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Reasons for the intervention of Banco del Orinoco NV in Curaçao: falsification of documents and violation of rules on money laundering

Below we present the details of the decision adopted by the Central Bank of Curaçao and St Martín to intervene the Bank of the Orinoco because of the irregularities committed by the entity in its offices on the Caribbean island

A document issued by the Central Bank of Curaçao and St Martín on September 2, 2019, reveals that the decision of the said issuing entity to withdraw the operating license to the Banco del Orinoco NV granted on September 12, 1994, was due to the fact that The entity, a subsidiary of the Western Discount Bank (BOD), repeatedly relied on false documents to deceive and defraud the CBCS, as well as for violating legal regulations regarding money laundering and terrorist financing.

Such attitudes of the BDO prevented the Central Bank of Curaçao from properly assessing that the bank’s operations complied with the provisions of the regulations and legislation of the West Indian nation.

Likewise, the decision took into consideration the repeated breach by the BDO of the executory sentences of the Central Bank of Curaçao and St Martín without any valid justification.
Given the “unlawful conduct of the BDO”, the CBCS withdrew the bank license from the BDO, a fact that meant the immediate intervention of the entity when it was considered that such decision was “the only appropriate remedy” to resolve the situation.

The BOD Financial Group, owner of the Orinoco Bank, tried to turn around the events and issued a press release in which it informed that it had decided to cease its activities in Curaçao and, for this reason, the shareholders’ meeting of the Bank of the Orinoco NV, in a session that took place on September 3, 2019, “voluntarily agreed to the liquidation of the Bank and consequent cessation of the operations of said Financial Institution”.
The aforementioned informative note indicated that “due to the country risk that the island of Curacao represents, by virtue of the recurrent breach of the system of prevention of capital legitimation and financing of terrorism in that locality, which has influenced the impossibility of maintaining correspondents and local accounts by foreign financial institutions ”motivated the“ cessation of correspondent relations maintained by the Banco del Orinoco NV ”[1].
On October 4, 2019, the Curacao Court of First Instance declared the bankruptcy of the Bank of Orinoco NV that was headquartered in Willemstad. The judicial body appointed as commissioner judge to PE de Kort, while MRB Gorsira and CM van Liere to act as trustees of bankruptcy and to be responsible for the liquidation of the assets of the BDO [2].
On October 9, 2019, the BOD announced that it would appeal the decision of the Curacao court to declare its subsidiary Banco del Orinoco NV bankrupt and said it would protect the assets of its subsidiary estimated at USD 1,165 million [3].
Faced with this decision of the judicial authorities of the Republic ofVenezuela, the Constitutional Chamber of the Supreme Court of Justice (TSJ) of Venezuela“Ordered the Central Bank of Curaçao and San Martín to refrain from” executing any order, requirement or instruction that involves disposing of, encumbering or in any way affecting the securities that make up the investment portfolio “of the Bank of Orinoco NV until the trials are concluded related to the measure adopted by the financial authorities of Curaçao against the subsidiary of the Western Discount Bank (BOD) in that Caribbean nation. Likewise, the highest instance of the Venezuelan Judicial Branch also suspended the resolution issued by Sudeban to prohibit the BOD from making new investments or opening new bank branches inside and outside the country [4].

The decision

On September 2, 2019, J. Jardim, financial economic director, and L. Matroos-Lasten, director of secretariat of the Central Bank of Curaçao and St Martín, sent a communication to the Bank of Orinoco NV (BDO) located in Windstraat 3, First floor, Curaçao, with a copy by email to Jairo Bloem (jbloem@sxmlegal.com) on Juancho Yrausquin Blvd 6, Philipsburg, Sint Maarten, in which they reported that the CBCS determined that the BDO operated in violation of several material obligations of compliance with the National Ordinance on the Supervision of Banking and Credit Institutions of 1994 (NG 1994, No. 4, NOSBCI), which is why it decided to withdraw the license with the number 94-11.502 granted to BDO on September 12, 1994 , as it had immediate effect.

The communication then refers to the main reasons for the decision of the CBCS indicating, first, the use of forged documents with the apparent purpose of evidencing the adequate existence of the BDO portfolio of assets and, thus, “fraudulently deceiving” the CBCS in terms of financing with figures showing a solvency and / or liquidity position.

Likewise, the CBCS argued to take the measure, the structural breach of instructions given to the BDO by the Central Bank of Curaçao and San Martín, as well as the executory sentences and subsequent instructions of the CBCS for compliance with them.
They indicate the structural failure to carry out solid and adequate commercial operations as required by the supervised financial institutions and, in this regard, denounced the violation of regulations against money laundering and terrorist financing.

Second, the Central Bank of Curaçao and St Martín stresses that each of the reasons mentioned for making the decision constitute reasons for the withdrawal of the License in accordance with Article 9 of the NOSBCI, which stipulates that the CBCS You are required or authorized to withdraw a license issued in accordance with the standard for the reasons set forth in that article.

