“In view of the recent settlement between FCIB and the Dutch Public Prosecutor, the current rules and policies in relation to the wind-down of the bank are being re-evaluated including those which fall under the [FCIB Protocol]. In this context FCIB will be considering its rights and remedies under the Account Terms and Conditions agreed by each client (the GT&Cs) including taking measures against those clients who have used their accounts at FCIB for unlawful activities. We hereby confirm our preparedness to continue the discussions which were held with you in 2011 with a view toward reaching a global resolution of all relevant issues relating to those clients.” 470. On31 December 2013 , FCIB published an update on its website regarding an increase in monthly maintenance fees: “Clients who have not complied by March 1, 2014 with FCIB’s wind down procedures, as published on FCIB’s website in December 2006 and March 2007, are in breach of FCIB’s applicable Account Terms and Conditions (“GT&Cs”), and as a result will be held responsible for the extra expenses incurred by FCIB in an amount equal to 15% of the client's balance on each account plus all applicable fees and charges. At that time the accounts of all such Clients will be closed, and the Bank will hold their funds in an account of the Bank where they will be available for payout once the client has satisfied the applicable requirements. All funds held in such account will be subject to an administrative handling fee to cover the Bank's costs for holding such funds. In addition, FCIB reserves all rights it may have with respect to damages resulting from other breaches of the GT&Cs […].”
“The court: in both cases 5.1. rules that nothing is owed by FCIB to either TWPS or Hunt as liquidator of TWPS by virtue of the so-called TWPS claim, insofar as it is based on an unlawful act in respect of facilitating or assisting in the MTIC fraud, to the extent that this claim does not relate to the claim under section 213 Insolvency Act - in respect of which the court does not have jurisdiction.”
“Stopping the Carousel: Missing Trader Fraud in the EU” (the “Committee Report”). The Committee stated in the very first paragraph that HMRC believed that approximately£3 billion in VAT was retained by fraudsters in the financial year ended5 April 2006 (the central period with which this judgment is concerned). The report also stated that the majority of frauds had centred on the mobile phone and computer chip sector although the subject of fraud was beginning to diversify. In Red 12 Trading Ltd v HMRC[2010] STC 589 Christopher Clarke J (as he then was) described “basic”
“This case concerns what is called “Missing Trader Intracommunity Fraud” (“MTIC fraud”). Anyone reading this judgment is likely to be familiar with this expression, which has been explained in several tribunal and High Court decisions. The classic way in which the fraud works is as follows. Trader A imports goods, commonly computer chips and mobile telephones, into the United Kingdom from the European Union (“EU”). Such an importation does not require the importer to pay any VAT on the goods. A then sells the goods to B, charging VAT on the transaction. B pays the VAT to A, for which A is bound to account to HMRC. There are then a series of sales from B to C to D to E (or more). These sales are accounted for in the ordinary way. Thus C will pay B an amount which includes VAT. B will account to HMRC for the VAT it has received from C, but will claim to deduct (as an input tax) the output tax that A has charged to B. The same will happen, mutatis mutandis, as between C and D. The company at the end of the chain – E – will then export the goods to a purchaser in the EU. Exports are zero-rated for tax purposes, so Trader E will receive no VAT. He will have paid input tax but because the goods have been exported he is entitled to claim it back from HMRC. The chains in question may be quite long. The deals giving rise to them may be effected within a single day. Often none of the traders themselves take delivery of the goods which are held by freight forwarders. 3. The way that the fraud works is that A, the importer, goes missing. It does not account to HMRC for the tax paid to it by B. When HMRC tries to obtain the tax from A it can neither find A nor any of A’s documents. In an alternative version of the fraud (which can take several forms) the fraudster uses the VAT registration details of a genuine and innocent trader, who never sees the tax on the sale to B, with which the fraudster makes off. The effect of A not accounting for the tax to HMRC means that HMRC does not receive the tax that it should. The effect of the exportation at the end of the chain is that HMRC pays out a sum, which represents the total sum of the VAT payable down the chain, without having received the major part of the overall VAT due, namely the amount due on the first intra-UK transaction between A and B. This amount is a profit to the fraudsters and a loss to the Revenue.” “5. A jargon has developed to describe the participants in the fraud. The importer is known as “the defaulter”
“Perhaps I could just give a little background. To make this fraud operate, you need three groups of people. You need the organisers, a relatively small number of people, and we will be coming on to who they are and so on later. You need the missing traders who are usually men of straw and the whole purpose of them is to have no assets, and then you have got a whole raft of people in the middle without whom this fraud cannot work. They have to have a degree of knowledge of what is happening, otherwise you cannot keep a carousel moving. To make a carousel move, people have to sell to the right people and they have to sell at the right price, so it is not just a set of haphazard transactions which somehow seem to manage to keep going round in the same circle, but it clearly needs an element of contrivance there, so it is that middle group of people that we are looking at in the verification process. Those groups are not the whole industry. We think that the reverse charge will affect something like 15,000 companies. The number of people whose repayments we are investigating in this verification campaign, and I do not want to get into the precise details, but it is a very small part of that 15,000 and in percentage terms it is in single figures, so it is not the entire industry, as some of the people giving evidence before you have, I think, suggested. How have we selected those people? Well, we have done so by looking at things like patterns of trading, but we have also done so in relation to particular flows of trade.”
“Eurocanet is a detection method, not an evaluation method. It is a network between all the Member States between anti-fraud units about the fraudulent transactions. If we have a transaction from Member State one to Member State two, to Member State three, Member State four, we have the companies which are targeted. The aim of the project is to monitor closely electronically the companies which are invoicing constantly to missing traders. With that data it is possible to make a reproduction of where the missing traders are in the EU. Do you understand what I mean? Q54 Chairman: Yes. Mr Hulot: It is possible to do a reproduction. With the network it was possible to make this study, and we did it. The first conclusion is that VAT fraud is not homogenous in the EU, there are big differences.” “Mr Hulot: No. I have to say we saw the figures for the first quarter to 2006 and the transactions went down from 70 per cent, and also in the UK. That means that the study gave some figures and now it is not the situation we had then. Q60 Lord Watson of Richmond: It is less. Mr Hulot: Yes. The reason we know was there was the First Curacao bank which closed and on the Dubai route everybody had an account in this bank. Q61 Chairman: The bank was in Curacao, not Dubai. Mr Hulot: Yes, Curacao. Q62 Chairman: One in Dubai as well? Mr Hulot: Yes, but it was for the fraud that we call the “Dubai route”
“The following are examples of indicators that could alert you to the risk of a connection with missing trader fraud: 1. Legitimacy of customers or suppliers. For example: • What is your customer’s/supplier’s history in the trade? • Have you been contacted within a short space of time by a prospective buyer and seller offering to buy/sell goods of the same specifications and quantity? • Has your supplier referred you to a customer who is willing to buy goods of the same quantity and specifications being offered by the supplier? • Does your supplier offer deals that carry no commercial risk for you – e.g. no requirement to pay for the goods or services until payment is received from the customer? • Are you being offered deals that involve consistent or pre-determined profit margins, irrespective of the date, quantities or specifications of the goods or services being traded? Have normal commercial practices been adopted in negotiating prices? • Are you being asked to make payments to third parties other than your supplier or payments to an offshore bank account? • Are the goods adequately insured? • Are high value deals being offered with no formal contractual arrangements? • Are high value deals being offered by a newly established supplier with minimal trading history, low credit rating etc? • Is a small, newly-established business offering to supply you with goods cheaper than a long-established supplier? • Has HMRC specifically notified you that previous deals involving your supplier were connected to fraudulent VAT losses? 2. Viability of the goods as described by your supplier. For example: • Can you be sure the goods exist in the quantity and specification being offered? • Are they in good condition and not damaged? • Why are large quantities of goods with non-UK specifications being offered for supply to you in the UK? • What recourse is there if the goods are not as described?”
