IPS-English SOUTH AMERICA: White Collar Criminals Slip Through Date: Wed, 29 Aug 2007 09:12:39 -0700 SOUTH AMERICA: White Collar Criminals Slip Through Legal Loopholes Jorge San Pedro* BUENOS AIRES, Aug 29 (IPS) - The snail's pace of justice and large gaps in the criminal codes of Argentina, Paraguay and Uruguay are the biggest hurdles to cracking down on financial crime in general, and bank fraud in particular, lawyers and anti-corruption experts say. An avalanche of bankruptcies and liquidations of financial institutions shook the southern cone of South America in the late 1990s and reached its peak in 2002. Years later, the courts have failed to provide an effective remedy. In fact, many cases are still being investigated and prepared and have not yet gone to court. The bankers are accused of various crimes, from fraudulent administration and asset stripping to capital flight. ”There are clear failures in criminal law related to banking. There are no instruments to deal with these kinds of crimes,” Pedro Biscay, head of the Buenos Aires based non-governmental Centre for Investigation and Prevention of Economic Crimes (CIPCE), told IPS. ”New forms of prosecuting financial crime, which has banking at its core, are needed,” he added. The epidemic of bank failures followed the euphoria of financial globalisation, and was largely a result of that phenomenon. In Uruguay, the fraudulent bankruptcy of Grupo Velox, which controlled the Banco Montevideo and Banco Caja Obrera as well as the Trade & Commerce Bank (TCB) in the Cayman Islands, and the collapse of the Banco Comercial owned by Carlos and José Rohm drove up the country's debt from nine to 12 billion dollars. The Peirano brothers Dante, Jorge, José and Juan, who owned Grupo Velox, may have misappropriated 800 million dollars from savers, according to the liquidators of TCB, the offshore bank in the Cayman Islands tax shelter. The Peirano scandal revealed a string of frauds, diversion of funds and other illegal manoeuvres with depositors' funds, which affected Argentina, Paraguay and Uruguay and touched on Chile, Peru and southern Brazil, the entire area where Grupo Velox operated. The Banco Alemán in Paraguay was intervened by the country's Central Bank in June 2002, and the Peiranos are accused by the courts in that country of diverting 27 million dollars of their clients' money, deposited abroad, to assist other companies belonging to the group experiencing financial difficulties in Argentina and Uruguay. Also in June 2002, Argentina's Central Bank suspended operations at the local branch of Banco Velox, which held deposits amounting to about 135 million dollars. The Rohm brothers, for their part, controlled the Compañía General de Negocios, Banco General de Negocios (BGN), Nuevo Banco Santa Fe and San Luis Financial Investment in Argentina. It also undertook offshore operations in tax havens. The BGN collapsed in 2002. José Rohm promptly accused his brother Carlos of all wrongdoing. Judge María Servini de Cubría, hearing the BGN case, said in 2002 that the JP Morgan bank had presented written charges that José Rohm had requested a loan of 260 million dollars to cover up fraud committed, he said, by Carlos. Servini de Cubría said that the BGN was also involved in illegal capital flight, for sending abroad at least 70 million dollars after the Argentine authorities had frozen all deposits as a result of the country's late 2001 economic meltdown. The BGN crash followed that of Banco Patricios, managed by Alberto Spolski, Alejandro Bilik and Sergio Fryd. When it went bankrupt in 1998 it swept away over 300 million dollars belonging to 152,000 account-holders. Banco Mayo, presided by Rubén Beraja who was also the head of the Delegation of Argentine-Israeli Associations (DAIA), took over the Banco Patricios and began to return the lost deposits. However, Banco Mayo soon closed down. But there is nothing new about the collapse of financial institutions, the absence of adequate instruments to prevent it from happening, or the lack of political will to do so. In Paraguay, 12 banks went under between April 1996 and June 2002. According to a study by CIPCE and the University of Buenos Aires (UBA), financial crimes caused damages estimated at over 10 billion dollars from 1980 to 2005. And the Peirano family in Uruguay was involved in fraudulent bankruptcies as far back as the 1960s. The lack of specific laws to deal with these crimes encourages their repetition, Biscay said. In Argentina, ”corporations with legal status cannot be charged with criminal responsibility. Banks cannot be prosecuted, only their directors. Fraud is treated as an internal matter, which means that the banks can come to court as plaintiffs,” he said. ”The banker can present him or herself as a victim, not of bank fraud, but of external circumstances: it's the fault