It’s treated as a minor spectator sport by most of media here. It could well be viewed as a scandal for the governments of both Panama and the United States, but it doesn’t tend to get reported that way. It’s the continuing legal battle between businessmen Joaquín José Vallarino and Haralambos Tzanetatos, the offspring of the collapse of Banco DISA.
“DISA” stand for Desarrollo Internacional, SA (International Development, Inc, were one to translate into both the English language and US business law terminology). DISA wasn’t originally promoted as a bank. It was a general purpose corporation formed in the 60s and backed by the American taxpayers, which then converted itself into a bank. Fortunately for the US treasury, by the time of the collapse the US loan guarantees had long ago run their course, so Uncle Sam isn’t footing any of the bill.
Why would the United States guarantee JJ Vallarino’s bank? It seems that there was foreign aid money to spread around Latin America, and because under successive US administrations we had ambassadors and lower level diplomats whose contacts with Panamanian society were limited to governmental circles and the very rich, because the US government has tended to apply rather standard --- for the United States --- concepts of who is or is not creditworthy, and because one of Vallarino’s companies held Panama’s Coca-Cola bottling concession, for decades Vallarino seemed to be perpetually at the head of the line when it came time to distribute American financial aid to this country.
But of course, Banco DISA wasn’t just Vallarino’s bank. There were investors, the largest of whom tended also to be directors. One of these was Haralambos Tzanetatos, whose business empire includes Curaçao Eximport Enterprises, grocery wholesaling interests, and at one point a major share in the Sears outlet on the Transistmica, which ultimately failed. The partners and directors of Banco DISA tended to deposit a lot of their and their companies’ money in that bank.
Despite years of legal battling, the precise causes of Banco DISA’s collapse are unclear. What is known is that the bank was in trouble, its directors tried to marshal resources to avert a collapse, but then the Banking Superintendent intervened (against the protest of Vallarino, who insisted that the bank was solvent). The information that’s not in the public domain about the Banco DISA collapse says important and unflattering things about the lack of transparency in Panama’s courts, corporations and banks. Most of the information that has come before the public about the matter has been the result of erstwhile partners and investors airing their disputes with one another in the press. Some of the information has been officially released by courts or the Banking Superintendent, and some of it has been leaked from official sources, but most of the legal proceedings and court documents have been, as is the usual case in Panama, closed to the public.
The gist of the Vallarino-Tzanetatos dispute is the latter’s claim that the management of Banco DISA --- Vallarino, Rafael Endara and Jorge Endara Paniza --- asked all the directors and partners to put the money that they had in the bank into a temporary emergency fund, which would stave off government intervention and then be repaid in three months. With this understanding, Tzanetatos claims, he put $10 million from Curaçao Eximport Enterprises into the emergency fund, not knowing that the bank had neither the means nor the intention to repay as promised.
On the civil side, Tzanetatos fought successfully to have his company’s money treated as the funds of an ordinary depositor, on a par with the other accounts in the bank, rather than as the investment of one of the bank’s owners, which can only be repaid if and when the ordinary depositors have been paid in full. (Also under Panamanian law, depositors who are citizens get priority over foreign depositors in the event of a bank collapse.) As it does not seem that those who held accounts at Banco DISA will get all of their money back, the interests of most depositors became hostile to those of Tzanetatos --- he would be standing in line with them asserting a $10 million claim, rather than being deprived of his investment, any remnant of which would increase the percentage of their accounts that the depositors might recover.
In other litigation, Tzanetatos accused Vallarino, Endara and Endara Paniza of criminal fraud.
When last The Panama News looked at this case, Tzanetatos had won his civil argument to get his company’s $10 million treated as an ordinary deposit rather than as a bank owner’s investment, but on the other hand a criminal court had thrown out the charges against Vallarino, Endara and Endara Paniza. In the wake of that latter verdict Vallarino was threatening to bring criminal charges against Tzanetatos for making an unfounded complaint.
Vallarino had better luck in a series of new civil actions, brought on behalf of his company, JJ Holdings Inc, against Curaçao Eximport Enterprises. In mid-October, Vallarino won a sequestration order in favor of the former company against the latter one.
Under Panamanian law, a sequestration is quite frequently an opportunity for one litigant to take over and destroy an opposing litigant’s business, making any further legal proceedings moot.
(One of the cliches of this country’s corruption is that someone with a good idea, a bit of investment and a lot of work creates a new business that prospers, and then someone with the right connections and usually the right surname uses influence on the government to destroy that business so that the latter person can move in and take over the economic niche that the former created. This trick can be pulled off in many ways, like by paying off certain officials so that permits or denied or that regulations are either abused of invented out of whole cloth in prejudice of the target business. Bribing a judge to get an unjustified sequestration order is another version of the game.)
However, within two weeks Vallarino suffered a setback on the penal front. An appeals court reversed the dismissal of fraud charges against Vallarino, Endara and Endara Paniza, holding that there was clear evidence of false representations intentionally made to get Tzanetatos to put his company’s money into the disputed bank rescue fund.
But maybe the appellate decision wasn’t a loss for Vallarino. He has a new card to play because, unlike Endara and Endara Paniza, he was included in Mireya Moscoso’s controversial pardon list. Thus Vallarino’s lawyers have moved to have the criminal proceedings against him dismissed on the strength of that pardon.
(Meanwhile the legality of all of the pardons is under challenge, by several people, and the case is pending before the Supreme Court. This reporter is one of about 70 journalists who were also on that pardon list.)
Aspects of the Banco DISA litigation have been up and down the Panamanian judicial system, including in the Supreme Court. These latest skirmishes are also likely to end up in the high court.
To an outside observer, this would seem to be an outstanding example of the “lack of judicial security” of which every faction except the Mireyistas complained during the campaign leading up to this year’s elections. As the US government and anti-corruption groups have often complained, in Panama court decisions tend to be unpredictable and legal disputes can wander up and down the legal system for years without definitive resolution.
From another perspective, the entire history of Banco DISA might be seen as proof of the old American saw that “foreign aid is the transfer of money from poor people in rich countries to rich people in poor countries.”
In any case, the whole affair ought to be instructive for anybody thinking about opening a bank account or investing in a business here in Panama.
Also in this section:
No deal yet in US-RP free trade talks
Criminal case reopened in Banco DISA collapse
The Panama News shatters its old readership records
Business & Economy Briefs
