The Caja Madrid Black Cards: 10 Ethical Questions

Much has been said in the last three weeks of the “tarjetas opacas” (black cards) of the Caja Madrid, now Bankia, or to be precise BFA (Banco Financiero y de Ahorros), which Bankia is the financial subsidiary. In essence the issue concerns the use of opaque (for the Treasury and even for the internal auditors) charge cards by 82 directors and senior managers of Caja Madrid and Bankia. Between 2003 and 2012 the sum paid through these cards appears to amount to €15.5 million, almost wholly personal spending on luxuries

Although popular intuition has already energetically condemned such behavior, there is still room for a systematic ethical analysis through the following questions. These questions may serve to bring some order to the quantity of information which has appeared. The comments are highly tentative, being based on news reports that I have used hypothetically.

  1. Is the use of black cards ethical? No, for two reasons. The opaque debit or credit cards serve as payment in kind. By using them one engages in tax evasion. Moreover, the opacity of these cards included virtually unchecked spending, and that is contrary to honest administration which has to avoid the misuse of common goods, arbitrariness and lack of control in expenditure.
  2. Was it ethical to introduce these cards? When the cards for directors and executives of the Caja Madrid were introduced there was no opacity; this was in 1988 in the presidency of Jaime Terceiro. They were created solely for representation expenses and had a maximum limit of 600 euros per month. They received completely regular treatment as regards accounting and were reviewed and subject to the monitoring carried out by the Audit Committee of the expenses of the company organs of governance and management. With the presidency of Miguel Blesa (1996-2010) the monthly limits were increased and, at some point, the internal control was removed and card spending came to be entered in an accounting note titled “computer error”. There is abuse of power and manipulation of accounting information in addition to induction and cooperation to defraud the Treasury and to misuse resources.
  3. What was the intent? During the presidency of Miguel Blesa expenses were increased for directors, as was the standard remuneration of senior management. Was there any other way to remunerate with transparency? Were back cards incentives? If so they were perverse incentives, being unrelated to management or to results. In addition, it seems that in recent years, the cards had different limits, depending on the proximity of a director or officer to the President, Blesa. It has been speculated that the scheme was carried out with the intent to avoid criticism or even to buy disposition. In this case the intent would have the malice of covert bribery and would reinforce the idea that there was dishonest administration.
  4. Are there circumstances that modify the seriousness of the introduction and use of these cards? In addition, many beneficiaries of the cards also obtained large loans from the bank at rather low interest rates. Specifically, people with the cards received 62 million euros in loans from Caja Madrid. All of this in the abysmal financial context the bank was experiencing. Also worth noting are the reasonably foreseeable consequences that sooner or later, the use of cards and misuse of funds would become known and scandal would ensue.
  5. What responsibility rested with the presidents of Caja Madrid and Bankia? Miguel Blesa and his CEO have the ultimate responsibility. Responsibility comes from the knowledge one has or should have and the will to do so. Blesa declared to the judge: “I never imagined that the deductions did not include those expenses”. It is unacceptable to argue ignorance throughout his long rule that such a situation was illegal. Blesa himself made extensive use of the card (estimated at 436 700 euros). How could he not have known that such an amount went untaxed? In any case, besides Blesa who promoted or authorized the operation, a brain to implement it was also required, and responsibility for this is also evident – Blesa’s successor at Caja Madrid and then Bankia, Rodrigo Rato. He spent 44 200 euros on his card, admitting to the judge that the card was part of his salary and adding, “It’s all wrong, but I knew nothing”. He also must have known but, in mitigation, he was managing very complicated issues with the creation of Bankia and its listing on the Madrid stock exchange. Maybe he did not inquire too much, or information was withheld from him.
  6. What about the responsibility of the cardholders? The use of cards was very uneven. Some spent more than 400 000 euros, others less, some at the opposite end of the scale did not reach 30 000 euros in 10 years. It’s hard to believe that they did not realize that they were involved in tax evasion or perhaps concealed bribes (Did this lead them to not fulfill their obligations as directors to oversee the running of the company?), or at least remuneration of questionable legality. Personal card spending is striking: hefty sums on restaurants, personal and family travel (including a safari in Africa), clothing and luxury goods, expensive wines, jewelry, equestrian activities, golf clubs, and even cash. Representation expenses were a small part. 52% of the spending on the cards was ​​on Saturdays and Sundays and Christmas and summer periods. It is unacceptable to spend that money from illegal sources, even more so knowing that it comes from an entity in bankruptcy.
  7. What was the responsibility of those responsible for the accounting of the financial institution? We do not know what happened, but obviously someone had to decide and cooperate to make the costs of card disappear as a “computer error” and thus eliminate them from internal audit.
  8. What was the responsibility of the external auditors? And of the Central Bank of Spain, the supervisor of Spanish banks? The external auditing conducted by Deloitte did not see any irregularity in the matter of the cards. It must have been hidden, but the question remains as whether Deloitte could have been more inquisitive. The responsibility of the Bank of Spain, as the ultimate supervisor of financial institutions, is more remote but it may also possibly have done more to detect the irregularity of the opaque cards.
  9. Should the cardholders return what they spent? Managers and directors might understand that back cards were part of their remuneration, perhaps even by verbal contract, but this would be a flawed contract that should not have been made. Therefore it is right to return was spent with the card on personal expenditure, but not for expenses of representation. In fact, some are already doing this.
  10. What does the case tell us about the moral character of its protagonists? In all personal actions virtues and vices emerge. In this case, lust for power, greed, lack of moral awareness, scant temperance in the use of money, disloyalty to the institution they served, lack of justice and, in some cases, a lack of courage to change or report the situation has been seen in the people involved in the matter.

Let us hope that in time we clarify the truth and that the lesson is learned.


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