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Thursday, June 1, 2023

Investor Group Turns to Int’l Arbitration

A group of investors in the defunct high-interest personal loan business allegedly run by fugitive financier Luis Enrique Villalobos and his brother Osvaldo, who is on trial in San José, have turned to an international arbitration court in an attempt to get their money back.

Meanwhile, only a handful of witnesses remain to testify in the trial in which Osvaldo Villalobos is accused of fraud, money laundering and illegal financial intermediation.

The Chief Prosecutor’s Office estimates that some 6,300 clients invested money in the unregulated financial operation known as “The Brothers.” For more than 15 years, The Brothers paid monthly interest payments of 2.8-3% of investments, which in the later years were accepted only in sums of $10,000 or more. Though the total figure invested with the business is unknown, attorneys close to the case have estimated it could be more than $800 million (TT, Feb. 1, 2003).

Thousands of investors, including those involved in the international arbitration case, claim they lost hold of their money in 2002 when authorities froze as much as $12 million held in Villalobos bank accounts.

The accounts were frozen after a police raid on Villalobos’ San José offices and residence that was prompted by a Canadian Royal Mounted Police investigation into $350,000 allegedly deposited with the Villalobos group by six Canadians suspected of running a drug-smuggling operation in Canada (TT, July 12, 2002).

The Brothers continued to operate for several months after the raid, and accepted more deposits until October 2002, when Luis Enrique vanished and so did millions of investors’ dollars (TT, Sept. 24, 2004). Osvaldo, who stayed behind, was arrested shortly after. Osvaldo has always maintained he was not involved in his brother’s loan business or any illegal business.

U.S. investor Jack Caine, one of 137 investors claiming the Costa Rican government owes them millions for violating an international treaty, said he and others decided to file a case with the InternationalCenter for Settlement of Investment Disputes (ICSID) after failed attempts to recover their invested funds through Costa Rican institutions. The center is a World Bank-financed organization that provides facilities for arbitration disputes.

ICSID accepted the investors’ case against the Costa Rican government March 27, meaning each side now has nine months to name an arbitration judge. Those two judges agree on a third judge before proceedings begin.

Costa Rica has “good faith” laws designed to protect third parties affected in money-laundering and drug-trafficking cases (TT, Feb. 1, 2003). Caine said the investors’ arbitration claim alleges the Costa Rican government failed to enforce its own laws and ensure the investors’ security, treat them fairly and follow transparency regulations under the Bilateral Investment Treaty (BIT), which Costa Rica signed with Canada in 1998. By signing the treaty, both countries agreed to enter into arbitration disputes at the request of the other country, according to the agreement.

“Various parts of the government knew what was going on with the Villalobos Brothers, and they failed to enforce Costa Rican law, and failed to enforce international laws that are obligations under the BIT,” Caine told The Tico Times.

The case, “Charles Bergeron and Others v. Costa Rica,” was filed with ICSID four years ago (TT, Feb. 1, 2003) and officially accepted last month under the name of French-Canadian investor Bergeron, according to Caine and arbitration documents.

Eugenia Gutiérrez, from the Foreign Ministry’s legal department, said the ministry has been informed of the case and passed it on to the Foreign Trade Ministry, which has expertise in these matters. The Tico Times contacted the Trade Ministry this week but officials were reviewing the case and declined to comment.

In the case, the government is being accused of violating the international treaty by not providing security for foreign investors, failing to enforce Costa Rican and international laws that would have prohibited investors’ money from being taken in by Costa Rican banks, mishandling assets seized in the case, and breaking international transparency laws, Caine explained. He said investors’ claims are in the “millions,” but

declined to be more specific.

He said now that the ICSID case has been accepted, no more investors can be added, though once the proceedings begin, his group, composed mostly of Canadians, will try to bring claims from more U.S. and European investors into the case under other international conventions.

The ICSID accepted the international arbitration case while the trial against Osvaldo Villalobos, which began in early February (TT, Feb. 9), continued in downtown San José.

With just a handful of witnesses left, those involved in the long-awaited trial said they expect a verdict within a month.

“The trial has gone by fast because evidence has been presented speedily,” said defense attorney Alexander Ruiz, who is representing the 52 different businesses linked to “The Brothers” business, as it has come to be known.

He said the defense, which has called upon nine witnesses, expects to call its final witness, an expert banker, to the stand next week.

The prosecution has brought more than 100 witnesses to the courtroom, and expects at least two more witnesses to appear, according to Eduardo Blanco, an aide to private attorney Ewald Acuña. Blanco and Acuña now represent about 200 private cases added to the government’s prosecution, known as querellas, from former investors who say they lost tens of millions of dollars to the Villalobos operation. Before the trial began, there were as many as 600 querellas, though many investors withdrew their cases.

The United Concerned Citizens and Residents (UCCR) group, which claims to be in communication with Luis Enrique, has published alleged letters from the fugitive in which he promises to return with investors’ money if investors withdraw their complaints (TT, March 12, 2004; Aug. 19, 2005; Aug. 8, Jan. 19, 2006).

Another 17 of the prosecutions’ witnesses failed to show up to the trial, and it remains to be seen whether the new court order for them to appear will be effective.

If convicted of all the charges against him, Osvaldo would face up to 36 years in prison. Neither he nor his lawyer would comment this week on the whereabouts of Luis Enrique, though Osvaldo said this might change once the trial is over.



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