“In many cases of MTIC fraud the defaulter, i.e. the company which fails to account for VAT and beyond which HMRC will not have been able to trace the chain, will be the actual importer. But it need not be so. Y may be the actual importer who sells (or transfers possession of) the goods to A who sells to B. Both the actual importer and A may go “missing” and make no payment to HMRC at all (as was the case with deals 12-14: see para 21 (iv). The goods may bypass the defaulter and be allocated by the freight forwarder directly to one of the buffer companies (as happened in deal 1) although input and output tax is accounted for by a buffer company earlier in the chain. The buffer company serves its function of preventing HMRC tracing back to the original importer. Third party payments may be made by purchasers in the middle of the chain cutting out those above. What is needed for an MTIC fraud to work is an importation without payment of VAT, a trader who disappears without accounting to importation without payment of VAT, a trader who disappears without accounting to HMRC for the output tax it has received, and an export which generates an entitlement to claim back input tax. The original importer will make the most profit from failing to pay over output VAT. For that reason the defaulter is usually the original importer; but any company in the chain which defaults at any stage in the chain will make a profit from not accounting for the VAT, assuming that it has sold on at a profit. In order to justify denial of the right to deduct input tax there must be knowing participation in a transaction connected with fraudulent evasion of the tax. If that is established, the right is lost. It would be inconsistent with that principle, and an unmerited boon to fraudsters, to require the authorities to prove that the defaulter was the original importer. In the present case the tribunal had evidence as to who was the defaulter in each of the 46 chains, and HMRC proved a full tax loss i.e. not just the difference between an input tax paid and an output tax not accounted for. None of the defaulters had accounted for output tax or claimed input tax.”
“In response to the question raised in your letter regarding the MTIC Companies’ directors, we can confirm that (consistent with our letter of23 December 2024 ) the Defendants admit that the MTIC Companies’ directors were in breach of their fiduciary duties by virtue of their engagement in MTIC fraud. This admission is made without prejudice to the Defendants’ position on the Uninvolved Directors (as defined in the First Defendant’s Re-Amended Defence and Second Defendant’s Amended Defence), whose knowledge and conduct is relevant and the Defendants do not admit. It is also subject to the conditions set out in our letter of23 December 2024 .”
“(1) We accept the legal analysis of the respondents. On authority, the matter must be approached in two stages. It must be shown that the conduct in fact assisted the breach of trust, and that the loss directly resulted from the breach of trust. The test at the first stage is that the assistance given must be more than minimal: Baden v Société Générale[1993] 1 WLR 509 , 574. The test at the second stage is that the loss in fact resulted from the breach of trust: Grupo Torras SA v Al-Sabah [2001] CLC 221, para 119, AIB Group (UK) plc v Mark Redler & Co Solicitors[2015] AC 1503 , para 135. As it is put in Underhill & Hayton, Law of Trusts and Trustees, 19th ed (2016), para 98.56: “a claimant must at least show that the defendant’s actions have made the fiduciary’s breach of duty easier than it would otherwise have been. But the causation requirement for dishonest assistance is no stronger than this, and it is no answer to a claim, for example, that the claimant’s loss would have occurred anyway, because the wrongdoing fiduciary would have committed the breach even if the defendant had not assisted him.” (2) It is made clear by Target Holdings Ltd v Redferns[1996] AC 421 , 434E and by AIB at para 136 that there is no warrant for introducing common law concepts into this area of the law in the manner proposed by the appellants. What must be shown is that the conduct assisted the breach of trust and that but for the breach of trust the loss would not have occurred. The statements in Novoship[2015] QB 499 arose in the different context of a claim for an account of profits and do not assist the appellants in the present circumstances. (3) Even if (contrary to our view) there were some substance in the appellants’ advocacy of some stricter test of causation, so that there needed to be a direct link between the assistance and the loss, as opposed to the breach of trust and the loss, it would not avail them on the facts of this case. Without the payments out of the Notable account, Mr Louanjli himself could not have succeeded in being paid. On the judge’s finding, his interventions at critical moments in the chronology had precisely the effect that he and Mr Nobre intended. That finding, which goes some way beyond what was necessary to fix Mr Louanjli with accessory liability, is unassailable.” “a claimant must at least show that the defendant’s actions have made the fiduciary’s breach of duty easier than it would otherwise have been. But the causation requirement for dishonest assistance is no stronger than this, and it is no answer to a claim, for example, that the claimant’s loss would have occurred anyway, because the wrongdoing fiduciary would have committed the breach even if the defendant had not assisted him.”
“161. In the instant case the breach of fiduciary duty relied upon by the Claimants is the breach of duty by their directors in causing the VAT element of the price paid to their companies for sale of EUAs to be paid away and not remitted to HMRC to satisfy the Claimant companies’ obligations to account for VAT. It was ultimately not disputed by the Defendants that there had been such breaches of duty by the directors of the Claimant companies. 162. What is sufficient for the ingredient of “assistance” is “simply conduct which in fact assists the fiduciary to commit the act which constitutes the breach of trust or fiduciary duty”: Madoff Securities International v Raven[2013] EWHC 3147 (Comm) (“Madoff”) at [351]. Accordingly, if the defendant’s conduct provides no assistance and does not enable the breach to be committed at all (Brown v Bennett[1999] BCC 525 at 533), or if it played no more than a minimal role in enabling the breach to be committed (Brinks v Abu-Saleh (No.3) [1996] CLC 133 at 148-149), there will be no liability. 163. It is not necessary, however, to show that what is done by the defendant inevitably has the consequence that loss is suffered: Baden v Société Générale[1993] 1 WLR 509 at 575A-B. It is also not an answer to a claim for dishonest assistance to show that the breach of trust or fiduciary relationship would have occurred in any event, regardless of whether the assistance was provided: Balfron Trustees Ltd v Peterson[2001] IRLR 758 at [21].”
“170. Although the facts were different, I accept that the decision in Alpha Sim is authority for the proposition that a person who causes a company to participate in a transaction under which monies are passed in one direction and goods are passed the other, together with the company itself, can be liable for providing “assistance” to defaulting fiduciaries of a company further along a chain of similar transactions. As a matter of principle, such actions provide the means by which an MTIC fraud can ultimately be committed by directors of an importer company further along the chain. Put another way, the defaulting fiduciaries would not be able to commit their breaches of duty if the defendant individual did not cause his company to enter into the transaction in question, and if the defendant company did not then pay or transmit the monies due under it. 171. I acknowledge that Alpha Sim appears to have been a case in which, in one sense, the defendants were more closely connected to the fraud than the Traders or RBS are said to have been involved in the instant case. It would seem that the judge in Alpha Sim took the view that all of the links in the chain were artificial transactions, whereas the Traders and RBS were separated from the frauds at the Claimant companies by at least one buffer company (CarbonDesk), against which fraud is not alleged. It is also not alleged that the Traders had the same type of direct knowledge of the fraud as Mr. Sakhi (who was told what prices to agree for the trades). 172. However, if a chain of transactions can be established linking the actions of the Traders and RBS with the misappropriation or misapplication of the VAT monies by the directors of the Claimant companies, then I consider that the necessary assistance can still be said to have been given. I do, however, accept that the fact that the Traders and RBS are not alleged to have been as closely connected to the operation of a fraudulent scheme in the same way as Mr. Sahki, but were trading with a market counterparty against whom no fraud is alleged, does require the Court to look particularly closely at the allegations of dishonesty. But that is a different question to whether the necessary assistance has been given. 173. I also do not accept the Defendants’ argument that this conclusion would lead to the absurd result that the entirety of the participants in the secondary market for trading in EUAs would be liable for dishonest assistance simply because there might be fraud at some point along a chain of otherwise legitimate transactions. The factual connection between the trading and the fraud still needs to be established. Moreover, even if it is, the essence of the liability for dishonest assistance is the requirement for proof of dishonesty. That requirement acts as an essential filter and limit to the scope of the equitable principle, which will ensure that parties who participate in the market in good faith are not held liable.”
