DOMINICAN BANKING SERIES # 8 - DOMINICAN FAILED

UNCLAS SECTION 01 OF 04 SANTO DOMINGO 003721

SIPDIS

DEPT FOR WHA/CAR (SEARBY),DEPT PASS TO SEC, FEDERAL
RESERVE; TREASURY FOR WAFER, DOJ FOR OIA (MAZUREK AND
ORJALES)

E.O. 12958: N/A
TAGS: DR EFIN KJUS PGOV PREL
SUBJECT: DOMINICAN BANKING SERIES # 8 - DOMINICAN FAILED
BANK CASES - MOVEMENT IN THE COURTS

REF: 04 SANTO DOMINGO 5426


1. (U) This is number 8 in a series of cables on the
Dominican bank failures of 2003. This cable contains an
action request, please see paragraphs 7 and 12.

Baninter, Banco Mercantil and Bancredito - legal case status
on the banks that broke the Dominican Republic


2. For the first time in over a year, there is substantive
action in the Dominican courts on the Baninter case. The
three member appellate panel charged with reviewing the
decisions of the judge of instruction (investigating judge),
has begun to hear testimony in the case. This action takes
place after a long delayed decision by the Supreme Court
denying a motion to recuse one of the appellate panel
members. In response to the apparent forward motion of the
court, the Ramon Baez defense team is ramping up once again
in its public relations efforts to clear the name of its
client. Meanwhile, the U.S. investigation appears to be
stalled by the resignation of the Assistant U.S. Attorney
handling the case and an internal DHS/ICE conflict on which
office has the lead investigative role in the case.


3. Justice continues to move slowly in the Banco Mercantil
case, but at least it is moving. Two defendants have been
bound over for trial, and the first round of the appeals
process has begun. The Bancredito case has ground to a halt.
It remains in the investigatory phase with no indication of
when the judge of instruction may issue his decision.

Action on Baninter - witnesses being questioned


4. On July 15, the three member appellate panel in the
Baninter case interrogated its first witness in over a year.
The panel will determine two primary issues on appeal: 1) the
request of Ramon Baez Figueroa and Marcos Coco Baez attorneys
(Baez defense team) to reverse the decision of the judge of
instruction holding that sufficient evidence of crimes exist
to proceed to trial against them (thereby dropping all
remaining charges against them),and 2) the request of the
Central Bank to reverse the decision of the judge of
instruction holding that insufficient evidence of crimes
exists to proceed against four other defendants and against
Baez Figueroa and Coco Baez on certain charges (thereby
reinstating charges against all six of the original
defendants in the case).


5. The case had been stalled in the panel while the Supreme
Court decided a motion to remove one of the appellate judges
from the case. However, rumors circulated that the panel
slow-down was due to political pressure that started when the
Fernandez administration took over in August 2004. President
Fernandez mostly has kept his distance from the bank fraud
issue stating consistently that the cases are in the courts
and that the independent judiciary will issue its decisions
in due course. The comments he has made lean toward placing
the blame for the bank failures on the Mejia administration
oversight committee (Central Bank and Superintendent of Bank
officials) rather than the bank executives. Additionally,
President Fernandez has claimed "Vincho" Castillo as one of
his inspirations - Vincho is lead attorney for the Dominican
based portion of the Baez defense team. Despite the rumors
of the politically motivated slow-down, increased pressure by
civil society, especially the group Participacion Ciudadana
(Citizen Participation),and a public interest in the cases
expressed by the local representatives of the International
Monetary Fund may have contributed to the recent revival of
the proceedings. The Supreme Court denied the motion to
recuse the appellate judge and left the appellate panel
intact.


6. The panel began interrogating witnesses on July 15; that
action in and of itself is notable. The panel had the option
of making its decision based solely on the record created by
the judge of instruction. However, by calling witnesses, the
panel has indicated that it intends to consider new
information and evidence (as permitted by law) prior to
rendering its decision. If the panel conducts its
investigation of the case thoroughly and without outside
influence, the Central Bank and the Dominican Attorney
General's office assure us that they will find sufficient
evidence to move the case to trial against all six defendants.

7. Related to the recent movement on the Dominican side of
the case, the Dominican Attorney General has requested a
meeting with the U.S. Attorney for the Southern District of
Florida during a planned trip to Miami (August 3, 4, 5) to
discuss the progress of the U.S. based investigation.
Embassy Santo Domingo has contacted DOJ/OIA and the DHS/ICE
Caribbean to pass on the request. The Embassy asks for all
possible assistance in arranging this meeting. (See also
paragraph 12).

Baez defense team takes the case to the press


8. With each new step in the case, the Baez defense team
takes to the press. The latest tactic is an attempt to
discredit current and past government officials by blaming
their lack of oversight for the bank failures. Current
Central Bank President Hector Valdez Albizu was the
Superintendent of Banks during the first Fernandez
administration. He has come under fire, directed by the Baez
defense team, for signing off on auditors' statements
assuring the liquidity of Baninter in the late 1990s. The
Baez defense team also continues to criticize the Central
Bank and Superintendent of Banks' leadership under the Mejia
administration, noting that the bank fraud did not cause the
economic collapse of 2003; they assert that the
"over-insurance" paid by the government when it decided to
make good on bad Baninter accounts caused the collapse.
Valdez Albizu discussed this with the Ambassador to ensure
the Ambassador was aware of his position that a fraud had
occurred and that legal action should continue. He also
showed concern that all members of the Fernandez
administration were not necessarily on the same page on this
issue. Valdez Albizu told the Ambassador that he planned to
talk to President Fernandez about the conflicting public
messages of the various members of his administration.


