The process that led to the end of the financial empire of Banco Espírito Santo (BES) went well beyond the main players. The investigation reveals a web of relations between the world of high finance and that of political power
How it began and when
On July 24, 2014, after being arrested at his home in Cascais, the then president of Banco Espírito Santo (BES), Ricardo Salgado, was charged and heard by the Central Court of Criminal Instruction concerning the "Monte Branco" operation, which investigates the largest money laundering network in Portugal. He was released on a bail of three million euros.
The suspicions mainly focused on transfers of 14 million euros made by the builder José Guilherme to Salgado's offshore companies. Salgado justified these as a gift.
The president of the Securities Market Commission (CMVM), Carlos Tavares, admitted to submitting a complaint on possible criminal behavior due to Portugal Telecom's (PT) investment of € 900 million in Grupo Espírito Santo GES (via the Rio Forte holding company).
Following the ESI (Espírito Santo International) and Rioforte holdings, the Espírito Santo Financial Group (ESFG) also filed a request for controlled management to the courts in Luxembourg for "not being able to fulfill its obligations" related to the debt.
In a runaway sequence of events, on July 30, BES reported a historical loss of 3.6 million euros in the first trimester. Away from the bank, Salgado was replaced by Vítor Bento.
At midnight on the 31st, Banco de Portugal issued a statement saying that the recently uncovered facts taking place in BES pointed to "the practice of seriously harmful management acts" and contemplated aiming administrative offence liabilities and even criminal offense charges at the the former management team led by Ricardo Salgado.
On 1 August of 2014, the CMVM suspended the transaction of BES shares until the disclosure of relevant information. This happened after the bank registered a new historical low at 0.105 euros, a drop of almost 50%.
The then Prime Minister, Pedro Passos Coelho, said that Banco de Portugal would take all necessary measures where the BES crisis was concerned to guarantee the country's financial stability.
On August 3, the bank's resolution was known. BES was left with the toxic assets and the New Bank was born, which received an injection of 4.9 billion euros from the Resolution Fund. Governor Carlos Costa assured that the decision would have no cost to taxpayers.
In September, Vitor Bento resigned from the presidency of Novo Banco, alleging disagreements with the plans of Banco de Portugal for the immediate sale of the institution. Eduardo Stock da Cunha replaced him.
Banco of Portugal presents, in September of 2014, a criminal complaint to the Public Ministry against the old management team led by Ricardo Salgado.
In November, Salgado's house, Novo Banco's headquarters and the home of Amílcar Morais Pires (executive director of BES) were searched in relation to the BES case. This was done under the responsibility of José Ranito of DCIAP. 500 properties and banking products were seized from the Espírito Santo family in an amount above one billion euros.
The parliamentary commission of inquiry into the BES / GES case starts its works.
In May, the preventive seizure of BES natural persons assets, such as those of former administrators, and the assets of Rioforte's subsidiary companies was started by the DCIAP.
In June of 2015, new searches and seizures were made to GES companies and to the properties of former administrators. Injuried persons from BES held demonstrations inside and outside Portugal.
In July, Ricardo Salgado was placed under house arrest and prohibited from contacting the other six defendants of the "Espírito Santo Universe" process. The coercive measure was repealed, on December 11 of 2015, and the former president of BES was subject to a bond of one and a half million euros.
In December 2015, Ricardo Salgado ceased to be under house arrest and was only subject to term of identity and residence.
In March 2016, Banco de Portugal confirmed the relaunch of the sale of Novo Banco. In June, Ricardo Salgado was condemned by the supervisor to pay 4 million euros for the crime of manipulation of accounts in Espírito Santo International. He was also barred from tenure in the financial sector for ten years.
On April 1st of 2017, the Governor of Banco de Portugal, Carlos Costa, confirmed the sale of Novo Banco to the US-based Lone Star. Lone Star shall make capital injections in Novo Banco in a total amount of 1,000 million euros, of which 750 million euros will be injected at the closing of the transaction and 250 million euros until 2020.
Prime Minister António Costa said, on Tuesday, that the sale of Novo Banco will not have a direct or indirect impact on public accounts, nor will there be any new burden on taxpayers, which is "a balanced solution."
