business & economy

Also in this section:
HSBC defamation suit raises wider legal questions, business risks
White House notifies Congress of intent to sign US-Panama Free Trade Agreement
ACP backs down ever so slightly on Panama Canal tolls

Universidad Tecnologico bombshell in bus fire case

SUNTRACS flexes its muscles over construction site safety

Environmental permit denied for cement plant project
Business & Economy Briefs

HSBC makes legal trouble for one who complained

Does the bank stand to lose much more that it gains even if it wins?

by Eric Jackson

The tale comes down from classical times of King Pyrrhus, the cousin of Alexander the Great, who at the head of a Greek army in Italy stomped all over the Romans in a battle at Asculum in 279 BC. The trouble was, his own army's losses in that victory were so severe that it had to end the campaign and abandon Italy. Pyrrhus went on to be killed in a street fight, the Romans went on to overwhelm Greece and become the leaders of classical civilization and the term "pyrrhic victory" is with us to this day.

But that's all boring ancient history, generally not the sort of thing that Panama's ruling business and political elites have ever seen fit to learn, let alone apply in their daily lives.

Flash forward to 2003, and HSBC bank client Peter Gordon, a Canadian expat who lives in Paitilla and has put most of his money in the Fundacion de Interes Privado Geelong --- a private interest foundation that also has its account at HSBC --- is not a happy camper. In an exchange of communications with bank officials extending into 2005, he repeatedly objected to unexpected charges, delays in transfers, delays in bond purchases that someone at the bank advised and then about his complaints going unanswered. Eventually the bank told him to take his money and go elsewhere.

Gordon is not the only person annoyed by HSBC service, and added to their numbers must be another substantial group of individuals who have taken their business elsewhere when confronted by the stacks of paper that the bank wants for anyone opening an account there. But then, HSBC is far from the only Panamanian bank to generate such complaints. This country may boast of an international banking center, but the dirty little secret is no longer secret and not so little: Panamanian bank service is generally horrible from the consumer perspective and it's debatable whether HSBC is worse than the others.

But Gordon is something of an Internet troll, and wrote about his travails with HSBC on some of Panama's English-language email discussion groups. Others added their tales of woe.

On one of those groups, Dr. Charles Garcia took notice and forwarded some of the complaints to an acquaintance of his, HSBC - Panama's CEO, Joseph Salterio. That was in March of 2005.

Then, the following October, a fellow Texas A&M alumnus of Salterio's, insurance vendor Kevin Bradley, wrote a curious note to Salterio telling him that because of Gordon's complaints on the Internet, he was withdrawing his savings account with HSBC and advising clients to take their business elsewhere. A polite response from Salterio advised Bradley that he could pick up the check for the $479.79 he had in the bank and dismissed Gordon's complaints as "totally spiteful and groundless." The exchange had something of the appearance of a contrivance for the purposes of litigation.

Months went by, until one day a dozen people showed up at Gordon's door, waving papers and telling him that they were taking everything he has. HSBC had sent the law firm Infante & Perez Almillano in to sue Gordon for defamation and demand $5 million in damages, with the only losses actually pleaded the proceeds from that $479.79 that Bradley pulled out of the bank.

Gordon found himself confronting people and institutions far richer and more powerful than himself. But the bank and its lawyers weren't leaving anything to chance. They moved to sequester both Gordon's and the foundation's assets, which they figured would leave Gordon short of funds to put up much legal resistance.

How could they do that? One of the major advertising points for Panama's offshore finance industry is the notion that under this country's laws private interest foundations are by and large untouchable, unless it can be proven that they were founded on drug money or something like that, and in turn that's hard to prove because the foundations are even more anonymous than "sociedad anonima" corporations and all the Panamanian rules of banking and corporate secrecy apply.

But HSBC had been the banker for the Fundacion de Interes Privado Geelong and had access to such secrets as it had. Moreover, in a couple of his emails to HSBC functionaries Gordon had objected to certain HSBC actions specfically on behalf of the foundation.

Other than to HSBC, Gordon had never named the foundation in public. It never came up in his complaints on the email groups.

HSBC and its lawyers are contending in court that to complain to HSBC officials of "lies, rip-offs, broken promises, etc." is to publish a defamatory statement --- that is, that it doesn't consider communications between its customers and its employees to be private. That's how the bank gets to the point of alleging that Gordon published statements that were "on behalf of" the foundation, and thus that the foundation is a proper party to their lawsuit.

It's interesting, looking at the pleadings. The communications wherein Gordon complains are attached as exhibits, with the untruncated prior email exchanges included. The nature of Gordon's specific complaints come through quite clearly, but HSBC and its lawyers don't bother to specifically deny their veracity. They just dispute Gordon's conclusions about what was going on in a most general way.