“13. Deal 1. Deal 1 was a purchase on3 February 2006 by the Appellant of 15,750 Intel Pentium CPUs at a unit price of£90 from Multisystems International Limited of Richmond, Surrey (“Multisystems”) – for a total consideration of£1,417,500 plus£248,082.50 VAT. These goods were onsold by the Appellant by two sales, one of 6,300 units to Venture Tech International of Clearwater, Florida, USA (“Venture Tech”) and one of 9,450 units to Best Buy Computers (S) PTE Ltd of Singapore (“Best Buy”). The sales were also invoiced on3 February 2006 and the unit price charged to Venture Tech was$167 . The unit price charged to Best Buy was£95.50 . No VAT was, of course, charged on either sale. 14. HMRC’s evidence (which we accept) was that the chains of Multisystems’ supply of these CPUs could be traced back to supplies of 6,300 units and 8,190 units respectively by Myco Telecom Ltd. (“Myco”) to Euro Imports & Exports Limited (“EI&E”) and a supply of 3,150 units by Puwar (UK) Ltd. (“Puwar”) to PM Transport & Communications Ltd (“PMT&C”). All transactions in these chains took place on3 February 2006 . 15. We received evidence (which we accept) that Myco and Puwar were both defaulters in that Myco failed to pay assessments to VAT totalling some£38 million , including output tax on the supplies in the deal chains for deal 1, and Puwar had a debt for unpaid VAT of just under£76 million on12 March 2009 .”
“The test of dishonesty is as set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan[1995] 2 AC 378 and by Lord Hoffmann in Barlow Clowes International Ltd v Eurotrust International Ltd[2006] 1 WLR 1476 , para 10: see para 62 above. When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.”
“The discussions of knowledge by Lord Hoffmann and Lord Millett in Twinsectra[2002] 2 AC 164 indicate that knowledge of a fact may be imputed to a person if he turns a blind eye to it, as Nelson is supposed to have done at Copenhagen, or if in legal parlance he deliberately abstains from inquiry in order to avoid certain knowledge of what he already suspects to be the case. It is convenient to use the expression “blind-eye knowledge” to denote imputed knowledge of this type. In the context of dishonest assistance for breach of trust or fiduciary duty, it was common ground before us, and we consider it correct in principle, to equate blind-eye knowledge with actual knowledge for the purposes of the first stage of the test laid down in Tan[1995] 2 AC 378 and endorsed in Barlow Clowes[2006] 1 WLR 1476 and Ivey. It is important, however, to understand the limits of the doctrine. It is not enough that the defendant merely suspects something to be the case, or that he negligently refrains from making further inquiries. As the House of Lords made clear in Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea)[2003] 1 AC 469 the imputation of blind-eye knowledge requires two conditions to be satisfied. The first is the existence of a suspicion that certain facts may exist, and the second is a conscious decision to refrain from taking any step to confirm their existence: see the speech of Lord Scott of Foscote at para 112, and the observations to similar effect of Lord Hobhouse of Woodborough at para 25. The judgments also make it clear that the existence of the suspicion is to be judged subjectively by reference to the beliefs of the relevant person, and that the decision to avoid obtaining confirmation must be deliberate.”
“[36] In these circumstances, Mr D’Cruz submitted that to describe Mr Faronbi’s laxity in opening the Trusty International account or permitting its early operation merely as inefficiency or oversight was simply to fly in the face of the suspicions entertained by Mr Faronbi as to the essential honesty of Messrs Ibrahim and Saminu at the time. [37] In my judgment, these are powerful submissions. It seems to me that once Mr Faronbi suspected Trusty International’s directors of participating in money laundering, on the basis of the judge’s clear findings of what Mr Faronbi was aware of, the distinction which the judge then drew between Mr Faronbi’s suspicions of the business in general and his ignorance about the particular transactions in question in this case becomes a thin line whose value for the purposes of insulating Mr Faronbi and thus the bank from the necessary complicity is highly uncertain. It is one thing to be negligent in failing to spot a possible money launderer, providing the negligence does not extend to shutting one’s eyes to the truth. It is another thing, however, to have good grounds for suspecting money laundering and then to proceed as though one did not. Money laundering is a serious crime, for the very reason that ex hypothesi its subject matter is the proceeds of crime. It is true that such proceeds are not necessarily those of a breach of trust—they could be the proceeds of drug dealing. But I am doubtful that that possibility provides any protection where there is a breach of trust. It is also true that the growing concern now experienced about money laundering and the international precautions now taken against it must be viewed in the context of public policy rather than on the level of an equitable tort designed to provide remedies in the civil law against knowing assistance in breach of trust. Nevertheless, I do not see why a bank which has, through its managers, a clear suspicion that a prospective client indulges in money laundering, can be said to lack that knowledge which is the first element in the tort.”
“42 As it seems to me, the judge correctly stated the applicable principles. What he said is summarised at para 17—20 above, including the principle to be extracted from Armstrong[1952] 1 KB 232 and Greenridge[2016] EWHC 91 (Ch) to the effect that it was not possible to aggregate two innocent minds to make a dishonest whole. SIB supplied supplemental written submissions after the hearing referring to a raft of Commonwealth cases, but none of them, on analysis, supported the proposition that dishonesty can properly be alleged by adding the knowledge of one innocent person to that of another. 43 Instead, as I have already recorded, Mr Fenwick argued a rather more elusive case to the effect that: “in a case where dishonesty is pleaded against a [large] corporate entity, [one has to look] at all the facts, all the actual and constructive knowledge of those who were involved in representing the company at all stages of the events against which criticism is made. It [is] at that stage that you then take an objective view and [ask]: looked at objectively, is a person or entity with that knowledge to be regarded as dishonest?”
“a. It is not open to the Court to infer dishonesty from facts which are consistent with honesty or negligence, there must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved. b. The requirement for a claimant in proving fraud is that the primary facts proved give rise to an inference of dishonesty or fraud which is more probable than one of innocence or negligence. c. Although not strictly a requirement for such a claim, motive "is a vital ingredient of any rational assessment" of dishonesty. By and large dishonest people are dishonest for a reason; while establishing a motive for conspiracy is not a legal requirement, the less likely the motive, the less likely the intention to conspire unlawfully. d. Assessing a party's motive to participate in a fraud also requires taking into account the disincentives to participation in the fraud; this includes the disinclination to behave immorally or dishonestly, but also the damage to reputation (both for the individual and, where applicable, the business) and the potential risk to the "liberty of the individuals involved" in case they are found out.”
“However, care must be taken to identify the breach or breaches of trust or fiduciary duty in which there has been assistance. What may be characterised as a single dishonest scheme may nevertheless involve a number of distinct breaches, and the loss recoverable from the dishonest assister is only that which may be said to have resulted from the particular breach or breaches in which he assisted.So where payments are abstracted from the claimant and channelled through a number of different routes to different ultimate recipients as part of a single “scheme”, it may be open to a defendant who is implicated only in the onward diversion of one of the payments but not others to contend that the relevant breach of trust in which he assisted is only that by which that particular payment was made and concealed, and so the loss which he must bear (even when analysed with reference to the underlying breach of trust and not the assistance in it) is limited to that particular payment.”
