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(506) 2223-1327         San José, Costa Rica, Monday, Aug. 24, 2009,  Vol. 9, No. 166    E-mail us
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Tax evasion was a possibility
Espinoza considered charging Villalobos investors

By the A.M. Costa Rica staff

The judicial department has been investigating the Villalobos Brothers high-interest borrowing operation since 1999 and had difficulty making headway because investors were not anxious to talk, according to the principal prosecutor in the case.

In addition, the Ministerio Público prosecutors considered filing tax evasion charges against Villalobos investors but decided against it because they would have lost sources of information.

That was the essence of the testimony by Walker Espinoza, an assistant attorney general who handled the Villalobosos case from at least 1999 through the conviction and sentencing of one of the brothers, Oswaldo.

Espinoza was a witness in the arbitration case brought by Canadian investors against the government of Costa Rica. The investors are presenting their case before the International Centre for Settlement of Investment Disputes, a World Bank agency. The three-arbitrator tribunal met earlier this month, and a transcription has become available.

Espinoza has not spoken publicly about the case over and above his comments at the trial. He was questioned by Patricio Grane of Sidley Austin LLP, a Washington, D.C, law firm representing Costa Rica.

The hearing seeks to determine if the arbitration panel has jurisdiction under a trade treaty between Canada and Costa Rica. No decision was made at the end of the three-day hearing, but the panel members said they would review the evidence and make a decision as soon as possible.

Jurisdiction is the first hurdle the investors must overcome to win their case.

Some 245 investors are seeking more than $200 million from Costa Rica, claiming it did not adequately supervise the Villalobos operation, which failed Oct. 14, 2002, with losses approaching $1 billion.

Espinoza told the panel about suspicions as long ago as 1999 about the Villalobos operation. He said details of certain financial transactions had been sent to the Ministerio Público by the Superintendencia General de Entidades Financieras. But he said investigators made little headway because of the secretive nature of the Villalobos operation.

It was not until July 4, 2002, that investigators here obtained a search warrant and raided the Villalobos operation and the Ofinter S.A. money exchange business in Mall San Pedro and the central offices downtown. Many investors blame Canadian Royal Mounted Police drug investigators for the raid, but Espinoza said that visiting Mounties only wanted to search the Jacó condo of a drug suspect who did business with the Villalobos brothers.
Espinoza said that prosecutors presented the accumulated evidence to a judge who ordered the searches.

The prosecutor said that agents found several documents inside the Villalobos office. One told investors that if they were instructed to leave by the office guard they must do so promptly. That was interpreted to mean that investors would clear out if police or the U.S. Internal Revenue Service should visit.

Espinoza said that evidence revealed that the Villalobos brothers discussed with lawyers in 1999 the possibility of their business failing. At that time they concluded that most investors were tax evaders in their own country and it was unlikely that they would file formal claims.

A judicial tribunal that tried and sentenced Oswaldo Villalobos to 18 years in prison determined that the operation was a ponzi scheme in which interest is paid from the principal of investors. Luis Enrique Villalobos Camacho still is a fugitive. He was convicted of fraud and illegal banking.

Espinoza said that prosecutors considered filing tax evasion charges against Villalobos investors but decided against it. They also considered filing such charges against a small group of investors, but discarded that idea, too. He said they needed the investors as sources of information

"From my personal point of view I think it was more than obvious that they knew that they were actually participating in the system that was operating in the margins of the law," Espinoza said of the investors. He said that about 1,000 of the estimated 6,000 investors visited his office at one time or another. Of these, just 300 eventually went to trial.

". . . .We always were under the impression that the circumstance that determined that they gave money to the Villaloboses was greed, simple greed, and the intent of obtaining a return that was strange . . . ," said Espinoza. He rejected the idea that most investors were naive. They were business owners and operators of tourism hotels, he noted. The Villalobos operation paid up to 3.5 percent a month on deposits of $10,000 or more.  Some persons put in millions.

