27 February 2010

Bizarre fraud in Bahrain

Move over Bernie Madoff, you only committed the centuries old pyramid scheme costing your investors perhaps US $ 10 billion. One Mr. Sanea in Saudi Arabia/Bahrain is alleged to have mis-appropriated almost US $ 10billion. What is most interesting is the facts of this fraud. Here are a few paras from the Economist:

According to Ernst & Young’s findings, TIBC was a bank whose chairman and executive directors never appeared at board meetings (although the minutes carried their signatures anyway) and whose staff never interacted with its supposed borrowers. It made loans, rolled them over and increased them, to people who deny ever taking them, the report says.

Ernst & Young found that the desktop computer of Glenn Stewart, TIBC’s boss until the default, could be accessed from afar, using “pcAnywhere” software. Mr Stewart was supposed to log in and authorise the bank’s electronic payments. But according to Ernst & Young, these authorisations were made by remote control from outside Bahrain.

The alleged impostures were not confined to the digital realm. The bank’s former chairman, Sulaiman al-Gosaibi, was purported to have signed its annual report on February 12th 2009, even though he was in an intensive-care unit in Zurich at the time. The investigators mention a report by Audrey Giles, a forensic scientist, who examined documents given to her by AHAB. She identified at least 200 forged signatures, The Economist has learned. In many cases the signature was photocopied or printed, then traced over with a felt-tip pen.

The investigators found little evidence that any of the Saudi borrowers in TIBC’s $2.2 billion loan-book were genuine. The bank’s staff never interacted with them directly. Letters of reference from the borrowers’ banks “could have been forged”, the investigators write (although they could not say for sure). They note that Deloitte, which Ahab had appointed as a consultant, made “drive-by” visits to the borrowers’ addresses, discovering that “the premises were not occupied by the borrowers or used for trade purposes.”

The report naturally tries to establish who was really in charge of TIBC. Mr Stewart, the chief executive, told the investigators “that major decisions and his day-to-day actions were directed by Mr Al-Sanea”. The report also says that memoranda to TIBC’s executive committee, seeking the chairman’s signature, were also addressed to Mr Sanea, long after his resignation. But Mr Sanea insists that “he is not involved in the operations of AHAB in any way”.

If Ernst & Young’s suspicions are correct, TIBC appears to have been a Potemkin bank. Its executive directors paid it no heed, and the borrowers on its books never asked for loans and did not receive them. The victims of this alleged fraud, the Gosaibi family, seemed blithely confident that the financial arm of their business empire would run smoothly without their intervention or oversight.


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