The Curious Case of Filanbanco and the Isaias Brothers
In 2010, author and professor Alberto Valencia Granada published a book called When Success is a Crime: Filanbanco: A Case of Violation of Human Rights in Ecuador.
In the book, Valencia examines Ecuador’s financial crisis of 1998–1999 and the subsequent actions by the Ecuadorian state to seize the Isaias family’s businesses and persecute Roberto Isaias and William Isaias for false charges stemming from a false narrative that the brothers had caused the economic crisis through their bank, Filanbanco.
Ambassador Juan Larrain, who had served as Permanent Representative of Chile in the United Nations from 1994 to 2000, wrote the prologue to When Success is a Crime. He wrote that the Isaias family’s achievements and financial prowess were “the fruit of the efforts and entrepreneurial spirit of three generations.”
Background
The Isaias Group and the family of companies that the Isaias family owned all started in 1915 when Emilio Isaias opened a grocery store in the small village of Catarama, Ecuador. Emilio was a Lebanese immigrant who had recently relocated to Ecuador in 1912. He had come to Ecuador after a three and a half month voyage from the Lebanese town of Sequiet Eljait. When he arrived, he had only $1,000 (equivalent in today’s currency) in his pockets. Throughout the years, beginning with that grocery store in 1915, the Isaias family was able to build one of the strongest and most diversified financial groups in the country.
In 1960, the Isaias family bought a bank called La Filantropica Savings and Loan. They later changed the name to Filanbanco. Within three decades, the family grew and modernized the bank into the largest and most modern bank in Ecuador.
The Isaias Group
The Isaias Group was founded in the 1930s and since at least 1960 has been investing in the United States, mostly in real estate, business investments, and banking.
In 1985, the group’s bank, Filanbanco, was the sixth largest bank in Ecuador. By 1994, it had become the largest. Roberto Isaias served as executive president and William Isaias served as executive vice president until ownership of the bank was transferred to the Ecuadorian state.
By 2006, the group’s six largest companies were: Ecuadorian Television Network (TC Television), Industrial and Commercial Society EICA, Compañía Televisión del Pacífico (Gamavisión), Petromanabí, Producargo Producer of Alcohols, and EICA Emilio Isaias Compañía de Comercio.
Additionally, the group also owned the Republican Bank, which is the 5th largest bank in Florida. It was founded in 1971 and sold in 1999. The bank’s mission was to help the Latin American (and especially Cuban-American) community in the 1970s.
1998–1999 financial crisis
In the late 1990s, Ecuador (and the entire region) experienced capital flight following the East Asian and Russian crises. Ecuador then experienced a political-economic crisis that was aggravated by many factors: military confrontation with Peru, lack of sufficient hydroelectric energy production (due to low water levels), and difficulties in the agricultural sector because of the El Nino weather phenomenon. These factors together deepened the political crisis in the country — a time period that saw four presidents within eight years. The biggest victims of the economic crisis were the agricultural export industry located along the coasts, which were Filanbanco’s principle credit recipients. Lack of payments from these customers, combined with restrictions on opening new lines of international credit, squeezed the bank. Thus, the bank turned to other companies within the Isaias Group for cash along with liquidity loans from the Central Bank.
The Nahim Isaias Foundation
Another key aspect of the Isaias story is the level in which the family supported philanthropic causes, a rarity in that part of the world. The family launched and has maintained the Nahim Isaias Foundation, a charity that runs many types of programs to help the underprivileged in Ecuador.
Looking back at the Isaias Group through the decades that it grew, it is obvious that the family’s commitment to philanthropy and service was second to none. Through the Nahim Isaias Foundation, it performed humanitarian work through medical centers and educational and cultural programs for the lowest-income population.
Isaias family’s economic impact
The Isaias family left a large footprint in Ecuador: generosity and philanthropy and giving, the investments made in the country by its companies, its contributions to economic development, and cutting-edge technology that it applied to its companies. All of these positive things, unfortunately, were “overshadowed by the characteristic Latino envy of success on the part of politicians and commercial operators,” Valencia wrote in When Success is a Crime.
Government takeover of Filanbanco
The Isaias Group, which had owned Filanbanco (one of the largest banks in Ecuador), decided to turn over management and ownership of the bank to the Ecuadorian government on December 2, 1998. During the 1998–1999 economic crisis, over 20 banks in Ecuador became insolvent and shut down.
On December 2, 1998, the bank’s shareholders decided to turn over the bank to the Ecuadorian government through a new federal agency, the Deposit Guarantee Agency (AGD).E
In March 1999, AGD froze access to all deposits in the bank. Before the government took over the bank, Filanbanco had paid all its clients. By May 1999, ING Barings, an investment bank hired to restructure and then sell the bank, reported that Filanbanco had generated a hundred million dollars in profit and was ready to be reprivatized.
