BES: €15 million funding of Portugal’s major political parties now under scrutiny

BES: €15 million funding of Portugal’s major political parties now under scrutiny

As Portugal’s news media carries daily ‘exclusives’ on the ongoing meltdown at the Espírito Santo banking empire, it is now very clear why politicians of all persuasions are keeping surprisingly quiet.
Banco Espírito Santo (BES) funded Portugal’s four major parties to the tune of as much as €15 million during the years in which it was led by former banking boss Ricardo Espírito Santo Salgado – great-grandson of the bank’s founder and now under suspicion of the crimes of fraud, abuse of confidence, falsification of accounts and money-laundering.
Of the ruling PSD, coalition partners CDS, opposition PS and PCP, it is Paulo Portas’ CDS that received the most money from BES during crucial years now under investigation.
According to Portuguese tabloid Correio da Manhã, the CDS received the equivalent of 36% of all BES money lent to political parties between 2005 and 2009.
The party requested five credits in total, coming to €5.5 million – half of which was used to fight the 2005 municipal elections, in which they performed spectacularly badly (winning only 3.07% of the country’s votes and coming in behind the PCP communist party and only ahead of the Bloco Esquerda).
Accepting that all BES loans to political parties passed under the eyes of the controlling body ECFP (Entidade de Contas e Financiamentos Políticos) at the relevant times, CM’s ‘exclusive’ carried the message that the bank’s influence on policymakers was profound and ubiquitous.

Origins of the Espírito Santo dynasty

The extraordinary history of the wealthy banking family that managed even to wield power during Portugal’s dictatorship years began in 1869, in Lisbon. 

José Maria Espírito Santo opened a “Caza de Cambio” where he bought and sold credit securities and lottery tickets. That business was the basis for the bank formed in 1920 which later diversified to become Portugal’s biggest non-state lender.

In 1936, Ricardo Espírito Santo was running BES and became one of dictator António de Oliveira Salazar’s most trusted financial advisers.

Following the 1974 revolution, BES was nationalised and the Espírito Santo family dispersed abroad. Then a 30-year-old junior, Ricardo Espírito Santo Salgado escaped being imprisoned with other family members, and only returned to Portugal when BES was reacquired through a reprivatisation programme in 1991. 

By this time he was considered the patriarch of the family and the banking dynasty had operations in Brazil, Switzerland, France and the United States, having established a holding company based in Luxembourg – the predecessor of the Espírito Santo Financial Group which last week filed for protection from its creditors.

In 1990, the Espírito Santo Group recovered the Companhia de Seguros Tranquilidade – the insurance company that the family had had a stake in since 1935 – and the year later it set up BES interests in Spain.

In 2001, the family’s empire stretched to Angola with the opening of BESA (Banco Espírito Santo Angola) and it is this connection that is pivotal in the ongoing Monte Branco investigation centering on money-laundering and tax evasion.

Salgado has until next week to pay 3 million euros into court

Released on the second highest bail surety ever set in Portugal, Richard Salgado now has until next week to actually come up with the 3 million euros set by ‘super-judge’ Carlos Alexandre – the 52-year-old with a reputation for tough justice.

Diário de Notícias even hazards the guess that the money could be paid in notes, but there are two other ways – very possibly more likely – that have been suggested as the country’s news media discusses the ongoing scandal.

Talking on SIC TV, lawyer Carlos Pinto de Abreu says Salgado could also pay using a bank guarantee or by putting up certain assets as security.

And if Salgado cannot come up with the total sum, this will not necessarily mean he faces jail as the Monte Branco investigation continues. Instead, the judge could agree on other conditions, writes DN.

For now, however, as Salgado appears increasingly isolated (the Financial Times’ Peter Wise writes that Salgado was the third most powerful person in the Portuguese economy last year “having been close to a number of recent prime ministers. This year, he is in 48th position”), he is prohibited from leaving the country, has had to surrender his passport to the authorities – and is barred from contacting “certain people”.

New BES boss to reveal results on Wednesday

Vítor Bento, the beleaguered bank’s new boss, is due to present BES accounts for the first half of this year on Wednesday. Analysts are said to be hedging their bets on how bad the situation really is. According to certain newspapers, the fear is that losses “could be higher” than the billion euros originally mooted.

The bank has chosen the German Deutsche Bank to ‘clean up its accounts and define the strategy for the future’, writes CM – and one of the options on the table could be an increase in capital.

Meantime, Prime Minister Passos Coelho is refusing the comment on Ricardo Salgado’s arrest, or indeed on the charges being levelled against the banking legend.

Passos Coelho’s position has always been that the crisis is surmountable and that customer accounts are safe.

BES fallout picked up worldwide

As the Portuguese media devotes huge amounts of time and space to the ongoing scandal at Grupo Espírito Santo, the world’s economic press has been buzzing, with news of Ricardo Salgado’s arrest reaching all the major news headlines.

Spain’s El País carried a large article on the detention of the “patriarch of the Espírito Santo clan”, while El Mundo concentrated on the charges of money laundering and fraud.

France’s Le Figaro splashed the story over its website, as Jornal do Brasil highlighted Salgado’s need to explain the “illegal transfers of fortunes”.

In the US, the Wall Street Journal concentrated on the charges levelled against the banker, as did the BBC and the UK’s Daily Telegraph.

The Telegraph added that Carlos Tavares, the head of Portugal’s CMVM securities markets watchdog said that his regulator “had scrutinised the family’s Espírito Santo Group on various occasions and found signs of possible illegal activity of which it had alerted prosecutors”.

Speaking to a parliamentary committee last week, Tavares cited what he described as “signs of abuse of inside information and possible crime of confidence abuse”.

Meantime, President of the Republic Cavaco Silva has said: “We cannot ignore that there will be some impact on the real economy.”