The lawsuit that spelled the end of the Banco Espírito Santo (BES) financial empire went far beyond the main actors. The investigation reveals a web of relations between the world of high finance and political power
How it began and when
On July 24, 2014, the then president of Banco Espirito Santo (BES) Ricardo Salgado was made a defendant and heard by the Central Criminal Prosecution Court, as part of 'Operation Monte Branco', which is investigating a large-scale money laundering network in Portugal, after being arrested at his home in Cascais. He was released on bail of €3 million.
The suspicions centered on bank transfers worth €14 million from contractor tycoon José Guilherme to Salgado's offshore companies, which the latter justified as a gift.
Carlos Tavares, the President of the Securities Market Commission (CMVM) said he was considering the possibility of filing a criminal complaint due to Portugal Telecom's €900 million investment in Grupo Espírito Santo (GES) via Rio Forte holding company.
Like the ESI (Espírito Santo International) and Rioforte holding companies shortly before, Espírito Santo Financial Group (ESFG) also submitted a controlled management request to Luxembourg's courts for "not being in a position to fulfill its [debt-related] obligations.
In a runaway sequence of events, on July 30 BES reported an unprecedented first-semester loss of €3.6 million. Having been removed from the bank, Salgado was replaced by Vítor Bento.
On July 31, at midnight, the Banco de Portugal (BdP) issued a press release stating that recently discovered facts involving BES suggested "seriously harmful management practices" and considered the possibility of administrative sanctions and even criminal procedures against the former management team led by Ricardo Salgado.
On August 1, 2014, the Securities Market Commission suspended the trading of BES shares until the disclosure of relevant information, following a drop of almost 50% to an all-time low of €0.105.
The then Prime Minister Pedro Passos Coelho said that the Banco de Portugal would take all "necessary measures" to ensure the country's financial stability amidst the BES crisis.
The bank's dissolution was announced on August 3. BES kept the 'toxic assets' and Novo Banco, with a €4.9 billion capital injection from the Resolution Fund, was born. BdP Governor Carlos Costa assured the country that the decision would have no cost to taxpayers.
In September, Vitor Bento resigned from his position as President of Novo Banco, saying that he disagreed with the BdP plan to sell off the institution as soon as possible. He was replaced with Eduardo Stock da Cunha.
In September 2014 the Banco de Portugal filed a criminal complaint with the Public Prosecutor's Office against the bank's former management team, led by Ricardo Salgado.
In November, Salgado's residence, Novo Banco's headquarters and the home of Amílcar Morais Pires (BES executive director) were searched as part of the BES investigation, headed by DCIAP officer José Ranito. 500 properties and banking products worth over €1 billion were seized from the Espírito Santo family.
The parliamentary inquiry commission on the BES/GES case started its works.
In May, the DCIAP launched a preemptive asset seizure process involving former BES directors and other personnel, as well as assets from Rioforte's subsidiary companies.
In June 2015, the DCIAP (Central Investigation and Prosecution Department) searched several GES subsidiary companies and former directors' properties. Customers who lost their money due to BES crisis held demonstrations in Portugal and abroad.
In July, Ricardo Salgado was placed under house arrest and prohibited from contacting the other six defendants of the 'Espirito Santo Universe' process. This coercive measure was repealed on December 11, 2015, and the former BES President was granted bail of €1.5 million.
In December 2015, Salgado's house arrest was lifted and replaced with conditional bail.
In March 2016, the BdP confirmed the relaunch of the Novo Banco sell-off process. In June, the Supervising Authority sentenced Ricardo Salgado to a €4 million fine for the crime of manipulating ESI accounts. He was also banned from working in the financial sector for ten years.
On April 1, 2017, BdP Governor Carlos Costa confirmed the sale of Novo Banco to US-based company Lone Star. Lone Star will inject €1 billion into Novo Banco: €750 million once the operation is completed and €250 million until 2020.
Portuguese PM António Costa said on that day that the sale of Novo Banco was "a balanced solution" and would not have any direct or indirect impact on the state budget or on the taxpayers' dime.
On April 30, 2018, the Supervisor's Court sentenced Ricardo Salgado and former director Amílcar Pires to pay €3.7 million and €350 thousand fines, respectively. The fines were imposed by the Banco de Portugal due to the sale of ESI debt securities to BES customers. Both Salgado and Pires appealed against the decision.