On cross examination by W. Brad Hanna, Espinoza said he did not think that investors could be considered accomplices in the Villalobos scheme. Hanna is with McMillan LLP, a Toronto, Canada, firm representing the investors.

If the arbitration panel decides that the money placed with the Villalobos brothers represents an investment as defined in the Canadian-Costa Rican treaty, the hearings will continue. Costa Rica is trying to show that the government is not responsible and that the Villalobos operation was not sanctioned by the country. The investors are trying to show that their deposits should be considered an investment as outlined in the treaty.

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Pilgrims head for Cartago
despite flu concerns

By the A.M. Costa Rica staff

Some of the faithful will not be daunted by the swine flu scare. Although health officials suspended the annual pilgrimage to the Virgen de los Ángeles, some of the faithful are on the move now.

Groups from Tilarán and Monteverde are walking from their homes to the Cartago basilica where the Virgin is housed. They could not do so Aug. 2, the traditional feast day because church officials complied with the wishes of the health ministry and closed the church.

Officials at the Ministerio de Salud wanted to keep the flu from spreading through the land. Pilgrims come from all over. They seem to have succeeded. Although there are more than 500 confirmed cases in the province of San José, 160 in Heredia and 122 in Alajuela, there are only 13 reported cases in Guanacaste. The numbers in Cartago, Limón and Puntarenas are in the 60s.

The pilgrims are expected to reach Cartago by midweek.

Man called terrorist by U.S.
has another face at home

By the A.M. Costa Rica staff

The image of José Cayetano Melo Perilla is emerging as a right-wing agriculturalist who made a point to be friendly with officials.

This is the man that the U.S. Treasury Department said Thursday was a high-ranking official of the terrorist Fuerzas Armadas Revolucionarias de Colombia.

A reporter for La Nación contacted Melo in Bogotá Friday, and the man denied the allegations that he was connected with the rebel group.

Also Friday the Judicial Investigating Organization searched the man's holdings in San Jerónimo de Moravia, where he operates the Carillanca S.A. tomato production facility. The company's accounts at a private bank were frozen, too.

The Treasury Department said that it was acting on information developed by the U.S. Drug Enforcement Administration.

Both in Colombia and Costa Rica, Melo was known as a man who made contact with highly placed politicians. He is believed to be a close friend of several Colombian officeholders and received official help here in order to obtain a residency in 2004.

Thursday's action, pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act), is the Office of Foreign Assets Control's tenth set of designations against the Fuerzas Armadas, known as FARC, since 2004.  These designations under the Kingpin Act freeze any assets Melo and his companies may have under U.S. jurisdiction and prohibit U.S. persons from conducting financial or commercial transactions with them. 

"Although recent actions by the Colombian government have undercut the FARC significantly, it continues to be the leading trafficker of narcotics out of Colombia," said Adam J. Szubin, director of Foreign Asset Control.  "Today's designation builds on our long-standing campaign against the FARC by targeting a key trafficker and money launderer."

Melo is a narcotics trafficker and important financial contact for the Fuerzas Armadas' 27th Front, which is led by Luis Eduardo López Méndez (a.k.a. "Efren Arboleda"), said the Treasury Department. López Méndez ultimately reports to the Fuerzas Armadas; chief of military operations and commander of the Eastern Bloc, Victor Julio Suarez Rojas (a.k.a. "Mono Jojoy"), it said.  Suarez Rojas and López Méndez were previously designated as kingpins, Suarez Rojas  Feb.18, 2004, and López Méndez Nov. 1, 2007, according to the Treasury Department.

Train promised for today

By the A.M. Costa Rica staff

Those in charge of the San José-Heredia train promise that the service will be back in operation for rush hour this morning.

A train empty of passengers derailed Friday in Tibás, and workers of the Instituto Costarricense de Ferrocarriles worked all weekend to provide more support for the track in that area.  This was the second derailment in a week for the new service.

