The following is an interview I did in 2005 with an investment banker about his experience. He describes one particular instance when things seemed to go terribly wrong, and he had to call in back-up from the multi-national corporation for which he was working.

What year were you born?

July 9, 1953.

As a point of interest, describe the type of environment that you grew up in.

I grew up in a middle class family in a suburban/rural setting.  I had many friends, and we spent lots of time in the fields, streams, woods, exploring, hiking, discovering nature, and playing lots of sports.

So then you grew up, and what were you doing?

I’ve spent my whole career in mergers and acquisitions and structured financings in the US, Europe, Latin America, and Asia, concentrating in media and telecommunications.

So you’re an investment banker?

Yes.

What was your general experience in Latin America?

The business climate in Latin America is vastly different from Europe and North America.  The principals of honesty and fair dealing that were developed during the Reformation and the Enlightenment did not reach the Latin American continent.  Therefore the business atmosphere is one of mutual distrust, no sense of fair dealing, and dramatically different from what US businessmen are used to in this country.  This extends and is amplified in the political arena where corruption, distortion, and major crimes are committed routinely and covered up by the political establishment.

Where you were in Latin America, what company were you with, and where were you specifically?

I spent five years traveling extensively in Latin America:  three years as President and Chief Operating Officer of Salomon Broadcasting, and two years as Managing Director for ING Barings.  I literally spent time in every country in Latin America, but most of my time was spent in Argentina, Colombia, and Peru.

Those five years, what was that time period?

1996-2000.

Which of those three countries did you have the most in-depth experience in?

Argentina.  I went to Argentina thirty three times in thirty six months.

Specifically, what types of things did you find there?

The people of Argentina are wonderful.  They have a very European attitude.  Most of them have ancestral backgrounds from Northern Europe, including Italy, Germany, Spain, England, France, Poland.  Many of their ancestors elected to come to Buenos Aires instead of New York or Philadelphia in the late 19th century.  It’s very much a melting pot.  The people I worked with had Catholic backgrounds but lived a fairly secular life.  Many of the people that practiced business such as accountants, lawyers, bankers, business managers were educated in the United States and, for the most part, were professional, trustworthy, well-trained, and efficient.  Besides acquiring excellent technical skills in the US, most of the Argentinean natives that studied abroad internalized many of the good parts of the business values that are commonplace in American business environment.  The executives who spent little time outside of the country or were dominated by the intense concentration of wealth that has accrued to a very small number of families routinely compromised themselves and their organizations with activities that would not be tolerated in American business.

What was the government in Argentina at that time?

In 1990, Carlos Menem rose to power as President as a strident, capitalist reformer.  He and the newly elected Congress performed miraculous changes in the Argentine political and economic system and put into place Americanized reforms towards a free-market economy with limited government control.

Is this political system still in place?

Yes, but you have to understand that transplanting a successful application of an American-style, free-market economy into a cultural environment that has not assimilated American values leads to conflicts that ultimately did not create a completely successful outcome.

So this new form of government led to the corruption in the country?

No.  The new form of government led to reforms that effectively assisted the creation of a large and growing middle class population during the 1990s, which Argentina did not have prior to that.  The problem is that the underlying lack of values undermined the political and economic gains to the point where all the hard-gained ground in the 1990s came crashing down after 2000.

Give me an example of some of the shortcomings that brought down the political and economic reforms of the 1990s.

One very vivid example comes to mind.  Carlos Menem, the president who was elected to two terms, grew up in a small town about thirty miles outside of Buenos Aires.  In that same town, attending the same schools as Carlos Menem at the same time, was Mr. X.  Mr. X was widely regarded as a criminal mastermind.  The president, Carlos Menem, denied any familiarity with Mr. X.  Mr. X, in the early 1990s, was awarded the right to run the privatized postal service and the importation and duty service.

Who awarded him that right?

The Ministry of Transportation of Argentina.

Was he involved in any corruption in his new, official position?

It was commonly understood that Mr. X created a parallel import duty channel that at reduced rates would accept merchandise coming into Argentina outside the official import duty channels.  It is estimated that the country of Argentina lost approximately $4 billion per year to this parallel import duty channel.  Further, he was given the concession, in partnership with the Catholic Church, to rebuild the major airport in Buenos Aires.

A prominent journalist from Clarin, which is the New York Times of Argentina, undertook an investigative set of journalistic expositions on Mr. X and his alleged activities.  The journalist was found in his car, handcuffed to the steering wheel, with six bullets in him in a car that was set on fire.  The general suspicion was that Mr. X was behind this assassination.