of other partners, of macroeconomic conditions, or of intervention by central banks,” Biscay said. The Peirano brothers have taken the Uruguayan Central Bank to the civil courts, claiming hundreds of millions of dollars in ”damages.” The slow pace of justice also conspires against remedying the social and economic damage caused by white collar crime. In the study by CIPCE and UBA, the average trial length in Argentina of a sample of 24 cases of financial crimes -- 12 of which involved banks -- was 14 years. Out of 407 lawsuits filed in federal courts between 1980 and 2005, only three percent resulted in convictions, while 35 percent of the cases were dismissed, and 47 percent are still at the investigation stage and have not yet made it to court. This is a gift to the accused. The Peirano brothers, prosecuted in Uruguay, had the privilege of becoming the first case of lengthy pre-trial detention to reach the Inter-American Commission on Human Rights, which recommended that they be released, given the delays in their trials. Diego Camaño, the Peirano brothers' defence lawyer in Uruguay, told IPS that there is no reason for any of his clients to remain in prison. They have already been behind bars for five years, which is the maximum sentence for the crimes with which they were charged. In the case of Paraguay's Banco Alemán, two of the five chief members of the board, Francisco Peterlik and Luis Sorrentino, were given two years suspended sentences. A third, Ricardo Castillo, who was sentenced to eight years in prison, was acquitted on appeal by the Supreme Court. Biscay also pointed out that ”there are no laws for the recovery of stolen assets. A fine and property seizure may be imposed after a conviction, but the justice system shows no anxiety to recover the money.” ”If the embezzled funds were transferred abroad, there is no way to get that money back,” he added. And since corporations with legal status cannot be prosecuted, the funds must be recovered from the bank's directors, and it is often difficult to prove what their assets are, he said. The major shareholders in the BGN were JP Morgan, Credit Suisse and the Dresdner Bank, which also brought a claim against the Uruguayan state for damages over the closure of the Banco Comercial, said Biscay. ”There is a trend towards local banks being taken over by foreign owners, who take the state to court when there are losses,” said Biscay. Pilar Callizo, president of the Paraguayan chapter of the anti-corruption watchdog Transparency International, agreed. ”Unscrupulous big capital seeks out countries like ours where the institutions are weak, there is a large amount of leeway for those connected to political power, and the justice systems aren't up to the mark,” she told IPS. In a 2002 press conference, Judge Servini de Cubría emphasised that surprise inspections of banks to oversee their operations had been discontinued in 1994. The banks were always ”advised of the inspection date one or two months beforehand,” she admitted. At present, Carlos Rohm is out of prison on bail while his trial takes its course. So is his brother José, who fled to the United States where he stayed until the Argentine justice system exempted him from prison in 2005, at which point he appeared in court to testify, and was prosecuted for the same charges faced by his brother. Beraja has been released on bail while the case against him remains at the investigation stage. His lawyer, Marta Narcellas, told IPS that they would sue Pedro Pou, the president of the Central Bank at the time that Banco Mayo collapsed. The case involving the directors of the Banco Patricios has gone to trial. In Uruguay, Dante Peirano is free after posting bail in the amount of 250,000 dollars. Jorge and José Peirano were also granted conditional release, but have to remain in jail in Montevideo by order of the judges who are processing extradition requests from Paraguay for the crash of the Banco Alemán. The fourth brother, Juan Peirano, considered to be the brains of the Grupo Velox, was found in the United States carrying fake documents, and is now in a Miami prison awaiting the outcome of Uruguay's extradition request, which was issued earlier than Paraguay's and thus takes precedence. Their father, Jorge Peirano Facio, was one of the most influential businessmen in the country from the 1960s on, and served as a government minister on two occasions. He died at the age of 82 in the Central Prison of Montevideo, in 2003. * With additional reporting by Darío Montero in Uruguay and David Vargas in Paraguay. ***** + CORRUPTION-LATAM: Cheated Savers Despair Over Slow Pace of Justice - 2004 (http://ipsnews.net/africa/interna.asp?idnews=25828) + Corruption - More IPS News (http://ipsnews.net/new_focus/corruption/index.asp) (END/IPS/LA IF IP CU/TRASP-VD-SW/JSP/DM/07) = 08291916 ORP010 NNNN