November 11 - 17, 2002     · News Index

· Repopulating  downtown San Jose
· Deputy hopes  Villalobos will  negotiate
· Zapote with no Bulls this year
· ICE service fails
· Poverty and  Joblesness is the challenge
·  Riteve has problems
· News Briefs




Deputy Hopes Villalobos Will Negotiate with Authorities; Warrant Raises Questions
By David Boddiger
Tico Times Staff
dboddiger@ticotimes.net

To protect the credibility and image of Costa Rica, Congressman Luis Ramírez has thrown his hat into the ring, hoping to find some answers to what - if anything - is going to happen to Costa Rican businessman Luis Enrique Villalobos' self-styled "personal loan" business, known as "The Brothers," currently under investigation by Narcotrafficking Special Prosecutor Walter Espinoza's office.

He was prompted to action by 6,289 worried investors affected by the business' closure on Oct. 14 (TT, Oct. 18).

Ramírez - a member of the National Liberation Party and former attorney - on Nov. 6 sent a letter to President Abel Pacheco warning that the July 4 freeze of Villalobos' business accounts "provokes discredit, lack of confidence and legal and economic insecurity for Costa Rica."
The congressman also stated, "The effects (will be) largely negative on the national economy and will provoke large-scale capital flight."

He also sent a letter Oct. 29 asking Attorney General Carlos Arias for information on the status of the investigation and the "possibility of a short-term unfreezing of funds of the majority of investors… who are honest people and have no ties to fraudulent money operations."

To fix the problem, Ramírez urged Pacheco and Prosecutor's Office officials to prosecute any wrongdoing and regulate the loan business if nothing illegal is found.

Neither Pacheco nor Arias responded to the letters. The press office at the Casa Presidencial is also maintaining its "no comment" position.

But the Deputy also said one key element is missing to bring the matter to a resolution: Luis Enrique Villalobos.

"Villalobos is not here, and we don't know why," he told The Tico Times this week. "Our position is that he present himself at the negotiating table, and if everything is legitimate, his business can function under the regulation of SUGEF (Financial Entities Superintendent's Office)."

The Tico Times contacted Villalobos' attorney, Arnoldo Segura, to obtain a reaction from Villalobos, but Segura said he did not know the businessman's whereabouts. He also said he is no longer giving statements in representation of Villalobos.

Ramírez said an estimated 99% of the money invested by Villalobos clients is located offshore. He said that according to sources close to the investigation, only $7 million is frozen in Costa Rican bank accounts, a number confirmed by the Prosecutor's press office spokeswoman, Sandra Castro.

Under "The Brothers'" arrangement, new investors - who had to be recommended by existing investors - received 2.8-3% monthly interest on minimum loans of $10,000. Many investors reportedly invested much more, and allowed their interest to compound.

Until abruptly closing Oct. 14, Villalobos had never missed an interest payment, and his clients - many of whom lived off their interest payments - are fiercely loyal to him.

"The money is not in the country," Ramírez said this week. "If that money (investors' principal) is really out there working, it should be gaining interest. So where is Mr. Villalobos?"

The Prosecutor's Office would also like the answer to that question. While Immigration officials have no record that Villalobos - who does not have a restraining order against him - has left the country, Castro told The Tico Times, "We presume (Luis Enrique Villalobos and his brother, Osvaldo) have abandoned national territory."

Several investors' groups have been pressuring authorities to lift the freeze, claiming the government has no right to maintain it.

In a paid advertisement this week (see Page 12), the United Concerned Citizens, Residents and Friends of Costa Rica reiterated their confidence in the man they believe has worked financial miracles for his clients for more than two decades. They blamed the government for "overstepping its bounds and infringing upon the rights of individuals."

Continuing to ask for calm and urging investors not to file suit, the group said it will hold another town-hall-style meeting Nov. 24 at the Holiday Inn (10 a.m.) to "show support for Enrique and for a favorable determination to lift the freeze" on Nov. 26.

The group also published advertisements in a local Spanish-language newspaper.

The Prosecutor's Office offered no additional insight into the case, except to say that more information will be made public following the Nov. 26 deadline for authorities to either lift or extend the freeze on Villalobos' accounts, handed down July 4.

