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Development Bank of El Salvador Ignored Internal Warnings in Awarding Loan to Sister of Presidential Commissioner

Efren Lemus

The Development Bank of El Salvador, commercially known as Bandesal, ignored internal conflict-of-interest warnings in its dealings with two siblings of Presidential Commissioner Carolina Recinos: it hired one as manager of funding and cooperation and issued a loan of over $22,000 to another to finance an in-house cafeteria at the Treasury Ministry. The Ministry of Foreign Relations and the National Records Center each hired another of the commissioner’s siblings.

ElFaro.net / Publicado el 3 de July de 2020

Susana Elizabeth Recinos Montes won the contract to open an in-house cafeteria at the Treasury Ministry, despite lacking both the equipment and the cash flow for the project. So, after securing the deal with the ministry, Mrs. Recinos Montes submitted a file to the Development Bank of El Salvador, a private bank known commercially as Bandesal, to request a line of credit from the Economic Development Fund (FDE).

According to the documents, Mrs. Recinos Montes requested $22,514.02—75 percent of start-up costs—to finance the equipment acquisition, meaning that the Treasury Ministry was not swayed by the fact that the businesswoman was unable to provide the services at the time she acquired the contract. El Faro left voice messages with Treasury Minister Nelson Fuentes requesting details about the ministry’s call for proposals, yet at the time of publication the minister had not responded. Bandesal’s records show that she stated in her credit request that she had already secured the contract with Treasury.

The credit request set off an alarm at the bank. Bandesal’s credit committee judged that the application violated regulations set by the Superintendence of the Financial System (SSF) and its own internal guidelines to prevent the laundering of money and assets. In particular, the alarms were triggered due to the applicant’s family relations. Susana Elizabeth Recinos Montes is the sister of a senior official at Bandesal and also the sister of Martha Carolina Recinos de Bernal, one of the most powerful women in the Bukele administration.

Caption: The Treasury Ministry awarded the contract for its cafeteria to the sister of Carolina Recinos, the presidential commissioner. Treasury Minister Nelson Fuentes Menjívar, center, offered no explanation for the selection of a businesswoman lacking the economic capacity to offer the service. Picture taken July 15, 2019 by Víctor Peña/El Faro
 
Caption: The Treasury Ministry awarded the contract for its cafeteria to the sister of Carolina Recinos, the presidential commissioner. Treasury Minister Nelson Fuentes Menjívar, center, offered no explanation for the selection of a businesswoman lacking the economic capacity to offer the service. Picture taken July 15, 2019 by Víctor Peña/El Faro

Carolina Recinos has been part of Bukele’s inner circle for years. From 2012 to 2014, she was an advisor to Bukele during his term as mayor of Nuevo Cuscatlán. She worked as a representative for Starlight, one of the businesses that Bukele used to launder $1.9 million from Alba Petróleos, a subsidiary of Venezuela’s Petróleos de Venezuela, S.A. (PDVSA). She was a senior presidential campaign staffer and, after Bukele’s June 2019 inauguration, was named presidential commissioner, where she now works on issues relating to the economy, public health, drinking water, diplomatic affairs, and legislative relations.

Two months after her official August 2019 nomination, Bandesal hired Herbert Orlando Recinos Montes—Recinos’s brother—as manager of funding and cooperation, according to the government’s freedom-of-information portal known as Transparency.

When Bandesal hired the commissioner’s brother, the bank was led by Juan Pablo Durán Escobar, a man affiliated at different times with the Christian Democratic Party (PDC) and Democratic Change (CD). He left the latter party on the heels of accusations of corruption tying him to then-Secretary General Oscar Kattán. Durán Escobar also spent a fleeting moment (June 2009 to April 2010) as president of the National Welfare Lottery, leaving on the heels of accusations of sexual misconduct. Former president Mauricio Funes was quick to recall the incident when Durán Escobar was named president of Bandesal under the Bukele administration: “How is it possible that a bank that was created to facilitate access to credit for sectors that have been historically excluded from the financial system, such as women, will be run by a sexual predator?” asked Funes, a fugitive of Salvadoran justice, on June 2, 2019.

