By James J. Brodell
American Reporter Correspondent
San Josť, Costa Rica
Nov. 9, 2003
RATE SCAM SHATTERS COSTA RICAN IDYLL FOR MANY
SAN Josť, Costa Rica -- For years, a North American could get a 3 percent monthly return on dollars here. That's $3,000 a month on a $100,000 investment.
A handful of firms offered that service in this Central American nation, but two men in particular epitomized what appeared to be a way for the average person to tap into international finance.
They were "The Brothers," Luis Enrique and Oswaldo Villalobos Camacho. Oswaldo ran a currency exchange business while his brother sat in a back room handing out fat envelopes each month to his growing investor corps. The minimum was $10,000, and an easily obtained personal referral was needed from a current client. In exchange, Enrique Villalobos gave depositors an undated check as security.
The rules were pretty simple: You could roll your money over and continue to gain high interest or you could take out your interest each month in cash. No pesky Internal Revenue Service forms. Just a manila envelope filled with cash, available in the first days of each month.
One other rule; You could not ask what Enrique and his brother did with the money. There were rumors of massive currency exchange deals for international corporations. Occasionally, Enrique himself said that he "bought low and sold high."
Competitors sprung up but they lacked the track record and religiously of Enrique. And religious he is. In his small office where he received millions of dollars from investors, he maintained a small table where visitors could obtain a free copy of the New Testament. His messages invoked the name of God.
Enrique even donated substantial sums to help build the International Baptist Church in suburban Santa Ana where he is regarded as a living saint. Doubters were told that Enrique had been in business for more than 25 years. Then in hushed voices one of his supporters would speak of his connections with the U.S. Central Intelligence Agency and long-time friendship with former Lt. Col. Oliver North. This was an agency-supported project, doubters were told, sort of a CIA overseas bank that rewarded depositors with fast cash.
In fact, according to many reports, Enrique Villalobos was a bag man for the Central Intelligence Agency in supporting the southern Contras in the Nicaraguan war to the north in the early 1980s. That charge is well-documented in interviews with former Contra officials and in their autobiographies.
The aura of the Central Intelligence Agency and the Baptist connection gave any number of North Americans a warm feeling as they collected their monthly cash. They were making money and helping the good guys and God at the same time.
Many investors remained in the United states or Canada and visited Costa Rica once or twice a year to collect their money. Hundreds actually moved to Costa Rica to be near their money and live like kings on the local, Third World economy. They built million-dollar houses, supported charities and gave Villalobos referrals to their friends. The bulk were either Canadian or U.S. citizens with a sprinkling of locals and Europeans. Investors were physicians, securities salesmen, professors, lawyers, blue-collar workers and widows. Among the customers were entrepreneurs who offered their own 2 percent return elsewhere and collected 3 percent.
Individual investments ranged from the minimum $10,000 to a high of $16 million. After Sept. 11, 2001, and the terrorist attacks in the United States, international finance tightened dramatically. But the first problem here emerged in May 2001 when the story came out that the son of an ailing, elderly Canadian arrived and found an undated check among his father's possessions.
Enrique quickly floated the rumor that the son was trying to steal dad's cash, and most investors accepted the story. The elderly investor inconveniently recovered and filed suit to get back his money. The suit still is pending.
Then, on July 4, 2002, a task force of Costa Rican law enforcement officials raided offices of the money exchange business and the private office of Enrique Villalobos. They said they were acting on a request from the Royal Canadian Mounted Police to determine if drug smugglers had money in the accounts there. Elsewhere the Mounties hauled in a half-dozen cocaine smugglers.
The next working day investors showed up to deposit more money and demonstrate support. Enrique himself got on the telephone to tell investors that he needed their money and that they should increase their participation. Many did.
The bubble finally burst on Oct. 14, when Enrique sent a brief fax to a newspaper in which he said he could not keep the offices open because local police officials were keeping his accounts frozen.
Enrique Villalobos sent another brief message in January 2003, and he has not been heard from since. He is on the International Police Agency (INTERPOL) wanted list facing allegations of fraud and money laundering leveled by the Costa Rican government.
