business

The Dominican Republic is being rocked by a series of financial scandals related to the collapse of three banks. On its website the Dominican Central Bank has published an audit by a private accounting firm hired to review the books of one of the failed banks, the Banco Mercantil. The auditors found that when the Banco Mercantil was in trouble in 2002 and 2003, the Central Bank lent some $18 million to avoid the former institution’s collapse, but that money disappeared into a “financial hole.”

What sort of hole? Principally, a hole named Mercantil Dr SA, a Panamanian corporation.

To try to recover some of the assets lost in the Banco Mercantil collapse, receivers appointed by the Dominican government have called in all loans and debts, demanding that they be paid off by the end of this month. The call warned of legal actions to collect in the event that someone who owes the bank money does not comply by the deadline. That might end up in a lawsuit in Panama against Mercantil Dr SA, and given the state of this country’s money laundering laws could become a criminal matter here as well.

Former Banco Mercantil CEO Andrés Aybar Báez and 14 others are facing a series of criminal charges relating to the collapse. A lower court decision dismissing most of the charges against Aybar Báez and all of the charges against all but one co-defendant was reversed last year on appeal and the accusations were reinstated.

At the time it was issued the lower court ruling was denounced as a “negative precedent of impunity” by Dominican Attorney General Francisco Domínguez Brito, and in the furor over the ruling the Central Bank hired the CPA firm of Guzmán Tapia & PKF Co to do an audit. That audit’s publication on February 1 prompted another storm of controversy, in part because it revealed what appears to be the theft of government bailout funds and in part because it detailed bad loans improperly granted without or with insufficient collateral to individuals and companies with inside connections at the bank. It also noted illegal overdrafts by bank managers and directors, and by businesspeople once considered pillars of Dominican society.

Aybar Báez has asserted as his defense in the courts and in the Dominican press that he was never an owner of Banco Mercantil, but merely an employee in an executive position, so it’s legally improper to hold him criminally responsible for improper insider dealings.

In addition to the Banco Mercantil, the DR's Banco Intercontinental (Baninter) and Banco Nacional de Credito (Bancredito) have gone bust, causing a  major crisis in confidence in the entire Dominican financial sector.