AUTHORITIES CHARGE TWO HIGH-LEVEL GOVERNMENT BANKING OFFICIALS WITH FRAUD, MONEY-LAUNDERING & EXTORSION.

In the continuing saga of corruption in Mexico, authorities arrested two high-level government banking officials on charges of fraud, money-laundering, and extorsion. Arrested were Eugenio Gonzalez Sierra, deputy director of the savings protection agency (Instituto de Proteccion al Ahorro Bancario, IPAB), and Leon Alberto Schietekat Ballesteros, research director at the foreign trade bank (Banco Nacional de Comercio Exterior, BANCOMEXT).

The two officials, detained in early October, will remain in custody for at least 90 days while the government's anti- corruption agency (Unidad Especializada Contra la Delincuencia Organizada, UEDO) investigates the charges.

Sources at the Procuraduria General de la Republica (PGR) allege that Gonzalez Sierra and other IPAB employees conducted a series of transactions to transfer illicit funds between Mexican and foreign banks. Gonzalez Sierra is said to have laundered more than US$1 million through a European institution.

The UEDO, a unit of the PGR, is investigating seven other IPAB employees who may have been involved in the operations.

Officials accused of soliciting bribes

Investigators are also looking into complaints from the engineering company Grupo Mexicano de Desarrollo (GMD) that Gonzalez Sierra offered to "clean up" the company's irregular operations through the IPAB in exchange for a bribe of US$1 million.

Canadian auditor Michael Mackey, who had been hired to audit IPAB's predecessor, the Fondo Bancario de Proteccion al Ahorro (FOBAPROA), had listed GMD as having received an "irregular loan" through Banco Inverlat. In August of this year, a congressional committee approved the release of a list of beneficiaries of FOBAPROA (see SourceMex, 2001-08-15).

Rather than accept Gonzalez Sierra's offer, GMD chief executive officer Diego Ramos Gonzalez alerted the UEDO, which set up the sting operation that led to the arrest of the two banking officials.

Schietekat Ballesteros allegedly acted as an intermediary between Gonzalez Sierra and GMD executives and was also said to have been involved directly in some money-laundering operations.

IPAB denied direct responsibility in the illicit transactions, saying they were conducted without the knowledge of agency executives. "The events have been a deep affront to the institution, which is why it urges judicial authorities to carry out the investigations within the framework of the rule of law, leading to the application of the sanctions imposed by law," said IPAB officials, who pledged full cooperation with the investigation.

Integrity of bank-rescue agency comes into question

But the indirect implication of IPAB in the scandal has led some members of Congress to ask for an overhaul or even elimination of the agency. "The arrest of Eugenio Gonzalez Sierra is evidence that the IPAB is surrounded by corruption," said Deputy Marti Batres, coordinator of the delegation for the center-left Partido de la Revolucion Democratica (PRD) in the Chamber of Deputies. The PRD has long criticized the IPAB and its predecessor the FOBAPROA as having been created to serve the interests of rich bankers and other businesses.

Congress and the private sector have questioned the effectiveness of the IPAB. Mario di Costanzo Armenta, a private consultant who has conducted a review of the institute, told reporters that the IPAB has failed in its mission to significantly reduce the debt of 700 billion pesos (US$75.9 billion) inherited from the rescue of the banking industry in 1995. Furthermore, di Costanzo said, the IPAB has recovered only about 7% of the 305 billion pesos (US$33 billion) invested in the bank-rescue operations.

Deputy Alejandro Gutierrez, who chairs the finance committee (Comision de Hacienda) in the lower house, said the IPAB must not be allowed to continue operating outside the scrutiny of Congress and the public. "IPAB operations have no transparency, the federal comptroller's office has failed to resolve some questions related to conflicts of interest among some members of the agency's governing board," said Gutierrez, a member of the long-governing Partido Revolucionario Institucional (PRI).

But Sen. Fauzi Hamdan of the center-right Partido Accion Nacional (PAN) criticized some of his colleagues for calling for eliminating the IPAB. "It is one thing to acknowledge that some cases of corruption have been detected in the institute," said Hamdan. "But it is absurd to call for its disappearance."

Some members of the lower house have urged the Mexican Senate to use its powers to intervene in the management of the IPAB, at least until federal authorities have completed their investigations.

Sen. Hamdan, who as a member of the lower house was instrumental in creating the IPAB, is leading an effort in the Senate to enact major reforms in the institute to eliminate the possibility of conflicts of interest.

In the meantime, Congress is preparing a parallel investigation to the one by the UEDO. Some legislators have questioned the integrity of IPAB executive secretary Julio Cesar Mendez Rubio, who hired Gonzalez Sierra as one of his chief deputies. Both men served in Bancomext during the administration of former President Ernesto Zedillo. Mendez Rubio was hired to lead the IPAB, replacing Vicente Corta, who resigned in July 2000 (see SourceMex, 2000-07-26).

Federal prosecutor Gabriel Reyes Orona said the PGR has summoned Mendez Rubio to testify in connection with the charges against Gonzalez Sierra and Schietekat Ballesteros.

The business community is also pushing for a complete IPAB restructuring, possibly into two separate institutions. "A new organization [should be created] that has a clearer mandate and functions better," said Hector Rangel Domene, president of the Asociacion de Banqueros de Mexico (ABM).

Rangel called on the government to investigate all recent IPAB operations to determine if any other instances of corruption have occurred. "We need to restore credibility to the agency," said Rangel. [Note: Peso-dollar conversions in this article are based on the Interbank rate in effect on Oct. 17, reported at 9.22 pesos per US$1.00] (Sources: Spanish news service EFE, 10/08/01; Novedades, 10/09/01, 10/10/01; Excelsior, 10/10/01; CNI en Linea, 10/08/01, 10/11/01; Reuters, 10/09/01, 10/11/01; El Economista, 10/11/01; The News, 10/09/01, 10/13/01; Notimex, 10/08/01, 10/10/01, 10/11/01, 10/15/01, 10/16/01; La Jornada, 10/09-12/01, 10/15/01, 10/16/01; Reforma, El Universal, 10/09-12/01, 10/16/01, 10/17/01; Milenio Diario, 10/09-12/01, 10/17/01; La Cronica de Hoy, 10/09/01, 10/11/01, 10/12/01, 10/16/01, 10/17/01)