When Oswaldo Villalobos showed up at a routine court hearing a few weeks after his brother vanished, local officials put him under arrest, where he remains today.
Local police agencies have located about $7 million in assets from the Villalobos operation. Enrique Villalobos must have had about $1 billion on his books when he closed down, due in part to the high percentage of clients rolling over their interest.
At least 500 English-speaking investors met last February, mainly to condemn what they saw as the persecution of a legitimate businessman by a corrupt Costa Rican government and judicial system.
But some 600 other investors filed fraud allegations with the local courts.
Many American citizens here live in fear that the U.S. Internal Revenue Service will obtain a list of Villalobos investors. U.S. citizens must pay taxes on interest income no matter where it is derived. Many here did not.
The expat community here has been devastated. Residents have had to scale back their lifestyle. Many have left. Some are living on the charity of friends because they put all their money into the Villalobos operation.
A German investor committed suicide and left a note saying he lost all his money. Other investor suicides have taken place but cannot be linked directly to the failure of the Villalobos operations.
A short time after the 63-year-old Enrique left, a handful of cloned operations crashed, further impoverishing North Americans living here.
Villalobos' few supporters hang on. They have hired a local politicians to work on his behalf. There have been few positive results for the investors. The Villalobos case is being handled by the country's top drug prosecutor, and the investigating judge has given him the benefit of every doubt.
Oswaldo, as is the customs with wealthy detainees, has entered the prison ward of a local clinic where he has telephone service, clean linen and decent food.
Under the Costa Rican legal system here, the prosecutor has one year more to bring charges and has asked the U.S. Attorney's Office in Miami for help in tracking the Villalobos operation. A third brother, Freddy, lives in Florida.
Because U.S. citizens deposited their money with Villalobos bank accounts inside the United States, a full U.S. investigation is possible. Although Villalobos maintained that his business was simply friends loaning friends money, the scale of his business - as many as 6,600 accounts, by some estimates - brings that claim into question.
Others investors have sought ways to try to get their money back. One group has retained a Canadian law firm in an attempt to bring the Costa Rican government into international arbitration. The theory is that the government failed to protect foreigners from the unlicensed Villalobos brothers and should reimburse investors.
A former California lawyer leads a group that sent a letter to President George W. Bush demanding that he pressure Costa Rican President Abel Pacheco to pardon the brothers Villalobos. The signers believe that U.S. law requires the President to act if U.S. property is expropriated overseas. The signers hope that once pardoned, Villalobos will return and pay back his debts.
The petition paints a grim picture of the plight of investors here: "Individual citizens who depended on such payments for their ordinary living expenses in Costa Rica are severely strained: Some of them have lost or are losing their homes through foreclosures; others have been or are being evicted from their homes because they could not or cannot pay their rent; many have been forced to sell non-essential personal items at sacrifice prices in order to make ends meet; many are surviving on severely restricted diets."
The White House shipped the petition off to the U.S. Department of State for study.
Perhaps the strangest response was by a Pittsburgh lawyer who sent a letter threatening President Pacheco. The lawyer, Peter K. Blume, told Pacheco that bad publicity for Costa Rica would be shipped to the news media if the president did not intercede in the criminal case against the Villalobos brothers. The lawyer said he was going to do that with an article denigrating Costa Rica that would be distributed to major news media in the United States. Everything in the threatened article already had been published. Blume later told the Pittsburgh Post-Gazette that he was off the case. He said he was representing Cornerstone Investment Circle LLC of California, which allegedly gave the brothers $6 million.
But the worst situation for investors is the uncertainty. Although the most vocal supporters express complete faith in the Villalobos brothers, Enrique has been gone for more than a year. The prosecutor has made no public statements, and the investigation continues in private.
They simply don't know what is happening, or if they ever will see any of their money.
Jay Brodell is Editor of A.M. Costa Rica,. Write him at email@example.com, or visit http://www.amcostarica.com.