In the 1980s, Julio Carrizosa became the major shareholder of Granahorrar Bank and other financial institutions. Under his leadership, Granahorrar became the seventh largest Bank in the country. The Bank’s core business principal provided financing for residential construction and urban development. From 1988 to 1998, the Bank showed a real annual growth rate of 45%.
Carrizosa owned and controlled shares in Granahorrar through six of his family’s holding companies. His wife and sons were also shareholders in those companies.
Carrizosa became involved with Granahorrar Bank after years of experience in construction and providing housing for underserved communities.
During the late 90s, Colombia lived through one of the worst financial crises in its recent history. A major credit boom lead to excessive borrowing. The Government of Colombia, which historically had conservative economic policies, began to take measures against capital outflows. However, these policies led to disarray in the country’s financial system, and the government declared an economic emergency in 1999.
Between 1998-2001, the Government of Colombia, via FOGAFIN, the Colombian financial authority responsible for protecting account holders in commercial banks, implemented a series of emergency measures to address the financial crisis, including injecting liquidity into the banks that “lacked liquidity” but were not insolvent.
Granahorrar was one of the largest players impacted by the crisis. The company faced a critical liquidity challenge at the time. Like many other financial institutions, the Bank applied to the Colombian Central Bank and FOGAFIN for emergency funding.
However, the Bank was treated differently from its peers. After a series of discriminatory and unprecedented measures, the FOGAFIN and the Banking Superintendency declared Granahorrar insolvent, prompting the agencies to intervene and then sell the Bank without notice nor compensation. The alleged insolvency did not comport with the Bank’s long established history of robust solvency. Thus, the classification of the Bank as insolvent itself represented an unwarranted and irregular designation.
The unprecedented and discriminatory measures taken by government agencies ultimately led them to declare the Bank insolvent. Soon thereafter, on a Saturday (October 3, 1988), the agencies expropriated the Bank without notifying or compensating the Bank’s shareholders, including the Carrizosa family.
The Carrizosa family has argued that the banking authorities did not verify the alleged insolvency of the Bank. In 1998, according to an official statement of Julio Carrizosa, “the equity of Granahorrar Bank was worth 220,000 million pesos – more than 120 million dollars – and, in spite of the difficulties of liquidity that the entity suffered for some months, we had the confidence that the crisis would be overcome, because all the indicators were optimal and Granahorrar was listed as the seventh entity in size of the financial system, with 1,600,000 clients, and 2.5 trillion pesos in assets.”
To understand why the family deemed the process illegal and why the Colombia’s Council of State agreed with the family, one needs to review the complex methods used by the institutions to expropriate the Bank.
The Colombian authorities did not notify the Bank’s shareholders about the intervention in a timely manner or give shareholders enough time to respond to requests. This notification that never took place was an important legal requirement. Without due notice, let alone no notice at all, it would not be possible for the Bank’s shareholders to enforce their rights and to protect the value of their shareholdings.
The agencies began their intervention on a Friday night, after the Bank was closed. The Bank’s checks to the agencies, worth 800 billion pesos, bounced. Immediately, the Banking Superintendence notified the FOGAFIN and Central Bank, warning them that Granahorrar was insolvent. The authorities requested additional funds on Saturday.
They gave the Bank only 12 hours to meet its capitalization requirements, a virtually impossible timeframe when the country was in the middle of a crisis and during the weekend, when the world’s financial sector is closed. With such short notice, the shareholders were not even able to convene – a legal requirement to make decisions on capitalization. The abbreviated notice under the circumstances essentially amounted to no notice at all and made it impossible for shareholders to perform.
Two of the highest courts in the Colombian judicial system gave conflicting rulings.
In 2000, Granahorrar’s shareholders sued FOGAFIN and the Banking Superintendence, the government agencies that led the expropriation, arguing that they acted illegally by ordering the Bank’s recapitalization. The lawsuit was not resolved in the Administrative Court of Cundinamarca. In 2006, the shareholders appealed their case, to the Council of State, which is the highest judicial body responsible for the review of administrative and commercial issues issues in Colombia. Because the Council of State is the highest Court in Colombia regarding commercial and administrative matters, its rulings cannot be appealed. It is a final appellate instance.
The Council of State ruled in the shareholders’ favor in 2007, establishing compensatory damages for $228 billion pesos ($228,000,000,000 pesos).
In 2008, the FOGAFIN and the Banking Superintendence, after failed appeal attempts directed at the Council of State, issued a constitutional injunction (tutela) directly to the Constitutional Court, the country’s highest judicial body that interprets matters related to the country’s Constitution. This appeal was baseless because the Council of State’s ruling concerned administrative and commercial issues that by operation of law cannot be appealed to any tribunal, including the Constitutional Court.
In 2011, the Court ruled in favor of the government agencies, contradicting the Council of State’s decision and claiming that the Government of Colombia’s fundamental rights had been violated. This assertion lacked any factual or legal basis.
The ruling was highly controversial – many experts, including the Council of State, argued that the Constitutional Court violated the shareholders’ right to due process, fair judgement, and their fundamental rights by favoring their own government entities over the shareholder’s individual Constitutional rights.
The President of the Council of State sought to dismiss the ruling in 2014, but all subsequent appeals in Colombia were denied. The Constitutional Court’s ruling was so controversial that in addition to giving rise to two dissenting opinions, it also spawned an institutional crisis within Colombia’s judiciary. These developments led the shareholders to resort to international institutions in their search for justice.
After appealing to the Colombian judicial system, and in light of the conflicting ruling by the Constitutional Court, the Carrizosas, as U.S. citizens and long-time foreign investors in Colombia, had to resort to the international system as a recourse to protect their rights.
The family filed three different processes in international venues to resolve their investment dispute and enforce their human rights before the Inter-American Commission on Human Rights. U.S.-raised Astrida, wife of Julio Carrizosa, filed her claim in the World Bank’s International Centre for Settlement of Investment Disputes (“ICSID”) while the three brothers, Alberto, Enrique and Felipe filed Permanent Court of Arbitration (“PCA”) at The Hague applying the United Nations Commission on International Trade Rules (“UNCITRAL”).
A third case was filed with the Organization of American States (“OAS”)’s Inter-American Commission on Human Rights (“IHCR”), based on the principle of property protection as an essential human right under the OAS Charter.
All entities are currently reviewing their claims.
