Official press release from BANESCO, denying claims about an alleged $50 million bribe paid by Derwick Associates to Venezuela’s Congress president, Diosdado Cabello, through BANESCO Panama.
Translation of the previous paragraph:
In the 15 countries where GRUPO FINANCIERO INTERNACIONAL BANESCO operates, including the U.S., it adheres to the highest standards for preventing and controlling money laundering. This stance, based on our Code of Practice, is routinely verified by both internal mechanisms and regulatory authorities in each country of operation.
What then should we make of the recent statement from the Puerto Rico State Department, specifically noting that “As of February 14, 2014, BANESCO FINANCIAL SERVICES, INC. has not met its obligations for the years: 2008, 2009, 2010, 2011, 2012.”?
This sets the stage quite well for the article “Who is Juan Carlos Escotet?” It summarizes the man’s credibility. In other contexts, Escotet’s word is equally dubious. In an interview with Dominican Republic media, the banker claims to have started his banking career at Banco Unión:
“I believe in vocation. I always knew what I wanted. I studied at night in Venezuela while I worked at Banco Unión, which ended up being the most important merger with Banesco (a banking group with a rich tradition in Venezuela, the first credit card issuer in Latin America, alongside Bank of America, owned by a very traditional group of merchant families, working with a business leader I admired greatly, Mr. Salvador Salvatierra father…)… and that was my first job.”
Escotet does admit that his first job was as a “office boy” at a bank. Where he strays from reality—a recurrent theme in his public profile—is in claiming his first position was at Banco Unión. He actually started at another bank known by U.S. and Venezuelan authorities: the Progreso financial group owned by Orlando Castro. Longtime observers of Venezuela will recall that New York District Attorney Robert Morgenthau successfully prosecuted Castro, who ended up serving five years in prison for, among other things, money laundering in Puerto Rico. Castro took money from depositors to meet his own obligations, a widespread practice in Venezuela in the late 80s and 90s. Understandably, what Escotet now wants, as he seeks to present himself as a respected banker operating in 15 countries, is for people and authorities to not question his wealth and credentials based on his origins. Escotet shares some traits with Castro, perhaps the most significant is their common mentor: Roberto Salas Capriles, who benefited from large construction contracts during the dictatorship of Marcos Pérez Jiménez.
It turns out Salas Capriles was the man who sent $300 to Castro in 1961 to help him buy a ticket back to Venezuela after fleeing Cuba. Once in Venezuela, Salas Capriles appointed Castro as sales manager at FINACO, a company of his own. Fast forward a few years, and Salas Capriles notices Escotet—who is now working for Castro—and suggests to his protege—now a bank owner—that Escotet be promoted to more important positions. Thus, Escotet was catapulted into a broker position, where he began his golden career. It’s worth noting that Escotet’s career follows a similar path to Castro’s, who started from nothing, lacking education, gained Salas Capriles’ trust, and was aided by him in acquiring Banco Zulia—later renamed Banco Progreso—and then helped Castro establish the Latin American Financial Society in 1983.
As a stockbroker, Escotet made some good deals. Some say he was in charge while working for Castro. Others claim Escotet convinced Castro to launch a hostile takeover of Banco de Venezuela, which ultimately left him with a lot of cash but would be Castro’s downfall. The truth from those years lies in a gray area, lacking precise details, yet what is undeniable is that Escotet left his brief tenure at Castro with enough money to buy his own bank in 1992: Bancentro. He acquired Bancentro from Carlos and Victor Gill for under $5 million, according to sources, renaming it BANESCO (BANco ESCOtet). This ‘trend’ was later emulated by other ‘bankers’: David Osío and Eligio Cedeño.
However, Escotet shared the same flaw as his Cuban mentor: he did not come from a wealthy family. Lacking a name to trade on or a reputation, financial authorities and regulators (merely rubber stamp institutions under the absolute control of the same banks/bankers tasked with monitoring/regulating/supervising) showed little interest in granting the required licenses. As Castro did with Salas Capriles, Escotet sought a trio of extremely ambitious Turks from reputable families to provide the “credibility” his operation sorely needed. Escotet partnered with Miguel Ángel Capriles López (son of the businessman from Cadena Capriles), Carlos Acosta López (protégé of Grupo Confinanzas owner David Brillembourg), and Carlos Granier Haydon (brother of Marcel Granier of RCTV). With these names and regulators on board, Escotet quickly established himself within Venezuela’s financial world.