“(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action— (a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or (b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use. (2) Where a trustee who is also a beneficiary under the trust receives or retains trust property or its proceeds as his share on a distribution of trust property under the trust, his liability in any action brought by virtue of subsection (1)(b) above to recover that property or its proceeds after the expiration of the period of limitation prescribed by this Act for bringing an action to recover trust property shall be limited to the excess over his proper share. This subsection only applies if the trustee acted honestly and reasonably in making the distribution. (3) Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued. For the purposes of this subsection, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession. (4) No beneficiary as against whom there would be a good defence under this Act shall derive any greater or other benefit from a judgment or order obtained by any other beneficiary than he could have obtained if he had brought the action and this Act had been pleaded in defence.”
“Approached in this way, I consider that the fact that it is common ground that the words “an action... in respect of any breach of trust” in section 21(3) are broad enough to cover a claim against a dishonest assister or knowing recipient, actually support, rather than undermine this first reason. At first sight, there is force in Lord Clarke of Stone-cum-Ebony JSC’s argument that, if that expression in section 21(3) covers dishonest assistance or knowing receipt, the similar expression “an action... in respect of any... fraudulent breach of trust” in section 21(1)(a) should do so as well. But the vital words “to which the trustee was a party or privy” are not to be found in section 21(3). The essential point in this connection is that the fact that the expression “in respect of” in section 21(3) has a broad, rather than a restrictive, effect suggests that the expression should also have a broad effect in section 21(1)(a), in which case the words “to which the trustee was a party or privy” are otiose unless section 21(1)(a) as a whole is given the narrower meaning for which Central Bank of Nigeria contends, rather than the wider meaning supported by Dr Williams.”
“I think that this case is entirely unprejudiced by the decision in Forest's Case before Vice-Chancellor Stuart, and that it is unnecessary for us to consider whether that decision was founded on a right view of the combined operation of the Acts of Parliament then in force. The statute which governs the present case is clear. The 98th section enacts that, "As soon as may be after making an order for winding up the company, the Court shall settle a list of contributories, with power to rectify the register of members in all cases where such rectification is required in pursuance of this Act, and shall cause the assets of the company to be collected, and applied in discharge of its liabilities." A duty and a trust are thus imposed upon the Court, to take care that the assets of the company shall be applied in discharge of its liabilities. What liabilities? All the liabilities of the company existing at the time when the winding-up order was made which gives the right. It appears to me that it would be most unjust if any other construction were put upon the section. After a winding-up order has been made, no action is to be brought by a creditor except by the special leave of the Court, and it cannot have been the intention of the Legislature that special leave to bring an action should be given merely in order to get rid of the Statute of Limitations. It must have been intended that such leave should be given only in cases where the Court thought that an action was the most proper means of determining the question as to the liability of the company. In the present case it is not disputed that at the time of the winding-up order the company was liable to the holders of these bills, and the winding-up order enures to the benefit of the holders. No possible mischief or inconvenience can arise from this, for a day is fixed for creditors to come in and prove, and the Act expressly provides that any creditor who does not come in within the time named shall lose the benefit of any dividend that has been paid in the meantime. No mischief, therefore, can be done to the other creditors by reason of the delay or laches of any creditor, since if he delays beyond the proper time he must take his chance of what assets he can find for payment of his debt, not disturbing any former dividend.” “I am of the same opinion. I think that the case is governed by the 98th section of the present Act, and that it is unnecessary to consider what was the proper construction of the former Acts. It appears to me to be the clear meaning of that section, that the assets should be applied in satisfaction of all the liabilities which existed at the time of the winding-up order. That being so, I think we must consider that the Legislature intended us to follow the analogy of other cases where the assets of a debtor are to be divided amongst his creditors, whether in bankruptcy or insolvency, or under a trust for creditors, or under a decree of the Court of Chancery, in an administration suit. In these cases the rule is that everybody who had a subsisting claim at the time of the adjudication, the insolvency, the creation of the trust for creditors, or the administration decree, as the case may be, is entitled to participate in the assets, and that the Statute of Limitations does not run against this claim, but, as long as assets remain unad- ministered he is at liberty to come in and prove his claim, not disturbing any former dividend.”
“On that basis, the policy of the Limitation Act and the policy of the insolvency legislation are in conflict; and in my view it is plain that that conflict is to be resolved in favour of the insolvency legislation. This is not judicial law-making: it is the recognition that there are two contradictory legislative policies, one of which must prevail. There are three reasons why I consider it is the policy of the insolvency legislation which must prevail. First, all that the relevant provisions of the Limitation Act do is impose a procedural bar on the promotion of proceedings, without affecting the underlying cause of action (unlike, for example, in the case of actions to recover land, where after the expiration of the limitation period title to the land is expressly extinguished: section 23 of the Act): the words “an action shall not be brought” do not prevent commencement of an action but provide a ground of defence if a defendant chooses to take the point. By contrast, the insolvency acts impose a system of rateable distribution which has a practical (although not legal) effect on the substance of the underlying claim through limiting recovery. Secondly, the policy of the insolvency legislation (that all liabilities should be brought into account) already prevails over the policy of the Limitation Act (that there should be certainty and finality of claims) in relation to proofs of debt, that being the undoubted effect of the General Rolling Stock principle; and it is a small step to say that it should prevail also in relation to actions. (In this connection, it is worth pointing out that the effect of allowing a proof after the expiration of a limitation period is no more or less inconsistent with the policy of the Limitation Act than would be the effect of applying the principle in the case of conventional causes of action, so that the judge’s comments (paragraph 51) that applying the principle to actions would produce a “most surprising outcome” are nothing to the point.) Thirdly, insofar as the test for resolution of the conflict is necessity, it is necessary for the proper operation of the statutory trust resulting from the insolvency legislation that liabilities existing at the relevant date should be included in the statutory scheme whatever the method used to establish them.”
“60…They support the conclusion that a distinction is to be drawn between rights to obtain satisfaction of claims from the property of the company through the process of the liquidation, which are determined as at the date of the commencement of the winding-up, and rights that may be enforceable outside the liquidation, for example by recourse to security. In the case of the former time does not run after the date of the winding up so that a proof may be submitted at any time, although without disturbing any previous distributions. In the case of the latter time runs in the ordinary way. 61. This makes it necessary to consider whether the claims brought against the company in the present case are claims within or outside the liquidation. The company says that they are claims outside the liquidation because the claimant is seeking to obtain the benefit of the rights under the insurance policy which do not form part of the company's property. The learned judge accepted that argument. He held that although the underlying cause of action remained one against the company, the potential for recovery under the policy could nonetheless be treated as an asset outside the bankruptcy. He considered the claimant to be in substantially the same position as a secured creditor and therefore subject to the normal operation of the Limitation Act. 62. With great respect to the learned judge I think he was wrong about that. Although the 1930 Act operated to transfer the company's rights under the policy to the claimant at the commencement of the winding up, those rights were inchoate and entirely dependent upon the establishment of the company's liability to the claimant. Until that liability has been established neither the company nor the claimant has a right to recover under the policy. The position is unlike that of a secured creditor who has an immediate right to satisfy his claim by recourse to the security. 63. In the present case, as Lloyd L.J. has explained, the claimant's rights against the company could be established by proceedings in the ordinary way (this being a voluntary liquidation) or by an appeal against the refusal of the liquidator to admit its proof, but in either case if it were successful it would establish its right to prove in the liquidation. By so doing it would also complete its cause of action against the insurers under the policy, but that does not mean that the claim is one that is made outside the liquidation or that the present proceedings are proceedings to enforce rights against property outside the liquidation. They cannot be, since no such rights exist until the company's liability has been established.”
