In order to avoid federal prosecution, the closest friend and confidant of former dictator Ferdinand E. Marcos has agreed to turn over to the Philippines a Los Angeles bank that federal prosecutors say he created to launder funds for the late Philippine leader, The Times has learned.
According to previously undisclosed terms of the unusual settlement deal, ownership of California Overseas Bank will be transferred to the Philippine government in exchange for the United States dropping racketeering and conspiracy charges against fugitive bank chairman Roberto S. (Bobby) Benedicto.
The bank, with assets of nearly $150 million, has an estimated market value of more than $30 million. Sources close to the Philippine government said the government plans to operate it for a time and then sell the bank.
The criminal settlement was reached after complex negotiations on three continents among U.S. prosecutors, Philippine officials and lawyers for the bank and Benedicto.
He was indicted in 1988 along with Ferdinand and Imelda Marcos on charges of fraud, racketeering and conspiracy. Benedicto, 73, has avoided arrest, sources said, by using fictitious names and multiple passports to shuttle clandestinely among such places as Hong Kong, Spain and Venezuela, where he has extensive investments.
"He's an old man. He's tired of feeling hunted," said a Philippine official close to the negotiations.
The most controversial element of the agreement will spare Benedicto from testifying against Mrs. Marcos, who is standing trial in federal court here.
The fugitive banker had adamantly refused to be a witness against the widow of his longtime friend, a condition that Benedicto's attorney said had been a primary stumbling block to consummation of the deal. While Benedicto is not close to Mrs. Marcos, he is a godfather of the Marcoses' son, Ferdinand Jr.
"There's certainly no love lost between my client and Imelda, but he wouldn't put himself in a position to hurt Marcos' children," said attorney Wayne W. Smith in Los Angeles.
U.S. officials defended what was called a "rational and reasonable agreement" that will return millions of dollars to the troubled economy of the Philippines. Prosecutors would not discuss the settlement deal.
Legal experts said this is the first time in U.S. history that a bank has changed ownership as a result of a criminal case.
The Benedicto deal represents perhaps the clearest indication yet of the linkage between the New York criminal case--which could send Imelda Marcos to prison--and a federal civil suit in Los Angeles which seeks to strip the former first lady of a sizable share of the $5 billion the Marcoses and their friends allegedly stole from the Philippines.
California Overseas Bank was a prominent instrument in what prosecutors call "the looting of the Philippines." And bank officials have acknowledged in court that phony accounts were set up to funnel money out of the Philippines.
Formal announcement of the settlement, expected by early May, will come in federal court when California Overseas is sentenced on wire fraud charges. The bank pleaded guilty to those charges on March 16.
Terms of the unique settlement were determined in large measure by a U.S. prosecutor who insisted on negotiating a deal that apparently was more favorable to the Philippine government than to his own case.
Assistant U.S. Atty. Charles G. LaBella, leading the prosecution of Mrs. Marcos and co-defendant Adnan Khashoggi, refused repeated Benedicto offers to turn over only 25% of his bank interests. In the end, Benedicto agreed to surrender all of his shares, but the terms reviewed by The Times included no requirements that he cooperate with LaBella in any way.
The story behind the deal provides a new and compelling glimpse of the sophisticated schemes that the Marcoses are accused of using to drain billions of dollars from their national treasury.
It is a story that begins more than 50 years ago in a University of the Philippines fraternity where Benedicto and the future president of the Philippines were frat brothers in law school.
After World War II Benedicto went on to a career of modest success in the shipping, warehouse and sugar business. In 1970 Marcos appointed him ambassador to Japan, and his friends still refer to him as "The Ambassador."
However, it was after Marcos declared martial law and established dictatorial control in 1972 that Benedicto's fortunes soared, along with those of other Marcos cronies.
Marcos nationalized the Philippine sugar industry and put Benedicto in charge of two government agencies that regulated both production and marketing of sugar.
Later Benedicto became chairman of Republic Planters Bank, and Marcos ordered all of the nation's sugar producers to obtain their crop loans from Benedicto's bank. The decree gave Benedicto a monopoly on financing the nation's leading export crop. For a time Benedicto also headed the government-owned Philippine National Bank, which financed additional sugar operations.
Over the years Benedicto came to be regarded as "a sugar baron." And he recently added to his holdings with investments in Venezuelan sugar plantations, records show.
In the aftermath of martial law, Benedicto also became a media mogul, taking control of numerous television and radio stations that had been seized by Marcos, in part, to silence criticism of his political policies.
Marcos also ordered a banking license issued to his law school friend. Benedicto's Manila-based Traders Royal Bank subsequently became a conduit for secret fund transfers from the Philippines to California Overseas Bank, according to court records.
California Overseas was founded by Benedicto in 1976, acting as a front for President Marcos, according to court documents. The bank, which prosecutors called simply "a Marcos bank," has branches in Los Angeles, Beverly Hills, Westwood, Marina del Rey, Encino and Guam, with the headquarters office at 3701 Wilshire Blvd.
Using secret accounts opened in the names of non-existent people, the Marcoses allegedly transferred millions of dollars through California Overseas "in part to pay for Imelda Marcos' jewelry purchases in New York," a prosecutor told the court.