When the banking crisis struck in the mid-90s, it devastated most of the system. Traditional banking families, engaged in irresponsible lending practices and all sorts of unhealthy behaviors, suffered significant losses. A drama similar to that of Lehman Brothers unfolded in Venezuela, prompting authorities to implement a series of measures to salvage what they could. One such measure offered tax incentives to surviving banks willing to merge with less stable financial institutions. Escotet took full advantage. He embarked on a buying spree of savings and loans. The savings and loans belonged to depositors, ceding control of business decisions to a designated board. Sources say Escotet’s strategy involved bribing board members (already in place when the measures were instituted), who would then appoint others aligned with BANESCO or ultimately agree to merge with BANESCO. Following a series of appointments/decisions, Escotet gained control over El Porvenir, Bancarios, La Industrial, Maracay Caja Popular, and La Primera EAP. By the end of the 90s, he had merged them all into Caja Familia.
The masterstroke would come in 2000. Banco Unión, historically one of the largest, was burdened with a choking debt of $150 million to Citibank dating back to 1997. So, with his new Caja Familia, Escotet knocked on their door. A kind of revenge: the outsider throwing a lifeline to one of Caracas’ Midas figures. Salvatierra received him with skepticism. Sources say Escotet offered Salvatierra, whose bank was then valued at approximately $400 million, an exit in exchange for 50% of Unión, a deal including all sorts of overvalued assets Escotet had acquired through his own mergers. Salvatierra, in turn, rid himself of Citibank’s debt and retained LagunaMar, a huge development on Margarita Island where millions had been invested.
When Hugo Chávez ascended to the presidency of Venezuela, Escotet was a steadfast player in the country’s financial landscape. Leveraging contacts and alliances nurtured since his days at Bancentro, he secured compliance from regulators. No one was about to start questioning his figures, whether assets were fairly priced, investments, loan guarantees, payment capacities, balances, etc., for a reason encapsulated by the now-infamous words of the British Prime Minister: “We’re all in this together.”
With Chávez came opportunity. In 2003, the Chavista regime imposed currency controls. This, combined with extraordinary revenue streams due to rising oil prices and Chavista economic policies, created massive arbitrage opportunities. From his command position, Escotet began purchasing government-issued bonds, at the official exchange rate paid from BANESCO accounts in foreign banks, then selling them on the black market. Not all would sell; a portion of the bonds remained at home. Purchased with depositors’ money in bolivars, accruing interest in USD (ranging from 7% to 15%), with the added benefit—for BANESCO—of a rising inflation that eroded the value of bolivars, it represented a chance that shouldn’t be missed. It is fair to say all banks were in on it, and those who weren’t were desperately trying to participate. Billions were “made.” Local customs, like creating hundreds of fake companies to grant loans and mimic Enron-style balance sheets, were growing stronger. A massive piñata lasted for several years, completely unregulated. Bankers went wild.
Having amassed a fortune, the next step in the process is streamlining. International reputations must be built based on the dubious manner in which wealth was “created.” Escotet asserts he operates in 15 countries, including the U.S. However, as seen earlier, Puerto Rico, a U.S. jurisdiction, has a differing view of Escotet’s so-called “compliance” with all relevant controls and standards. The same goes for Florida. The Miami Herald reports:
Banesco USA announced on Friday that it has agreed to a consent order with the Federal Deposit Insurance Corporation addressing management, control, and personnel deficiencies in its Bank Secrecy Act program. The bank stated it has already addressed many of the issues to meet the requirements of the order.
Banesco USA grew rapidly over the past two years, including acquiring Security Bank from the FDIC. However, the bank indicated its policies and procedures concerning the Bank Secrecy Act and Anti-Money Laundering did not keep pace with the workload generated by rapid growth. By September 30, Banesco USA had $806 million in assets.
The bank noted it signed the FDIC order without admitting or denying guilt.
BANESCO is registered in the Bahamas (company no. 70128), Curaçao (company no. 50230), Panama, Spain, Venezuela, the U.S. (Puerto Rico, Florida, and Delaware), the Netherlands, the Dominican Republic, Costa Rica (company no. 3-101-114087), and Colombia. There are 10 countries, possibly missing an entry in some extraterritorial jurisdiction. The registration data for BANESCO in Venezuela includes FIDEICOMISO UBC (CITIBANK), BANESCO Holding, C.A., and FIDEICOMISO BANESCO HOLDING (CITIBANK) with respective shares of 37.65%, 26.1%, and 21.55%. That’s about 85% of the shares. It remains to be seen how much of that, and of BANESCO’s international subsidiaries/holdings, Escotet owns, although some reports place his ownership stake in BANESCO Venezuela, the source of all his wealth, at 58.9%.
