Identifier
Created
Classification
Origin
09GUATEMALA290
2009-03-26 17:11:00
CONFIDENTIAL
Embassy Guatemala
Cable title:  

AMBASSADOR INTERVENES TO PROTECT CITI FROM

Tags:  ECON EFIN ETRD PREL PGOV GT 
pdf how-to read a cable
VZCZCXRO1295
RR RUEHLA
DE RUEHGT #0290/01 0851711
ZNY CCCCC ZZH
R 261711Z MAR 09
FM AMEMBASSY GUATEMALA
TO RUEHC/SECSTATE WASHDC 7190
INFO RUEHC/CENTRAL AMERICAN BASIN COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 0062
C O N F I D E N T I A L SECTION 01 OF 02 GUATEMALA 000290 

SIPDIS

E.O. 12958: DECL: 03/20/2019
TAGS: ECON EFIN ETRD PREL PGOV GT
SUBJECT: AMBASSADOR INTERVENES TO PROTECT CITI FROM
CONGRESSIONAL MACHINATIONS

REF: 2008 GUATEMALA 1349 AND PREVIOUS

Classified By: Econoff Brian F. Harris for reasons 1.4 (b&d).

Summary
-------
C O N F I D E N T I A L SECTION 01 OF 02 GUATEMALA 000290

SIPDIS

E.O. 12958: DECL: 03/20/2019
TAGS: ECON EFIN ETRD PREL PGOV GT
SUBJECT: AMBASSADOR INTERVENES TO PROTECT CITI FROM
CONGRESSIONAL MACHINATIONS

REF: 2008 GUATEMALA 1349 AND PREVIOUS

Classified By: Econoff Brian F. Harris for reasons 1.4 (b&d).

Summary
--------------

1. (C) In a March 19 meeting, the Ambassador urged Attorney
General Velasquez not to let politicians influence the
investigation of Citibank in the Mercado de Futuros (MDF)
embezzlement case, in which $11.2 million of congressional
funds were stolen and lost in risky commodities investments.
The Ambassador intervened at the request of Citi Guatemala
leadership and after it appeared that FRG Congressman
Aristides Crespo is trying to manipulate the case to target
Citi and distract attention from the congressional role in
the scandal. Velasquez acknowledged he was under political
pressure to act against the bank, and that a previous
investigation had not found wrongdoing by the bank.
Following the Ambassador's intervention, Velasquez called the
prosecutor handling the case and told him not to make any
decisions without a report from the Superintendent of Banks
detailing whether there had been wrongdoing. End Summary.

Background
--------------

2. (SBU) In mid-2008, press reports emerged that
approximately $11.2 million in Congressional funds had gone
missing (reftel). Later, revelations surfaced that the funds
had been transferred to the commodities trading firm MDF, and
invested in leveraged financial instruments based on
petroleum, Euros and other commodities near the peak of the
commodities bubble in June 2008. The conspirators apparently
planned to reap windfall profits which they were to divide
among themselves, and then reintegrate the funds into
congressional accounts before they were missed. The plan
went awry when commodities prices subsequently collapsed and
MDF's highly-leveraged position magnified the losses. When
the scandal was revealed approximately half the funds
remained invested with varying maturities. Government
authorities decided to wait for the investments to mature to
avoid early withdrawal penalties, and with the hope that

commodities prices would recover. Continued price declines
and probable theft of funds by the conspirators wiped out the
investments. No money was recovered.


3. (C) Fallout from the scandal resulted in the dismissal
and indictment of then President of Congress Eduardo Meyer,
former President of Congress Ruben Dario Morales, several
congressional staffers, and agents of MDF. A complaint was
also filed against opposition Patriot Party (PP) leader and
former presidential candidate Otto Perez Molina.
Superintendent of Banks Edgar Barquin announced in July 2008
that he had evidence of complicity by 23 other members of
Congress. The scandal marred the Congress' reputation, and
was headline news for months.

Citibank's Role
--------------

4. (C) At the time the conspirators were carrying out their
plan, Citibank Guatemala was in the process of acquiring
Guatemalan "Banco Uno," and was integrating its operations.
The conspirators opened deposit accounts in the name of the
Congress and MDF in Banco Uno. Congressional leaders
transferred the funds into the MDF account where it was then
invested in commodities. Banco Uno processed the transaction
as instructed by Congress, apparently complying with
Guatemalan banking regulations. The Embassy is aware of no
evidence that any Banco Uno or Citibank employee was
complicit in the scandal. Some in Congress complained that
Citi improperly transferred the funds according to banking
system regulations, which require one authorized signature,
Qsystem regulations, which require one authorized signature,
as opposed to the more stringent congressional regulations,
which require two. Banco Uno, now Citibank, countered that
the account had special instructions from the President of
Congress that only one signature was required. The Attorney
General's Office investigated the allegation and found no
evidence of wrongdoing by Citi. The Superintendence of Banks
also investigated and found evidence of an administrative
mistake, for which Citi was fined.