“77. It is not disputed that once a bankruptcy order is made the creditors in the bankruptcy no longer have a right to bring an action against the debtor. This is the effect of section 285(3)(b) IA 1986 which provides: “(3) After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall— … (b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.” 78. The corollary of this is that if a provable debt is not statute-barred at the commencement of the bankruptcy, it does not become barred by lapse of time thereafter, at any rate for the purposes of proof and distribution in the bankruptcy: see In re Benzon[1914] 2 Ch 68 , 75, per Channel J giving the judgment of this court. That is of course consistent with the nature of bankruptcy as a collective process for the benefit of unsecured creditors (or, to be more accurate, those with provable claims). It would be inconsistent with that collective process for individual creditors to be able to take action to enforce their claims; and it seems to me that it would be equally inconsistent with it for them to be required to do so to preserve their claims from becoming statute-barred. It can therefore be seen that this prima facie bar on bringing an action for claims within the bankruptcy is a necessary part of the legislative scheme. (That can be contrasted with claims outside the bankruptcy such as claims by secured creditors to enforce their security, where time continues to run normally: Cotterell v Price[1960] 1 WLR 1097 , 1105, per Buckley J.)”
“133. Mr Brown also relied on the assimilation of the rules relating to administration and those relating to liquidation so far as they concern distributions and proof of debts, in part 14 of the 2016 Rules. I have considerable sympathy with creditors who submit a proof of debt in an administration and are subsequently taken by surprise by the discovery that their claims have become time barred. The process of submitting a formal proof of those debts which were due at the date on which the administration order was made might reasonably suggest to anyone not versed in the law of insolvency that their claim had thereby crystallised at that date. An awareness of the moratorium on claims would be likely to reinforce such a view: the restriction on issuing proceedings might reasonably appear consistent with any claim being sufficiently preserved by submitting the proof of debt. Furthermore, such creditors might reasonably feel aggrieved to be told that the identical process would have stopped time running in a liquidation, but did not do so in an administration. Administration is supposed to produce a better outcome than liquidation for all creditors, not a better one for some at the expense of others whose claims have become time-barred. 134. Regrettably, however, the question of whether an administration has the effect of stopping time running for liquidation purposes does not depend on what creditors might reasonably understand from the proof of debt process; or even on an interpretation of the 2016 Rules. What matters is whether the provisions of Schedule B1 of the 1986 Act implicitly give rise to a statutory trust, with the effect that creditors become able to claim as beneficiaries to whom no limitation period applies. The process of proving debts is part of the mechanism which enables a distribution to be made by an administrator, where appropriate. For the reasons explained above, however, there is no inevitability under Schedule B1 that an administrator will make a distribution to creditors. Consequently, there can be no statutory trust. The assimilation of the proof of debt process in administration with that in liquidation was a product of the 2016 Rules which cannot have changed the meaning and effect of Schedule B1 enacted in 2002.”
“The authority of this case for the proposition that the property of the company ceases upon the winding up to belong beneficially to the company has now stood unchallenged for a hundred years. It has been repeated in successive editions of Buckley on the Companies Acts from 1897 to the present day. Nevertheless your Lordships are invited by the appellant company to say that it was wrong because it was founded on the false premise that the property is subject to a 'trust' in the strict sense of that expression as it was used in equity before 1862. My Lords, it is not to be supposed that in using the expression 'trust' and 'trust property' in reference to the assets of a company in liquidation the distinguished Chancery judges whose judgments I have cited and those who followed them were oblivious to the fact that the statutory scheme for dealing with the assets of a company in the course of winding up its affairs differed in several aspects from a trust of specific property created by the voluntary act of the settlor. Some respects in which it differed were similar to those which distinguished the administration of estates of deceased persons and of bankrupts from an ordinary trust, another peculiar to the winding up of a company is that the actual custody, control, realisation and distribution of the proceeds of the property which is subject to the statutory scheme are taken out of the hands of the legal owner of the property, the company, and vested in a third party, the liquidator, over whom the company has no control…All that was intended to be conveyed by the use of the expression 'trust property' and 'trust' in these and subsequent cases (of which the most recent is Pritchard v. M. H. Builders (Wilmslow) Ltd[1969] 1 WLR 409 ) was that the effect of the statute was to give to the property of a company in liquidation that essential characteristic which distinguished trust property from other property, viz., that it could not be used or disposed of by the legal owner for his own benefit, but must be used or disposed of for the benefit of other persons.”
“35. In general, the unsecured debts of a company after an insolvency event are payable pari passu to the relevant creditors, who claim payment by proving for their debts. There has to be a cut-off date to determine the class of creditors who are to participate in the distribution of the company’s available net assets. As the law stood as regards the companies with which these appeals are concerned, the cut-off date for claims in a liquidation is the date on which the company goes into liquidation, whether or not the liquidation was immediately preceded by an administration. The cut-off date for claims in an administration is the date on which the company entered administration. Under this regime, if an administration is followed immediately by a liquidation, the debts provable in the liquidation would include any which arise during the administration, although debts provable in the administration would be limited to those arising before the administration.” “37. First, the position described in para 35 above has now changed. The cut-off date for claims in a liquidation, which follows an administration started after5 April 2010 , is the date when the administration began. The same issue as arises in these appeals can still arise. However, there will no longer be an artificial distinction between the positions where the company proceeds from administration to winding up and where it does not. The change will tend to increase the importance of the dispute as to the correct treatment for insolvency purposes of the liabilities arising under a FSD or a CN.”
“130.— Consequences of winding-up order. (1) On the making of a winding-up order, a copy of the order must forthwith be forwarded by the company (or otherwise as may be prescribed) to the registrar of companies, who shall enter it in his records relating to the company. (2) When a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose. (3) When an order has been made for winding up a company registered but not formed under theCompanies Act 2006 , no action or proceeding shall be commenced or proceeded with against the company or its property or any contributory of the company, in respect of any debt of the company, except by leave of the court, and subject to such terms as the court may impose.” “143.— General functions in winding up by the court. (1) The functions of the liquidator of a company which is being wound up by the court are to secure that the assets of the company are got in, realised and distributed to the company's creditors and, if there is a surplus, to the persons entitled to it. (2) It is the duty of the liquidator of a company which is being wound up by the court in England and Wales, if he is not the official receiver— (a) to furnish the official receiver with such information, (b) to produce to the official receiver, and permit inspection by the official receiver of, such books, papers and other records, and (c) to give the official receiver such other assistance, as the official receiver may reasonably require for the purposes of carrying out his functions in relation to the winding up.”
“Rule 193(4): English courts have a common law power to provide assistance to foreign insolvency proceedings where such assistance can be provided in a manner consistent with English law and public policy.” “The court’s power to provide assistance at common law has long been recognised, but the parameters of the assistance that may be provided have undergone a process of judicial development in recent years. It now appears to be accepted that the underlying principle is one of “modified universalism”, which (as the term suggests) is a moderate or pragmatic version of the more extreme view that there should be a unitary winding up proceeding in a debtor’s “home” jurisdiction, and that these proceedings should apply universally to all the debtor’s assets and receive worldwide recognition. Modified universalism, in contrast, provides that the English courts should assist foreign winding up proceedings so far as they properly can so as to achieve that aim. The obvious question is to identify the limits of what the English court can properly do in this regard.”
