One of the things the Free-Trade Agreement opened up was lawsuits. Somehow, you knew the attorneys also had to take advantage of this Free Trade thing. Canadian investors have sued the government of Costa Rica.
If you are new to Costa Rica, starting back in the mid 1990s just about every Costa Rican knew of the Villalobo Brother’s high-interest borrowing operation or just a good old fashion, ponzi scheme that targeted business owners, individuals, and operators of tourism hotels. The Villalobos operation paid up to 3.5 percent a month on deposits of $10,000 or more. Some put in millions. Finally, in late 1990s the judicial department started to investigate before the conviction and sentencing of one of the brothers, Oswaldo who got 18 years. The other, Luis Enrique Villalobos Camacho, fled the country and still is a fugitive, convicted of fraud and illegal banking.
The investors are presenting their case before the International Centre for Settlement of Investment Disputes, a World Bank agency.
Now to make matters worse for these investors for a while, the Ministerio Público prosecutors considered filing tax evasion charges against Villalobos investors and of course the U.S. Internal Revenue Service (which does have a office in Costa Rica) has been investigating Americans who live in CR for sometime now.
Some 245 investors (out of 6000) are seeking more than $200 million from Costa Rica, claiming it did not adequately supervise the Villalobos operation since late 1990s, which finally failed years later in Oct. 2002, with losses approaching $1 billion.
To put this in perspective, the downfall of former US financier Bernard Lawrence “Bernie” Madoff only took a few months – where everyone in CR knew of the Villalobos brothers since early 1990. Personally, I remember first hearing about the high investment deal with a couple of brothers back in 1984. I even had one friend who invested (at the balking and warning of many) and lost about $50,000.
Now this is where it gets interesting. This lawsuit is blaming the Canadian Royal Mounted Police, a money exchange business in Mall San Pedro, businesses in San Jose, drug ties in Jaco, and the U.S. Internal Revenue Service.
Now back in 1999, some evidences has revealed that the Villalobos brothers discussed with their lawyers in the possibility of their scam busting. They concluded that most investors were tax evaders in their own country and it was unlikely that they would file formal claims, but that obviously changed with the Canadian-Costa Rican Free Trade treaty.
Now with the 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.
More on this at AM Costa Rica