June 3, 2002

Bank scandal in Spain troubles the government

Spanish regulators have discovered that the chief executives of Spain's Banco Bilbao Vizcaya Argentaria (BBVA), have been redirecting profits of the bank into offshore tax havens. The purpose was to increase the directors' pensions and allegedly bribe Latin American politicians to gain control of national banks.

26 current and former board members are involved in criminal proceedings. This has added to the misery of BBVA, which had to set aside $1.2 billion for a possible write-off of losses in Argentina last year.

Meanwhile, the pro-business government and the opposition Socialists accuse each other of covering up.

The bank’s new CEO, Francisco Gonzalez Rodriguez has fired all executives implicated in the scandal to clean up BBVA’s image. He has appointed a new board and is also planning to make the salaries of executives public.

BBVA has $275 billion in assets and controls many banks in more than a dozen Latin American countries.

Acording to the regulators, the shady dealings began in 1987 when BBVA’s branch on the English Channel island of Jersey, BBV Privanza, started setting up trusts in Jersey and Liechtenstein. These were meant to finance share repurchases and to shake off foreign predators. The trusts grew through profits from stock-trade but these profits were used to less worthy ends.

$1.5 million, in 1998-99 went straight to the presidential campaign of Venezuela's Hugo Chavez to protect itself from nationalisation. Bribes were also paid to acquire banks in Peru and Mexico.

$20 million was also deposited with American Life Insurance Company of Wilmington, Delaware, in 2000 to increase the pension packages of 22 former bank board members.

Last March, Baltasar Garzon, Spain's top investigating magistrate, took over the case from the central bank.

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