The credit line and conflicts of interest

The banking system has mandatory protocols in place to prevent money laundering, such as a detection system that employees must activate when a client is a Politically Exposed Person (PEP). “The due diligence given to Politically Exposed Persons goes beyond that given to ordinary citizens, requiring more documentation. The first to activate this prevention mechanism should be the sales executives, under the observation of the compliance officer,” explained a former prosecutor specializing in money laundering who agreed to speak on the condition of anonymity.

Susana Elizabeth Recinos Montes met the requirements to be classified as a PEP on two counts. In her credit request, which would extend her a six-month grace period followed by 10 percent annual interest for a total of 60 months, she asked for “the co-signature of her husband Alejandro Rivera as a guarantor,” according to Bandesal documents reviewed by El Faro. Alejandro Rivera served as vice minister of revenue for the Treasury Ministry during the administration of Salvador Sánchez Cerén (2014-19).

“An official evaluates an application and puts little red flags as alerts for further evaluation by a higher authority,” said a Bandesal source of the vetting process. In its report, the bank’s credit committee detected a potential indirect conflict of interest in Recinos Montes’s application, noting: “The applicant for financing is considered a Politically Exposed Person (PEP) due to her family relationship (sister) with Martha Carolina Recinos de Bernal, Presidential Commissioner of Operations for the Cabinet of the President of the Republic of El Salvador.”

It wasn’t the only warning of a conflict of interest. “This organization would be connected, given that the applicant is the sister of a manager at the [Development Bank of El Salvador].” The internal document didn’t specify whom, but El Faro confirmed that Bandesal hired Herbert Orlando Recinos Montes, brother of the credit applicant and of the presidential commissioner, as manager of funding and cooperation in August 2019. In the afternoon on Wednesday, June 6, El Faro called the manager’s office, which is situated in the Escalón neighborhood of San Salvador, but the person who answered said he was unavailable. “Mrs. Susana Recinos is the sister of a manager at Bandesal, which, according to the committee, constitutes a direct conflict of interest,” reads a second internal document.

Caption: Juan Pablo Durán, president of Bandesal. Photo courtesy of the Office of the President.
 
Caption: Juan Pablo Durán, president of Bandesal. Photo courtesy of the Office of the President.

In its audit, the credit committee cited an SSF regulation: “Those who are connected to a bank, or those who have a conflict of interests through a relationship or another tie to the bank’s administration, are able to influence the decisions to issue credit.” They also invoked the manual for preventing and detecting money laundering in calling on the executive board of Bandesal to make the final decision for people identified as PEP.

Bandesal, which began operating on January 19, 2012, oversees the Economic Development Fund to finance micro-, small, and medium-size businesses. According to one of its most recent reports, the fund issued $49.3 million in credit during the first half of 2019. The fund is managed by the bank’s first-floor business office, which processed Mrs. Recinos Montes’s application and, despite the conflict of interest, recommended that the bank’s executive board approve the loan.

On February 11, 2020, the executive board unanimously approved Mrs. Recinos Montes’s loan. Despite acknowledging the SSF and bank’s money laundering regulations, the directors provided no reasoning for their authorization of the financial transaction with a PEP and neither confirmed nor denied that the family relation of the Bandesal manager constituted a conflict of interest. “They recounted the credit committee’s findings, but offered no justification for approving the credit,” explained the source from Bandesal.

Bandesal attempted to redact all information pertaining to the credit issued to Mrs. Recinos Montes in the executive board’s meeting minutes from February 11 that it uploaded to Transparency. El Faro, though, has an unredacted copy of the meeting minutes, along with corroborating bank documents.

The lack of reasoning for issuing the loan to a PEP and the failure to confirm or deny the multiple conflicts of interest are not the only inconsistencies in the directors’ decision.

Bandesal’s corporate governance code states that those approving the issuance of credit have the responsibility to “ensure that the risk undertaken be appropriate.” In the case of the loan to the sister of the presidential commissioner, the agreement neither justifies the benefactor’s ability to pay nor names a guarantor. The only justification offered for the loan was the debtor’s agreement with the Treasury Ministry. “Mrs. Recinos will increase her responsiveness in light of the recently granted request to prepare and serve food to the employees of the Treasury Ministry’s in-house cafeteria,” said the board. “Mrs. Recinos has more than eight years’ experience in the production and sale of prepared food and maintains a good relationship with the purveyors of the raw materials.”