New Escazú route opened

By the A.M. Costa Rica staff

The transport ministry has opened a $10 million alternate route from Escazú to la Sabana. The 1.7 km route (1 mile) has one lane in each direction.

A big expense was the 167-meter (548-foot) bridge over the Río Tiribi. The route is designed to reduce traffic on the Autopista Próspero Fernández.  The new road gives easy access to the Hatillos and Alajuelita.

U.N. marks end of slavery
but modern forms continue

By the A.M. Costa Rica wire services

In late August 1791, a slave rebellion in Santo Domingo, now Haiti and the Dominican Republic, sparked the beginning of the end of the system of slavery. Every year on Aug. 23, the United Nations International Day for the remembrance of the Slave Trade and its Abolition serves to remind people of the tragedy of the trans-Atlantic slave trade of old. It also aims to raise awareness about modern day forms of slavery.
Men, women and children are no longer shackled, put on the auction block and sold like prize cattle to the highest bidder. In most of today's world, one person does not buy another and own him or her for life. Traditional forms of slavery have nearly been abolished. But, contemporary forms of slavery are often as cruel and dehumanizing.

Roger Plant heads the International Labor Organization's special action program to combat forced labor.

"You are in a forced labor situation when you enter work or service," he said. "It does not have to be legal work. It can be begging. It can be all kinds of activity. You enter it against your freedom of choice, and you cannot get out of it without punishment or the threat of punishment."

Plant says this definition, which first appeared in a 1930 organization Convention Against Forced Labor, is still valid today.

He says most forced labor is in the private economy, and it is usually for several months or years. While lifetime cases of forced labor, slavery and bonded labor do exist, he says they are the exception.

"What we are finding is that migrant workers, particularly irregular migrant workers, very often young women, around the world are at tremendous risk of serious exploitation," said Plant. "We are finding that this is not only in the backward economy of developing countries, even though most forced labor today is indeed in the informal or the background agricultural sector of Asia, Latin America and then Africa."

Plant says every single country in the world is encountering problems of forced labor. That is because the victims are vulnerable to exploitation, laws against this practice are not vigorously enforced and it is a hugely profitable trade.

A recent study finds an estimated $28 billion is made from trafficking for sexual exploitation every year. And at least $21 billion is made from all other forms of forced labor, according to the labor organization.. 

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Each day someone complains via e-mail that the newspages are from yesterday or the day before. A.M. Costa Rica staffers check every page and every link when the newspaper is made available at 2 a.m. each weekday.

So the problem is with the browser in each reader's computer. Particularly when the connection with the  server is slow, a computer will look to the latest page in its internal memory and serve up that page.

Readers should refresh the page and, if necessary, dump the cache of their computer, if this problem persists. Readers in Costa Rica have this problem frequently because the local Internet provider has continual problems.

The A.M. Costa Rica search page has a list of all previous editions by date and a space to search for specific words and phrases. The search will return links to archived pages.

A typical edition will consist of a front page and four other newspages. Each of these pages can be reached by links near the top and bottom of the pages.

Five classified pages are updated daily. Employment listings are free, as are listings for accommodations wanted, articles for sale and articles wanted. The tourism page and the real estate sales and real estate rentals are updated daily.

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Fraud charge upheld against Banco ELCA's president
By the A.M. Costa Rica staff

The Sala II criminal supreme court has upheld the 23-year prison sentence handed out to the former president of the defunct Banco ELCA.

The decision, reached last month, was released Friday by the Poder Judicial. The former president is Carlos Alvarado Moya who was convicted by the trial tribunal of four different crimes, including fraud.

The high court also confirmed a $3 million judgment against the bank. The court said that the Ministerio Público, the prosecutors, has shown successfully that Alvarado created an offshore branch of Banco ELCA to get the funds of foreign investors.

