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Corrupt ex-IMF chief Rato back in court in Spain on fraud charges

Former IMF chief Rodrigo Rato, who was jailed in 2018 for misuse of funds, was back in a Madrid court Friday facing fresh charges of tax fraud, corruption and money laundering.

Published: 15 December 2023 14:28 CET

Corrupt ex-IMF chief Rato back in court in Spain on fraud charges

Former IMF chief, former Spanish Economy Minister and former president of Caja Madrid bank Rodrigo Rato, accused of tax evasion and corruption, walks past a journalist as he arrives for his trial at Madrid's Court of Justice on December 15, 2023. (Photo by OSCAR DEL POZO / AFP)

During the hearing, the 74-year-old ex-banker confirmed understanding the charges against him as he sat on the bench alongside another 16 defendants, among them relatives and close allies accused of helping him set up a fraudulent scheme.

Prosecutors allege that in the decade between 2005 and 2015, Rato defrauded the Spanish tax office and lined his own pockets to the tune of €8.5 million ($9.3 million).

They have called for a 70-year prison term in a trial which is expected to last five months.

Spanish prosecutors say that he masked his fortune by using companies based in Ireland, Panama and the United Kingdom to carry out “ongoing investment activities through a host of bank accounts in the Bahamas, Luxembourg, the UK, Switzerland and Monaco among others in a scheme concealed from the Spanish tax office,” court documents showed.

A former heavyweight in the right-wing Popular Party (PP), Rato spent eight years variously serving as economy minister and a deputy prime minister in the conservative government of Jose Maria Aznar before going on to lead the IMF in 2004.

He later headed Spanish lender Bankia.

Rato was jailed in 2018 for four-and-a-half years for misusing company credit cards for personal expenses while working at Bankia between 2010 and 2012.

READ ALSO: Is Spain as corrupt as it was a decade ago?

He was moved to a semi-open prison regime in late 2020.

That decision came just after he was acquitted in another case of fraud and falsifying the books during the 2011 flotation of Bankia.

The Bankia scandal came to light at the height of a severe economic crisis that left many people struggling financially.

It sparked outrage in Spain, which worsened when the government then spent €22 billion on a bailout for the failing lender that quickly won
notoriety as a symbol of financial excess.

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Banking in Spain: Why BBVA's takeover of Sabadell may never happen

Sabadell refusal

BBVA is offering an exchange of one if its shares for every 4.83 Sabadell shares, a 30-percent premium over the April 29 closing price of both banks.

Sabadell has said this “significantly undervalues” its value. It accuses BBVA of breaching takeover rules since it provided “incomplete information that could affect the market”.

Spain’s fourth-largest bank has reported its concerns to stock market regulator CNMV.

BBVA Chair Carlos Torres Vila played down this opposition on Thursday, saying he had been contacted by shareholders in favour of the deal.

But Sabadell’s capital is held by multiple of investors, none of them holding more than 5.0 percent of the lender, making the takeover unpredictable since many players must be convinced.

Government opposition

Economy Minister Carlos Cuerpo has warned his leftist government “will have the last word when it comes to authorising the operation” which he said would be “potentially damaging” for the economy.

Cuerpo did not detail what steps the government can take but Labour Minister Yolanda Diaz said Spanish banking supervision law allowed it “to authorise or not authorise this type of operation”.

This hostile takeover bid, the first in the Spanish banking sector in nearly four decades, is “extremely risky” for the economy and against the country’s “interests”, she added.

READ ALSO: How would the BBVA takeover of Sabadell affect customers in Spain?

Regional hostility

The takeover bid has also come up against hostility in Catalonia, the northeastern region where Sabadell originated and has a strong presence, and the neighbouring region of Valencia where it currently has its headquarters.

They both fear a reduction in the number of branches, which they say would be detrimental to businesses and individuals.

Pere Aragones, a moderate separatist who heads the regional government of Catalonia, has said the takeover bid could “weaken the economic weight” of the region.

The issue has been in focus in the final days of campaigning for Sunday’s regional election in Catalonia, with parties across the political spectrum voicing concerns.

“For some time, there’s been a strategy to kill the Catalan banking industry,” former Catalan president Carles Puigdemont, the head of hardline separatist party JxCat who led Catalonia’s failed 2017 secession bid, wrote on X.

The hostile offer “must be responded to with full force, with all the law and with all reason,” he added.

Union concerns

Spain’s two main trade union confederations, the UGT and Comisiones Obreras, have also sounded the alarm over possible job losses. Workers must not “pay the cost of this operation,” the UGT warned.

Asked about these concerns at a news conference on Thursday, BBVA Chair Carlos Torres Vila ruled out any “traumatic measures” for employees and highlighted the career opportunities the merger would create.

But he did not rule out any staff cuts.

BBVA employs around 121,000 people worldwide, while Sabadell has some 19,000 workers.

Supervisory rules

The main obstacle for BBVA lies with supervisors. The operation needs the green light from the European Central Bank, Spanish stock market regulator CNMV and the competition authorities in the countries where the two lenders operate.

The Spanish banking sector is already highly concentrated, with 56 percent of the market in the hands of three groups — Santander, BBVA and Caixabank.

This “rate would rise to 64 percent” if BBVA’s takeover bid is successful, which could lead to a “significant reduction in competition,” according to broker XTB.

The operation will take up to eight months to complete, according to BBVA.

“There is going to be a war of attrition,” economist Javier Santacruz told Spanish public radio, adding BBVA will have to do a great deal of “persuasion” to be successful.

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