The Black Spanish Card Scandal: Credit Card Misuse by Directors in the Bankia Case - DAC Beachcroft

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The Black Spanish Card Scandal: Credit Card Misuse by Directors in the Bankia Case

Published 11 diciembre 2014

Executives and directors of former Spanish savings bank, Caja Madrid (now Bankia), are currently being tried following the misuse of credit cards that were issued to them by the bank.  

The investigation by the Spanish Prosecution concerns credit cards issued to 83 parties, many of whom held posts as executives and directors, who collectively spent €15.25 million between 2003 and 2012. This so-called "black card" scandal has emerged against a background where, in 2012, the same bank requested Spain's bank bailout fund, FROB, for a €19.2 billion injection.

The credit cards were issued by the bank to executives and directors outside standard practice without any sort of contractual provision to support their existence. The cards were used to make cash withdrawals from ATM machines and for card payments, which according to the State Prosecutor and the judge, seem unconnected to the bank and unrelated to the professional activities carried out by the cardholders.

There are some noteworthy legal issues arising from this matter. Firstly, the expenditure on the credit cards may constitute "additional income" or a "benefit" for each director/executive, which he should have declared to the Spanish Treasury. There is no evidence that such amounts have been declared, and therefore, there is an issue of possible unpaid personal taxes. The executives and directors may be held liable for a tax fraud offence if it is found that the individual's unpaid tax exceeds €120,000 in one year. If this threshold is not met, it may be found that their actions constitute an administrative infringement subject to fines.

Secondly, there are offences of misappropriation of bank funds that could come into play, such as that of unlawful use of bank funds provided under Spanish Law. If the directors and executives used the credit cards under the mistaken belief that the card payments were effectively "additional remuneration" for them, then they may say that they were unaware of the true position, namely that their use of the credit cards constituted a misappropriation of bank funds. This conduct would not amount to an offence of "disloyal administration" as provided in the Spanish Criminal Act. The misappropriation would not be interpreted as breach of directors' duties, but rather as an activity completely outside the scope of their admissible banking conduct and duties.

The worst case scenario would be if the executives and directors are found liable of deliberately agreeing to make bank funds available so that the credit cards could be used for self-enrichment, to the detriment of the bank. This would constitute a misappropriation offence, and in this case, all directors would be considered direct perpetrators of the offence, whether it be for agreeing to the availability of the funds and receiving them to the detriment of the bank, or obtaining them in cash, services or goods through the use of the credit cards.

The most recent news on this case is that a request by one of the defendants that his €16 million bail be covered by his D&O policy has been rejected by his insurers. Time will tell whether directors are found liable, but based on current information, the prospects seem far from easy.


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