PS 1350 AND THE INSOLVENCY OF THE GDB

There is a debate in PR over PS 1350, which essentially orders government agencies, and instrumentalities to deposits its funds with the GDB. Aside from withdrawing deposits from the island’s banking institutions and constitutional arguments by the Office of Courts Administration, the measure has other problems. Analysts have focused in the supposed immunity to be granted to the GDB’s Board but that is not the problem either. PS 1350 eliminates article 15 of the present GDB law and substituted with the following:

“Article 15. The members of the Board of Directors, officers, employees, agents, consultants, or advisors of the Bank shall be indemnified by the Bank and shall not have any personal liability to any entity for actions taken or not taken in good faith in their capacity and authority, absent clear and convincing proof of willful misconduct for personal gain or gross negligence comprising reckless disregard of, and failure to perform, applicable duties. Any action brought in any court for gross negligence shall be dismissed with prejudice if the defendant produces documents showing such defendant was advised of relevant facts, participated in person or by phone, and deliberated in good faith or received and relied on the advice of experts in respect of whatever acts or omissions form the basis of the complaint.”

Although this article may be shocking to some, it is not very different form the current view of liability of any Board in our times. The measure seeks to protect the members of the GDB Board from being sued for decisions taken in good faith. What is really bad is that PS 1350 eliminates the present article 15, which states as follows:

Section 15. – Any officer, employee or agent of the Bank who shall receive any deposit knowing that the Bank is insolvent, shall be guilty of a misdemeanor if the amount or value of such deposit is less than twenty five dollars ($25) or if the amount or value of such deposit is twenty five dollars ($25) or over, such person shall be guilty of a felony, and shall be punished by imprisonment for not less than one (1) nor more than five (5) years, or by a fine of not less than five hundred dollars ($500) nor more than three thousand dollars ($3000), or by both penalties.”

What does all this mean? That the GDB is insolvent and what the legislature wants is to inject funds to an entity that lacks capital but to do it at this time would be a felony. With PS 1350 the legislature adds funds to an unsuccessful and insolvent entity and immunizes its employees at the same time. It is a travesty of justice and a desperate effort to save the status quo. This legislative measure is a resignation to accountability by the legislatures and should not be approved. No wonder so many bondholders are asking for a Financial Control Board for Puerto Rico as I discussed here

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