On April 30, 2018, the Supervision Court fined Ricardo Salgado on 3.7 million euros, and ordered the former administrator Amílcar Pires to pay 350 thousand euros. These fines are related to the misdemeanors applied by Banco de Portugal for the sale of ESI debt securities to BES clients. Both appealed against the decision.
On July 19th of 2017, Ricardo Salgado blamed Banco de Portugal for the losses suffered by BES customers, in an interview with Dinheiro Vivo.
The defendants and the crimes
1. Ricardo Salgado - In the investigation conducted by the Central Department of Investigation and Criminal Action, the former president of BES is indicted for crimes of corruption in the private sector, money laundering, tax fraud, qualified fraud, breach of trust, forgery of documents and computer fraud.
The same set of crimes was announced by the PGR for the other defendants.
2. Isabel Almeida - former director of finance of BES. She had been proposed in a list for the bank administration
3. António Soares - administrator of the insurance company BES Vida, and director of the markets department of BES.
4. José Castella - financial controller of GES.
5. Pedro Luís Costa - ex-BES senior manager linked to the financial area.
6. Cláudia Boal de Faria - director of the BES management department.
7. Amílcar Morais Pires - financial administrator of the group, number two of BES.
8. José Manuel Espírito Santo - former administrator of BES,
9. Manuel Fernando Espírito Santo - former executive director of GES
10. José Maria Ricciardi - Former manager of GES
11. Joaquim Goes- former administrator of BES
In total, 13 defendants have been charged, two of which are companies. They are suspected of contributing to the total loss of 5.9 billion euros.
Sentences provided for the crimes
Active Corruption: sentence of 1 to 5 years. The person sentenced is the one who gives or promises the employee equity advantage.
Money laundering: sentence of 2 to 12 years.
Tax fraud: sentence up to 3 years or fine up to 360 days. One of the criteria that qualifies or aggravates this crime is if it is committed by a public official who has abused of his or her duties, and in that case, the sentence shall be from 1 to 5 years in prison and a fine of 240 to 1200 days.
Breach of Trust: prison sentence up to 3 years or fine. In aggravated forms the sentence rises up to 5 years or up to a 600 days fine or sentence from 1 to 8 years.
Forgery of document - Sentence up to 3 years or fine. But if the forgery refers to an authentic document or one with equal force, a closed will, mail check, a check or another commercial document that can be transferred by endorsement, the sentence is from 6 months to 5 years or a fine of 60 to 600 days. If the acts are practiced by an official the sentence is from 1 to 5 years.
Fraud: If the property damage is of high value, the crime is punished with imprisonment up to 5 years or with a fine of up to 600 days. The sentence is of two to eight years if the patrimonial damage is of considerably high value and if the author made fraud his way of living; or if the author takes advantage of the special vulnerability situation of the victim, due to age, disability or illness; or if the aggrieved person is in a difficult economic situation.
Computer fraud - The person who, with the intention of deceiving legal relations, introduces, modifies, deletes or suppresses computer data or in any other way interferes with the computerized processing of data, producing non genuine data or documents, with the intention that they are considered or used for legally relevant purposes as if they were genuine, shall be punished with a sentence of up to 5 years or a fine of 120 to 600 days.
Consequences of the process
The BES case has more than 1500 cases currently in the courts. Just actions to challenge Banco de Portugal's resolution measure up to 50.
1225 are civil actions, mostly compensation claims aimed at former administrators and the bank and at claiming credits.
There are also seven crime investigations related to the management of BES, which bring with them about 200 private complaints. 19,000 people and companies are claiming credits. Six inquiries are in the Central Department of Investigation and Criminal Action (DCIAP), one is in the Department of Investigation and Criminal Action of Lisbon (DIAP). The latter concerns clients of Banco Privée Espírito Santo of Luxembourg and has 51 joined complaints.
The insolvency process is underway in the Commercial Court of Lisbon. According to data from the Liquidation Commission, this process has 17 thousand requirements from 19 thousand people and companies to claim credits.
The impact of BES's resolution on the Portuguese economy will reach 14% up to 2021, according to an investigation by José Poças Esteves and Avelino de Jesus, published in the book BES Case - The impact of the Resolution on the Economy and which was published by the website Dinheiro Vivo on 23 February 2018. That is, it takes away 25 billion euros from the economy.
The authors estimate that the loss of employment caused by the measure will reach 42,800 jobs. The investigation also warns that the BES resolution has removed the national banking sector from the companies.