Official press release from BANESCO, refuting claims about an alleged $50 million bribe paid by Derwick Associates to President of Venezuelan Congress, Diosdado Cabello, through BANESCO Panama.
Translation of above paragraph:
In the 15 countries where BANESCO INTERNATIONAL FINANCIAL GROUP operates, which includes the USA, it complies with the highest anti money laundering prevention and control standards. This stance, based on our Code of Practice, is recurrently verified, both by internal mechanisms and by competent authorities in each of the countries we operate.
What to make, then, of the letter above, by Puerto Rico Dept. of State, and especifically of "To this date, 14-Feb-2014, the entity BANESCO FINANCIAL SERVICES, INC. has not complied with its
obligations for the following years: 2008, 2009, 2010, 2011, 2012."?
The above sets the stage quite nicely for this "Who is Juan Carlos Escotet?" article. It sums up the man's credibility. Elsewhere, Escotet's word is just as false. In an interview given to Dominican Republic media, the banker claims to have started his career in banking in Banco Unión:
“Creo en la vocación. Siempre estuve claro en lo que quería. Hice mis estudios nocturnos en Venezuela, mientras trabajaba en el Banco Unión, el cual terminó siendo la fusión más importante que se hizo con Banesco (un grupo bancario de mucha tradición en Venezuela, el primer emisor de tarjetas de crédito en América Latina, junto a Bank of America, propiedad de un grupo de familias comerciantes muy tradicional, de la mano de un capitán de empresas a quien admiré mucho, don Salvador Salvatierra padre…)… y ese fue mi primer trabajo”.
Escotet does admit that his first job was "office boy" in a bank. Where he departs from reality, and this is a running theme maintained across his public profile, is that his first job was in Banco Unión. Escotet started in fact in a different bank, one very well known to Venezuelan and American authorities: Orlando Castro's financial group Progreso. Long time observers of Venezuela will remember that New York District Attorney Robert Morgenthau successfully prosecuted Orlando Castro, who ended up charged and served five years for, among other things, money laundering in Puerto Rico. Castro took savers money to front his own obligations, a practice widespread in Venezuela in the late 80ies and 90ies. Understandably, the last thing Escotet wants, now that he's pretending to be this respected banker with operations in 15 countries, is for people / authorities to question his wealth and credentials on the basis of its origins. Escotet shares a few things with Castro, perhaps the most important one is their common mentor: Roberto Salas Capriles, beneficiary of huge construction contracts during the dictatorship of Marcos Perez Jimenez.
As it turns, Salas Capriles was the man who sent $300 to Castro sometime in 1961, so that he could purchase a ticket to Venezuela after having fled his native Cuba. Once in Venezuela, Salas Capriles appointed Castro as sales manager of FINACO, a company he owned. Fast forward a few years, and the very same Salas Capriles notices Escotet -by now an employee of Castro- and suggests to his protegé -by now owner of a bank- to sort of fast track the office boy into more important positions. So Escotet was catapulted to a stockbroker job, where his golden career commenced. It is relevant to point out that Escotet's career is modeled on Castro's, who started very low, without studies, gained the trust of Salas Capriles, who lent much help and mentored him along acquisition of Banco Zulia -later renamed Banco Progreso, and then helped Castro set up Sociedad Financiera Latinoamericana in 1983.
As a stockbroker Escotet made a few good deals. Some say he was front running while working for Castro. Others say that Escotet convinced Castro to launch a hostile take over of Banco de Venezuela, which, ultimately, left him with a pile of cash, but the move would be Castro's undoing. The truth of those years lays in a grey area, lacking in precise details, what's irrefutable though is that Escotet emerged from his short time with Castro with enough money to purchase his own bank in 1992: Bancentro. Escotet purchased Bancentro from Carlos and Victor Gill for under $5 million according to sources, and renamed it BANESCO (BANco ESCOtet). That 'trend' was later copied by other 'bankers': David Osío and Eligio Cedeño.
But Escotet had the same shortcoming of his Cuban mentor: he did not come from a moneyed family. He had no name to trade on, no reputation, therefore financial authorities and regulators (simply rubber stamping institutions under absolute control of the very banks / bankers meant to monitor/regulate/oversee) weren't keen in granting required licenses. Just like Castro had done with Salas Capriles, Escotet would do with a trio of extremely ambitious young turks from reputed families that would bring much needed "credibility" to his operation. Escotet partnered with Miguel Angel Capriles Lopez (son of Cadena Capriles impresario), Carlos Acosta Lopez (protegé of Grupo Confinanzas owner David Brillembourg), and Carlos Granier Haydon (brother of RCTV's Marcel Granier). With those names and regulators on board, Escotet quickly established himself in Venezuela's financial world.