The circuit judge wouldn't agree with HSBC's characterization of Gordon's purported defamation as being made "on behalf of" the foundation and denied the bank's move to sequester the foundation. But the bank appealed to the Superior Court and got the order it wanted. Virtually all of Gordon's funds, and the foundation's more substantial assets, were frozen. Lawyers for the foundation in turn appealed to the Supreme Court, where what in the US legal system would be called an interlocutory appeal about the sequestration order now resides.

(Comparing what the Panamanian courts do with the ways of Common Law legal systems, especially when it comes to procedural matters, is usually not such a helpful intellectual exercise. Suffice to say that the main defamation case moves along at a snail's pace in the trial court while the foundation's sequestration is separately being fought out a couple of levels higher in the judicial system.)

And did the HSBC legal team make an error, or do status and influence erase all errors in this country's legal system? The Infante law firm argued that defaming the bank was outside the purview of any powers that the documents creating the foundation conferred upon Gordon. But if that's so, then how can they allege that Gordon was "acting on behalf of" the foundation such as to make the latter a proper party to the case?

Were it all up to the paradoxes and riddles and power realities in the Panamanian courts, HSBC would be sitting pretty. But this is not the case. The sequestration of the Fundacion de Interes Privado Geelong has sent shock waves through the law firms, offshore investment companies and other ancillary businesses that prosper or wane on the strength of Panama's reputation for protecting financial privacy. HSBC v Gordon et al is the talk of the expat community, particularly among those choice prospective clients whose large deposits HSBC would like to attract. If the bank's allegation of $5 million in damages was at first something akin to a soccer player writhing in faux pain trying to draw a foul, now the publicity that the suit has generated surely has HSBC hurting to far more than the tune of the proceeds on Kevin Bradley's savings account.

Moreover, it's by no means the bank's or Salterio's only public relations problem.

In the reorganization that has accompanied the acquisition of BANISTMO by HSBC, for which Salterio and his superiors in London reportedly received substantial bonuses, there is the organizational chart appearance that Salterio is no longer the bank's top man in Panama, but the third in the pecking order of those who work here now. That may be an illusion created by the establishment of something bigger than what existed before and a mere reorganization of niches above Salterio's, but in any case the bank now has higher-ups on the scene.

The word on the street is that what HSBC bought in the BANISTMO acquisition isn't quite as profitable as the former had hoped. Such reports as have been published in the mainstream press are conflicting or of doubtful sourcing, but anecdotes that have come to this reporter are of an exodus of undetermined size of BANISTMO depositors who are fleeing specifically to avoid HSBC.

For example, in December local retirees from the former American military bases or the times when the United State ran the Panama Canal who were getting their US government pensions directly deposited at BANISTMO were told that under the new management as of February the bank would no longer deal with these types of transactions. There was an immediate exodus not only of these mostly small-time clients, but also of others who saw what was going on and drew some negative inferences. That the bank backed down on this policy in January was a bit of belated damage control, but it was a public relations maneuver made against the backdrop of a litany of complaints about the bank's service, and not only by Peter Gordon.

Then, starting in the third paragraph of a tale buried below the fold on page A-6 of the April 2 edition of La Estrella, under the unrevealing headline "Tras la pista de la Romana SA," Salterio received some most unflattering publicity. It seems that legislator Javier Tejeira has filed criminal charges against him. The allegation is that Tejeira's cousin and fellow stakeholder in a family rice processing business known as Molino Santa Isabel SA, one Boris Reinmar, looted the company of more than half a million dollars. Tejeira complained to police after an independent audit of the company. After a police investigation, it appeared that checks for this six-figure sum were deposited into another company, Arrocera La Romana SA --- in which Reinmar and Salterio are the secretary and president respectively. So Tejeira's lawyers have filed private criminal charges against both men, alleging that Salterio was part of an embezzlement scheme.

The larger dailies didn't pick up on the Tejeira allegation, but La Prensa did publish a little gossip note alluding to the Gordon case.

"There's blood in the water," noted one long-time observer of Panama's power elites, predicting that there's about to be a media feeding frenzy of both national and international proportions. HSBC can't be too happy about that prospect.

And so what if the bank does prevail in its defamation suit and its sequestration order spinoff against Peter Gordon and the Fundacion de Interes Privado Geelong? They'll probably think twice before issuing any press releases bragging about it.

HSBC defamation suit raises wider legal questions, business risks
White House notifies Congress of intent to sign US-Panama Free Trade Agreement
ACP backs down ever so slightly on Panama Canal tolls

Universidad Tecnologico bombshell in bus fire case

SUNTRACS flexes its muscles over construction site safety

Environmental permit denied for cement plant project
Business & Economy Briefs