AIB and BoS have undoubtedly acted carelessly and imprudently by failing to make full inquiries before advancing the money. Indeed the latter bank was given clear and precise warnings by its lawyers about the risks of accepting assurances in a letter from an alleged co-conspirator, a Swiss lawyer. It almost beggars belief senior management chose to disregard that warning and rushed to complete the deal at all costs. It is apparent from the evidence both the defendants took full advantage of the prevailing banking culture in which corners are cut, and checks on them superficial and cursory ...
While I do not equate the position of the banks with that of car owner or householder who forgets to secure his house or car and becomes the victim of theft, the banks do bear some degree of responsibility for what happened.I'm reminded that it is 120 years since the 'Liberator' corporate collapse in the UK, another high profile incident involving large amounts of money, credulous people, real estate and claims of forgery.
A contemporary newspaper account of the aftermath reported that
A cable message published last week stated that Jabez Balfour had been released. The circumstance revives the memory of the Liberator frauds. The failure of the Liberator Permanent Building Society and its allied companies was one of the most calamitous events of the year 1893, involving, it was estimated, a total loss to the investing public of about seven millions sterling. The society was systematically brought under the notice of thrifty middle and working class people who had small sums to provide against a rainy day, and the collapse of the society brought ruin to a large number of homes, the income of many thousands of people of advanced age entirely disappearing. The title "Liberator" seems to have been chosen with a view to captivate Nonconformists; many ministers not only invested in it themselves, but also advised members of their flocks to place their savings in an institution which had regularly paid a dividend of 5 per cent. How this was done was explained at the public examination of the directors and officers, when it was explained that in 1887, when £101,000 was paid in the shape or dividends, there was a nominal balance at the bank of only £22,500, the society actually owing the bank £58,000. At this time a million and three-quarters of the members' money was advanced to the Lands Allotment Company, the Real Estates Company, and other concerns promoted by Balfour, the greater part of the money which went as dividends consisting of deposits from new members. In this way the society was kept going for a long time, and the public confidence remained unshaken. Mr Jabez Balfour, M.P. for Burnley, was chairman of the society, and the other directors stated that they had implicit confidence in him, and accepted his statements as to the position of the society without troubling to verify them. On the collapse of the companies and the disclosures at the public enquiry Balfour fled to the Argentine, but three prosecutions for forgery and fraud in connection 'with the society were brought, and the offenders were found guilty and sentenced to long terms of imprisonment. On Balfour's retreat being found in the course of 1894 the courts of the Argentine Republic were moved for his extradition, which was secured after many months' delay, and on October 28th, 1895, he was placed on trial with three other directors, convicted, and sentenced to fourteen years' penal servitude.Balfour is profiled in David McKie's Jabez: The Rise and Fall of a Victorian Rogue (Atlantic, 2004).
The Serious Fraud Office media release regarding Kallakis and Williams states that -
The defendants, who operated out of a Mayfair office as the Pacific Group of Companies, conspired over a five-year period (2003-2008) to defraud Allied Irish Banks ("AIB") by using forged or false documents or claims in order to obtain substantial loans to finance the purchase of what was mostly a commercial property portfolio. The loans to enable Kallakis acquire the 16-property portfolio amounted to £740 million.
The transactions were structured in a way that the bank loans exceeded the purchase price of the properties. This was achieved by providing the bank with a guarantee from a Hong Kong company, Sun Hung Kai Properties Limited ("SHKP"), of long term payment of rents at top market rates, , to the landlord of the commercial properties. SHKP are a large, well established Hong Kong property company with a high credit rating and the guarantees therefore had the effect of increasing the value of the properties substantially. The rationale provided to the banks for SHKP's involvement was that a subsidiary company of SHKP would receive large cash payments called a reverse premium, which was factored into the value of the loans, and a share of the profits on the sale of the properties. However, the reality was that SHKP had not entered into any guarantees and had no knowledge of the transactions or the purported subsidiary companies that had entered into them. The SHKP documents provided by Kallakis and Williams to AIB were forgeries and the reverse premiums were channelled into the pockets of the fraudsters.
Kallakis and Williams were able to maintain the deception over five years through skilful forgeries and manipulation of the bank. When in 2007 the bank requested a meeting with a representative of SHKP, Kallakis and Williams set up a meeting at their Mayfair offices with an individual who presented himself as being from the SHKP Treasury Department. SHKP have no knowledge of this meeting or the individual who purported to represent them.
A similar false arrangement to mislead the bank were guarantees provided by Oregon Finance Corporation, represented by Kallakis to be a billion dollar ship-owning company belonging to the Kallakis family trust. This claim was based upon forged and/or false letters regarding the company's assets, bogus financial statements of the company and evidence of its shipping assets taken from the internet. Oregon Finance was later found in reality to have no assets but liabilities of millions of pounds.
The loans advanced by AIB represented £60 million in excess of the cost of the properties and was designed to feed into the bogus reverse premiums. However by August 2008, alarm bells rang at AIB when they learnt that Kallakis had a previous fraud conviction in the name of Stefanos Michalis Kollakis and had subsequently changed his name, and they contacted SHKP to discover that they knew nothing about the guarantees. ....
During 2007 and 2008, in another fraud following similar lines to the property loans fraud the Bank of Scotland agreed a loan of €29 million which was wanted, claimed Kallakis, for the conversion of a former passenger ferry into a super-yacht for his personal use. He provided the bank with a worthless guarantee from Oregon Finance Corporation, using accounting documents that were false and bearing forged attribution certificates. Kallakis and Williams also provided a number of forged documents to the bank as it sought to carry out checks on the family trust, including a death certificate of Kallakis's mother in which her surname had been altered to hide Kallakis's name change. The ferry upon which the loan had been secured turned out not only to have no value but instead was a significant net liability as a result of work that had been carried out which had now ceased leaving the vessel contaminated with asbestos and no longer water tight.