Transparency: just like old times - Special Report - Banco Bilbao Vizcaya Argentaria investigation outlined

Latin Trade, Oct, 2002 by Mary A. Dempsey

Democracy, free market economies, privatizations and international commerce promised to reduce corruption. Then came the BBVA scandal.

The case of Spain's Banco Bilbao Vizcaya Argentaria--embroiled in Latin American charges of questionable cash transfers, money-laundering and secret political campaign contributions--illustrates how the highway to democracy and global commerce is still pocked with holes, some of them deep.

BBVA, with US$276 billion in assets, is under investigation for allegations linked to multibillion-dollar bank privatizations in Mexico, Venezuela, Colombia and Peru. It denies wrongdoing but admits one mistake. "We acted without transparency," BBVA President Francisco Gonzalez declared in late June, a week before the bank announced sweeping reforms.

Democracy, free market economies, privatizations and global trade promised reduced corruption in corporate and government landscapes--or transparency, in the jargon of policymakers. However, the troubles at Spain's No. 2 bank underscore how businesses in the region remain tightlipped and public paper trails stay convoluted. For many, silence is still golden.

Under caudillo rule and dictatorships, openness was irrelevant in Latin America. The shift to democracy, however, assured that governments not only would become accountable to the public, they would curb corruption and back-room dealings.

Clearly, breakthroughs have occurred. Vicente Fox's clean election as president of Mexico broke the PRI political party's 71-year stranglehold on the government. Adherence to democratic processes thwarted the coup attempt against Venezuela's controversial--but elected--President Hugo Chavez. When the Argentine economy hit the skids and President Fernando de la Rua resigned, it may have taken four replacements to find someone to stay in the job but the military did not take over.

That said, democracy comes with its own doors to influence peddling. In Venezuela, BBVA acknowledges that it contributed a total of $1.5 million in 1998 and 1999 to Chavez's re-election campaign. The Spanish bank, which owns Venezuela's biggest financial institution, Banco Provincial, says the secret contributions broke no laws. Other banks, including rival Banco Santander, also have been identified as having helped fill the campaign war chest.

Peter Hakim, director of the Inter-American Dialogue, a policy analysis center focusing on the Americas, doubts there's more honest disclosure in Latin America than there was in the past. Still, he believes the public has increased expectations that there should be. As evidence, he points to the outcry in Peru when it was revealed that anthropologist Eliane Karp, the wife of President Alejandro Toledo, received $10,000 a month as an adviser to Banco Wiese Sudameris, whose president, Eugene Bertini, is under investigation for alleged ties to former Peruvian spy chief Viadimiro Montesinos. Although she admitted no wrongdoing, Karp resigned from the post.

"There is less tolerance," Hakim says. "There used to be a time when people would say "Yes, he's corrupt or she's corrupt, but they get things done. This is the way business gets done.' Not anymore." The plums of privatization. Public auctions of government-held companies and concessions defined how transparency was expected to work. Bidding would be open to all, reducing longstanding corruption. Even better, foreign investors competing in the process would bring with them global accounting standards and, in the case of U.S. companies, legal prohibitions against bribes and kickbacks--safeguards on the region's road to reform. But did privatization really pull bureaucrats' hands from the public till, or did it simply redesign the backroom rules?

The alleged missteps of Banco Bilbao Vizcaya--most predating its 1999 merger with Argentaria--sound just like old times in Latin America: secret bank accounts, slush funds, money laundering. However, a single thing sits at the core of charges in Peru, Colombia and Mexico. Privatizations.

The BBVA probe started when a former employee in the bank's Puerto Rico office claimed his bosses silently approved money laundering and bribery U.S. law enforcement agencies, including the FBI, failed to find evidence to back the accusations locally. Eventually, the finger-pointing employee was convicted of embezzling $49,000. The probe revealed, however, that BBVA had $227 million in a secret account in the British isle of Jersey A trail from that account led to Latin America.

In 1996 and 1997, during its acquisition of privatized Banco Continental de Peru, then-Banco Bilbao Vizcaya is alleged to have shelled out millions of dollars in loans and other payments to former Peruvian President Alberto Fujimori and his videophile security chief Montesinos. The accusations, which BBVA says are baseless, range from claims that $112 million in bribes were paid to Fujimori to questions over the sale of Fujimori's $670,000 house.

In Colombia, BBVA is fending off money-laundering charges in connection with its successful bid to control Banco Ganadero. BBVA-Ganadero executives vehemently deny the charges. Officials in Mexico, meanwhile, are looking into whether money laundering played a role in BBVAs takeover of financial group Mercantil Probursa and if offshore funds were inappropriately used to buy shares in Bancomer, Mexico's biggest bank BBVA, which denies any wrongdoing, continues to solidify its hold on Bancomer, paying $230 million in June for an additional 3% of stock, bringing its control to 53%.