- Publications
- Financial crime summaries
- Quarter 4, 2011
Summary of relevant output on money laundering and financial crime
1 October 2011 to 31 December 2011
Sites Reviewed
British Bankers’ Association (BBA) www.bba.org.uk
European Securities and Markets Authority http://www.esma.europa.eu/
Commodities Futures Trading Commission (CFTC) http://www.cftc.gov/
Financial Action Task Force (FATF) http://www.fatf-gafi.org/
Financial Services Authority (FSA) http://www.fsa.gov.uk/
HM Treasury (HMT) http://www.hm-treasury.gov.uk/
Joint Money Laundering Steering Group (JMLSG) http://www.jmlsg.org.uk/
Serious Organised Crime Agency (SOCA) http://www.soca.gov.uk/
Transparency International (TI) http://www.transparency.org.uk/
Deloitte Forensic Centre http://www.deloitte.com/forensiccenter
CIFAS http://www.cifas.org.uk/
Financial Fraud Action UK . http://goo.gl/dEC9t
FSA on Financial Crime:
"Financial crime includes any offence involving money laundering, fraud or dishonesty, or market abuse. The objective interacts with our three other objectives – protecting consumers; market confidence; and public awareness. Fraud can take a variety of forms including phishing, skimming, carousel fraud, identity theft and advance fee fraud. It falls within the FSA's statutory objective of reducing the risk of financial crime and also impacts on our consumer protection objectives."
The Serious Fraud Office (SFO):
A guilty plea entered recently at Southwark Crown Court completes the prosecution of six defendants over two trials in a £4 million commercial loans advance fee fraud between 2006 and 2009 operating as Gresham Ltd.. With reporting restrictions now lifted the convictions of Edward Davenport, Peter Riley and Borge Andersen in May can now be published alongside the convictions of David Horsfall, Richard Stephens and David McHugh who all pleaded guilty before the second trial began.
Trial 1
The first trial, presided over by HHJ Testar, involved the three defendants who directed and operated the fraud, Edward Davenport, Peter Riley and Borge Anderson. They were the driving force behind Gresham Ltd, a company promoted falsely by them as a long-established, wealthy and prestigious financial organisation capable of lending hundreds of millions of pounds as venture capital.
- The three were convicted on 19 May this year of conspiracy to defraud. Sentencing was held over until 1 September. Davenport and Riley were each sentenced to 7 years, 8 months and disqualified from acting as company directors for ten years.
- Andersen's sentencing was adjourned awaiting a pre-sentencing medical report and on 12 September he was sentenced to 3 years, 3 months and disqualified from acting as a company director for 7 years.
The SFO will seek Serious Crime Prevention Orders against all three defendants. Confiscation proceedings will also be taken against all three defendants.
Trial 2
The second set of proceedings under HHJ Higgins involved a solicitor and two individuals purporting to be professional advisors engaged by Gresham to support the façade. David McHugh, an individual with several previous convictions for dishonesty, posed as both a lawyer and accountant in order to deceive investors. Richard Stephens posed as a surveyor to convince investors their projects were being properly considered. David Horsfall, a solicitor, provided misrepresentations to investors as to Gresham's ability to advance loans.
- David McHugh and Richard Stephens pleaded guilty to conspiracy to defraud.
- David Horsfall pleaded guilty to fraud by false representation, contrary to s1 of the Fraud Act 2006.
These defendants were sentenced on the 10th November this year.
The Story
Gresham, a London based operation, purported to offer the sourcing and provision of commercial funding by way of loans or joint venture capital, for which "advance fee" payments were sought from individuals. (This Gresham is not to be confused with a similarly named business) It was set up by Davenport who in 2005 bought a near-worthless company registered many years earlier, Industrial Design and Finance, and renamed it Gresham Ltd. His company brochure described the business as having a "consistent record of trading…" over the "last 50 years". He recruited Peter Riley to run the company on the day-to-day basis, to meet prospective clients and sign the loan agreements. Davenport remained however, the "supreme leader", as described by one of the conspirators in a recovered email. Andersen joined Gresham in February 2008 to become Riley's principal lieutenant, signing agreements and fobbing off concerned applicants with bogus explanations for delays in provision of funding.