When the banking crisis came in the mid 90ies it wiped most of the system. Losses for traditional banking families, engaged in irresponsible lending and all manner of unhealthy practices, were substantial. A cry similar to what ocurred with Lehman Brothers took place in Venezuela, and authorities implemented a number of measures to try and rescue what could be salvaged. One of the measures provided fiscal incentives to surviving banks willing to merge with other, not so sound, financial institutions. Escotet took full advantage of it. He embarked on a savings and loans acquisition spree. Savings and loans were owned by savers, who ceded control of business decisions to an appointed board. Consulted sources say that Escotet's strategy was to bribe members of those boards (already in place when measures were implemented), who would in turn either appoint others aligned to BANESCO, or, utimately, would agree to merge with BANESCO. After a number of appointments / decisions, Escotet gained control of El Porvenir, Bancarios, La Industrial, Maracay Caja Popular, and La Primera EAP. By end of 90ies he had merged all of them into Caja Familia.
The masterstroke would come in 2000. Banco Unión, traditionally one of the biggest, was dragging a choking $150 million debt with Citibank that its president, Ignacio Salvatierra, had since 1997. So Escotet, with his new Caja Familia, came knocking. A revenge of sorts: the outsider throwing a lifeline to one of Caracas's Midases. Salvatierra took it in the chin. Sources say Escotet offered Salvatierra, whose bank had at the time an estimated value of $400 million, a way out in exchange for 50% of Union, a deal that included all manner of overvalued assets that Escotet had acquired through his own mergers with savings and loans. Salvatierra in turn got out of Citibank's debt and kept LagunaMar, a massive development in Margarita Island into which millions of dollars had been poured.
By the time Hugo Chavez arrived in Venezuela's Presidency, Escotet was a fixture in the country's financial arena. Through contacts and partnerships cultivated since his Bancentro days, regulators' compliance was guaranteed. No one was about to start questioning his numbers, whether assets were fairly priced, investments, loans' collateral, payment capacity, balance sheets, etc., for a reason best exemplified by the already infamous turn of phrase of Great Britain's Prime Minister: "we are all in this together."
With Chavez came opportunity. In 2003, the chavista regime imposed foreign exchange controls. That, compounded with the start of extraordinary income due to rising oil prices and the economic policies of chavismo, presented enormous arbitrage opportunities. So Escotet, from his commanding position, started buying bonds issued by the government, at official rate of exchange paid into corresponding BANESCO accounts held in other banks overseas, and selling at black market rates. Not all would be sold, a portion of bonds would be kept in house. Bought with savers money in Bolivares, returning interests in USD (anywhere between 7% to 15%), with the added benefit -for BANESCO- of ever rising inflation eroding the value of Bolivares, it represented an opportunity not to be missed. It is fair to say that all banks were in that together, and those that weren't were desperately trying to get on it. Billions were "made." Local customs, such as creating hundreds of fake companies to which loans were given in order to make Enron-like balance sheets, were going strong. A huge piñata that lasted a few years, totally unregulated. Bankers gone bonkers stuff.
Having made a pile, the next step in the process is Slimification. International reputations must be built, on the back of the dodgy way in which wealth was "created". Escotet argues that he operates in 15 countries, including the USA. As seen above, Puerto Rico, effectively US jurisdiction, has a different view of Escotet's claimed "compliance" with all relevant controls and standards. So does Florida. The Miami Herald reports:
Banesco USA said Friday that it has agreed to a consent order with the Federal Deposit Insurance Corp., dealing with control, staffing and administrative deficiencies in its Bank Secrecy Act program. The bank said 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 the purchase of Security Bank from the FDIC. But the bank said its policies and procedures on the Bank Secrecy Act and Anti-Money Laudering did not keep pace with the volume of work generated by the rapid growth. Banesco USA had $806 million in assets at Sept. 30.
The bank said it signed the FDIC Order without admitting or denying fault.
BANESCO is registered in Bahamas (company no. 70128), Curaçao (company no. 50230), Panama, Spain, Venezuela, the USA (Puerto Rico, Florida and Delaware), Netherlands, Dominican Republic, Costa Rica (company no. 3-101-114087), and Colombia. That's 10 countries, perhaps I am missing an entry in some offshore jurisdiction. BANESCO's registry details in Venezuela has FIDEICOMISO UBC (CITIBANK), BANESCO Holding, C.A., and FIDEICOMISO BANESCO HOLDING (CITIBANK) having a 37.65%, 26.1% and 21.55% stake respectively. That's roughly 85% of shares. It remains to be seen how much of that, and of BANESCO's international subsidiaries / holdings Escotet owns, though some reports put his stake in BANESCO Venezuela, the source of all his wealth, at 58.9%.