“87. The first principle identified by Lord Hoffmann, that of modified universalism, remains an important element of the common law as regards assistance in cross-border insolvencies, but it is necessarily subject to jurisdictional limits. As Lord Sumption JSC said in Singularis at para 19: “In the Board’s opinion, the principle of modified universalism is part of the common law, but it is necessary to bear in mind, first, that it is subject to local law and local public policy and, secondly, that the court can only ever act within the limits of its own statutory and common law powers.” 88. It is on the inevitable qualification that common law powers are subject to local law and local public policy that the appellant’s reliance on the principle of modified universalism founders. To repeat what we have already said, the immovables rule is a long-established rule of substantive law. The court’s common law powers of assistance do not permit it to provide assistance which is inconsistent with rules of substantive law. Mr Davies did not dispute that qualification, but he relied on his basic submission that the immovables rule was concerned only with legal title to immovable property and did not prevent the court from recognising and taking steps to give effect to the appellant’s duties and powers under Russian law as regards immovable property situated in England. For the reasons already given, we are clear that the rule is not limited in this way but has the effect that those powers and duties under Russian law are not recognised in this jurisdiction. It would therefore be contrary to English law, and to the principle of modified universalism, for the court to accede to the appellant’s application for the appointment of a receiver or other assistance as regards the Property.”
“1.— Application of foreign limitation law. (1) Subject to the following provisions of this Act, where in any action or proceedings in a court in England and Wales the law of any other country falls (in accordance with rules of private international law applicable by any such court) to be taken into account in the determination of any matter— (a) the law of that other country relating to limitation shall apply in respect of that matter for the purposes of the action or proceedings; and (b) except where that matter falls within subsection (2) below, the law of England and Wales relating to limitation shall not so apply. (2) A matter falls within this subsection if it is a matter in the determination of which both the law of England and Wales and the law of some other country fall to be taken into account.”
“(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him. (2) In any case where, for any prescribed accounting period, there has been paid or credited to any person— (a) as being a repayment or refund of VAT, or (b) as being due to him as a VAT credit, an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly. (3) An amount— (a) which has been paid to any person as being due to him as a VAT credit, and (b) which, by reason of the cancellation of that person's registration under paragraph 13(2) to (6) of Schedule 1, paragraph 9 or 11 of Schedule 1A or paragraph 6(1) or (2) of Schedule 3A ought not to have been so paid, may be assessed under subsection (2) above notwithstanding that cancellation. (4) Where a person is assessed under subsections (1) and (2) above in respect of the same prescribed accounting period the assessments may be combined and notified to him as one assessment.” “(9) Where an amount has been assessed and notified to any person under subsection (1), (2), (3), (7), (7A) or (7B)] above it shall, subject to the provisions of this Act as to appeals, be deemed to be an amount of VAT due from him and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced.”
“(2) Where— (a) a taxable supply of goods to which this section applies has been made to a taxable person, and (b) at the time of the supply the person knew or had reasonable grounds to suspect that some or all of the VAT payable in respect of that supply, or on any previous or subsequent supply of those goods, would go unpaid, the Commissioners may serve on him a notice specifying the amount of the VAT so payable that is unpaid, and stating the effect of the notice. (3) The effect of a notice under this section is that— (a) the person served with the notice, and (b) the person liable, apart from this section, for the amount specified in the notice, are jointly and severally liable to the Commissioners for that amount. (4) For the purposes of subsection (2) above the amount of VAT that is payable in respect of a supply is the lesser of— (a) the amount chargeable on the supply, and (b) the amount shown as due on the supplier's return for the prescribed accounting period in question (if he has made one) together with any amount assessed as due from him for that period (subject to any appeal by him). (5) The reference in subsection (4)(b) above to assessing an amount as due from a person includes a reference to the case where, because it is impracticable to do so, the amount is not notified to him. (6) For the purposes of subsection (2) above, a person shall be presumed to have reasonable grounds for suspecting matters to be as mentioned in paragraph (b) of that subsection if the price payable by him for the goods in question— (a) was less than the lowest price that might reasonably be expected to be payable for them on the open market, or (b) was less than the price payable on any previous supply of those goods. (7) The presumption provided for by subsection (6) above is rebuttable on proof that the low price payable for the goods was due to circumstances unconnected with failure to pay VAT. (8) Subsection (6) above is without prejudice to any other way of establishing reasonable grounds for suspicion.”
“Assessments remain outstanding against AC Electrical in excess of£12 million and it is accepted that the loss of tax was the result of fraud.”
“The debt due to the Crown has been withdrawn and replaced by a VAT Assessment being raised for undeclared output tax for the amount of£1,017,275.00 .”
“I, during the period from17 November 2004 to30 November 2005 , caused Kingswood to undertake a method of trading which involved it in, and put HM Revenue & Customs ("HMRC") at risk of being subject to, Missing Trader Intra-Community fraud ("MTIC") In particular: 1. Kingswood undertook wholesale trades in mobile phones and computer components to make total gross purchases of£83,830,360 from EU-based and UK-based suppliers and total grows sales of£84,567,878 to EU-based and UK- based customers; 2. Kingswood failed to safeguard Value Added Tax ("VAT") monies of£463,119 , according to its own records. for which Kingswood was obliged to account to HMRC during the period front17 November 2004 to30 November 2005 ; 3. Kingswood issued payment instructions totalling£23,708.429 in favour of unrelated third parties in the period1 February 2005 to14 April 2005 . In doing so, it by-passed UK-based suppliers who were due purchase consideration, including VAT, contributed materially to the unpaid VAT in their insolvencies and allowed VAT monies to be retained by these unrelated third parties, to the detriment of HMRC as follows: • Carryit Limited ("Carryit") in respect of payments of£3,762,721 . Carryil was subsequently wound up by HMRC for£591,482 in unpaid VAT; • Tilex Trading Limited ("Tilex") in respect of payments of£15,532.458 . Tiles was subsequently wound up by HMRC for£20,954,554 in unpaid VAT; • Riff Trading Limited (“Riff”) in respect of payments of£6,433,914 . Riff was subsequently wound up by HMRC for£20,954,554 in unpaid VAT; 4. I failed to ensure that Kingswood conducted satisfactory due diligence checks generally with regards to Kingswood's trading partners in accordance with HMRC guidelines in the period after30 June 2005 . In particular, zero rated supplies of£2,608,600 in the period from18 November 2005 to23 November 2005 to a Spanish customer were disallowed as the customer had been deregistered for VAT on17 November 2005 , with the result that an assessment of£387,634 for VAT due was raised against Kingwood in respect of these trades.”
“HMRC have a made a VAT claim against the company for the amount of£389,154 . This amount relates to 4 trades where Kingswood, acting as a broker, purchased goods from a UK based company, Ideas to Go Ltd, and the subsequent exports to a Spanish customer namely Global Venture Capital S.L. (Global) between18 November 2005 and23 November 2005 . Global had been deregistered for VAT on17 November 2005 therefore the trades were no longer "zero-rated" and the VAT element on the sales to Global should have been collected by Kingswood and remitted to HMRC. Inquiries with the HMRC Red Hill Office show that HMRC notified Kingswood on01 November 2004 that all VAT verification on customers/suppliers should be done through their office. Kingswood never made such verification with regards to Global.”