In any case, Escotet recently made headlines with a €1.003 billion offer for the Novagalicia bank in Spain. Some reports even claim that Escotet’s bank balance shows over $35 billion. You read that right: $35 billion. No one knows how Escotet reached this figure. The numbers were likely audited Venezuelan-style. It would be really interesting to see a forensic audit of BANESCO’s balance, similar to the one Alex Dalmady conducted on Allen Stanford’s bank. In Spain, some individuals have already begun to question the credibility of Escotet’s numbers. The same goes for Venezuela. The argument is actually quite simple: on what exchange rate was that balance calculated, given Venezuela’s currency controls? Escotet may well be sitting on a mountain of bolivars; does he seriously expect potential partners and regulators outside of Venezuela to believe he can convert all that at the official rate, which might (not certainly but might) justify supposed $35 billion on BANESCO’s books? Comment added on April 20, 2014: disputed by reports of false earnings, Rubén Santamarta from La Voz claimed that “BANESCO uses an exchange rate of 6.30 Bs./US$ in its media communications,” and added that this rate was “confirmed by two analysts from the Spanish Stock Exchange.” The last real exchange rate announced by the Central Bank of Venezuela was 49.31Bs./US$. This means Escotet’s claim of $35 billion in assets is a much more realistic figure of $4.8 billion when converted at the appropriate exchange rate. And that’s without taking a proper look at his bank’s balance sheet. End of comment.
Brussels, i.e., the EU, has yet to approve the deal. Things don’t look rosy for Escotet in Spain. Reportedly, he is seeking €403 million to pay the initial installment for the Novagalicia acquisition. Perhaps he thinks he can pull off in Spain the same kind of shenanigans he did in his native Venezuela (using a pile of overvalued assets and some trinkets as collateral for acquisitions). Moreover, how can a bank valued at around €2 billion win a bid to acquire another valued at approximately €60 billion? Isn’t it a bit strange that a bank claiming to have $35 billion on its books is looking for funding to finalize a €1 billion acquisition?
Back in Venezuela and amid all these billions floating around, Escotet recently let off some steam against what he perceives as his old enemies. In a series of tweets posted on March 31, he denounced Oscar García Mendoza (from Banco Venezolano de Crédito), accusing him basically of masterminding the lawsuit that Thor Halvorssen filed against Derwick Associates in Florida.
Escotet must be scared, very scared. The implications of his bank’s potential involvement in Panama, concerning corruption and bribes paid by Derwick Associates to Congress president Diosdado Cabello, could be serious. The Federal Deposit Insurance Corporation explains:
11. That Juan Carlos Escotet Rodríguez, Luis X. Lujan Puigbo, and Jorge L. Caraballo Rodríguez, citizens and residents of Venezuela, shall consent and submit to the personal jurisdiction of any federal court in the United States of competent jurisdiction and any federal banking authority (including the FDIC) for the purposes of any investigation or potential inquiry, subpoena, examination, action or proceeding by any federal banking authority (including the FDIC), the U.S. Department of the Treasury, or the U.S. Department of Justice, in connection with or pursuant to the administration and enforcement of any banking law.
As I stated elsewhere, Escotet can only conceive of the world through his Venezuelan rose-colored glasses. He may pretend to be the cream of the crop as much as he wants, but a cursory review of his rocky past and lies will reveal that the man is anything but a credible, serious, and honest banker. Regarding his claims of late compliance “with the highest standards for preventing and controlling money laundering” across all jurisdictions where his banks operate, what do the examples from Puerto Rico and Florida say about Escotet’s honesty? Furthermore, if that’s the case in the U.S., who could believe it would be different in other less-regulated jurisdictions where most of BANESCO’s operations are concentrated? Can Escotet produce relevant permits, official accreditations/credentials from the 15 jurisdictions he claims his bank operates in, or is it just like David Osío?
There’s a trend among Chavista bankers to stretch the truth. David Osío, for instance, claimed for years that his three-man operation managed over a trillion in assets. Víctor Vargas told the Wall Street Journal that he had been wealthy all his life, when we all know he married for money. There’s an extensive catalog of instances of wrongdoing from this lot: Luis Oberto, Moris Beracha, Miguel Ángel Capriles López… They’re all in this together, conspiring in Venezuela. Other boligarcs are successfully laundering their ill-gotten gains in Spain; so why would Escotet be any different?
Repeated requests for comments from Escotet were regrettably in vain. He does not seem to appreciate uncomfortable questions, and it’s no surprise that both BANESCO and Escotet personally employ the services of a convicted criminal to manage their online reputation.
Escotet remained true to one of his mentors: Roberto Salas Capriles, whose son, Jorge Salas Taurel, is BANESCO’s man in Panama. His other mentor, Orlando Castro, who provided him with the platform that allowed him to “succeed,” died waiting for Escotet to fulfill his word, ergo taking him at his own risk…