Caja Madrid: a bottomless money pit for Spain¡¯s political parties?

Failed savings bank Caja Madrid was once Spain¡¯s fourth-largest lender, with more than seven million customers and annual earnings of over €2 billion during the real estate boom.

But over a space of 20 years or so, the flagship savings bank became a refuge for dozens of politicians who were granted a seat on its board as a reward for their loyalty or internal power.

The positions were handed out by the three main parties ¡ª the Popular Party (PP), the Socialist Party (PSOE) and the United Left (IU) ¡ª who imposed their choice of chairman and appointed most of the members of the board.

This political control over the regional lender spawned the kind of self-interested behavior that has led to a wave of resignations and dismissals, after a credit card abuse scandal hit the headlines last week.

Besides providing nearly bottomless funds for board members and executives¡¯ personal expenses over the course of 10 years, Caja Madrid also paid the salaries of dozens of political leaders, freeing up their parties from having to shell out the money themselves. The savings bank also financed other party expenses through its foundations, which handed out a collective €1 million a year.

Of the €15.6m spent between 2003 and 2012, almost €6m was drawn out of ATMs or used to buy clothes or groceries

In 1999, EL PA?S revealed that Caja Madrid was handing out credit cards to all its board members with a monthly spending limit of €900, or €10,800 a year. ¡°I never use my city council funds for representation expenses, I have this credit card for that,¡± admitted Ricardo Romero de Tejada, then mayor of the outlying town of Majadahonda and a member of the board of Caja Madrid at the Popular Party¡¯s request.

Other beneficiaries explained that they used the bank card to pay the rent on premises where their political parties were holding events.

The Spanish public is not ready to accept this new case of abuse without demanding some accountability

The media coverage exposing the perks enjoyed by deputies and councilors with positions in public companies led regional Madrid authorities, then headed by Alberto Ruiz-Gallard¨®n of the PP, to scale back these practices. An appendix to the 2000 budget stipulated that board members who also happened to be national or regional deputies, senators or high-ranking officials of Madrid regional or local agencies would only receive compensation for travel and food expenses, but not for attending board meetings.

Jos¨¦ Mar¨ªa Aznar, then the prime minister of Spain, announced exemplary measures that same year on the PP¡¯s election platform: ¡°We will encourage the elimination of compensation for high-ranking officials for attending meetings of the board at public companies.¡±

But the scandal did not trigger any political downfalls, nor did it promote initiatives to eliminate the credit card privileges. For the next decade, the 43 politicians, half-a-dozen entrepreneurs and 10 labor unionists who sat on the board of Caja Madrid at various times all used the free credit card liberally.

What¡¯s more, the monthly spending limit of €900 was raised to €2,000 in the midst of the economic crisis, when the lender was already on the brink of bankruptcy. There was no written contract establishing the conditions of this privilege, just a verbal communication.

When we paid for meals, the party knew we were using the Caja Madrid credit card¡± Former board member

When Bankia ¡ª the umbrella lender created by merging seven struggling savings banks, including Caja Madrid ¡ª was bailed out and new management brought in to shore up the lender¡¯s accounts, the credit card abuse came to light.

But this time, the backdrop has changed. After years of economic crisis, constant revelations of corruption by public officials and a growing disaffection for the political class, the Spanish public is not ready to accept this new case of abuse without demanding some accountability.

Political parties know it, and they are promising to act swiftly against wrongdoers. The Socialist Party has launched an internal investigation to find out whether its 15 members who occupied positions at Caja Madrid at one time or another made ¡°inappropriate use¡± of their credit cards.

But sources familiar with the situation say that political parties were fully aware of what was going on. ¡°When we paid for meals, the party knew we were using the Caja Madrid credit card,¡± said one former board member.

Ildefonso S¨¢nchez Barcoj, former financial director at Caja Madrid, said that the entire opaque credit card system ¡°was controlled and designated from the chairmanship, which established the spending limit and could access all the transactions made with the cards. This department had control over all the spending, no employee could be above what the chairman assigned.¡±

But the anti-corruption attorney feels that the expenses could represent misappropriation of funds. The conclusions of a report by the Fund for Orderly Bank Restructuring (FROB), Spain¡¯s bailout fund, are adamant: the use of the credit cards went well beyond anything that might be considered reasonable representation costs.

Of the €15.6 million spent by credit card holders between 2003 and 2012, almost €6 million was drawn out of ATMs or used to purchase clothing, accessories and groceries. While the report does not detail who exactly used their cards for these purposes, beneficiaries of the cards included the former head of the business association CEOE, Gerardo D¨ªaz Ferr¨¢n, and the current chief of the Madrid business association, Arturo Fern¨¢ndez.

Five former board members with no executive functions at Caja Madrid told EL PA?S that they never withdrew cash from ATMs and that they felt what they were doing was legal even if they didn¡¯t have to justify their expenses.

¡°The card leaves a trail showing the business premises where it was used, so it was perfectly possible to keep tabs on its use,¡± said one. ¡°We were told that we could use the card to pay for trips when we were outside Madrid and called in to a meeting, or to buy books relating to the lender, and for representation costs such as meals or a gift we might have to make in connection with our position.¡±