US embassy cable - 04SANTODOMINGO5426

C O N F I D E N T I A L SECTION 01 OF 04 SANTO DOMINGO 005426 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/CAR (MCISAAC), DEPT PASS TO SEC, FEDERAL 
RESERVE; 
TREASURY FOR LAMONICA; 
DOJ FOR OIA (MAZUREK AND ORJALES) 
 
E.O. 12958: DECL: 09/30/2010 
TAGS: EFIN, PGOV, PREL, KJUS, DR 
SUBJECT: DOMINICAN BANKING SERIES # 7 - NEW LEGAL TEAMS AIM 
AT ALVAREZ RENTA AND PROMISE VIGOROUS PROSECUTIONS 
 
REF: SANTO DOMINGO 2821 
 
Classified By: DCM Lisa Kubiske, reasons 1.4 (b) & (d). 
 
 1. (U)  This is cable number 7 in a periodic series on the 
banking system and bank frauds in the Dominican Republic. 
SEE ACTION REQUESTS FOR SEC AND DOJ/OIA BELOW. 
 
 
NEW LEGAL TEAMS AIM AT ALVAREZ RENTA AND PROMISE VIGOROUS 
PROSECUTIONS 
 
 
2.  (U)  Legal actions and investigations continue against 
executives of Dominican banks Baninter, Bancredito and Banco 
Mercantil, the 2003 failures and frauds of which resulted in 
losses of approximately 20 % of Dominican GDP, virtually all 
of it assumed by the government. Previous reports tell the 
political and forensic story through the presidential 
election of May 2004, won by former President Leonel 
Fernandez against incumbent Hipolito Mejia.  The Fernandez 
administration has now been in office for six weeks, and has 
begun to deal with the many economic, financial and judicial 
leftovers of the banking frauds. 
 
3.  (SBU)  Newly appointed head counsel for the Central Bank 
Fidel Pichardo has told us that the Fernandez administration 
plans to continue to pursue legal action against the 
principals in the major bank fraud cases in the Dominican 
Republic.  He echoed the refrain we have heard many times 
before from previous administration officials:  "We will do 
the best we can, but the judicial system here (Dominican 
Republic) is weak.  We need the USG to move forward on the 
cases in the United States." 
 
4.  (C)  Pichardo met with us on two different occasions in 
early September to discuss the Baninter and Bancredito cases 
(Banco Mercantil was raised tangentially, but was not the 
focus of the discussion).  On September 14 he flew to Miami 
to meet with the Central Bank's U.S. legal counsel, Tew 
Cardenas, and the U.S. Attorney for the Southern District of 
Florida.  Pichardo wanted to impress upon us that the 
Fernandez administration will not stand for corruption - they 
will continue to prosecute the cases and attempt to punish 
those who are culpable.  Nevertheless, he expressed surprise 
that the United States has not moved forward (his perception) 
on criminal cases against the principal actors.  He commented 
that the United States, "has many more resources and says it 
wants to pursue justice."  He told us that he wants to see 
the cases move forward in the United States because, despite 
a promise of an all out effort in the Dominican courts, he 
does not expect the Dominican judicial system to be able to 
handle the cases properly. 
 
5.  (C)  Pichardo spent quite a bit of time summarizing the 
Baninter case, perhaps more for his own benefit than anyone 
else's.  He stated that before being named as head legal 
counsel for the Central Bank he had followed the case in the 
press and via word of mouth among the members of the local 
bar.  After having the opportunity to review the summary of 
the case and the evidence against the actors, he said he was 
amazed at the size and scope of the fraud.  He told us that 
he knows the public perception exists that the Fernandez 
administration may be "soft" on the Baninter case due to 
former ties between President Fernandez and "Ramoncito" Baez. 
 He assured us that the public perception is wrong and that 
the Fernandez administration stands for justice and the fight 
against corruption. 
 
6.  (C)  Even so, Pichardo attempted to refocus the spotlight 
on Luis Alvarez Renta and send Ramoncito Baez to the fringes 
of the stage.  He told us that in his opinion Alvarez Renta 
was the true mastermind of both the Baninter and Bancredito 
cases and should be the focal point of the U.S. criminal 
case.  He emphasized, more than once, that Alvarez Renta has 
assets in the United States that could be seized.  He asked 
why seizure has not yet taken place. 
 
