to show you that it was
enough just to press a single button, when the Foundation's
account was opened in Baninter, Fernandez received more
than 60 million pesos through Luis Manuel Casado."

-------------- --------------
Alvarez Renta Pointing the Finger at the Central Bank
-------------- --------------

In the Baninter background are the maneuverings of Luis
Alvarez Renta. The Miami based law firm of Tew Cardenas,
on behalf of the Dominican Government, filed a civil suit
against Alvarez Renta on March 26th. When word of the suit
made the press in the Dominican Republic, Alvarez Renta's
defense team went on the offensive, publishing ads saying
in part, "Once again the officials of the Central
Bank...want to condemn Luis Alvarez Renta in the press,
causing irreparable harm to his public image." One
interesting aspect of his "innocence ads" is his statement
that, "We trust in our (Dominican) judicial system." This
is the first time we have heard anybody say that they trust
in the Dominican judicial system.

--------------
Judge Cleared to Continue Investigation
--------------

Perhaps the most important decision in the Baninter
criminal case in the Dominican Republic took place with
little fanfare. The Dominican Supreme Court ruled against
the Baez Figueroa petition to remove the judge of
instruction from the case. By ruling against Baez
Figueroa, the court allows the criminal case against him,
Alvarez Renta, Marcos Baez Cocco, and Lilian Castillo to
move forward. Judge Ortiz Sanchez is now free to resume
his daunting task of compiling evidence and preparing a
bench memo on the criminal charges against the Baninter
principals. Once Judge Ortiz Sanchez completes the fact
finding stage of the case, it will pass to a judge or a
judicial panel for trial.

Baez Figueroa's defense team has asked that its criminal
complaint against the PPH members be attached to the
original Baninter criminal case and assigned to Judge Ortiz
Sanchez. No ruling has been made on that request to date.
Because the underlying facts and players in both cases
would be the same, attaching the PPH case to the Baninter
case would make sense. However, it would slow down the
Baninter case, perhaps delaying prosecution once again.

--------------
BANCREDITO Takes Another Path
--------------

Far less prevalent in the press, but nevertheless moving
forward at a steady pace, are claims against the former
executives of Bancredito. In early March, Central Bank
attorneys and officials gave testimony to the judge of
instruction in the case. The original Bancredito criminal
case filed by the Central Bank, which was delayed by the
Attorney General's refusal to file the complaint, was only
the first case opened against Bancredito executives. Since
then, at least ten other criminal complaints against the
former executives have been filed with the coordinating
judicial administrator by various depositors in the failed
bank, despite the negative opinion of the Santo Domingo
District Attorney. In addition to naming former Bancredito
President Manuel Arturo Pellerano and Vice President Juan
Felipe Mendoza (subjects of the first criminal case),the
new complaints implicate patriarch Maximo Pellerano and 27
Dominican businesses, including major Dominican firms in
the Pellerano group involved in telecommunications, banking
and insurance.

Bancredito took another hit when, for the second time, its
petition for injunction was denied. Bancredito attorneys
had asked the court to suspend two Monetary Board
resolutions that Bancredito claimed were damaging its
interests. Passed in October 2003 and February 2004, these
resolutions directed that certificates of deposit issued by
Grupo Financiero Nacional (a Bancredito related entity)
would not be guaranteed by the Central Bank. The denial of
injunctive relief means that remaining Bancredito assets
may continue to be subject to law suits and criminal
complaints from those who feel they have been defrauded or
robbed. In other words, the door is open for even more
actions against former Bancredito executives and companies
owned, in whole or in part, by Bancredito.

--------------
Action and Comment
--------------

The Ambassador and emboffs continue to urge our contacts at
all levels to press forward with prosecutions in the
Dominican Republic against Baninter and Bancredito
officials. The Ambassador again delivered anti-corruption
messages in well attended speeches on February 25 to the
Santo Domingo chapter of the American Chamber of Commerce
and on March 19 the Dominican Diplomatic School. The USAID
Director has taken advantage of a series of anti-corruption
events for presidential candidates to spell out the USG
position and urge Dominicans to fight corruption in the
banks, in the courthouses and throughout society. The DCM
and other emboffs raise banking fraud as an example of
corruption and institutional weakness and urge action
against it.

The emergence of the Baninter case as a political issue in
the upcoming presidential elections gives the Dominican
Republic another reminder to do the right thing. The
criminal case, stalled since December, is now back on the
rails. The example of the U.S. based case, even though it
is a civil action, raises the stakes. The Dominican
judicial system has an abysmal track record on fraud and
corruption, but recent events give us hope that the
Baninter case may actually go to trial some day.


2. Drafted by Angela Kerwin.


3. This report and others in the series are available on
the classified SIPRNET at
http://www.state.sgov.gov/p/wha/santodomingo/ along with
extensive other material.


HERTELL