Many North Americans lost sums when the bank folded. Government regulators closed Banco ELCA June 29, 2004, because the institution lacked solvency, they said. The action was a blow to a number of expats because the bank had actively sought their deposits. The bank was promoted by the Association of Residents of Costa Rica, which along
with associated corporations, loss significant sums of money, too. The private bank also held deposits of rentista residents who had to show immigration officials that they had $60,000.

Alvarado also was accused of using bank funds for personal reasons and for making false reports to bank regulators. Alvarado was convicted April 30, 2008.

When the bank went under, regulators appointed a board to oversee the liquidation and distribution of assets. Although all depositors had the right to seek repayment, not all did. The process was heavy on paperwork and difficult for foreign depositors. The liquidators said that depositors representing about $11 million failed to file.

In November 2005, the liquidators handed out some $14 million and said it represented about 40 percent of the amount owed to those who filed for reimbursement.  There  were subsequent distributions of less percentages of the money owed. The bank has assets worth about 80 percent of what it owed when it was closed by the Superintendencia General de Entidades Financieras.      

Central Valley tourists stage crime wave in Jacó store
By the A.M. Costa Rica staff

Beach visitors from Alajuelita raided the Megasuper in Jacó Sunday morning but did not realize they were in a heavily patrolled part of the town.

The shoplifters, from 18 to 30 years were greeted by members of four law enforcement agencies as they dashed from the supermarket without paying for products they had taken.

The Fuerza Pública ended up counting 17 suspects of the shoplifting wave.

The booty consisted of wines, beer, toothpaste, shampoo, batteries and sandals, police said. In searching the suspects for more articles from the store, police said they
encountered  24 baggies of marijuana and at least one dose of cocaine.

The Fuerza Pública said that nearby when the thefts took place were members of the Policía Municipal, the Policía de Turismo, the Judicial Investigating Organization and its own officers.

The police got the call from the Megasuper store about 9:15 a.m. By 9:20, the Fuerza Pública reported, units from the police agencies were on the scene. Some shoplifting suspects tried to avoid arrest.

Also Sunday police in Jacó detained five more suspects in thefts and robberies against tourists on the beach, they said. The five were placed in preventative detention at the El Roble prison in Puntarenas.

Bribe suspects probably did not work north San José area
By the A.M. Costa Rica staff

Two policemen detained Friday for shaking down motorists may not be linked to similar crimes in the central part of the city.

For months, bar patrons and pedestrian tourists in the vicinity of Parque Morazán have been confronted by Fuerza Pública officers who search them and frequently keep any money they find. They also threaten and take money from tourists who might have overstayed their visa.
Friday morning two officers were detained as suspects, but the arrests happened in the southern part of the city near the Cementerio Obrero on Avenida 10. The allegation is that they would stake out bars and when a patron left and got in a car they would stop the individual and demand money for not turning the drinker over to the Policía de Tránsito.

The officers were assigned to the Metropolitana Sur and probably did not risk coming to north San José. They were identified by the last name of Sandi, a 10-year veteran of the force, and Espinoza, who had worked for 15 years.

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Our readers' opinions:
new radial
Instituto Costarricense de Electricidad photo
Photo meant to show lights on the new Sabana-Escazú route also show steep slopes
Steep slopes on new highway are an invitation to disaster
By Ron Tucker
Special to A.M. Costa Rica

Back in 1987, on March 1, President Arias officially opened the new highway to Guapiles and Limon.  My student and I were among the first to drive along it (and back) on the opening day.

We were impressed with the road itself and with the staggering views.  We noticed how steep the slopes were on one side, and how precipitous on the other in various places.  And I recalled conversations I had had with some of the engineers at language school a few years earlier.  They were bemoaning the fact that their decisions regarding slopes had been over- ruled by environmentalists´concerns that not too much of the forest be removed. "You can´t cut back that much!"

