Monday, October 12, 2015

Deconstructing the Grupo Continental?

Jaime Rosenthal Oliva wants to take steps that will preserve the business of the Grupo Continental while his family contests charges brought against them.

Honduras' Comisión Nacional de Bancos y Seguros (CNBS) has other ideas. On Saturday, it voted to force liquidation of the Banco Continental.

In response, the Rosenthal family issued its third public statement, calling for a voluntary liquidation that would
safeguard the interests of thousands of families employed by the Grupo, and maintain other enterprises such as the newspaper Tiempo and Channel 11.

The Rosenthal family proposed that they would voluntarily liquidate the Grupo Continental:
the family would give a bond to increase the capital in the bank to 100 million lempiras, in order to reach the index of capital adequacy demanded by the CNBS at 6% (currently, it is at 5.2%).

In proposing this action, the Rosenthal family is directly addressing the technical weakness that allowed the CNBS to propose forced liquidation. They argue that this action would directly affect 11,000 employees and 25,000 more people indirectly, as well as cutting off access to account holders, estimated to number 220,000.

The CNBS did not agree to the plan offered by the Rosenthal family. In his statement acknowledging this decision, calling again for its reconsideration, Jaime Rosenthal noted that the Grupo Continental is responsible for 5% of the Gross National Product of Honduras.

It is probably worth noting that at this point, no one has been convicted of a crime. What have been alleged is not drug trafficking itself (although some Honduran media are happily applying that term to the charges) but money laundering.

Basically, this could happen through the bank accepting deposits from people who the US prosecutor thinks the bank should have suspected produced their income through illegal activities. Under US law, deposits of more than $10,000 a day need to be reported, so someone could deposit amounts under that ceiling, repeatedly, creating a suspicious pattern of activities that a bank might ignore. Another option to launder money is to use a business that can bring in cash of varying amounts without suspicion-- antiquities and art, for example. Deposits from front businesses would not necessarily be questioned by a bank.

Banks also are used in money laundering through "layering":

Layering involves the wire transfer of funds through a series of accounts in an attempt to hide the funds' true origins. This often means transferring funds to countries outside the United States that have strict bank-secrecy laws. Such countries include the Cayman Islands, the Bahamas, and Panama. Once deposited in a foreign bank, the funds can be moved through accounts of "shell" corporations, which exist solely for laundering purposes. The high daily volume of wire transfers makes it difficult for law enforcement agencies to trace these transactions.

The details of the charges are not available, so we do not know precisely how the alleged money laundering took place. (A charge of suborning a public official is also mentioned in Honduras press coverage, but until further details are available, it is difficult to be certain what the basis of that charge might be.)

Honduran media are reporting that it was the Banco Continental's relationship with the Rivera Maradiaga family, which was swept up in drug trafficking investigations in 2013, that is the basis of the money laundering charges. Jaime Rosenthal is quoted as saying "no bank in the world has the ability to investigate all its clients". Yani Rosenthal noted that the Empacadora Continental had bought cattle from the River Maradiaga ranching enterprise ("as I think all the packers in Honduras did"), and Jaime Rosenthal admitted that the bank had made business loans for some of the Rivera Maradiaga companies.

It would have been hard for a major bank in Honduras to avoid doing business with them: reportedly, they owned gas stations, shopping malls, palm oil processing plants, cattle ranches, hotels, and transport businesses-- not to mention their private zoo.

The meat-packing deals of the Grupo Continental with the Rivera Maradiaga family date back to the 1970s and 1980s, which appears to predate the Rivera family move into drug trafficking. More recent loans described by Rosenthal provided funding for the agricultural businesses.

And then there is that zoo, also financed with a loan from the Banco Continental, seized in the drug raids. Jaime Rosenthal explained that loan as part of his philosophy of improving public goods:
“When we did the analysis of that loan we realized that it was a very good loan, not just for them but for the country. The loan would be paid by them and would promote a part of the country for tourism where normally people do not go. They would do a great job because it would begin to bring people from throughout Central America”.

There is a lot yet to learn about this case. That it will be consequential in Honduran culture and politics is already evident on the front page of Tiempo, which emerged during the coup of 2009 as the only newspaper in Honduras that reported factually what was happening, and which now has an uncertain future, due to a prosecution that Tiempo today links to their continued support for opposition to the current government:

Neither the president of Editorial Honduras, nor the director, nor the editor in chief, editors or reporters were clear until last night if DIARIO TIEMPO would circulate today because a rumor emerged that the OABI would interrupt the offices at any moment.

As if it were the last time, and under a dense cloud of uncertainty, the journalistic team of  DIARIO TIEMPO closed the edition corresponding to today last night.
This Monday, the employees of Editorial Honduras and the whole journalistic team will return to the offices, nonetheless, last night they left believing that today they would encounter it taken over by the security and police that the government of Juan Orlando Hernández would send.
The Plataforma de Indignados, in a communique last night, has characterized the government of Juan Orlando Hernández as “an authoritarian regime”.
“We call upon the regime to free itself from foreign interference in this case and place the human element before diplomatic or financial interests of external and internal agents”, the communique asks.

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