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Zero interest loan, no collateral necessary 
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7.  (C)  Pichardo outlined Alvarez Renta's involvement in one 
area of the Bancredito case.  He told us that the Central 
Bank has irrefutable evidence that Bancredito, then 
controlled by the Pellerano family, made a US $15 million 
zero interest loan to Alvarez Renta.  The loan was made with 
the instruction to use the funds to purchase Tricom stock 
(Tricom's majority shareholder was also the Pellerano 
family).  On the loan documents, the Tricom stock, not yet 
purchased, was listed as collateral.  Pichardo said the move 
was made to drive up the value of the Tricom stock on the 
NYSE.  Alvarez Renta was paid an unspecified sum by the 
Pellerano family for his involvement in the scam.  Pichardo 
asked us for assistance in investigating insider trading and 
violations of SEC regulations and provisions.  (See action 
request below) 
 
8.  (C)  This is not the first time we have heard allegations 
of fraud and insider trading in Tricom.  The former 
Superintendent of Banks, Julio Cross, called on us shortly 
before the inauguration of President Fernandez.  He provided 
us with summaries of the findings in the cases - information 
that the outgoing government turned over to the incoming 
administration - and his analysis that Bancredito and Tricom 
are so closely linked that fraud in one means fraud in the 
other.  He likened Bancredito to Moby Dick and Tricom to 
Captain Ahab's ship the Pequod, saying that Moby Dick was 
going under and taking everything attached to it with it. 
 
10.  (SBU)  Additionally, various embassy sources have 
reported that Tricom is on the edge of bankruptcy but the 
Pellerano family is working hard to retain control and keep 
from filing Chapter 11 proceedings in New York.  Most have 
noted the connection among the Pellerano family, Tricom and 
Bancredito and asserted that Tricom must have been subject to 
the same types of fraudulent insider activity as the bank. 
 
11.  (C)  Pichardo also fingered Alvarez Renta in the as yet 
unopened Banco Mercantil case.  Formal charges have not been 
made against anybody in the Banco Mercantil fraud; however, 
Pichardo insisted that in addition to Baninter and 
Bancredito, Alvarez Renta had a hand in receiving unsecured 
lines of credit from Banco Mercantil. 
 
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Meanwhile, the Listin Diario tells its own story 
--------------------------------------------- ---- 
 
12.  (SBU)  As part of the Dominican based case against Ramon 
Baez, in late 2003 the Dominican government confiscated the 
assets of the Listin Diario media group; a group comprised of 
numerous media outlets including the Listin Diario, one of 
the top three daily newspapers in the Dominican Republic. 
The Baez defense team challenged the seizure of the assets on 
constitutional grounds.  An appellate level court ordered the 
immediate return of the Listin to the Baez family in April, 
2004.  The Central Bank appealed that decision to the Supreme 
Court which stayed the appellate court order pending review. 
The Supreme Court ordered the GODR to return the Listin 
Diario media group to the Baez family in compliance with the 
appellate court ruling on September 2, 2004.  However, it 
left an opening for further Central Bank legal action.  The 
Supreme Court ordered compliance with the appellate court 
decision to return the assets immediately, but did not rule 
on the constitutional merits of the case.  Under the 
Dominican legal system, the Central Bank can challenge the 
decision on the merits by asking for a separate appeals court 
panel to hear the case.  Pichardo told us that, "we are 
turning over the Listin (as per the Supreme Court order), but 
we are not giving up." 
13. (SBU) The Listin portion of the Baninter case has gotten 
considerable media play, not only in the pages of its own 
paper, but in all Dominican news outlets.  When the 
government seized the media group, it took over publication 
of the Listin Diario.  The content moved from quite 
respectable to slavishly pro-Mejia, at times failing even to 
mention the lead stories found in other outlets.  Both the 
change in administration and the return of the Listin to the 
Baez family have resulted in fewer biased stories and a move 
towards more neutral reporting.  A notably aggressive 
anti-U.S. tone has appeared at times. 
 
14.  (SBU)  If the Central Bank does decide to pursue the 
legal avenues to have the media group re-seized in 
conjunction with the ongoing larger Baninter case, it may be 
an uphill battle.  Although the Central Bank legal team's 
premise for initiating the action was that seizure of assets 
was proper under Dominican law, the Baez family has two 
strong alternative defenses: 1) the media group's controlling 
interest was owned by Ramon Baez Romano, father of 
"Ramoncito", not the subject of a criminal action, therefore 
seizure should be denied, and 2) the due process rights of 
"Ramoncito" are violated if the media group is seized prior 
to a finding of guilt on the criminal fraud charges. 
 
