The forensic audit of the international operation of Santa Casa da Misericórdia de Lisboa (SCML) found a lack of information about the bank accounts of the subsidiary in Brazil, MCE, and who was authorized to operate them.

BDO’s work, in particular the request for documents, began in September last year, but only this year, and thanks to a report obtained from the Central Bank of Brazil, was it possible find at least six bank accounts associated with this Brazilian company. The bills were not included in MCE accounts and the audit could not obtain more information about the respective movements until the delivery of the final report in April.

Santa Casa Global owns 55% of MCE – Intermediação e Negócios, a company that provides conventional lottery services and instant scratch-and-jog lotteries in the state of Rio de Janeiro. This operation has been at the centre of concerns about the poor results of Santa Casa’s internationalisation and is considered responsible for the majority of the losses of more than 50 million euros attributed to this project. Irregularities and discrepancies in the processes of company creation and operation are also suggested and, more recently, possible financial links with organised crime in Brazil have been reported. The forensic audit is silent on this issue, in part because, as the Observer knows, there is no documentation on the alleged payments.

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According to information obtained by Observador, BDO sought to circulate (official confirmation process) to the banks with which MCE worked, but only letters were sent confirming the business relationship with Santander Brasil, which, however, did not identify himself WHO in the company —of which Santa Casa owns 55% (through Santa Casa Global)— was legally qualified to operate the accounts and authorize operations.

It was the news published in Brazil about transfers of income from Loterj to an MCE account in Bradesco that raised the alarm among auditors that there could be other accounts. Loterj is the company from the state of Rio de Janeiro that concessions lotteries and had a contract with MCE.

It was only when the Central Bank of Brazil was asked to issue a report on accounts and relationships that a set of bank accounts in the name of MCE were identified that do not appear in the company’s accounting records and about which BDO has no information.

The survey requested from the Brazilian central bank found accounts in six more banks — Itaú Unibanco, Pinbank, Mercado Pago, ASA-AS, Pagaseguro Internet and Banco Seguro — in addition to Santander. And even in the case of Santander, circularization did not allow for all the answers, that is, who in the Brazilian corporate structure of Santa Casa had the power to operate the accounts.

This note is made in the final audit report completed on April 30, based on the aforementioned documentation that was only obtained on April 3, justifying, therefore, why letters of circularization had not been sent to these other banks, without knowing that this means “the partners, availability and responsibilities.”

And there was no more time. BDO had already requested successive postponements for the delivery of the forensic audit contracted by Ana Jorge’s management in July of last year. Santa Casa, for its part, was under public and political pressure to close this file and end the cycle of negative news coming from international operations. The obstacles to accessing sensitive financial information, such as bank accounts, show how the audit task was particularly conditioned by the lack of collaboration on the part of Santa Casa’s minority partners or even the managers designated in Brazil and whose activities also had to be controlled.

It was not until October that the directors of Santa Casa Global, who were also at Santa Casa Global Brazil, were dismissed on the initiative of the board. However, when heard in Parliament, Ricardo Gonçalves and Francisco Pessoa e Costa counterattacked and blamed the panel for Santa Casa’s abrupt withdrawal from Brazilian commitments, which resulted in the closing of the financial tap that supposedly led to the spread of losses and the emergence of new contingencies. This thesis was eventually adopted by the new Minister of Labor and Social Security, Rosário Ramalho, who accused Ana Jorge’s radical cutback strategy of having increased losses to 80 million euros. The former supplier justified the halt to transfers with “opaque and ill-founded” expenses and the lack of resources of Santa Casa itself.

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Contracts without guardianship authorization may be legally void

In this audit, BDO warns that the internationalization businesses were carried out without authorization from the guardianship, contrary to what was determined by order of Minister Ana Mendes Godinho when she approved the constitution of Santa Casa Global. Therefore, they may be legally invalid, by virtue of the statutes of the Holy House, which refer to the Civil Code (article 294). As it is an imperative and non-derogable rule, “investments made without authorization from the supervisory authority are not capable of becoming valid legal businesses.”

The operations date back to the time when Edmundo Martinho was a supplier, but the deliberations regarding the internationalisation operations were approved by other members of the panel, as he himself had already stated. The former supplier also publicly admitted that he did not subject the transactions to supervision because he did not consider them necessary, especially since there were plans and budgets with investments for the international area that, he claimed, were approved by the then minister Ana Mendes Godinho.