9. Another public Baez defense team tactic to take the
spotlight away from their client involves the IMF. Within
the past three weeks the Baez defense team contacted the IMF
to ask if any of the conditions of the IMF accords with the
Dominican Republic required prosecution of named individuals.
The IMF answered succinctly via letter that the conditions
did not require prosecution of any named individual. The
Baez defense team bought ad space in all the Dominican
dailies, reprinted the IMF's letter with the added inference
that their client must not be at fault in the Baninter
failure or the IMF would have implicated him. The spin on
what the IMF believed to be an innocuous letter was so
egregious that it felt compelled to write a more detailed
letter to the press explaining that the IMF did not condition
its accords on the prosecution of named individuals out of
respect for an independent judiciary, but that lack of
conditionality did not mean that the IMF would not continue
to carefully monitor ongoing court proceedings in which proof
of fraudulent and illegal activities in the banking sector
was evident.


10. The Baez defense team is also on the move in the United
States with the Miami branch of the international law firm of
Greenberg Taurig representing Ramon Baez. Greenberg Taurig
Attorney Jesus Cuza recently contacted Embassy officials to
request an interview, "because it appears that certain
statements and/or representations that may have been made by
you conflict with our understanding of the USG's position on
the (Baez legal matters in the Dominican Republic),we would
like to meet with you as soon as possible to discuss the
matter in detail." The Embassy declined the request, because
we do not comment on ongoing cases, Cuza's tone implied that
he was fishing for information concerning his client that
Embassy officials might have.

Baninter in the United States - who's in charge?


11. With the creation of the Department of Homeland Security
and ICE, legacy INS and Customs Attache offices were merged
into ICE Attache offices. The Baninter case investigation in
the United States was initiated by the ICE Attache Caribbean
office and was conducted in conjunction with the ICE office
of the Special Agent in Charge (SAC),Miami, Florida. ICE
Attache Caribbean, as a legacy Customs Attache office, was
responsible for all legacy customs investigations being
conducted in the Dominican Republic. The legacy INS Attache
office at Embassy Santo Domingo, now an ICE Attache office,
was subsequently given responsibility for all ICE
investigative activity, including both legacy INS and Customs
disciplines, in the Dominican Republic. The Baninter case
investigation into U.S. based crimes is waiting to be
transferred from the Miami based ICE Attache Caribbean office
to the ICE Attache office at Embassy Santo Domingo. Until
the transfer takes place, the investigation is not moving
forward. In addition, the ICE agent investigating the
criminal side of the case in Miami has been hampered by
health problems and has not been able to fully dedicate
himself to the case.


12. At the U.S. Attorney's Office for the Southern District
of Florida, the Assistant U.S. Attorney previously assigned
to lead the Baninter investigation and case is resigning.
The case has been passed to a new AUSA who is not yet
familiar with the complex fact pattern underlying the alleged
crimes. Embassy Santo Domingo reiterates its previous
requests for Department of Homeland Security and Department
of Justice assistance in investigating and prosecuting
U.S.-based crimes related to the Baninter failure, ref A.

Meanwhile in the Banco Mercantil and Bancredito cases. . .


13. In the case of Banco Mercantil, the third of the three
failed banks of 2003, the procedural posture has moved
forward slightly and now mirrors that of the Baninter case.
On June 14, judge of instruction Eduardo Sanchez Ortiz, the
judge of instruction also assigned to the Baninter case,
bound over for trial two defendants, Andres Aybar Baez and
Evelyn Altagracia Perez Montandon. He found insufficient
evidence against 12 other defendants and dropped the charges
against them. Aybar Baez was the former president of Banco
Mercantil and Perez Montandon was the former vice president
of finances for the bank.


14. As with Baninter, both sides have filed appeals. Aybar
Baez and Perez Montandon have asked an appellate panel to
overturn the judge of instruction's decision to send them to
trial. The Central Bank and the Attorney General's office
have asked that charges be reinstated against the 12
additional original defendants in the case and that
individual charges dropped against Aybar Baez and Perez
Montandon be reinstated.


15. The Bancredito case has seen no movement at all since
our last report on the case in September 2004.

Our thoughts. . .


16. We are encouraged that the appeals panel in the Baninter
case appears to be investigating the underlying criminal
charges against the actors, but we are not optimistic that
the principals in the case will be prosecuted. It has been
two years since the Baninter case was opened in the Dominican
courts, and it remains in a very preliminary phase. No trial
date has been set, the charges are still being contested, and
all defendants are free on bail. The judicial system is
weak; some judges susceptible to bribes and payoffs and
others are untrained to handle complex fraud cases such as
these. The Attorney General's office and the Central Bank
lawyers have told us that they intend to press forward, but
that true justice will come only if the criminal charges are
brought against the main actors in the United States.


17. (U) Drafted by Angela Kerwin. This report and others
in our bank fraud series can be found on our SIPRNET site at
http://www.state.sgov.gov/p/wha/santodomingo/ .
HERTELL