Despite the advice of ING Barings and many other financial experts in Ecuador, the government decided to keep control and ownership of the banks and turn it into a “bank of banks” (i.e. a central bank) to help prop up other banks with which the government had an interest. To do so, AGD turned the bank over to the Ministry of Finance which authorized huge loans to other banks, as well as a merger with La Previsora Bank to prevent its insolvency. After all the mismanagement and poor decisions just explained, Filanbanco was finally shut down in 2001.
The closure of Filanbanco
The Superintendent of Banks, Miguel Davila, was the key government official who decided to close Filanbanco in July 2001. At that point in time, the bank had been under government control for 3 years, being run by the Deposit Guarantee Agency (AGD) when “poor management and corruption . . . led to its [Filanbanco’s] ruin.” Davila had testified, “. . . here in this country, if someone is successful in business, this doesn’t motivate others to go into business looking for success, as well, but rather elicits envy and a desire to ruin that person.” Such was what happened to Roberto Isaias and William Isaiais, the key owners of the Isaias Group.
False “bank embezzlement” charges
Officially, the brothers were charged with the crime of “bank embezzlement.” Curiously, no such crime existed when the brothers were first charged. In order for them to have committed this so-called bank embezzlement, they would have had to misuse the funds provided to Filanbanco by the Central Bank of Ecuador or misuse public funds in some other way. The story of the case of Filanbanco and aggressive attacks on the Isaias brothers hit its stride in 2008, when the state seized more than 150 companies owned by the Isaias family under the false pretenses of compensating account holders for damages that arose from the closure of Filanbanco under government control.
Two years after Filanbanco’s closure, the Superintendent of Banks asked the Attorney General to launch an investigation into the Isaias brothers, and subsequently file charges against them for “bank embezzlement.” The Attorney General charged William Isaias and Roberto Isaias with bank embezzlement in June 2000, even though the crime didn’t exist in the Ecuadorian Penal Code until May 1999. Law № 99–26, which amended the General Law of Institutions in the Financial System added a third paragraph to Article 257 of the Penal Code, which introduced the new crime of “bank embezzlement.”
Extradition Law № 2000–24 was also amended establishing that in order to initiate an Active Extradition process, an order for preventive custody or an executable sentence was required. This new law was also in detriment to the two brothers.
However, of all the new laws passed that were aimed squarely at William Isaias and Roberto Isaias, the “most evident violation of the Universal Declaration of Human Rights with regards to the rules of due process and the presumption of innocence is found in Constituent Mandate № 13, enacted on July 9th of 2008 in a plenary session of the Constituent Assembly.” This amendment to the country’s constitution ratified the validity of what was known as Decision AGD-UIO-2008–12, a legal declaration by the government that gave it authority to seize the Isaias Group’s companies. Mandate № 13 stated that the decision was not subject to protection under the constitution. The mandate also declared that any judge or magistrate who heard any motions from the brothers filed to go against the mandate must dismiss such motions, or be removed from the bench and open to criminal prosecution.
As it turns out, after years of investigation, the Attorney General dismissed the charges of bank embezzlement in November 2002 (but sustained other minor infractions against the brothers). Hearing the Attorney General’s decision, the Chief Justice of the Supreme Court illegally dismissed the Attorney General’s decision and in April 2003 called for a full trial against the Isaias brothers.
In a surprise twist, in December 2004 then-President Lucio Gutiérrez dismissed the entire bench of the country’s Supreme Court after hearing rumors that the court might dismiss the charges against the brothers. Experts have noted that at the time, the president was “politically crippled” and made the decision with pure political motives.
Government and media false narrative
The Ecuadorian government, along with many actors in the financial, commercial and industrial sectors, as well as the media, together pushed the story that the Isaias brothers and Filanbanco were the cause of the country’s economic troubles at the end of the 1990s. By pushing the story throughout the country for a decade, the narrative became just that: that Filanbanco and the Isaias Group had led the country into financial ruin. Within that context, it would have been impossible for the brothers to receive a fair trial. Since the time that Filanbanco was handed over to the government in 1998 and subsequently closed in 2001 (while under government control), the government and most of Ecuador’s media made great efforts to propagate the notion that the Isaias Group was responsible for the 1998–1999 economic crisis. The information was manipulated to such an extent that it was obscured that the closure of Filanbanco occurred while under government control. (In 1998, Ecuador had a 43.4% inflation rate, the highest in Latin America).
Present day
At the present day, the two Isaias brothers have lived in Miami for 10 years, pushed out of Ecuador because of blatant political persecution by the government over the failure of Filanbanco (a failure, which should be noted, that took place while the bank was under government control).
The government of Ecuador has repeatedly attempted to extradite the brothers from the United States back to Ecuador for trial. To date, those attempts have been unsuccessful.