Also, more than $42 million that moved through the account of one of those fictitious names during a two-day period in 1981 was used to pay for a skyscraper on New York's 5th Avenue called the Crown Building, prosecutors said.
The indictment also charged Benedicto with participating in schemes to purchase two other New York buildings for the benefit of the Marcoses. A total of $122.3 million was illegally taken from the Philippines to purchase the three buildings, according to the indictment. Attorney Donald Smaltz, in entering a guilty plea last month on behalf of the bank, told U.S. District Judge Joseph Keenan that 12 fictitious accounts were set up in California Overseas from 1977 to 1986.
Charges against the bank of racketeering and defrauding the Federal Deposit Insurance Corporation were dismissed by the government in return for the plea.
Securing control of the bank had been a goal of the Philippine government since Philippine investigators said they had found about 15% of the bank's shares among documents recovered in the presidential palace at Malacanang shortly after the Marcoses fled in February, 1986. A Philippine government source said the stock certificates were endorsed in blank by Benedicto and clearly were in the control of the Philippine president.
Negotiations to transfer ownership to the Philippines involved lawyers representing the Justice Department, the Philippine government and three major law firms in Los Angeles--Gibson, Dunn & Crutcher for Benedicto; Morgan, Lewis & Bockius for the bank, and Munger, Tolles & Olson on behalf of the Philippines.
"It was extremely complicated, particularly because of the ever-changing political climate in the Philippines," said Smith, Benedicto's lawyer. "People kept coming to us to say they had the authority to negotiate for the Philippines. Then they would go back to the Philippines and have their status repudiated."
But Philippine sources blamed delays on Benedicto's taut negotiating stance.
Until the last moment, the sources said, Benedicto was trying to exchange only a 25% interest in the bank in return for dismissal of all claims against him--not only in the United States, but also in the Philippines and Switzerland, where his assets are frozen.
The deal as it now stands was made possible, these sources said, because lead prosecutor LaBella "hung tough" for a pact the Philippine government found satisfactory even though it meant no apparent gain for his case against Mrs. Marcos.
LaBella would not comment. However, sources said that he considered the prospects of Benedicto being captured and brought to trial remote. At the same time, Benedicto became increasingly isolated after the bank's former president, Rodolfo T. Arambulo, surrendered, pleaded guilty to a mail fraud charge in late February and agreed to cooperate with LaBella.
A few days after Arambulo's surrender, sources said, Benedicto met with attorneys in Hong Kong and authorized renewed negotiations with federal officials.
However, the deal does not solve Benedicto's legal problems on two other continents.
"This is only a Western Hemisphere settlement," noted Alan D. Bersin, one of the Philippine government's lawyers. There are still suits and claims pending against Benedicto in the Philippines, Hong Kong and Switzerland that the Manila government will continue to pursue, he said.
But Bersin said acquisition of the bank is an important step for the heavily indebted country. "It is a very significant milestone in the Philippines' effort to recover ill-gotten wealth from the Marcos era." He said it represents the largest recovery of Marcos assets in the United States to date. Other recoveries have included a $5-million estate on Long Island, N.Y.; condominiums in Manhattan; real estate and a bank account in New York, and some valuable paintings.
Mateo A. T. Caparas, chairman of the Philippine Presidential Commission on Good Government, said the deal was "a significant development in the global efforts" to recover the country's lost wealth.
Since January, 1989, the bank has been operating under an injunction imposed by U.S. District Judge Marianna R. Pfaelzer in Los Angeles that prohibits it from dissipating or transferring any of its assets or participating in the transfer or dissipation of any assets of the Marcoses, Benedicto or Arambulo. The bank, which state records show has a net worth of $17.1 million, has been allowed to conduct normal business and is solvent.
Benedicto has technically remained the chairman of the bank while a fugitive. However, in 1988 state officials barred him from voting any of his shares at board meetings. A new chairman is expected to be chosen in the near future.
Joseph Voorhees, president of California Overseas Bank, would say very little about the settlement other than "if and when this takes place it will be a very positive event for our bank."
Smaltz, the bank's attorney, said the deal was good for the bank and its depositors. The bank "gets out from under this horrendous cloud of litigation," he said. "Current management had no involvement in the activities that gave rise to the charge."
He contended that the bank never should have been criminally charged in the first place, characterizing the indictment of the bank as a way for the government to "squeeze" Benedicto. "The bank was as much a victim as anything else," he said.
The bank faces a possible federal fine of $500,000 as a result of its guilty plea but Smaltz and Bersin said such a high assessment is unlikely.
Smith said Benedicto is pleased that all charges against him in the United States will be dismissed. "He will be completely free of all litigation in the U.S. and in effect a man free to travel at will. There have been arrest flags up for him all over the world."
Smith said the agreement also will facilitate negotiations between Benedicto and Philippine authorities over his assets there and might enable him to return to his native country.
After the Marcos regime was toppled in 1986, the new Philippine government sequestered the assets of several of the former president's closest friends. The seizures included massive holdings of Benedicto's--sugar plantations, television and radio stations, ships, planes and stock in various companies.
"My client is anxious to return to the Philippines," Smith said in an interview in Los Angeles. "He is 73 and he wants to live his life. He was a wealthy man before Marcos was a glimmer in the eye of the Philippine people."
Weinstein reported from Los Angeles and Rempel from New York.