In the morning of June 6, El Faro called and left voice messages on the cell phones of the presidential commissioner and the president of Bandesal. Carolina Recinos has yet to respond, whereas Juan Pablo Durán Escobar responded via WhatsApp at noon: “I will happily receive you today at 2 pm here at BANDESAL. Can you give me the name of the alleged family member so that I can gather related information?”

“The loan is in the name of Susana Elizabeth Recinos Montes. I will arrive at Bandesal at 2 pm. Thanks,” responded El Faro.

En route to the Bandesal office building, the president of the institution cancelled the interview last-minute. “Rest assured that the Credit Processes of BANDESAL are carried out in strict compliance with the Norms and Approved Policies of our Executive Board. [...] On the basis of Article 232 of the Law of Banks and 92 of the Law of Bandesal we are prohibited to reveal information about our clients,” wrote Durán Escobar in two messages, the last received at 1:51 in the afternoon, nine minutes before the scheduled interview.

The consul and the chief of security

In his first week in office, President Bukele terminated some 20 family members of FMLN leaders employed by the executive branch, including family members of former president Sánchez Cerén, former chancellor Hugo Martínez, former vice president Óscar Ortiz, and deputies Nidia Díaz and Norma Guevara. “I failed to understand the FMLN deputy’s indignation at the firings from obvious cases of nepotism,” wrote Bukele on his Twitter on June 5, 2019, minutes before ordering the National Administration of Aqueducts and Sewage (ANDA) to fire Mireya Lazo, wife of FMLN deputy Víctor Hugo Suazo, also via Twitter.

President Bukele took an impassioned stance against nepotism, despite the fact that he, too, had just nominated relatives to his cabinet. Two months after nominating Carolina Recinos in August to lead the cabinet and announcing the wave of anti-nepotism firings over Twitter, state institutions and Bandesal began hiring her relatives. Then, on October 16, the Ministry of Foreign Relations hired another of her siblings, her sister Emilia Antonia Recinos Montes, as consul in Charlotte, North Carolina. According to her Unique Identity Document, Emilia Antonia has an associate’s degree in business. When El Faro attempted to verify her diplomatic experience via Transparency, the CV section listed the following: “Recent nomination. CV forthcoming.” El Faro also emailed the Ministry of Foreign Relations and called the Charlotte consulate, but received no response.

The Bandesal office building on Roosevelt Avenue in San Salvador. Photo: Víctor Peña/El Faro
 
The Bandesal office building on Roosevelt Avenue in San Salvador. Photo: Víctor Peña/El Faro

Emilia Antonia is married to José Roberto Hernández Sánchez, former San Salvador city councilmember during the tenure of mayor Carlos Rivas Zamora (2003-06). Hernández Sánchez was expelled from the FMLN for refusing to support the 2004 presidential candidacy of candidate Shafick Handal. While a councilmember, his sister-in-law Carolina Recinos was chief of staff to the mayor. Emilia Antonia isn’t the only family member of the presidential commissioner working in the Chancellery. Efrén Arnoldo Bernal Chévez, husband of Carolina Recinos, has been the ambassador to Russia since April 2018, and is one of the few Sánchez Cerén appointees that president Bukele has not replaced.

Four months after the nomination of Carolina Recinos to lead the cabinet and the wave of Twitter firings for nepotism, and two days after the nomination of the commissioner’s sister as Charlotte consul, another state institution hired a fourth sibling. On October 18, 2019, Julio Alexander Recinos Montes, a former police officer who had worked as chief of the National Civil Police department in Berlín, Usulután, was hired as head of security for the National Records Center (CNR).

El Faro sent an email and called the office of Recinos Montes at the CNR. “He’s not here at the moment, but I will give him your message,” responded Saúl, the man who answered the phone in the security office. At the time of publication, he has not returned the call.