Other legal defects noted include the lack of minutes of general meetings and management meetings of the companies in which Santa Casa Global participates (some exist, but are not signed) and the failure to appoint the control bodies provided for in the company’s bylaws. The first ruling did not allow certification of the quality and sufficiency of the powers attributed to those who signed the contracts binding the Portuguese institution, or whether the operations were regular. This situation may also give rise to the nullity of the underlying legal transactions, insofar as this is provided for in the laws of the countries in which the operations were carried out.

The non-appointment by the sole partner (SCML) of an effective trustee (plus an alternate), which does not respect the statutes of the SCG, can be attributed to members of the company’s management who failed to comply with the duties of diligence and care owed to them. corresponded would force them to activate unofficial or judicial appointments. The Commercial Companies Code considers that, in these situations, administrators can be sued by creditors, partners and third parties for the damages that such omission may have caused.

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The failure to appoint control bodies, although BDO mentions the existence of 2021 and 2022 reports for which it was contracted, may further aggravate the responsibility of SCG managers since the audit conclusions of the reports that “were not published” were “unfavorable”, preventing the information from reaching third parties, including creditors.

The forensic audit, according to data collected by Observador, indicates that until July 2023, 15 million euros of SCML funds had flown to Santa Casa Global and Santa Casa Brasil, between capital and supplies (shareholder loans). In the same period, Santa Casa Brasil spent 24.1 million euros, of which 12 million correspond to guarantees granted by the parent company in Portugal to Santander Brasil. A letter of consolation was also signed for the Bank of Brasilia for 9.5 million euros for an association for social games in the Federal District, which has already been dissolved.

The business universe in Brazil linked to Santa Casa involved other companies, such as Santa Casa Capitalização, Empresa de Promoção de Vendas and Novo Rumos, but the main business in Brazil was the purchase of 55% of MCE completed in September 2021.

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The contract set a price of R$91 million (14 million euros at the current exchange rate) that could be adjusted to R$120 million (more than €20 million) in a scenario where the contract with Loterj was extended for another 12 months. Payment was agreed in phases, of which R$35 million would be paid in 2021 as part of the contract signing, R$28 million would be paid 12 months later, R$14 million over a 24-month period (until September 2023) and the last R$14 million in 2024.

A price adjustment mechanism was also agreed upon, dividing MCE’s losses between buyer and seller. In September 2022, an addendum to the contract was introduced that renegotiates the payment of 28 million reais with an interest of 1.8% monthly, an implicit annual interest rate of 33% and in two fixed installments.

These last two tranches were not paid by order of Ana Jorge’s board of directors in 2023, and Santa Casa faces legal proceedings in Brazil. In view of the contract, Santa Casa is in a situation of non-compliance, “since without justification or notification to the sellers it did not comply with the payment of the owed installments.” The registered debt was 28 million reais, about 5 million euros.

An extrajudicial enforcement action was identified filed by Ragdoll Empreendimentos (shareholder of MCE) to collect R$31 million from Santa Casa Global, alleging early maturity of the installments of the purchase price provided for in the sales contract. In the opinion of Stocche Forbes Advogados, a firm hired by Santa Casa, “there is a real probability of losing the action.”

According to Público, a deposit of seven million euros was requested from Santa Casa Global Brazil.

This is not the only contingency related to the Rio de Janeiro lottery, as Loterj is demanding SCML pay almost 33 million reais (5.6 million euros) for MCE’s alleged repeated failures to deliver lottery sales revenues (between May and December 2023). The contract provided that MCE would collect Loterj’s revenues and then receive remuneration for this service. However, the audit considers that SCML is not a guarantor of the obligations assumed by MCE, which is a limited liability company, and maintains that any liability will be limited to the funds placed in the company, through Santa Casa Global Brasil.

In addition to the investment in the acquisition of the stake, SCML assumed commitments to finance operations in Brazil for a total of 12 million euros, through two letters of credit in favor of Santa Casa Brasil used in Banco Santander Brasil. The first of 6.6 million euros is signed in July 2022 and the second of 5.5 million euros is for 2023, both maturing in 2027. These guarantees are seen as another breach of the instructions given by the guardianship which established how it defines the “limitation of the legal and patrimonial responsibility of SCML in relation to each of the internationalization projects.”