Crespo Targeting Citi
--------------

5. (C) As the investigation proceeded, indictments were
handed out. The trial for the head of MDF, Raul Giron, began
the week of March 9. Congressional aide Byron Sanchez is
under indictment, and extradition proceedings to bring him to
Guatemala from Miami have begun. To date, no Congressional
deputies have yet been convicted. However, some in Congress
appear nervous that they may eventually be implicated,
especially since no funds have been recovered.


GUATEMALA 00000290 002 OF 002



6. (C) Aristides Crespo of the FRG, who took over as
President of Congress when Eduardo Meyer resigned over his
role in the scandal, has been particularly active in his
intervention. (Note: As of January 2009, Crespo is no
longer President of Congress.) He maintains that he wants to
recover the money and bring those culpable to justice. He
and his lawyers have made near-weekly inquiries to the
Superintendence of Banks and the Attorney General's Office to
press for action against Banco Uno and its then-General
Manager, Jose Ariaza. In one recent encounter, Crespo and
five of his attorneys went to the Attorney General's office
to sharply criticize Prosecutor Omar Contreras for failing to
act against Banco Uno. Prosecutors also interviewed Barquin
to press him on the Banco Uno aspect of the case. When he
responded that Banco Uno had done nothing wrong, the
attorneys threatened him with a public congressional hearing.
Several sources confirm Crespo's actions, and all suspect he
is trying to direct the investigation away from Congress and
towards Citi so as to redirect blame. Crespo allegedly hopes
to win either a legal judgment or settlement whereby Citi
would reimburse Congress for at least some of the stolen
funds. Once the funds were restored, the Attorney General's
Office, already overwhelmed with other cases, would
presumably drop ongoing investigations of Members of Congress.


7. (C) Citi Guatemala CEO Juan Miro has grown increasingly
concerned about Crespo's activities. Miro is comfortable
with Citi's legal position but worries that the Attorney
General's Office will give in to Crespo's political pressure,
formally indict Citi, and issue an arrest warrant for Ariaza.
Should this occur, Miro feels depositors could lose
confidence in Citi Guatemala, especially in light of the
widely-reported woes of the parent company. Miro asked the
Embassy to intervene with the Attorney General's Office. In
a separate meeting, Barquin, the Superintendent of Banks,
also suggested the Embassy intervene on behalf of Citi.

Ambassador Intervenes
--------------

8. (C) On March 19, the Ambassador met with Attorney General
Velazquez to discuss the issue. He emphasized that if Citi
or any of its employees were found to have violated the law,
they should face justice. However, Velazquez should not
succumb to political pressure to indict Citi or Ariaza.
Velazquez acknowledged that Crespo continues to pressure his
office and noted that a previous investigation had not found
any wrongdoing by Citi. He seemed a bit uneasy about
standing up to Crespo, but hoped the Superintendent of Banks
would issue a written technical report absolving Citi. He
said that he could use such a report to stop any
congressional pressure. (Note: Barquin told Econoff that
his office was drafting such a report, but did not offer firm
dates for its completion. End note.) During the
conversation with the Ambassador, Velazquez called Prosecutor
Contreras and told him "not to make any decisions" with
respect to Citi, until they had all the facts. He went on to
say the situation needed to be handled "delicately." The
Ambassador's intervention appeared to forestall any imminent
action against Citi in Guatemala.

Comment
--------------

9. (C) Crespo hopes to distance himself and his friends in
Congress from the MDF embezzlement scandal, and to deflect
blame from Congress to Citibank. It is unclear whether
Crespo is among the 23 congressional deputies implicated by
QCrespo is among the 23 congressional deputies implicated by
the Superintendence of Banks in the scandal. We will press
Barquin to quickly complete his report on Citi, although we
will not ask him to tailor the report's contents to favor
Citi. The Embassy will continue its efforts to ensure that
Citibank and other U.S. companies receive a fair, unbiased
hearing in Guatemala's notoriously malleable judicial system.
McFarland