Slush fund scandal destroys Spanish banking dynasty

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The Independent Online

The meltdown at Spain's second-biggest bank was almost complete yesterday when two more board members who received secret pensions from illegal offshore slush funds resigned. The remaining four implicated in the scandal are expected to go soon.

Oscar Fanjul and Alfonso Cortina, two illustrious barons of international corporate finance, joined the disgraced former chairman, Emilio Ybarra, and nine other directors of the Banco Bilbao Vizcaya Argentaria recently forced to quit.

The speed of the decapitation of one of Spain's oldest, richest and most revered banking dynasties has shaken the austere financial world. The reputation of Mr Ybarra, 65, a great-grandson of the founder of the original Banco de Bilbao, lies in ruins, the power of a tight Basque clan whose members penetrated boardrooms across Spain is shattered for ever.

These are not flashy people whose pictures adorn Hola! magazine. They are old rich families whose names – Ybarra, Churruca, Asiain – are mostly unknown to the general Spanish public. The families who in the 19th century created the Banco de Bilbao and Banco Vizcaya, which fused in 1990 and took in Argentaria in 2000, embodied quintessential Basque qualities of discretion, conservatism and the quiet pursuit of riches.

But something went wrong in the late 1980s when a speculative economic boom coincided with the desire to build up Spanish banks as European and world players and fend off foreign competition. This meant creating a giant, and a buccaneering spirit at odds with old careful ways. The BBVA illegally accumulated the equivalent of more than €220m (£135m) in offshore trust funds for 11 years. The accounts opened in 1987 were declared in 2000, after prodding from the Bank of Spain, as "extraordinary profits".

Judge Baltazar Garzon, who took charge of the investigation last week, believes the bankers committed criminal forgery, fraud and misappropriation. He is investigating whether, in addition to providing covert pensions for selected board members, the funds also financed illegal money laundering operations in Latin America, where the BBVA has huge investments.

Judge Garzon arrived in Lima yesterday to examine the bank's operations in Peru, which are said to have benefited the former president Alberto Fujimori.

Peru's anti-corruption prosecutor is investigating an irregular land deal done by Mr Fujimori using credits from the BBVA's Peruvian subsidiary via a secret account he held in the Cayman Islands.

The bank made secret contributions of hundreds of thousands of pounds to the campaign of Venezuela's President, Hugo Chavez, in 1998 and 1999, apparently to ensure he would not privatise BBVA's Venezuelan subsidiary.

US courts have been asked to help clarify suspected money laundering activities in BBVA subsidiaries in Puerto Rico.

Soon after secretly setting up its offshore accounts, the Banco de Bilbao published in 1989 what amounts to a handbook for money launderers. The Manual of Fiduciary Products offered corporate investors and rich members of Spain's sporting and artistic élite 12 products and services that promised "opaqueness, flexibility and maximum fiscal optimisation".

A payment of £368,000 was required to become a director of a ghost company, plus a minimum investment of £2m. The bank's Jersey-based subsidiary operating the scheme, Canal Trust, called itself an "educational, religious and charitable trust" but never appeared on BBVA's balance sheets.

The sleaze threatens to embroil the government, because Estanislao Rodriguez Ponga, the Secretary of State for the Treasury, was BBVA's chief tax adviser between 1992 and 1997, before becoming a minister in Jose Maria Aznar's conservative government.

In his first statement on the scandal on Wednesday, Mr Aznar gave every impression of letting those implicated carry the can. "Those who have broken the rules of the game must pay the consequences," he said.

Some observers believe the political establishment wants to destroy a power base rooted in the Basque country whose financial clout was sometimes sufficient to challenge political authority in Madrid.

Mr Ybarra's successor is to be Francisco Gonzalez, who is from Galicia in the north-west corner of Spain.

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