Customer. The large European bank (Banco GBE) held 50% of the capital of the Brazilian investment bank (BIB). The remaining capital was divided between another European bank (40%) and a large national business group (10%). Banco GBE had full responsibility for managing the Brazilian bank and was thus responsible to the other partners.

Problem. Banco GBE's parent auditing team found that the Brazilian investment bank's total capital ($500 million) had been lost. All capital was given in loans to companies in a precarious financial situation unable to take on such loans.
In addition to the potential damage to Banco X's reputation, the bank would have to assume, in addition to its own participation, the responsibility to compensate other shareholders.
Before the arrival of the auditing team in Brazil, the only expatriate director of the Brazilian bank appointed by Banco GBE tried to alert Banco GBE that there was a kickback scheme where loans were approved in exchange for bribes. The foreign director's complaints were ignored.

Favoring Executives

Solution. The investigation found the existence of a credit granting scheme in exchange for bribes of 15% of the amount of each loan. The scheme was being coordinated by the investment bank's board of directors and outside payments were divided between the board and the employees responsible for approving the loans. The investigation also revealed that bank managers in Brazil were involved in money laundering, drug trafficking, and political corruption. The foreign director's complaints were ignored and he was positioned to be a scapegoat and distract attention from the fact that Banco X's corporate officials had consistently ignored alerts over the years to the point of firing a previous director who tried to draw the Bank's attention to the irregularities in the management of the bank in Brazil.

The names of those involved were changed for reasons of secrecy. Investing in Brazil? You need to know who will manage your investment. Wolfe Associates can conduct profile studies of key executives.

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