$62M BankBoston Loan Spotlights Weaknesses in Global Private Banking

A questionable $62 million BankBoston Corp. loan to an Argentine businessman points to a clear lack of internal controls in the often murky world of international private banking, according to banking analysts.

The analysts also predicted that the case, involving an Argentine businessman who obtained a loan, allegedly fraudulently, with the help of a BankBoston private banker, is neither the first nor the last such incident.

Though banks are constantly seeking to tighten their controls, a number of banks, including Citicorp and J.P. Morgan & Co., have had problems over the last few years with fraudulent or unauthorized transactions.

"The word is sloppy, sloppy, sloppy," said Christopher Ecclestone, a director at Interacciones Global Inc. a brokerage firm in Buenos Aires. "What kind of controls are in place when you lend $62 million to a single customer but don't have any credit committee in place?"

Both the size of the loan and the fact it went to a single customer "should have sent alarm bells ringing," Mr. Ecclestone added.

"It's certainly a black eye for them, and it certainly indicates that their controls have to be tightened," remarked Lawrence Cohn, a banking analyst with Ryan, Beck & Co.

A spokeswoman for BankBoston declined to discuss the case, saying it is being investigated internally. "Any comment at this point could prejudice the outcome of the investigation," she said.

Confusion surrounding the loan deepened last week after BankBoston said it was unable to find the company officer who had reportedly taken a phone call from an Argentine judge warning the bank about dealing with the borrower, Oldemar Carlos Barreiro Laborda, a businessman who was already under investigation for fraud in Argentina.

"There is some confusion about what the judge said or did," the BankBoston spokeswoman said.

BankBoston said it has reason to believe that Ricardo Carrasco, former head of its New York private banking office, profited personally from the loan to Mr. Barreiro, who has acknowledged having borrowed the funds from BankBoston and is reportedly seeking to reach a repayment agreement. Mr. Carrasco is a fugitive from federal charges that he defrauded the bank, which says it does not know whether he was the person who spoke with the judge.

However, analysts said it was irrelevant whether the Argentine judge had warned the bank. "It's not up to an Argentine judge to go out of his way, it's up to BankBoston to do its own due diligence," Mr. Ecclestone said.

"U.S. banks have been piling into international private banking, but they don't seem to have any system of checks and balances," he added.

That is not the case at Citicorp, a spokesman said. "Clearly, anytime something goes wrong, by definition you're not happy with the controls - and generally try to strengthen them," he said. "We certainly have done so,and are comfortable with the control mechanisms we have."

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