“The company was incorporated on24 June 1998 as Mobile Telephones Limited. It was dormant until August 2005 when it commenced trading in order to provide mobile phones to customers. The director occupied a desk in the upstairs office of 213 Old Street, London, EC1V 9NR. He used all of the office services, computers, phone answering facilities etc at that site from the commencement of trading. The initial period of trading was spent building a contact base and looking for possible deals with adequate margins. The company registered for VAT around December 2003. The VAT number was issued in 2004. A bank account was opened July 2005 with Abbey National PLC. The company remained dormant until August 2005 when it made its first export, to Italy. The directors visited Italy to ensure that the buyer was a bona fide company however, the cost of the trip was more than the profit on the deal. At the same time as this it became clear that it was impossible to trade without a First Curacao International Bank CFCIB) account which was duly set up. At the same time a request was made to HM Revenue & Customs (HMRC) for a change from quarterly returns to monthly returns. This request was refused, making it very difficult to export, and restricting the trading options to solely UK customers. Trading started in the UK to UK market in April 2006 when it became apparent that the sort of margins that were available previously in the trade were now much reduced. Enhanced due diligence checks were undertaken, despite the fact that no guidelines were available from HMRC on which checks were required. All suppliers were visited and VAT verified. The company traded successfully for a couple of months with the contacts made between 1999 and 2005, and there were also introductions to companies via a Dubai broker in exchange for a commission payment. Some imports and exports were also done during this period and trading continued through April and May, and got very busy. At the end of May FCIB ask for due diligence documentation for several of the early trades. The director provided this, however the company's account was suspended as certain payments on deals contravened the commercial terms and conditions of FCIB. In light of this the director decided to cease trading in early June 2006. The company's VAT number was also suspended in August 2006. Subsequently the company received an assessment for under-declaration of VAT for the period1 February 2006 to30 April 2006 from HMRC for all the VAT on its exports. The assessment having been made because the documentation provided for several export transactions was inadequate. The document situation was the same for the company's imports, but HMRC chose to disregard these. This left the company with a notional debt of approximately£570,000 .”
“The Company was formed by my brother, Jalil Ahmed, in April 2004. At the time it undertook claims management & Jalil Ahmed solely ran the Company. I purchased the Company from Jalil Ahmed in July 2005 for£500 , paid in cash. Thereafter, Jalil Ahmed ceased to have any role in the Company & I ran & managed the Company alone. I had no assistance whatsoever & was responsible for all aspects of the Company’s affairs. The mechanics of a trade was [sic] as follows:- I would identify a supplier of a consignment of CPUs online & telephone the supplier to agree a purchase price. I would telephone aprox. 5-8 potential customers & negotiate a sale price giving a profit margin of 10 – 15p per CPU. Upon agreeing purchase & sale prices, I would fax a purchase order to my supplier and receive a faxed sales invoice. Likewise, the customer would fax me a purchase order & I would fax him a sales invoice. The customer would transfer the full sale price into the Company’s Barclays bank account & I would transfer the purchase cost to the supplier’s account. The goods would remain at bonded warehouses throughout.” “AC used an account at First Curacao International Bank (FCIB) for the wholesale transactions. The full amounts of the sales invoices were paid into the FCIB account and then immediately transferred to the purchaser less our commission which was paid into AC’s account at Barclays. The FCIB account was i [sic] the name of AC and I was the sole signatory on the account. I gave HMRC copies of all statements for Barclays and for FCIB.”
“The claim due to your client for 02/06 has been disallowed on the grounds that 100% of the chains go back to defaulters as was the case for the two earlier periods. We have been unable to carry out a complete verification of your client's records. He has not responded to enquiries and provide the required evidence, specifically for the apparent export of goods to an Irish company. He has continually failed to provide records and due diligence and has consistently ignored warnings in respect of third party payments.”
“I note that since previous visits and discussions concerning the alleged activities of the company, no VAT return declarations have been made nor original records produced to substantiate the Directors' claims that the company was undertaking major deals involving the wholesale of mobile phones and computer processors. The only documentation produced to me was a folder of photocopied papers said to consist the purchase and sales records of the company. Despite requests, original documents were never produced. In view of the lack of cooperation by yourselves, I have calculated what I believe to be the VAT liability of the company up to the date of cancellation of the VAT registration, based on the copy documents provided. However, due to lack of any original evidence of dispatch of the alleged goods, and of supporting documents including inspection reports, transport documents, insurance documents, evidence of commercial checks on suppliers and customers, bank statements, I have disallowed any zero-rating and have treated those alleged deals as being sold within the UK, therefore taking the invoice total to be VAT-inclusive. I have attempted to trace the deal chains back and forward, and have noted that there are defaulting companies within all alleged deal chains involving Mobile Mayhem, with resultant significant tax losses in each case. I have formed the opinion that the activities of the directors of the company formed part of an overall scheme to defraud H.M. Revenue and Customs. As a result, I am raising an assessment to the value of£4,443,565.00 , and this will be formally advised to you shortly.”
“In the period from29 March 2006 to11 May 2006 I caused or allowed Mobile Mayhem Limited ("Mobile Mayhem") to undertake a method of trading which put Her Majesty's Revenue and Customs ("HMRC") at risk of being subject to, a Missing Trader Intra Community ("MTIC”) Value Added Tax ("VAT") fraud, which resulted in VAT monies owed to HMRC of£4.4 million which remains unpaid at the date of the liquidation. If I did not know, then I abrogated my duty by either being reckless or grossly negligent as to whether Mobile Mayhem was involved in such a fraud. In particular: i. I caused or allowed Mobile Mayhem to enter into the purchase and sale of mobile telephones and CPI 'A with EC and UK companies which resulted in onward sales of at least£62 million including VAT of£4.4 million ;…”
“All payments for wholesale was via the company’s FCIB account.”
“173.We were satisfied that the FCIB data was accurate and reliable and that it demonstrated circularity of payments which supports the existence of a highly orchestrated fraudulent scheme extending beyond the fraudulent defaulters. However we took the view that circularity, of itself, did not indicate knowledge on the part of the Appellant. In relation to the evidence regarding IP addresses in 06/06, we found the evidence of HMRC compelling. We accepted Mr Letherby's evidence that the data as a whole did not support the Appellant's assertion that he used software which changed the IP address of his computer every 60 seconds or that, if such software was used, it had not been correctly installed or configured. We also accepted Mr Letherby's evidence that multiple windows of a bank account could be opened. We found Mr Wright's evidence as to the software he told us he used was vague and unconvincing and we did not accept his opinion regarding the opening of multiple windows. We concluded from the evidence that the payments made in the transactions under appeal came from the same IP address, all being made within a short space of time and moving in a circle. We inferred from the evidence that the payments were controlled from one source; that being so, the only conclusion we could reach was 20 that the Appellant was aware of this fact. 174. We were satisfied that HMRC had established fraudulent tax losses and that there was an orchestrated scheme for the fraudulent evasion of VAT connected with the transactions which form the subject of this appeal. 175. We concluded that in respect of the periods under appeal the Appellant knew, through Mr Wright, that the transactions were connected with the fraudulent evasion of VAT or that the factors set out above would at the very least support a finding of means of knowledge. We were satisfied that the evidence indicated Mr Wright's knowledge of the fraud or, in the alternative, his turning a blind eye to the only reasonable explanation being that the transactions formed part of an overall scheme to defraud the Revenue. There is no single circumstance from which we have inferred that the appellant knew or should have known of the connection with fraud. We have considered all the circumstances and whether, on balance, we are satisfied that the appellant knew or should have known of the connection with fraud.”