The dishonest representations which underpinned the Gresham operation included claiming that it had particular experience and expertise in the field of multi-million pound commercial finance, claiming that it had access to a number of sources of funds that were available to fund projects of the type that were being presented and claiming that it had a successful track record of arranging funding for clients. Solicitor David Horsfall, a long-time associate of Davenport, added a professional reassurance to prospective applicants seeking confirmation of Gresham's ability to advance substantial loans. He also falsely claimed he had transacted loan agreements and dispersed money for Gresham.
David McHugh pretended to be a qualified lawyer and an accountant of 35 years experience. He traded as Touchstone Accountants and Touchstone Law. In reality he was not enrolled or qualified in either profession. He entered into the Gresham conspiracy in early 2008 and amongst the various deceptions he contributed to the fraud was the preparation of false company accounts.
After persuading victims to seek finance, Gresham would proceed to obtain the advance fee from the applicant as an absolute priority and before taking any further step on the applicant's behalf. This would be followed with a range of deceptive assertions and claims designed to extract further monies from the applicant by way of deposits, fees for bridging loans or fees for insurance policies.
Having obtained the fees, further deceptions were made to convince the applicant that genuine and positive steps were being taken to provide the funding that they were seeking. When the applicant complained about the speed of progress or the lack of results, a range of tactics and excuses were deployed to deflect the client from appreciating the true situation. An example is where Riley blamed delays on a fictitious Monaco financier called Louis Martin, even setting up an email address of that name and sending reassuring messages from it to applicants.
Riley and Stephens were old friends. The fraud used loan documentation templates from a previous similar dishonest scheme that Stephens (under the name of Kirkup) was involved in. Stephens joined in the conspiracy in 2007, following his release from prison, taking on the role of "surveyor" to visit the sites of the proposed building projects in order to give the impression that proper and professional procedures were being undertaken and as a pretext to demand "due diligence" fees which in some cases for site surveys were over 50,000 euros.
The defendants relied upon the fact that there was a worldwide demand by those either already in business, or wanting to go into business, for finance for commercial enterprises and willing to pay a fee in advance to acquire a loan. Often clients required 100% (or close to 100%) funding and they had frequently already exhausted conventional lending sources before approaching Gresham.
Gresham took advantage of the "credit crunch" that took that hold from 2007 onwards and when conventional sources of commercial financing became scarce. Holding itself out as a funding source in such an economic climate was a powerful draw for entrepreneurs keen to get projects off the ground.
Loans were typically sought for construction projects in the UK and continental Europe, but also in North America, India and in the Caribbean. The fees were sought under a variety of pretexts, ranging from "verification" fees to "guarantee" fees. Most significant, and indeed profitable for the defendants, however, were demands for "due diligence" and "deposit fees". The latter were claimed necessary to raise the loan.
The loans Gresham claimed to be able to provide amounted to many hundreds of millions of pounds. Yet of the numerous victims contacted by the SFO not one received the monies promised. More than £4m in fees were taken from over a hundred applicants.
Proceedings
The Director of the SFO, Richard Alderman, commented "This was a proactive investigation that stopped a sophisticated criminal enterprise in its tracks. The time taken from the commencement of the investigation to trial was a little over fifteen months and demonstrates the SFO's commitment to reducing the time taken to bring cases before the Crown Court."
In passing sentence in trial 1, HHJ Testar described the Gresham operation as a "professional and sophisticated fraud that did a huge amount of damage…victims suffered crippling losses". He described Riley as "a very accomplished con-man…at the sharp end of the fraud" who had "spun a web of elaborate lies to explain why the money had not come. It was one fictitious charade after another" and enabled Riley to enjoy "a dolce vita life".
Yet another Boiler Room Scam.
Spain is again the host of another major scam reported on Fund Web by Chris Salih on 5th October this year. This case was heard at Ipswich Crown Court where seven men were imprisoned for a total of 40 years involving an £$8m boiler room fraud.
Thousands of UK investors were persuaded through high pressure selling to push shares in Worldwide Bio Refineries (WBR) described as a bio-diesel investment company. WBR had a processing plant in County Durham that was purported to produce diesel fuel from vegetable matter. It also had a plant in Singapore producing diesel intended to be marketed in the UK.