Third, the CBCS established that the BDO severely infringed the material provisions of the NOSBCI and the regulations based on it by, among other things, (i) using forged documents to fraudulently deceive the Central Bank regarding its financing figures that include its compliance with the capital and liquidity requirements in accordance with the NOSBCI, (ii) for not following the instructions of the CBCS for a long time, and (iii) for breach of AMUCFT regulations.

Under these circumstances, the Central Bank of Curaçao and San Martín considered that it could not rely on the BDO to conduct its business in a solid and adequate manner and, therefore, to provide financing services in accordance with the laws and Curacao regulations. “As the reasons mentioned above constitute, jointly and separately, reasons for the withdrawal of the License, the Bank has decided to withdraw the License based on the legal framework, the facts and the circumstances mentioned below.”

Procedural Background

It is recalled that in a letter sent on June 6, 2019, the Central Bank of Curaçao and San Martín informed the BDO that the license withdrawal (Letter of Intent) was being considered and was invited to a meeting on June 7, 2019 with the aim of discussing the measure, in addition to giving you the opportunity to respond in writing to the CBCS’s comments.

The Central Bank of Curaçao and San Martín granted more than two weeks to respond, a date that was met on June 25, 2019, but which was extended – at the request of the BDO – until July 1, 2019 —25 days in total— when, in effect, the Banco del Orinoco responded to the statements made in the letter of intent, stating its views and objections.

The Orinoco Bank argued that it had improved its organization and promised to remedy the deficiencies and mistakes made. He said that they investigated the accusations related to false documents before issuing any conclusions, as they assured that the BDO had not falsified any document because it had no reason or benefit to do so.

They argued that the BDO portfolio of assets existed and had always existed in the possession of the bank and that it had sufficient value to meet the applicable capital requirements. The BDO promised to satisfy all judicial sentences and conciliation agreements and to face compliance challenges. They considered that there were deficiencies in the supervision of the Central Bank of Curaçao and San Martín, having hindered the BDO to comply with the requirements of the CBCS. They considered that the withdrawal of the license would be contrary to the legislation and that the legal requirements to take such a measure were not met.

The Orinoco Bank said that this was a matter that should be addressed by a criminal court given the CBCS accusations about alleged falsifications.
Similarly, the BDO believed that the policies of the Nederlandse Bank (DNB) would lead to less severe measures than the withdrawal of the License, a decision that they classified as disproportionate and that it would only be detrimental to all the interests involved. They assured that the BDO was a solvent institution and that all the interests of the creditors were adequately protected.

The CBBS stated that the views and objections of BDO expressed or not in the response to the letter of intent were considered by the Central Bank in its decision to withdraw the License.

Reasons for the license withdrawal measure

The Central Bank of Curaçao and San Martín maintains that the use of false documentation constitutes a deception to that entity with the objective of avoiding the presentation of the portfolio of assets of the Bank of the Orinoco.

It is indicated that the BDO had a significant amount of securities – bonds issued by several governments – through custodians that would be Vistra Geneva SA, Farringdon Asset Management PTE. LTD and Welden Securities SA Meanwhile, the relevant ex-custodians in this case would have been TMF Group Pte. Ltd and Amergeris Wealth Management Group AG.

The CBCS underlines that KPMG Dutch Caribbean was unable to complete its audit of the 2017 BDO annual statements, since it could not determine, through direct contact with the custodians, the adequate existence of securities held in the name of BDO by these custodians. In September 2018, a meeting was held at the BDO with the silent administrator, the CBCS and the representatives of the Board of Administrative Directors of BDO, to discuss the reason given by KPMG Curaçao to delay the financing of the 2017 audit. appointment, a file with several documents was presented to the Central Bank that included (i) confirmation letters; a contract and custody forms of TMF; (ii) confirmation letters and a Vistra opening account form;

In January 2019, the Central Bank of Curaçao and San Martín hired Ernst & Young Services Ltd. to review and investigate the matter by revealing the final report issued in May 2019, a series of irregularities regarding the email domains of the BDO custodians. It was established that, unlike what BDO represented, TMF had never had values for BDO, but only for its parent company Cartera de Inversiones Venezolanas CA. The report led the CBCS to carry out an additional investigation in relation to the possible falsifications of documents by the BDO, which was a hoax to the Central Bank and, most likely, also to KPMG, which wanted to make it appear that the BDO complied with the capital requirements stipulated by law.

The use of false documentation constitutes a violation of the obligation to provide to the Central Bank of Curaçao and San Martín, true and non-misleading information and statements, as stipulated by legal regulations.
In addition, the use of forged documents prevented the Central Bank from exercising adequate supervision over the BDO, so the issuing entity maintained serious concerns regarding the real solvency of Banco del Orinoco.

