Saturday, September 24, 2011

Legal Trouble for American Businessman in Bolivia Caused by Lack of Due Diligence

A Bolivian judge ordered the release on bond on Friday (September 23) of a New York City businessmen who was arrested in June and imprisoned for 90 days in conjunction with money laundering charges. Jacob Ostreicher, 52, maintains he is the victim of judicial abuse and his unusually lengthy detention prompted U.S. officials to intercede on his behalf with senior Bolivian officials. A local human rights groups backed him, accusing prosecutors of selective enforcement.


COMMENT: This is a case that is fraught with examples of what NOT to do when engaged in operating a business in another country. Ostreicher, an orthodox Jew from Brooklyn, violated the basic precepts in international business: NOT corroborating who your business partners are, NOT retaining competent legal counsel, NOT conducting in-depth financial analysis, NOT contacting the US Embassy for assistance, NOT verifying everything and trusting NO ONE without corroboration.

Ostreicher went to Bolivia to make a fast profit on a rice-growing project after the local manager defrauded investors and planted some of their rice on land owned by the brother of a Brazilian drug trafficker. The local manager, now jailed, turned out to be a Colombian con-woman who was involved amorously with the trafficker. The trafficker is now imprisoned in Brazil for murder and other crimes. Here's the interesting part: Ostreicher had previously worked with the Colombian, so he should have known better.

Judge Zenon Rodriguez ordered Ostreicher to pay US$14,500 bond on Friday, but prohibited him from leaving Bolivia until the investigation is completed. He should be released from Santa Cruz' Palmasola Prison in the coming week. The judge also issued a gag order for Ostreicher and his wife, Miriam Ungar, at the request of prosecutors.

Although Ostreicher has no doubt been taken advantage of by the Bolivian criminal justice system, he had no business getting involved in this project, considering that he had never worked in Bolivia before and knew very little about establishing a company in a developing country such as Bolivia. It should also be noted that of 178 nations on Transparency International's 2010 Corruption Perception Index (http://www.transparency.org), there are 109 MORE transparent countries to do business in than Bolivia. Buyer beware.

Prosecutors allege that the $25 million put into the rice venture by investors, led by Andre Zolty of Switzerland, was obtained illegally. Yet, Ostreicher says he cooperated fully from the start with prosecutors, who seized all his documents and computers, but never requested any proof of the money's legitimacy. At a June 4 hearing, a day after Ostreicher's arrest, prosecutors alleged that Zolty was being investigated by Swiss authorities for money-laundering. Conversely, that claim was later disputed by Swiss federal police, who issued a document at Zolty's request saying that neither he nor his firm are under police investigation.

Although Ostreicher runs a New York City flooring business, running a rice-producing business in Bolivia is a bit removed from his skill-sets. We wish him well in getting back home. It is too bad that he did not seek out expertise from experts before he went to Bolivia and permitted himself to get caught-up in this ill-fated business venture.


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