In passing sentence, HHJ Overbury of the High Court said: “This was a well planned, sophisticated, and well executed fraud dressed up in the language of legitimate business. It involved deliberate targeting of a particular group of investors. The directors’ actions amount to a breach of trust of the investors. They had a long lasting effect on the victims who lost their savings.”
SOCA
14 December 2011
Four men who conspired to launder $15.5m which was stolen eleven years ago from a German bank have been sentenced to 18 years in prison following an extensive financial investigation by SOCA.
The organised crime group believed it would be able to avoid law enforcement attention by spreading a tangled web of financial transactions across the globe, meaning that no one authority would have overall responsibility for investigating the crime, nor the resources to unpick the worldwide mechanics of the group. SOCA investigators proved to the men that their assumptions were wrong.
It started with an electronic bank theft in August 2000 by two men working for Commerzbank in Germany. Following the conviction of the two in Germany SOCA investigators discovered that the same stolen funds were arriving in the UK via a most complex web.
Officers discovered that through another employee of the bank, Leigh Greest, the men had enlisted a specialist criminal money laundering group headed by Herbert Austin to try to obscure the money trail. They created an international system to receive and wash the stolen money which exploited offshore companies, controlled via trusted associates and faceless administrative nominees. They then used an additional layer of offshore banks in jurisdictions including the Channel Islands and Cyprus before transferring the funds to the accounts of Equity Holdings and Investments Limited and Westfield Corporation Limited in the UK.
SOCA has truly demonstrated its tenacity in uncovering tangled money trails. Three men were sentenced on 12 December 2011to a total of 18 years in prison, with the ringleader (Austin) getting the lion’s share of 8 years.
Transparency International have published an interesting index of the perception of corruption in all parts of the world. See the data here.
Recent Court Proceedings
Former partner of famous West End Law Firm found guilty of 22 million euro loan scam
At Southwark Crown Court on 5 December Kevin James Steele, a former partner of the solicitors' firm Mishcon de Reya (MDR) was convicted of forgery and two fraud offences. Two other defendants pleaded guilty before trial. They are all to be sentenced on 9th January 2012.
Defendants
a) Kevin James Christopher Steele (d.o.b 09/06/60) of Kent
b) Michael Andrew Shephard (d.o.b 29/01/61) of Lancashire
c) Mark Terence Pattinson (d.o.b 08/11/73) of Lancashire
Commenting on the result SFO Director Richard Alderman said, "I welcome today's verdict. It's a victory for honesty and fair dealing in business."
Investigation and proceedings
This case was accepted by the Serious Fraud Office for investigation in November 2008 and was conducted in partnership with Warwickshire Police. Steele was convicted by the jury on all three counts on the indictment.
Other jurisdictions
The Telegraph on 15 December reported that ex Siemens staff are facing US Bribery charges.
The executives, who live in Germany, Switzerland and Argentina, have been accused of paying $100m (£61m) in bribes to Argentine officials over the course of a decade, in order to help them secure a $1bn contract producing the country's national identity cards.
Siemens already pleaded guilty to charges relating to the bribery in 2008 and paid out $449m in fines. However, the SEC has not let the issue drop as had been expected.
James Tillen, an FCPA expert at law firm Miller & Chevalier, said: "It's certainly the Department of Justice and SEC's strategy to prosecute more individuals because it sends a stronger deterrent message than going after corporations.
"When you put someone in jail, especially an executive, it sends a much stronger message than fining a company."
Uriel Sharef, who was a member of Siemens' management board, is one of the eight executives now being pursued – the first time any US authority has used FCPA to charge the director of such a large company. (Telegraph 15 Dec 2011)
The FSA
The FSA has so far secured 11 convictions in relation to insider dealing. Details of each case can be seen on the FSA website, the last one being 15 December 2011 at Southwark Crown Court when Rupinder Sidhu was convicted and given a 2 year jail sentence. FSA are currently prosecuting 15 other individuals for insider dealing.
© CPA Audit LLP. 30 December 2011.