In the articles that the journalist wrote before he was murdered, there were numerous suggestions of ties between Carlos Menem and Mr. X.   It’s important to understand that Carlos Menem was extraordinarily well-regarded in the world political community, as well as at home at the time.  Within four weeks of the assassination of the journalist, a march was staged in Buenos Aires where 250,000 people rallied in support of the truth.  Two weeks later, Mr. X was found hanging by the neck, in his pajamas, from a billboard that was on top of a large building.  The rumor was that he was forced by government agents to commit suicide or see his family killed.  Further rumors suggested that Mr. X, Carlos Menem, and a number of others in the Argentinean government siphoned off most of that $4 billion a year for themselves, and the money was channeled to Paraguay, Caiman Islands, Bermuda, and the Jersey Islands.

At the same time, a much larger apparent fraud was going on in the Argentine government.  In 1990, Argentina had total loans outstanding of approximately $60 billion.  Those loans were made by the World Bank, the International Monetary Fund, and European, American, and Japanese money center banks.  From 1990 to 2000, the government of Argentina privatized or sold off to primarily European corporations,

(1) all of the local water utilities,

(2) all of the local electrical utilities,

(3) the wireless telephone licenses,

(4) the wire line telephone licenses,

(5) satellite TV transmission rights, and many other government service organizations.

The net proceeds to the Argentinean government for these sales of assets were estimated to be $80 billion.  At the end of 2000, the total outstanding loans owed by Argentina had grown to $120 billion.  So, between 1990 and 2000, the government of Argentina received $80 billion in proceeds from sales of assets and $60 billion in new loan outstandings, or a total of $140 billion.  Some of that was accounted for by government expenditures and infrastructure projects, but the vast majority is missing.  The Argentinean people can only sell these assets once.  Once they are gone and the money is gone, they’re irretrievable.

So now all the local water utilities, telephone licenses, et cetera are not owned by Argentineans, and the Argentineans also are not able to reap the benefits of that money?

Exactly. It’s worse than that, though. Telephonica España bought the telephone companies and Lyonaisse des Eux purchased the water companies and the electrical utilities. Conspicuously absent are American companies who would typically have bid aggressively to own some of these prized assets.

Where were the American companies?

The United States Congress passed the Foreign Corrupt Practices Act of 1977, which specifies criminal and monetary punishments for American executives who bribed foreign officials to obtain rights to bid in these type of situations.

And America was basically out of the running for these assets?

France, Spain, Italy have no functional equivalent of the Foreign Corrupt Practices Act so they’re free to bribe.

So that’s what was happening generally in Argentina at the time. What was happening at the business level, specifically with what you were involved in?

I was representing a certain family, which was considered by most the wealthiest family in Argentina with an estimated family worth exceeding $10 billion.

For comparative purposes, how would that compare to America’s wealthiest families?

They’d be in the top 20 of the Forbes 400.

Okay, what were you doing when you represented them?

It’s extraordinarily complex, but essentially my company had arranged $800 million in financing for the family to acquire about fifty cable companies in Argentina.  About $100 million of the $800 million was in the form of a short-term bridge loan, which was personally guaranteed by the individuals in the family.

So they personally swore to pay it back.

Yeah.  I was brought in to fix the $800 million botched financing and to sell the cable company for $1.2 billion.  The first day I took on the assignment, I met with about twenty individuals who were initially responsible for assembling the $800 million financing.  To my horror, through questioning the individuals, I found out that the documents that would substantiate the personal guarantee had not been executed by the family members.  I immediately flew to Argentina and met with the family members, our company's lawyers, and the family members’ lawyers and politely asked for the documentation that they had agreed to.  This request was flatly denied.  After several attempts to get them to live up to their contractual agreements, it was clear that they had no intention to do so.

How could you solve a problem like that as one person against them?

The company I worked for is a giant financial institution with 160,000 employees spread across six continents.  I was very frustrated and had not encountered a problem of this magnitude before.  It is headquartered in the Netherlands.  I called the Chief Financial Officer and explained to him the situation.  He responded that the loan situation with the IMF and the World Bank in Argentina was quite tenuous.  Negotiations were ongoing to extend the loan under more favorable terms so that the country could pay back the loans over a longer period of time.  World financial markets were nervous about Argentina’s ability to pay back these loans.  The Chief Financial Officer suggested that we would have recourse to inform the World Bank and IMF that the family we were working with, the wealthiest and most powerful family, was about to default on a $100 million loan that they could easily pay off.

And if you informed the World Bank and IMF of this, it would then disallow Argentina to make the negotiations so that they could pay back their loans over a longer period of time?

I got permission to use this potential course of action as leverage in my negotiations with the family.  Within one week of my discussion with them about our company's potential recourse, the personal guarantee documents were assigned as originally agreed.  Apparently, the family did not want to default on a highly visible obligation that could have reflected more broadly on the Argentine economy and jeopardized a critical refinancing of the country’s debt position.  They were wise enough to make the prudent decision to satisfy the obligation as originally agreed.

Everything worked out after the pressure from the World Bank?

We successfully sold the cable operations for $1.2 billion, and the family got repaid their money and got a significant profit.