UNPRECEDENTED CONVICTIONS AGAINST OLDEST BANK IN

UNCLAS SECTION 01 OF 02 PARAMARIBO 000502

SIPDIS

SENSITIVE
SIPDIS

STATE FOR JROSHOLT, BLAMPRON (EB/TPP/BTA/EWH),DEPT FOR
INL/LP BCARHART, CARACAS FOR LEGATT, PORT OF SPAIN FOR
LEGATT, TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: EFIN SNAR KCRM NS
SUBJECT: UNPRECEDENTED CONVICTIONS AGAINST OLDEST BANK IN
SURINAME

REF: A. 07 PARAMARIBO 444


B. 07 PARAMARIBO 470

PARAMARIBO 00000502 001.2 OF 002



1. (U) SUMMARY In a highly emotional proceeding on August 30
the former and current directors of the De Surinaamsche Bank
(DSB),Ed Muller and Sigmund Proeve, were convicted for
violating Suriname's foreign exchange law by transferring
funds internationally without the consent of the Foreign
Exchange Commission. Along with them the bank itself (as an
entity),its compliance officer, Patrick Bhagwandin, and
casino owner and then-manager of the Suriname Leisure Company
(SLC),Jeffrey Clague, were also convicted. The conviction
shocked many in the financial and business community who
expected a light sentence, if any. The bank's Board of
Supervisors and the Central Bank of Suriname were quick to
point out that neither the stability of the oldest bank in
the country nor the monetary stability of Suriname are at
risk, and Director Proeve refused to step down. The Bankers'
Association Suriname (BVS) has called into question the
practicality of the 1947 Foreign Exchange law on which the
case is based. END SUMMARY

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THE SENTENCES
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2. (U) Suriname's financial and business community,
apparently expecting a sentence no harsher than a rap on the
knuckles, was shocked at the convictions of both the past and
the present directors of the oldest bank of Suriname. As per
request of the public prosecutor, a judge sentenced Muller
and Proeve to one year imprisonment - of which six months is
conditional - and three years probation. Bhagwandin was
sentenced to three months conditional imprisonment and three
years probation. Clague was sentenced to one year
imprisonment, of which six months conditional, and was fined
500,000 Surinamese dollars (SRD; about U.S. $178,500). A
fifth defendant, Ghautam Pharboe, was acquitted of all
charges. The DSB Bank, as an entity, was fined two amounts:
SRD 100,000 (U.S. $35,700),plus SRD 1 million (U.S.
$357,000) based on presumed profits from the illegal
activities, which it must pay back within one year or risk
having its activities halted for up to one year. Clague's
former company SLC was also fined SRD 1 million (U.S.
$357,000) in presumed profits. In his sentencing the judge
noted that the bank officials acted "knowingly and willingly"
and that their actions "jeopardized" the fragile monetary
stability of Suriname. The judge's sentencing was further
guided by the fact that both the Central Bank and the Foreign
Exchange Commission repeatedly warned DSB that its transfer
of funds on behalf of its clients was in violation of the
ruling legislation. Although no similar case has ever gone
before the court, other cases involving the Foreign Exchange
Commission have been resolved as economic offenses leading
only to fines.

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REACTIONS
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3. (U) Amidst the shock ripples, the supervisory board and
the union of DSB each issued statements condemning the
convictions and declaring their full support for the bank's
management. The supervisory board has gone so far as to
retain Proeve as the president of the bank, asking him to
continue the overall management, and he has agreed. In an
effort to calm the financial market, the Central Bank
immediately issued a statement that it guarantees DSB will
continue to provide its regular services, and that it still
has the fullest confidence in DSB, which has a market share
of close to forty percent.


4. (U) Organizations like the Bankers' Association of
Suriname (BVS) and the Association of Economists (VES) have
expressed concern for the ramifications of the convictions
for both Suriname and DSB. They say the convictions have
seriously dented the trust people have in their banking
institutions, and that trust is of the utmost necessity. The
VES has, however, questioned the board's decision to retain
Proeve as its manager. The BVS asked the government to
update the country's foreign exchange legislation, citing its
impracticality. The law dates back to 1947 and was passed as
a continuation of a World War II measure to secure the

PARAMARIBO 00000502 002.2 OF 002


country's financial system; it works contrary to the
liberalized international system of today.

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BIG NAMES OR BIG MONEY
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5. (U) All three bank officials are considered prominent
members of the community whose social status alone was seen
as important enough to keep them out of prison. Muller is
currently the president of a regional development bank for
medium sized businesses, is president of Rotary Suriname, and
is Honorary Consul of Sweden. Proeve is an up-and-coming
face in the business community with significant links to
social organizations. Bhagwandin is the son-in-law of the
Governor of the Central Bank, Andre Telting. After the
sentencing, the prosecutor stated that the payment of the
fines is more important to her than the imprisonment. If the
convictions hold, the government stands to earn approximately
U.S. $1 million in fines.


6. (SBU) COMMENT Businessmen might shake their heads over
the doleful state of over-regulation which led to the case in
the first place, or question the apparent government efforts
to make money off the case. However, Post views the symbolic
message of the case - unforgiving enforcement of the law - as
a positive signal in a country where corruption has long been
tolerated. Moreover, it is only the latest in a series of
attacks on corruption (refs). Also of note is the
interesting reaction of the Surinamese public: forgiveness
and shock that the GOS would dare to convict prominent
citizens. Given the above, Post notes that the GOS legal
system may be ahead of the public in taking the fight against
corruption seriously. END COMMENT


SCHREIBER HUGHES