On July 19, 2017, in an interview with Dinheiro Vivo, Ricardo Salgado blamed the BdP for the losses incurred by BES customers.
Defendants and crimes
1. Ricardo Salgado - In the DCIAP investigation, the former BES President is suspected of corruption in the private sector, money laundering, tax fraud, aggravated fraud, breach of trust, document forgery, and electronic forgery.
The Public Prosecutor's Office listed the same crimes with regard to the other defendants.
2. Isabel Almeida - Former BES Director of Finance. At some point, Almeida was proposed for bank director.
3. António Soares - Soares was insurance company BES Vidae Director and BES Markets Department Director.
4. José Castella - Castella was GES financial controller.
5. Pedro Luís Costa - Former BES senior manager, financial area.
6. Cláudia Boal de Faria - Faria was BES Savings Management Director.
7. Amílcar Morais Pires - The Group's Financial Director, BES' number two.
8. José Manuel Espírito Santo - Former BES Director.
9. Manuel Fernando Espírito Santo - Former GES Executive Director
10. José Maria Ricciardi - Former GES Manager
11. Joaquim Goes- Former BES Director
All in all, there are 13 defendants so far, two of which are companies. They are suspected of having contributed to the overall loss of €5.9 billion.
Sentences for the crimes
Active Corruption: 1- to 5-year sentence. Anyone who gives or promises employees pecuniary advantages.
Money laundering: 2- to 12-year sentence.
Tax fraud: sentence up to 3 years or fine up to 360 days. One of the criteria that aggravates this crime is the fact that it is committed by a public servant who has abused his or her duties; in that case, the sentence ranges from 1 to 5 years in prison and a fine of 240 to 1200 days.
Breach of trust: Sentence of up to 3 years or fine. In aggravated cases, the sentence is up to 5 years, or a fine of up to 600 days, or a 1 to 8 year sentence.
Document forgery - Sentence up to 3 years or fine. But if the forgery concerns an authentic document or a document possessing the same value, a closed will, a mail check, a bill of exchange, check or any other commercial document transferred by endorsement, the sentence ranges from 6 months to 5 years or a fine of 60 to 600 days. When such crimes are committed by an official, the sentence ranges from 1 to 5 years.
Aggravated fraud: If financial losses are substantial, the crime is punished with imprisonment up to 5 years or with a fine of up to 600 days. The sentence ranges from 2 to 8 years if financial losses involve considerably high amounts and fraud is the perpetrator's way of life; or if the perpetrator takes advantage of the victim's vulnerability due to age, disability or illness; or if the person who incurred the loss is left in a difficult financial situation.
Computer forgery - Anyone who introduces, modifies, deletes or suppresses computer data or in any other way tampers with computerized data processing in order to create deceit in legal relationships, producing non genuine data or documents so that these are used for legally relevant purposes as if they were genuine, shall be sentenced to imprisonment for up to 5 years or a fine of 120 to 600 days.
Consequences of the case
The BES case has produced more than 1500 lawsuits. Lawsuits challenging the BdP dissolution measure alone are no less than 50.
1225 are civil suits - mostly compensation claims involving the bank or its directors and creditor claims.
There are also seven crime investigations pertaining to the management of BES, associated with about 200 private complaints and 19,000 individuals and companies claiming credits. Six of these investigations are being conducted by the Central Investigation and Prosecution Department (DCIAP), while the other one is in the hands of the Lisbon Investigation and Prosecution Department (DIAP). The latter case concerns customers of Banque Privée Espírito Santo in Luxembourg and aggregates 51 complaints.
The insolvency proceedings are pending in the Commercial Court of Lisbon. According to data provided by the Liquidation Commission, this suit aggregates 17,000 complaints from 19,000 individuals and companies claiming credits.
The impact of BES's dissolution on the Portuguese economy will reach 14% by 2021, according to an investigation by José Poças Esteves and Avelino de Jesus, published in the book 'The BES Case - The Dissolution's Impact on the Economy' [Caso BES- O Impacto da Resolução na Economia], published on the Dinheiro Vivo website on February 23, 2018. In other words, it will cost €25 billion.
The authors estimate that the BdP decision will cost 42,800 jobs. The investigation also warns that the bank's dissolution has created a gap between companies and the Portuguese banking sector.