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Thursday 3 July 2003


Bank Frauds Highlight Lax Controls, Possible Collusion by Officials

Alejandro Sciscioli and Darío Montero

ASUNCION, (IPS) - A chain of bank failures in Argentina, Paraguay and Uruguay, the latest of which involved Multibanco in the Paraguayan capital, has highlighted problems of lax oversight and pointed to the possible collusion of government officials with bankers who are either behind bars today or on the lam.

Multibanco directors Pedro Miraglio and Oscar Pérez Samaniego remain in prison after Paraguay's Supreme Court overturned an appeals court decision last week that would have allowed them to be placed under house arrest.

Jun. 27 was the deadline for the approximately 32,000 clients who were affected when Multibanco went under to obtain a government guarantee for their deposits. Under a new law, the account-holders are entitled to a payment of up to 50 minimum monthly salaries, equivalent to around 7,600 dollars, from the Central Bank.

The prosecution of Miraglio, Pérez and other bank officials began after the Central Bank of Paraguay decided on Jun. 2 to take over Multibanco - a consequence of the collapse of the Banco Alemán, which belonged to Velox, a transnational consortium.

The downfall in Paraguay of Velox, which is owned by the Peirano clan from Uruguay, triggered a domino effect in which the group's banks and other businesses began to go bankrupt in Argentina, Brazil, Chile, Ecuador, Peru and Uruguay.

A similar fate was suffered by a consortium headed by the brothers Carlos and José Rohm, two of Argentina's most powerful financiers, who controlled the Banco Comercial in Uruguay and the Banco General de Negocios in Argentina, which were partly owned by J.P. Morgan Chase, Dresdner Bank and Crédit Suisse. Among the Rohm brothers' friends figure former Argentine president Carlos Menem, George Bush Sr. and Henry Kissinger.

Argentina's late 2001 economic meltdown and the capital flight that surrounded it also had a heavy impact on the banking systems of neighbouring Uruguay and Paraguay, and brought to light irregularities in the administration of banks in the three Southern Cone countries, including maneuvres designed to cover up effects of the crisis, and others that dated further back.

Analysts consulted by IPS concurred that the controls in Argentina and Uruguay failed to kick in when they should have, even though the legislation and oversight mechanisms exist in both countries to prevent such things from occurring.

That has given rise to growing suspicions of laxity or malfeasance on the part of authorities, and judicial and parliamentary investigations are underway in both countries.

For example, investigators are looking into the frequent contacts between the Rohm brothers and Uruguayan authorities over the past decade, their close ties to the Argentine government of Carlos Menem (1989-1999), and the long-standing relationship between the Peiranos and local authorities in Uruguay.

In Paraguay, meanwhile, the collapse of banks and finance companies was the result of factors like "informal sector” financial activities that take place outside of the official channels, sloppy handling of information, and laws that only focus on banking operations that take place within the legal framework, financial analyst Félix Lugo told IPS.

The controls exercised by the Superintendency of Banks are only based on the sworn statements provided by the owners of the banks themselves, or on reports produced by external auditors hired by the financial institutions, he explained.

Hence, according to Lugo there is always a possibility that information has been falsified or that the data provided covers up the real situation of private institutions or transactions with associated companies.

However, "there are stiff sanctions for authorities with oversight responsibilities who break the law, who can even be sent to prison,” he noted.

Although the mechanism is apparently effective, the question is what happens when an institution carries out operations outside of the formal economy and official channels, said Lugo.

”That's when the problem starts. Savers who today feel they have been cheated (by Multibanco or Velox) were lured in to deposit their money in institutions that were operating outside of the official legal channels, and thus they enjoyed no protection from those laws” - which is something that those account-holders should be aware of, he said.

Hundreds of holders of accounts in Multibanco chose to assume a greater risk for the sake of higher returns, ”and that's how things went for them, because once the institution was taken over, they were unable to recover their capital, not to mention the promised interest payments,” he stressed.

The prosecutors investigating the Multibanco accounts have already detected serious irregularities, like the granting of loans to more than 50 associated companies, and the drawing in of investment outside of the legal system channels.

One of the businesses associated with Multibanco was the Asunción Investment and Financial Co. (Asifi), an offshore financial body that operated out of the bank's headquarters.

Asifi was not authorised by the Central Bank, nor was it registered with Paraguay's tax authority. And according to the documents seized by the investigators, its offices were located at an address in Montevideo's financial district where there is actually only a parking ramp.

Asifi took in large deposits, offering an interest rate higher than the going market rate in Paraguay, which enabled it to make high-risk loans at high interest, a source with the courts explained to IPS.

Multibanco sent funds to the Cayman Islands and Montevideo through irrecoverable loans and evaded taxes.

The Central Bank take-over of Multibanco also led to the liquidation of the Parapiti finance company, which had been purchased from the Velox consortium after the debacle into which it was dragged by its Banco Alemán, the largest private financial body up to that time in Paraguay.

The Velox group also had business interests in Argentina, where its Banco Velox was liquidated, and in other South American countries.

However, its centre of action was in Uruguay, through the Montevideo and Caja Obrera banks and the illegal off shore Trade and Commerce Bank (TCB) based in the Cayman Islands.

Uruguayan Judge Pablo Eguren determined that the Velox group was headed by Jorge Peirano Facio, who died last April at age 82 while in preventive detention on charges of fraudulent bankruptcy.

Peirano Facio served as minister of industry and foreign minister in the late 1960s, and in 1973 he spent three months in jail for embezzling the money held in the now-defunct Banco Mercantil, in complicity with his brother Juan.

His sons Jorge, José and Dante Peirano Basso, who were also co-owners of Velox, remain in prison awaiting a ruling from a court of second instance in connection with the same offences as well as other charges.

Juan Peirano Basso, the fourth son of Jorge Peirano Facio and the man considered the real chief executive of the group, remains at large. He has been wanted for a year by the Uruguayan and Paraguayan justice systems, which have asked the international police (Interpol) for his capture. Courts in Argentina are also after the clan.

The crimes that Juan and José Peirano Basso and other directors of the Banco Alemán are wanted for in Paraguay are embezzlement and violation of trust, misconduct during a crisis, and fraud, the prosecutor handling the case, Adolfo Marín, told IPS.

Uruguayan and Argentine judges are also after José Rohm. He was quicker than his brother Carlos, who was taken into custody last year for fraud just as he was boarding a plane in Buenos Aires.

In May, Argentine journalists found José Rohm living in a posh home in Miami. But U.S. authorities have not acted on the arrest warrants issued by the two countries, because "he is innocent until proven guilty, and there is no risk that he will leave the country,” in the words of U.S. Ambassador in Montevideo, Martin Silverstein.

The shady activities of the Rohm brothers, which included granting loans to ghost companies and fraud concealed by complex financial movements, went on for nearly a decade, according to Uruguayan legal investigators.


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