In any case, Escotet made news recently with a €1.003 billion bid for Novagalicia bank in Spain. Some reports even claim that Escotet's bank balance sheet shows over $35 billion. You read that correctly: 35 billion USD. Just how did Escotet arrive at this number is anyone's guess. The figures are likely to have been audited the Venezuelan way. It would be truly interesting to see a forensic audit of BANESCO balance sheet, like the one Alex Dalmady did on Allen Stanford's bank. In Spain, some people have already started questioning the veracity of Escotet's numbers. In Venezuela too. The argument is quite simple really: on what exchange rate was that balance calculated, given Venezuela's foreign exchange controls? Escotet may well be sitting on a huge pile of Bolivares, is he seriously expecting potential partners and regulators outside Venezuela to believe he'll be able to convert all that at the official rate of exchange, which could (doesn't but could) justify alleged $35 billion in BANESCO's books? Comment added 20 April 2014: challenged on false earnings reports, La Voz' Ruben Santamarta claimed that "BANESCO uses a 6.30 Bs./US$ rate of exchange in its communications to the media", and added that such rate was "confirmed by two analysts from Spain's stock exchange." The last real rate of exchange was announced by Venezuela's Central Bank at 49.31Bs./US$. That means that Escotet's pretence of having $35 billion in assets is a rather more realistic $4.8 billion when converted at the appropriate rate of exchange. And that's without taking a proper look at his bank's balance sheet. End of comment.
Brussels, the EU that is, has yet to approve the deal. Things aren't looking rosy for Escotet in Spain. He is reportedly looking for €403 million to pay first installment of acquisition of Novagalicia. Maybe he is thinking he'll be able to pull in Spain the same sort of antics he did back in his native Venezuela (use a pile of overvalued assets and a few trinkets as collateral in acquisitions). Furthermore, how can a bank with an estimated value of €2 billion win a bid to acquire another worth around €60 billion? Isn't it kind of odd, that a bank that claims to have $35 billion in its books is looking for finance to complete a €1 billion acquisition?
Back in Venezuela and in the midst of all these dancing billions, Escotet let out some steam recently against what he perceives as his foes of old. In a series of tweets posted on 31 March, he attacked Oscar Garcia Mendoza (from Banco Venezolano de Credito), accusing him of basically masterminding the lawsuit that Thor Halvorssen filed against Derwick Associates in Florida:
Escotet must be scared, really scared. The repercussions of a possible involvement of his bank in Panama, in corruption and bribes paid by Derwick Associates to President of Venezuelan Congress Diosdado Cabello, could be dear. The Federal Deposit Insurance Corporation explains:
11. That Juan Carlos Escotet Rodriguez, Luis X. Lujan Puigbo, and Jorge L. Caraballo Rodriguez, citizens and residents of Venezuela, will consent and submit to the personal jurisdiction of any United States federal court of competent jurisdiction and of any Federal banking authority (including the FDIC) for purposes of any investigation or possible investigation, subpoena, examination, action or proceeding by any Federal banking authority (including the FDIC), the United States Department of Treasury, or the United States Department of Justice, relating to or pursuant to the administration and enforcement of any banking law.
As I said elsewhere, Escotet can only conceive the world through his Venezuela-coloured glasses. He can pretend to be cream of the crop all he likes, but a cursory review at his chequered past and lies will show that the man is anything but a serious, credible and honest broker. With regards to his claims of late of compliance "with the highest anti money laundering prevention and control standards" in all jurisdictions where his banks operates, what do Puerto Rico's and Florida examples say about Escotet's honesty? Further, if that's the case in the USA, who can believe it'd be different in other, less regulated, jurisdictions where the majority of BANESCO's operations are concentrated? Is Escotet capable of producing relevant permits, official accreditations / credentials from all 15 jurisditions where he claims his bank operates, or is he like David Osío?
There's a tendency among chavista bankers to stretch the truth. David Osío for instance claimed, for years, that his three man operation had over a trillion in managed assets. Víctor Vargas said to the Wall Street Journal that he had been rich all his life, when we all know that he married into money. There's an extensive catalogue of examples of wrongdoing by this lot: Francisco D'Agostino, Luis Oberto, Moris Beracha, Miguel Angel Capriles Lopez... They are all in it together, scheeming Venezuela that is. Other boligarchs are successfully laundering their ill gotten money in Spain, so why would it be different for Escotet?
Repeated request were made to get comments from Escotet, alas to no avail. He doesn't 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 loyal to one of his mentors: Roberto Salas Capriles, whose son, Jorge Salas Taurel is BANESCO's man in Panama. His other mentor, Orlando Castro, the one that provided the platform that allowed him to "make it" died waiting for Escotet to make good on his word, ergo take it at own peril...