[A-List] How Europe controls South American Banks

[Chris Burford <cburford@xxxxxxxxxx>]

At least, one way:-



Bank scandal shakes Spanish government

MADRID, Spain (AP) --When $200 million appeared out of nowhere on the
balance sheet of one of Europe's most successful banks, Spanish regulators
took notice -- and went to work.

They unearthed evidence that chief executives had been funneling profits
into offshore tax havens since the late 1980s to fatten directors' pensions
and allegedly grease the palms of Latin American politicians in exchange
for control of national banks.

With 26 current and former board members embroiled in criminal proceedings,
the probe has only added to the woes of Spain's Banco Bilbao Vizcaya
Argentaria, which last year had to set aside $1.2 billion for a possible
write-off of losses in Argentina.

Meanwhile, Prime Minister Jose Maria Aznar's pro-business government and
the opposition Socialists accuse each other of cover-ups as the secret
accounts scandal sends shock waves through Spanish boardrooms far from
BBVA's roots in the prosperous northern Basque region.

"Five years ago, when we started talking about good corporate governance,
people thought we were crazy," said Tomas Garicano of the Instituto de
Empresa business school in Madrid. "Now many companies are very worried."

In an attempt to clean up BBVA's image, the bank's new CEO, Francisco
Gonzalez Rodriguez -- a 58-year-old former stockbroker and computer
programmer who shuns the extravagance of Spain's moneyed classes -- has
fired all executives implicated in the scandal.

He has appointed a new, slimmed-down board and plans to make executive
salaries a matter of public record.

BBVA will "emerge reinforced from this crisis, thanks to the huge
transparency effort we are making," Gonzalez told the Efe news agency recently.

But on Thursday the National Stock Market Commission said it had launched
its own investigation into whether the BBVA's offshore activities violated
securities laws.

The future of BBVA, which has $275 billion in assets and controls banks in
more than a dozen Latin American countries, may depend on whether Gonzalez
is able to bury the ghosts of its past.

Regulators say the shady dealing began in 1987 when the bank's branch on
the English Channel island of Jersey, BBV Privanza, started setting up
trusts in Jersey and Liechtenstein. Meant to finance share repurchases
aimed at warding off foreign predators, they grew with stock-trade profits
and were used to less honorable ends.

In 1998 and 1999, $1.5 million went to the successful presidential campaign
of Venezuela's Hugo Chavez to protect its Banco Provincial subsidiary from
nationalization, according to prosecutors, who say bribes were also paid to
acquire banks in Mexico and Peru.

BBVA has admitted that in 2000, $20 million was deposited with American
Life Insurance Company of Wilmington, Delaware, to enhance the pension
packages of 22 former bank board members.

Last March, Spain's top investigating magistrate, Baltasar Garzon, better
known for his pursuit of Latin American dictators such as Chile's Augusto
Pinochet, took over the case from the central bank.

Working like a U.S. grand jury, Garzon has subpoenaed an all-star cast of
former BBVA executives -- many from the dynasties that have controlled
Basque industry and finance since the 19th century, when mines, shipyards
and steelworks first brought wealth to the region.

Among them are former BBVA chairman Emilio Ybarra -- whose uncle, the son
of the bank's founder, was abducted and killed by Basque separatists in
1977 -- and Ybarra's predecessor, Jose Angel Sanchez Asiain, now financial
adviser to Pope John Paul II.

Garzon has heard Deputy Treasury Minister Estanislao Rodriguez-Ponga deny
allegations by the former vice president of the bank's Puerto Rican branch
that the official wrote a tax evasion guide while he was BBVA's fiscal
lawyer in the mid-1990s.

The accuser, Nelson Rodriguez, approached the FBI several years ago with
allegations of the bank's involvement in bribery and laundering drug money
in Latin America.

Although Garzon has dismissed Rodriguez's testimony, the scandal has been
damaging for Aznar, elected in 1996 largely on pledges of honest government.