The Carrizosa family, the main shareholders of Granahorrar Brank, are seeking compensation and justice for the Bank’s expropriation in 1998 and the subsequent denial of justice before Colombian courts dating to June 25, 2014. The Bank, which was the seventh largest bank in Colombia at the time, was seized by the Government of Colombia amidst a major financial crisis. The family embarked on a twenty-year search for justice through the Colombian legal system and international tribunals, respecting the rule of law and in keeping with due process.
The wrongdoings against the family and their fight for justice can be broken down into three key developments. The first was the illegal and the unfair way the Bank was expropriated. The second was the flawed legal process in Colombia that yielded conflicting rulings by the country’s two highest courts of equal standing. The third is the family’s efforts before international tribunals. The details of these three developments, collectively for present purposes “the Case,” are explained below.
On October 3, 1998 (Saturday), the Government of Colombia seized Granahorrar Bank, citing insolvency and cessation of payments.
Granahorrar’s intervention process began at 8:00 p.m. on October 2 (Friday), when Granahorrar’s checks for more than 800 million Colombian pesos bounced, after the government authorities failed to provide authorized funding. Immediately, Colombia’s Banking Superintendence notified the Financial Institutions Guarantee Fund (“FOGAFIN”) and the Colombian Central Bank of the situation, warning them that Granahorrar was insolvent. What the authorities should have done instead, according to settled principles of law and best practices was to intervene “administratively” and freeze the Bank’s assets and liabilities, in order to protect all parties and avoid economic panic.
Colombia’s Central Bank had 925 billion pesos of Granahorrar’s debt portfolio as a guarantee for 600 billion pesos in loans awarded to Granahorrar by the Central Bank and FOGAFIN to face the liquidity crisis. These 600 billion pesos had neither been disbursed promptly nor in full, which aggravated Granahorrar’s already fragile liquidity standing.
After the checks bounced, the Central Bank and FOGAFIN expropriated Granahorrar’s debt portfolio of 925 billion pesos. They even took the loans that had still not been disbursed to Granahorrar (part of the 600 billion pesos they were supposed to hand out as loans). As a result, the agencies profited over 200 billion pesos.
Once this illicit and unjustifiable operation was concluded, the Banking Superintendence recalculated Granahorrar’s balance and determined the bank was losing money. At 11:50pm on Friday, October 2, 1998, the Superintendence issued a resolution ordering the Bank’s shareholders to capitalize the institution with a mandatory injection of 157 billion pesos. According to the government’s calculations, these funds would return the capital solvency to 9% of the total assets, the level required by the local laws at the time.
The Banking Superintendence notified Granahorrar’s legal representative of the need to capitalize the bank on Saturday, October 3, 1998, at 2:50 am. The authorities set a deadline of only 12 hours to comply with the order (2:50 pm on the same day, a Saturday). At 3:00 pm, as the capitalization did not take place, FOGAFIN decreed the reduction of the nominal value of Granahorrar’s stock to one cent. Julio Carrizosa argued that the Bank’s stock, valued in 220 billion pesos, was reduced to 350 million pesos without justification or reasonable commercial objective. After this move, FOGAFIN capitalized Granahorrar and applied different terms. The Superintendence and FOGAFIN unilaterally terminated Granahorrar’s CEO without complying with a notice to shareholders requirement and replaced the Board of Directors without notification.
The Carrizosas have since argued that as a matter of law the authorities should have taken different measures. If the authorities had ordered an administrative takeover of the Bank, instead of an expropriation, the rights of shareholders and creditors would have been protected.
It is worth noting that Granahorrar was the only bank expropriated without compensation at the time. The Colombian government expropriated Granahorrar in an unprecedented operation that was unnecessary, poorly executed, and illegal, leaving the shareholders with no assets overnight, and awarding no punitive damages.
On October 31, 2005, the government sold the financial institution to the Spanish Bank BBVA; a clear sign that the Granahorrar assets were of significant commercial value.
