US embassy cable - 04SANTODOMINGO2223

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. 
 
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Baez and Alvarez Renta Launch Counterattacks against 
President's Party 
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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. 
 
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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." 
 
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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. 
 
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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. 
 
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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. 
 
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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