DOMINICAN BANKING SERIES #4: BANCREDITO AND

C O N F I D E N T I A L SECTION 01 OF 02 SANTO DOMINGO 000745

SIPDIS

STATE FOR WHA, WHA/CAR, WHA/EPSC, EB/OMA; NSC FOR SHANNON;
TREASURY FOR DO - N LEE, R TOLOUI, L LAMONICA

E.O. 12958: DECL: 01/30/2014
TAGS: DR EFIN KJUS PGOV PREL
SUBJECT: DOMINICAN BANKING SERIES #4: BANCREDITO AND
BANINTER MANEUVERS

REF: A. A) 03 SANTO DOMINGO 06671


B. B) 03 SANTO DOMINGO 06857

C. C) 03 SANTO DOMINGO 07566

Classified By: DCM Lisa B. Kubiske, Reason 1.5 (b) and (d).


1. This is the fourth cable in a series on the Dominican
Banking Sector.

BANCREDITO AND BANINTER MANEUVERS

(U) Baninter and Bancredito are no more. Baninter has been
dissolved and Bancredito has been sold to Grupo Leon and
renamed Banco Leon. Although the legal entities no longer
exist, the legacies of their failures continue to plague
Dominican citizens. The debt incurred by the Central Bank in
guaranteeing accounts and loans at the banks is a major
factor in the current economic crisis. In addition, the
conduct of the cases has done little to rebuild -- or
establish -- confidence in Dominican administration of
justice. However, not all avenues have been exhausted.

BANCREDITO - District Attorney won't prosecute, so the
Central Bank finds another route
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(U) District Attorney Maximo Aristy Caraballo announced on
January 28 that he will not pursue criminal prosecutions in
the Bancredito case, since "the alleged fraud is a matter for
the civil courts." He thereby declined to entertain the
complaint lodged with him in November by the Central Bank
legal team. Within 24 hours Central Bank attorneys took
advantage of a procedural mechanism to file their criminal
complaint directly with the administrator of courts. The
administrator has assigned the case to a judge of
instruction, charged to assemble evidence and review charges
to determine if there is sufficient grounds for a full
criminal trial. If so, a second judge (or judiciary panel)
will be assigned to hear the case.

(C) This unusual procedural posture became the Central Bank's
only recourse to pursue a criminal case after the District
Attorney's refusal to bring charges. As reported in November
in our Banking Series #2, the District Attorney issued arrest
warrants for Bancredito officials Arturo Pellerano and his
vice president Mendoza but withdrew them on the next working
day at the instructions of President Mejia and Attorney
General Victor Cespedes. At the time, the President,
Attorney General and District Attorney all said they would
study the evidence and charges, so the case was not being
dropped. They took their time. During the December holidays
Mejia told a Central Bank attorney the case would move
forward by January 3rd. Nothing happened until the District
Attorney's disappointing announcement at the end of the month.

(U) The press put a spotlight on the District Attorney's
decision not to prosecute. The Central Bank legal team
countered the coverage with a scathing ad in the dailies,
scolding Aristy for failing to consult or study the evidence:
"The decision of the prosecutor has opened a new avenue for
the 'powerful' of our country to enjoy impunity." All four
attorneys signed the letter with its declaration that they
refused to stand by and let case go unprosecuted.

(SBU) Bancredito president Pellerano has been in the United
States since shortly after the Central Bank first filed its
case in November. He is attending to the gravely ill
patriarch of the Pellerano clan. The Pelleranos have been
hard hit by the bankruptcy of TRICOM, their Dominican-based
multinational telecoms operator, listed on the New York stock
exchange but currently in restructuring with accord of
bondholders. Their minority share holdings are worth just
about zero and they have had no management oversight for some
time. Pellerano may be attending to other family business,
taking advantage of his liberty to shield other assets.

BANINTER - Judge challenged, case stalled
--------------

(C) At a time when banking frauds have ignited inflation and
peso devaluation for the presidential campaign, the District
Attorney's decision not to prosecute on Bancredito combines
uneasily with last Christmas Eve's release of Baninter
accused Ramon Baez and Marcos Baez Cocco. The investigation
against them is currently suspended, due to a defense
petition to the Supreme Court asserting that investigating
Judge Eduardo Sanchez Ortiz is biased. Last week the
Attorney General filed a brief opposing the removal of Judge
Sanchez. Until the Supreme Court examines the petition,
Judge Sanchez's hands are tied. He cannot even file for his
sixth extension of the time allotted for investigation of
this complex and highly political case. The Baez defense team
moved its petition into the public spotlight on February 4,
when it placed full page ads in local dailies with Judge
Sanchez's photo and a listing of the defense position on why
Judge Sanchez should be removed from the case.

(C) Dominican expectations of mishandled justice may yet be
proven wrong. For one thing, President Mejia has told us,
privately, that he will prosecute all those responsible. For
another, the press is on the scent. In its lead editorial of
January 30, Listin Diario highlighted an AP report that "put
its finger directly on the wound in a single paragraph, and
we quote, 'The Dominican Republic went to the IMF when the
deterioration of its economy was aggravated by a fraud
totaling USD 2 billion in one of the most important banks in
the country!" The Central Bank team is tenacious and ready
to go public, while overt meddling by administration
officials is unlikely, especially during a difficult
presidential campaign. Hope rests in the last instance,
however, on the judicial system and its relatively unproven
ability in these circumstances to resist pressure and bribery.


2. (U) Drafted by Angela Kerwin and Michael Meigs.
HERTELL