The Carrizosa family embarked on what became a 20-year search for justice. Their efforts began in the Colombian legal system. In 2000, Granahorrar’s shareholders sued the agencies that led the expropriation (FOGAFIN and the Banking Superintendence), arguing that the government acted illegally by ordering a recapitalization despite the bank’s insolvency, and without notifying its shareholders.
After their lawsuit was not resolved in the Administrative Court of Cundinamarca in 2005, the shareholders appealed their case to the Council of State, the highest court with jurisdiction over administrative and commercial issues. In 2007, the Council of State ruled in the shareholders’ favor and against FOGAFIN and the Banking Superintendence, ordering the government agencies to pay $228 billion pesos in damages and arguing that the resolutions by FOGAFIN and Banking Superintendence were “legally insufficient to generate expropriation.”
In 2008, The FOGAFIN and the Banking Superintendence, after losing four appeals, issued an injunction (tutela) to the Constitutional Court, a parallel institution with jurisdiction only over Constitutional matters. The agencies claimed that the government’s fundamental rights had been violated by the Council of State. Reduced to its essentials, the agencies asserted that losing before the Council of State somehow constituted a constitutional violation. This assertion is without legal precedent.
In 2011 the Constitutional Court ruled in favor of the government agencies, effectively revoking the Council of State’s decision although the Constitutional Court lacked legal authority to do so. In 2014 the Council of State through its President sought to dismiss this illicit ruling, arguing that it violated the shareholders’ right to due process and a fair judgement. He also argued that the Constitutional Court wrongfully had favored government agencies over an individual’s constitutional rights.
The ruling was highly controversial. Experts, including some judges within the Court with dissenting opinions, argued that the Constitutional Court exceeded its jurisdiction. In fact, it usurped the Council of State’s authority and jurisdiction, creating an institutional crisis that lingers until present day.
Ultimately, the government agencies adopted the Constitutional Court’s ruling. All subsequent appeals were denied, including the Council of State’s appeal led by its President seeking reconsideration of the ruling. On June 25, 2014 the Constitutional Court denied that appeal and brought procedural closure to all judicial labor.
Left without additional legal recourse in Colombia, the shareholders moved their efforts to the international legal system. As U.S. citizens, the Carrizosa family filed arbitration proceedings to enforce their guaranteed treatment protection standards under the U.S.-Colombia Trade Promotion Agreement (“TPA”). Accordingly, arbitral demands were filed with the Permanent Court of Arbitration (“PCA”) at The Hague (applying the UNCITRAL Rules) and the International Centre for Settlement of Investment Disputes (“ICSID,” or the dispute settlement department of the World Bank). Both cases will have jurisdictional hearings in 2020.
In 2012 the family filed a petition at the Organization of American States’ Interamerican Commission for Human Rights (“ICHR”). The Commission is reviewing the application. The case before the Commission for Human Rights asserts that the expropriation violates the very fundamental human rights to property. This human right is amply recognized and forms part of the American Convention on Human Rights.
The arbitrary nature of this expropriation and the court rulings that followed created a negative precedent for foreign investors, who expect transparency, legal stability, and rule of law in Colombia.
On March 9, 2018, Astrida Carrizosa filed a request for arbitration with ICSID, arguing that her foreign investment protections as a U.S. citizen were violated as a consequence of Constitutional Court’s June 25, 2014 ruling.
In January of 2018 brothers Alberto, Felipe, and Enrique Carrizosa filed a request for arbitration with the PCA under the UNCITRAL Rules, arguing that as dual citizens Having the U.S. as the dominant and effective nationality-citizenship, their rights as U.S. investors in Colombia under the TPA between Colombia and the U.S. have been violated as a direct and explicit consequence of the Constitutional Court’s June 25, 2014 ruling.
Link to Request for Arbitration Case 2018-56
The family filed a petition with the Interamerican Commission on Human Rights at the Organization of American States. The claimants (which include the three Carrizosa brothers, mother, and father) argue that the Government of Colombia violated their human rights under Article 44 of the American Convention for Human Rights (“CADH”). Specifically, they claim that the government did not honor their judicial protection and denied their property rights.