But a copy of a judicial search warrant obtained by The Tico Times sheds some light on the investigation's main focus. The warrant was issued July 3 and prompted the following day's raids on Villalobos' offices and residence.

Excerpts from the warrant were also published yesterday on the Web site of the Investment Recovery Center, a local legal and business consulting group helping investors through the legal process to reclaim money invested with Villalobos (www.irccr.net).

Through Castro, Espinoza confirmed to The Tico Times the warrant's legitimacy.

The search warrant was granted based on two requests: one from Canadian authorities regarding the alleged laundering of drug-trafficking funds by six Canadian citizens, the other by Espinoza to investigate alleged "illegal financial intermediation" by the Villalobos brothers (TT, July 12).

While much has already been published about the Canadian drug-trafficking case, until now, little was known about the Prosecutor's Office's investigation into additional suspected money-laundering.

Investigations by the Joint Anti-drug Intelligence Center of the Financial Analysis Unit - under the helm of the Prosecutor's Office - turned up enough "suspicious activities" allegedly committed by both Villalobos brothers to justify a raid, according to the document.
One example cited was a bank transaction related to the Ofinter Money Exchange business, reportedly managed by Osvaldo Villalobos.

Ofinter, which operated legally, was unexpectedly closed Oct. 14 along with Luis Enrique Villalobos' unregulated personal loan offices.

On March 23, 1999, the warrant alleges, a $351,575 check drawn on a local bank was issued by Servicios de Soporte al Turismo, S.A., a company related to Ofinter, to a second party.

A third person bought dollars and deposited them in another account owned by Casa de la Libertad, S.A., which immediately issued a check to Servicio de Soporte al Turismo, S.A. in the amount of $351,575.

"The entire transaction was carried out the same day, generating during the process of buying and selling (currency) a loss - due to the exchange rate - of $9,005, an amount paid by the client in cash - an abnormal and suspicious situation," the warrant states.

Servicios de Soporte de Turismo, S.A., according to the warrant, also deposited in Banco de Costa Rica 75 money orders of $500 each made out to the company, bought during the same time period by the same client at various locations. The money orders were purchased without a buyer signature or address.

When Banco Internacional de Costa Rica asked for an explanation of the money orders' origin, Osvaldo Villalobos asked the bank to return them and withdraw the total amount from his own account, the warrant alleges.

Between November 1998 and April 1999, more than $11 million were moved through the Servicios de Soporte al Turismo account, most deposited in the form of money orders, traveler's cheques and checks from foreign personal accounts, according to the document. During the same period, some $9 million was withdrawn, more than half by the same Ofinter employee.

In June 1998, 28 checks for $100,000 each were bought through the LGT Bank in Lichtenstein - 15 made out to Servicios de Soporte al Turismo and 13 to Luis Enrique Villalobos.
A Legislative Assembly document sent to The Tico Times by Ramírez's office detailed a Nov. 12 meeting with Alvaro Segura, manager of Ofinter, S.A.

According to Castro, Ofinter operated legally and was never ordered to close. The money exchange business was restructured and reopened on Nov. 4, according to Alvaro Segura's statements to Ramírez.

According to the congressional document, Segura told Ramírez that Ofinter has operated for six years under the supervision of SUGEF and with the authorization of the Costa Rican Central Bank, the same thing Villalobos and his attorneys have always insisted.

The document also states: "When the money-laundering charges were brought against Canadian citizens, the Narcotraf-ficking Special Prosecutor and Judicial Investigative Organization (OIJ) officials intervened Ofinter, S.A. on July 4 with no justification to do so, as the company did not capture, invest, nor pay interests nor loan money, nor did it have any relation with supposed laundering of money with Canadian origins."

But the search warrant alleges that part of the Canadian drug money was deposited in a Costa Rican bank controlled by both Villalobos brothers. It also claims that between June and December, 1999, 119 "financial documents" - including money orders and checks - totaling just under $3 million were moved through a brokerage house to an account in dollars in the Banco Crédito Agrícola de Cartago. Both Luis Enrique and Osvaldo Villalobos endorsed the checks, the search warrant claims.

The Tico Times attempted to contact Alvaro Segura by phone, but was unsuccessful by press time.

Charles Gohmann, executive director of the Investment Recovery Center, said the allegations outlined in the search warrant call into question the nature of Villalobos' businesses.