If you have lived here long enough, you know that every year that highway is closed for hours or even days because of landslides.  You know that cars and their riders have been hurled into the abyss.  You know that millions of dollars have been lost the same way, and in missed or delayed shipments of goods.

So what.

A new limited access highway is now being constructed, after a 30-year delay, from Escazú to Orotina and the Pacific.  Already tolls are being charged on the open portions of it.  Being very Tico in some of my attitudes and actions, my adopted adult son Roli and I drove from Atenas
towards Orotina three weeks ago.  We didn´t go all the way, but did cross a very high level bridge (built six years ago) that caught my breath.  Nine days ago I took one of my workers down to see the bridge.  We couldn´t make it!  The brand new paved highway was totally blocked by a massive landslide.

Yesterday I drove from Atenas center along the road that used to lead to the municipal garbage dump.  That road now ends abruptly, and at that point I could look down to the new road beautifully aligned and levelled and ready for paving.  

But beyond my vantage point were slopes so steep of earth, not bedrock, that in the next heavy rain, or a temblor, they will want to throw themselves down onto the narrow roadway below.

I saw the same thing the day before between Turrucares and Atenas.

So am I a meddler, a busybody, a do-gooder, a foreigner who should not be intervening?

My only interest is in preventing disasters of the Guapiles Highway type before they can occur.

How do we convince the authorities that real problems exist here, which should and could be foreseen and prevented.  Or do we allow them to happen and put the blame on God.


Despite funk, country well situated for rapid, positive upturn
By Angela Jimenez Rocha
special to A.M. Costa Rica

Since Henry Kaufman is back in the United States, I have had some time to reflect on his constant use of the term black swan.

This concept was made famous by the well known Nicholas Nassim Taleb, professor of risk at New York University, who has made a great impact on the financial gurus around the world.  He predicted while speaking at the Royal Society of Arts in England extreme scenarios which can easily lead to hyperinflation. He was quoted as saying "Give me a regulator, and I'll show you a way to make money." "Regulation is not a panacea, its dangerous."

After being in meetings with Kaufman and many of the large developers in Costa Rica for the past several months, I have tried to understand why most of them are having such a hard time finding liquidity.  Of course the normal sources of finance have tightened the purse strings and many never say no to borrowers — just never say yes.

There are so many uncertainties in the world outside of Costa Rica that we may wake up one day and find we are one of the few places in the world disconnected from most of these problems.  I know that many in Costa Rica are in a blue funk wondering how they will ever become liquid
again, but there may be a rosier future ahead than most believe for our tiny country.

In my business of appraisal of property over the last 23 years, I cannot afford to be a Pollyanna since I am responsible to the banks for the values I write on these reports.  However there is one tried and true way to determine fundamental values: Add up all the living spaces in the country and determine how much rental income this will produce.  Determine a value for inflation and discount the cash flow.

Now to the rosier picture.  Imagine serious unstable conditions in the rest of the world like war in the Middle East or global warming having a drastic effect or the aquifer in Florida becoming too salty to function.  A small fraction of those people coming to Costa Rica could create a serious shortage of rental properties driving up the values overnight.  In some minor aspect this has already occurred with the exodus of Venezuelan rich. Some of whom have bought property they keep vacant as Plan B.

I keep a constant eye on the rental prices especially in Escazú and Santa Ana as an index of how to access current values. Rents have softened in the past few months and I believe a large reason for that is that the influx of retired persons from North American have put off making decisions.  Any change in the psychology of these people can have a dramatic effect very quickly in this small market.

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San José, Costa Rica, Monday, Aug. 24, 2009, Vol. 9, No. 166

Casa Alfi Hotel

U.S. Federal Reserve chief
predicts economic growth

By the A.M. Costa Rica wire services

The head of the U.S. central banking system says the prospects are good for a return to global economic growth in the near future.

The U.S. Federal Reserve chairman, Ben Bernanke, told the world's top central bankers Friday that economic activity appears to be leveling out after contracting sharply over the past year.  But he warned that difficult challenges remain.

