Paraguay's Ex-President Santiago Pena Arrested Amidst Bank Collapse Crisis

Paraguayan police have raided the home of ousted President Santiago Pena as part of an investigation into the collapse of Ueno Bank, one of the country’s largest digital lenders. The raid on Sunday follows the bank’s downfall, which has plunged the South American nation into a severe economic and political crisis, triggering widespread protests.

Pena, an ally of US President Donald Trump who assumed office in 2023, was removed from his position on Friday. The collapse of Ueno Bank led to frozen access to savings for nearly three million customers, representing almost half of Paraguay’s population of 6.5 million. The former president, who denies any wrongdoing, faces criminal charges for allegedly using his political influence to direct public funds to the bank, despite having financial ties to its parent company.

What charges does Pena face, and what are the implications for Paraguay’s future?

Pena was arrested after Paraguay’s Senate unanimously voted to remove him from office on Friday, rejecting his resignation attempt from the previous day. On Saturday, Judge Humberto Otazu ordered Pena to be held in pretrial detention at a military facility, citing the necessity to ensure his presence in Paraguay during the ongoing investigation. Pena’s lawyer, Ricardo Preda, stated that his client would plead not guilty and cooperate with investigators. Preda remarked, “What sets a serious country apart is not that its banks don’t fail, but how it responds. If there is one thing that undermines confidence in the financial system, it is attempting to oust the president without evidence.” Prosecutors confirmed that police had also searched Pena’s mansion near the capital, Asuncion, as part of their inquiry into the banking scandal.

Vice President Pedro Alliana has been sworn in as Pena’s successor and is expected to complete the term until August 2028.

Accusations against Pena:

Prosecutors have charged Pena with breach of trust and administration for personal gain, offenses that carry a potential prison sentence of up to 10 years each. The allegations center on Pena’s connection to Ueno Bank, a digital lender established in 2021 that rapidly expanded by providing services to previously underserved Paraguayans. Pena held shares in Ueno’s parent company until March 2025. Prosecutors allege that during his presidency, he influenced government agencies and state-owned entities to deposit substantial public funds into Ueno Bank, despite existing concerns about its financial stability.

By June, Ueno Bank held approximately $850 million in public funds, including assets from Paraguay’s state pension system. Recent regulatory reports had also highlighted excessive lending to specific companies, raising doubts about the bank’s solvency and its loans to businesses associated with its executives. The indictment further details that Pena obtained two loans from Ueno totaling approximately $500,000 in 2024 for the construction of his mansion. His reported monthly mortgage payment of $38,000 was six times his presidential salary.

The scandal has also implicated Carlos Carvallo, the former chief of the Central Bank of Paraguay, who previously led Ueno Bank. Carvallo faces charges of breach of trust, producing false public documents, and administration for personal gain, and is also in pretrial detention.

Pena has refuted the accusations, asserting that the bank’s issues were a matter of regulation. Newly inaugurated President Alliana announced on Sunday that the government had initiated refunds for 1.2 million Ueno Bank customers whose funds were frozen. He stated that approximately $158 million had been disbursed so far, with further reimbursements anticipated this week.

Impact of the scandal on Paraguay:

The collapse of Ueno Bank has left millions of Paraguayans unable to access their savings, wages, and pension funds, while also casting a shadow over the government’s management of public finances. The central bank intervened on Tuesday after discovering that Ueno had failed to meet minimum solvency requirements. The bank had issued $146 million in questionable loans to companies linked to its owner, and its revised financial statements indicated that its capital had fallen below half the legally mandated minimum.

The crisis has fueled widespread protests, with thousands demanding access to their funds and accountability from political leaders. Some demonstrations have escalated to violence, involving clashes with police. Opposition Senator Rafael Filizzola described the situation on Friday as “the biggest corruption scandal in our democratic history.”