"We are not here to make any judgements (regarding the investigation)," Gohmann said. "We're only interested in providing investors with facts, and they can make their own conclusions."

The Investment Recovery Center Web site also mentions some common money-laundering procedures, including those published on a Public Policy for the Private Sector Web site, linked from the World Bank's Web site (http://www. worldbank.org/html/fpd/notes/48/48scott.html).

The search warrant names 29 Costa Rican companies controlled by the Villalobos brothers, but Ramírez said he believes the investigation has turned up a higher number.

Another question raised by the case is how the personal loan business, which essentially acted as a bank - according to Ramírez - was allowed to continue operating unregulated for an estimated 22 years.

Luis Enrique Villalobos and his attorneys have always insisted that the loan business was legal, because personal loans to "friends" do not require regulation (TT, July 12).

In his letter to Pacheco and a subsequent list of questions sent to SUGEF Superintendent Bernardo Alfaro, Ramírez blasted the government regulatory commission for failing to investigate and regulate the Villalobos operation.

"To protect investors and the confidence and credibility of Costa Rica, SUGEF was created. But what role have they played? None," the letter states. "They innocently control public and private banks. But what about the other visible financial activities?"

Alfaro responded to Ramírez's statements in an e-mail this week to The Tico Times.

"SUGEF is called upon to ensure the stability of the Costa Rican financial system; it is our job to supervise all that is related to financial intermediation," Alfaro wrote.

According to Alfaro, "financial intermediation" is composed of three basic components: receipt of deposits from the public, money used to extend credits, and the acceptance of risk by the intermediary, as well as control of accounts.

"Therefore, a company that receives money from the public and uses these funds for any type of activity other than extending credit is not a financial intermediary," he stated. "If public money is received, what could be happening is an unauthorized public offering, whose supervision corresponds to SUGEVAL (the (Securities Exchange Superinten-dency)."

In his meeting with Ramírez, Segura agreed.

"Luis Enrique Villalobos' business cannot be considered a 'financial intermediary,' because although it received deposits from the public, the only thing (the business) did was to pay interest to depositors," the congressional document stated.

According to the search warrant, in 1999, SUGEVAL warned authorities of the high risk the Costa Rican Securities Exchange was assuming by granting "immediate credit" to funds that did not originate from abroad, as deposits during that time were greater than $1 million per month.

The warrant also states, "Considering the movement of such a large amount of money (millions of dollars and colones monthly) by the Villalobos Group from its bank accounts and investments, it can be assumed that this group is dedicated to financial intermediation, mainly to foreign investors."

Nevertheless, Arnoldo Segura has repeatedly maintained that neither Villalobos brother is guilty of wrongdoing. And Alvaro Segura claimed during his meeting with Ramírez that the prosecutor's investigation and subsequent freezing of accounts have caused "grave damage to Ofinter, S.A., a company that has no relation to the activities of Mr. Luis E. Villalobos."

Thousands of investors are hoping for some resolution to the mess on Nov. 26. Meanwhile, Gohmann recommends that investors take immediate action to stake claim to their investments - if they're recovered. For help, he recommended following the steps listed on the Investment Recovery Center Web site. The Victims' Assistance Office has a similar list (TT, Oct. 25).

The center will says it will handle the entire process for $1,250 in legal and notarial fees, $100-plus for filing fees, and 5% of any recovery. Other lawyers and legal consultants are also offering clients their services, some advertising in The Tico Times, including bilingual attorney Gregory Kearney (221-9462).

Attorney and C.P.A. David Housman warned in an ad last week that the U.S. Internal Revenue Service may have "a list of the investors, their passport numbers and interest paid over the years," a fear that resonated among the U.S. investor community here. (For consultation with Housman, call 389-2590.)

However, a spokeswoman from the Victims' Assistance Office of the Judicial Investigation Police (OIJ) assured The Tico Times this week that Costa Rican authorities have not turned over any such list to U.S. tax authorities.

U.S. Embassy officials are also adamant that the Villalobos investigation is strictly a Costa Rican matter, and maintained that the U.S. government is not involved.

At least one U.S. legislator has communicated with the Embassy here, asking for information relating to the case. An Embassy press spokesman described the request and follow-up interviews by an Embassy official with Costa Rican authorities as "routine."