The bankers were at an annual meeting in the mountain town of Jackson Hole, in the western U.S. state of Wyoming, where they are reflecting on the global economic recession.

Germany, France and Japan have pulled out of recession, and the U.S. economy is showing signs of stabilization.

Friday, the National Association of Realtors said U.S. home sales rose 7.2 percent in July.  That is its largest monthly increase in 10 years.

A slowdown in the housing market and problems with homeowners repaying their loans helped spark the U.S. economic crisis and the global slowdown that followed.

The Federal Reserve injected trillions of dollars into the U.S. economy to try to stop it from shrinking and to jump-start growth.

In Europe Friday, a closely watched survey showed the 16 countries using the euro currency are close to growing again.

The financial information company Markit said its measure of business activity — the composite purchasing managers' index — for the Eurozone rose in August.

The index climbed three points to 50, a number that marks the point between economic expansion and contraction.

Arias accord is shot down
by Honduran supreme court

By the A.M. Costa Rica staff

To no ones surprise, the Honduran supreme court has rejected the San José Accord, drafted by President Óscar Arias Sánchez.

Point No. 1 of the accord is that José Manuel Zelaya Rosales, the ousted president, be reinstalled as the nation's chief executive. The Corte Supreme de Justicia said that if Zelaya returns to Honduras he will be charged and tried for a litany of crimes, including treason.

After Honduran representatives of the interim president, Robert Micheletti, met with Arias, they said they would take the proposal to their country to study it. Even then Michelette said that Zelaya would not return as president. The supreme court was the entity that ordered his arrest June 28. The actual expulsion was executed by the military.

Since then countries of the hemisphere have been urging the reinstatement of Zelaya as a way to continue the democratic process in Honduras. Zelaya continues to travel from one country to another seeking support.

Today is the day that a delegation from the Organization of American States arrives in Honduras. That body also has urged reinstatement.

The interim government seems determined to stall until the late November general elections when a new president will be chosen.
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San José, Costa Rica, Monday, Aug. 24, 2009, Vol. 9, No. 166

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Obama and Brazilian leader
talk about Colombian bases

By the A.M. Costa Rica wire services

President Barack Obama has spoken with his Brazilian counterpart, Luiz Inacio Lula da Silva, about "issues of mutual interest and concern in the Americas." Brazil's leader expressed concern about a plan to give the U.S. military greater access to seven bases in Colombia.

In a statement, the White House said the two leaders spoke Friday morning.

It said President Obama reaffirmed his commitment to long-standing U.S. relationships in the region, and his desire to work with Brazil and others in the hemisphere to help advance democracy, security and prosperity for the people of the Americas. 

The United States recently reached a provisional agreement with Colombia, giving U.S. forces access to Colombian bases to tackle regional drug-trafficking and terrorism. 

South American nations such as Bolivia, Ecuador and Venezuela have criticized the plan, with Venezuelan President Hugo Chavez saying the U.S. forces could threaten his country.

The statement said Obama looks forward to seeing President da Silva next month at the Pittsburgh G-20 Summit, and continuing to strengthen the U.S. partnership with Brazil.

Police gas Caracas marchers
protesting new education law

By the A.M. Costa Rica wire services

Police in Venezuela have used teargas to disperse demonstrators protesting a new education law that strengthens President Hugo Chavez's control of schools and universities.

Thousands of protesters marched through the capital, Caracas, Saturday. Some carried signs describing it as a "Cuban law."

Supporters of the law demonstrated in another part of the city.

Critics say the law could lead to the ideological indoctrination of students. Its supporters have been quoted as saying the law requires teaching to be open to all forms of thinking.

Twelve journalists protesting the law were beaten earlier this month. News reports said the attackers were Chavez supporters.

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For your international reading pleasure:

News of Nicaragua
News of Central America
News of Cuba
News of Venezuela
News of Colombia
News of El Salvador

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