Next, the communication presents each case of falsification of documents, as well as the response given by the Bank of the Orinoco to the comments made.

Case 1: About TMF Group Pte. Ltd
The Central Bank of Curaçao and San Martín identified statements of TMF Group Pte. Ltd (TMF) dated December 22, 2016 (custody form), January 6, 2017, January 18, 2018, June 26, 2018, October 24, 2018 and November 29, 2018 provided by the BDO to the issuing entity, which were falsified, causing TMF to appear with securities in the name of BDO as owner. In the first statement, the BDO made it appear as if it had an account with TMF based on a “Custody Form”, while in the other statements BDO was presented as a TMF client, this being not the case.

It is indicated that in the declaration of December 22, 2016, reference is made to an email dated July 4, 2019, where Kim Leng Siaw, TMF Managing Director, firmly states that BDO is not and was not a TMF customer «in no moment ».

Also, in the statement of January 6, 2017, the Central Bank refers to the security position as of December 2016 held by CIV, the Bank noted another almost identical statement, determining that one of these statements was falsified.

Regarding the statement of October 24, 2018, reference is made to an email from Sophia Lim, Director of Customer Relations at TMF, dated November 5, 2018 addressed to Mr. Rómer, local managing director of BDO, sent next to the statement to the Central Bank directly by the alleged Sophia Lim. It was found that it was not his real email address. It was intended, supposedly, to mislead the CBCS to believe that TMF had the values listed in the BDO custody statement.

Siaw unequivocally confirmed to the Central Bank that the email allegedly sent by TMF to the BDO did not originate from TMF. This confirms that the email and attachments of November 5, 2018 were forged, apparently for the purpose of fraudulently misleading the Central Bank of Curaçao making it believe that TMF had securities in the name and for the benefit of BDO.

BDO’s response to these statements indicates that the bank designated Hagan Lovells lnc. To carry out an external investigation on the falsifications detected by the Central Bank of Curaçao and San Martín and promised that, “in the unlikely event that if one or more people within your organization made a mistake, immediately and quickly ”Would take the necessary corrective measures.

For the BDO, the statements and conclusions of the Central Bank regarding the falsification of documents related to the TMF custodian are incorrect because, according to them, the relevant thing is that the portfolios were owned by the Bank of the Orinoco.

The Central Bank refuted by saying that the BDO had to initiate internal investigations at an earlier date, at least in March 2019, when preliminary findings were made.

It is added that the preliminary findings of Ernest & Young Services (EY) contained possible falsifications by BDO related to incorrect email domains that could have been detected with an investigation, internal and external, early.

BDO did not refute that TMF maintained that the statements presented on December 22, 2016, January 6, 2017, January 18, 2018, June 26, 2018, October 24, 2018 and November 29, 2019 were false and that did not originate in said company. Therefore, it must be assumed, if it is not concluded, that the alleged portfolio of securities belongs to CIV and not BDO. The argument that BDO would have authorized CIV is very unlikely and, in any case, insufficient to contradict the above.

Case 2: About Amergeris

The Banco del Orinoco in its statements of May 25, 2017 and May 31, 2017, allegedly signed and issued by Amergeris, as well as a letter from the BDO to Corinvest dated May 9, 2017 were presented to the Central Bank of Curaçao and San Martín as evidence that Amergeris as custodian had securities on behalf of BDO in a bank account of that entity with the account number 02v95061-131.

A confirmation signed by Frank Lammers, Managing Director of Amergeris, with a copy of Remko van Ekelen, also Managing Director of Amergeris, which was delivered to the Central Bank of Curacao, said that the company never had any title in the name and for the benefit of the BDO. She also confirmed that the statements of May 25, 2017 and May 31, 2017, were not issued by her, but are falsified documents.
This company said it could never have transferred securities from a BDO account in Amergeris to the custodian Vistra. He also denied acknowledging that he “received a” free “bond position” from Corinvest in bank account number 02V95061-131, which is supposed to be the account number belonging to BDO, which was never created, signed or sent by Amergeris. The bank account number mentioned in the aforementioned states does exist, but according to Amergeris it does not belong to BDO.

For the Central Bank, the BDO disappointed him by using false statements from Amergeris, as it was found that he did not receive any BDO value from Corinvest, therefore, he could not have transferred such non-existent values to Vistra.

The Banco del Orinoco argued that the Amergeris email, dated May 1, 2019, contains several inherent fallacies and contradictory statements and presented several documents allegedly originating from said company, which would make it clear, according to BDO, that the Amergeris statements May 25, 2017 and May 31, 2017 were not false.

The BDO referred to the Court of First Instance of Curaçao for a preliminary hearing of witnesses for the purpose of conducting a “Discovery Procedure.” He added that this entity is investigating this matter.

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