-------------------------------- 
Where is the Baninter case now? 
-------------------------------- 
 
15.  (SBU)  While the Listin portion of the Baninter case has 
been in the news, the larger case against the principals has 
slipped a bit from the public spotlight.  The case remains on 
appeal from the findings of the judge of instruction.  A 
three person appellate panel is charged with determining if 
the judge of instruction correctly determined who should go 
to trial and on what charges.  Central Bank legal counsel 
Pichardo says that he believes charges against Alvarez Renta 
should be reinstated.  The decision of the judge of 
instruction numbered over 400 single spaced pages.  The task 
for the appellate court to evaluate that decision and review 
the underlying evidence presented to the judge of instruction 
is a complex undertaking.  That said, two different sources 
in the Attorney General's office have told us that they 
believe the decision of the appellate panel will be issued in 
the near future.  If so, we can expect the case to be back on 
the front pages and on the airwaves. 
 
16.  (SBU)  The U.S. based portion of the civil case against 
Luis Alvarez Renta continues.  The Monetary Board voted to 
continue to retain the services of Tew Cardenas, the Miami 
based law firm that filed the civil RICO action against Luis 
Alvarez Renta in the Southern District of Florida.  The 
Central Bank is seeking treble damages plus expenses for 
violations committed by Alvarez Renta and his companies. 
Pichardo is aware that a civil case of this nature can take 
years to make it through the U.S. court system, especially 
when the defendant has deep pockets and is well represented, 
as is the case with Alvarez Renta.  For this reason, Pichardo 
has asked that the U.S. based criminal investigation  against 
Alvarez Renta move at a faster pace.  His trip to the Miami 
was, in part, to meet and present the GODR case to the U.S. 
Attorney for the Southern District of Florida.  (See action 
request below). 
 
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Coordination in the new administration 
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17.  (SBU)  Pichardo also emphasized the administration's 
goal of coordinating efforts to "get the bad guys."  Under 
Mejia, coordination among the Central Bank legal team, the 
Santo Domingo District Attorney and the Attorney General was 
abysmal, as evidenced by the fiasco in filing and then 
suspending of charges in the Bancredito case.  Pichardo tells 
us that he has been working closely with the prosecutorial 
arms of the government to improve communication and 
information sharing.  New Attorney General Francisco 
Dominguez Brito echoed the sentiments of Pichardo by saying 
that the bank fraud cases were a priority and that his office 
would be working very closely with the Central Bank attorneys 
in evaluating potential new cases. 
 
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Outlook 
--------------- 
 
18.  (C)  The outlook is mixed.  We have heard so often and 
so frequently that the Dominican judicial system will fail in 
the bank fraud cases that it is difficult not to expect the 
worst.  On the bright side, the coordination and cooperation 
among the GODR officials with prosecutorial responsibilities 
is already better than it was during the last year of 
President Mejia's term.  The Attorney General's office is 
looking into all areas for methods to improve prosecution of 
serious crime.  The Central Bank is "talking the talk" and 
continuing with efforts to bring the bank fraud actors to 
justice. 
 
19.  (U)  ACTION REQUEST  Embassy Santo Domingo requests the 
Securities and Exchange Commission consider allegations above 
regarding the recently delisted publicly traded company, 
Tricom, S.A., incorporated in and under the laws of the 
Dominican Republic.  Embassy Santo Domingo requests DOJ/OIA 
ensure that the criminal investigation targeting Baninter 
principals in the Southern District of Florida has been fully 
presented to the U.S. Attorney's Office.  Embassy is ready to 
assist SEC investigators in the Tricom/Bancredito case and to 
continue providing assistance to DHS agents and the U.S. 
Attorney for the Southern District of Florida in the Baninter 
case.  Previous cables in the series provide further 
background on the Tricom/Bancredito connection and on the 
Baninter case.  END ACTION REQUEST. 
 
20.  (U)  Drafted by Angela Kerwin. 
 
21.  (U)  This report and others in the series are available 
at our SIPNET classified site 
http://www.state.sgov.gov/p/wha/santodomingo< /a>  along with 
extensive other material. 
HERTELL