“During the period of at least1 January 2006 to30 June 2006 I caused 385 North Limited ("385") to undertake a method of trading which involved it in, and put Her Majesty's Revenue & Customs ("HMRC") at risk of being subject to, a Missing Trader Intra Community ("MTIC") Value Added Tax ("VAT") fraud. I was grossly negligent as to whether 385 was concerned in such a fraud. In particular: a. I caused 385 to enter into purchases from United Kingdom ("UK") and European Union ("EU") companies to the value of at least£483,817,732 plus VAT of£45,797,271 ; b. I caused 385 to make onward sales of the same goods, generally on the same day, to UK and EU based companies totalling£491,980,239 plus VAT of£41,231,476 ; c. I failed to make appropriate checks with HMRC's Redhill VAT office, despite knowing that 1 was recommended to do so, as such putting both 385 and IIMRC at risk of serious loss; d. I caused 385 to enter into 53 transactions which commenced with defaulting traders resulting in a loss of revenue within the transaction chains totalling£42,296,640 ; e. HMRC disallowed input tax of£40,319,545 on UK purchases as they were deemed to be part of an MTIC fraud against HMRC; as 385 had not completed due diligence on those suppliers 385 was unable to satisfy HMRC of its right to offset such tax. This resulted in a liability to HMRC for that period of£36,573,203 ; f. IIMRC have claimed£48,667,585 in the liquidation which remains unpaid.”
“The trading in which Gold Digit was involved had features which put, or should have put, me on enquiry about the legitimacy thereof. Gold Digit was always able to sell exactly the same quantities of mobile telephones as it purchased. The amount of profit made by Gold Digit on the transactions in which it was involved reflects a pattern common in MTIC VAT fraud. Despite the high value of the goods being purchased and sold, Gold Digit did not enter into any written agreements with its suppliers or customers. Again, despite the high value of the goods being purchased and sold, Gold Digit did not have any insurance; In view of the evidence MTIC hallmarks and failure to take adequate steps to reduce risks of involvement with MTIC trading, Gold Digit was not then entitled to offset and reclaim VAT and consequently the reclaims totalling£4,404,414 that Gold Digit submitted on6 March 2006 ,4 April 2006 and28 April 2006 were wrongful; The trading chains in which Gold Digit was involved caused significant loss to HMRC, as a result of the fraudulent transactions I, acting on behalf of Gold Digit, caused tax losses to HMRC of at least£821,709 which remains unpaid to date. On or around3 November 2005 ,6 February 2006 ,6 March 2006 ,4 April 2006 and28 April 2006 I caused Gold Digit to wrongfully claim the sums of£707,174.83 ,£202,212 ,£1,286,748.75 ,£1,404,605.13 and£1,508,825.50 respectively from HM Revenue and Customs.”
“Between November 2005 and October 2006 I caused or allowed Star Telecommunications Ltd ("Star") to participate in transactions which were connected with the fraudulent evasion of Value Added Tax ("VAT"), such connections being something which I either knew or should have known about….I caused Star to wrongfully claim the sums of£911,590 ,£1,656,626 ,£934,071 , and£66,065 from HM Revenue & Customs ("HMRC") for the VAT periods 01/06, 04/06, 07/06 and 10/06 respectively.”
“The liquidator obtained disclosure of an HMRC note on MG Components which schedules MG Component deals including a substantial number with TCG. Between27/02/2006 and15/03/2006 TCG issued sales invoices to MG Components with a value of£64m . All of these included instructions for third party payments. According to the HMRC note, MG Components had an account with the FCIB account. That account is not identified in the TCG FCIB account because of the third party payments. The payee accounts identified on the instructions issued to MG Components included payments to the FCIB accounts of the following companies: (i) Intertech SARL; (ii) Electron Global Limited; (iii) Multimode Marketing; and (iv) IC), Trading. All of this trading was conducted by TCG in breach of the freezing injunction obtained by HMRC on22 February 2006 .”
“The Claimants submit that there is no requirement on them to prove or for the Court to find any particular figure for TCG’s trading, or as to what proportion of that trading went through FCIB accounts. The Claimants have set out above the basis for their calculations, and the documents supporting those calculations, and (particularly in the absence of any actual challenge by the Defendants) invite the Court to accept them.”
“On11 January 2006 , HMRC received the VAT return of Northdata for the period1 September 2005 to30 November 2005 . The return, signed by Mr Large and dated9 January 2006 , stated that the total VAT due from Northdata was£16,263,088 and that the VAT reclaimed by Northdata on purchases and other inputs was£16,242,631 and that a VAT liability of£20,457 was due from Northdata. The box to be ticked if payment was being enclosed was ticked (VR1/A35/137). The VAT return also stated that the total value of sales and other outputs excluding VAT was£92,931,935 and that the total value of purchases and all other inputs excluding VAT was£92,815,037 .”
“125 It will be Northdata's case (in the event that the application for the appointment of the provisional liquidator is granted) that Lets Talk and Mr Walsh have conspired with and dishonestly assisted Mr Walker in his breach of his duty to Northdata. 126 The assistance itself consists in the role of Lets Talk and Mr Walsh in the safe transactions between Northdata and Lets Talk that resulted in Northdata incurring VAT liabilities to HMRC of some£4,410,733.81 without, it would appear, any (or any substantial) corresponding payments being made to Northdata. 127 Furthermore where HMRC has obtained payment instructions issued by Northdata these provided for no payments to be made to Northdata, thus leaving Northdata with no funds with which to meet its VAT liability on the corresponding transaction. As I have shown, where payment instructions have been obtained they provide for the bulk of the payments to be made to unconnected third parties.”
“I would refer the Court (pages 456 to 463 of VR1/5) to the VAT assessment raised by HMRC against Northdata for the period ended 11/05 together with interest respectively. As stated above, Northdata submitted a VAT return for the period 11/05. The court is referred to the document at (VR1/A35/137). The November 2005 VAT return shows a net sum due to HMRC of£20,457 . This sum has been paid. The assessment that has now been raised is in respect of the same period and is an additional sum due to HMRC based on HMRC's best judgment of sums due having regard to the fact that invoices purportedly from Vollitone addressed to Northdata and in relation to which Northdata appears to have claimed input tax as an offset to output tax are invalid.” “I believe that Northdata is insolvent. On13 February 2006 HMRC raised a VAT assessment in the sum of£7,958,349.71 in respect of the period ended 11/05 (VR1/5/456). This assessment was due and payable immediately but remains unpaid. Accordingly, Northdata's total indebtedness for the periods up to and including 11/05 is£7,958,349.71 .”
“For all the deals that I conducted for ETP, all of the customers paid ETP its mark up on the deal and the customers paid ETP’s suppliers directly. The mark up of ETP was received into its FCIB bank account and I would then transfer funds to ETP’s HSBC bank account. As I didn’t have the finance to fund the purchases, ETP would pass on an instruction to its customers, to pay its supplier the amount owed by ETP. I didn’t think there was any problem in making 3rd party payments. There were no payments instructions to pay anybody else other than ETP or its supplier. I didn’t have any concerns that ETP’s customer would go direct to ETP’s supplier. ETP never took possession of any of the goods it purchased. ETP had no warehouse and no insurance cover. I don’t recall any goods being held in a freight warehouse. I believe that the supplier was sending the goods direct to the customer of ETP. I would advise the supplier of where the goods were to be sent to. ETP had no delivery costs and this was built into the purchase price.”
“Between October 2005 and July 2006 1 caused Wood Works (Sheffield) Limited ("Wood Works") to participate in transactions which were connected with the fraudulent evasion of Value Added Tax ("VAT"), such connections being something I either knew or should have known about. In particular: • I was aware that Missing Trader Intra Community ("MTIC") VAT fraud was rife in the trade in wholesale electronic goods, in which Wood Works engaged or ought to be aware of it because: o I had been warned of it by H M Revenue & Customs ("HMRC") with regards to Wood Works by letter dated5 December 2005 ; o I had been provided by IIMRC with copies of public notices regarding security, joint and several liability and invalid input tax and these matters had been specifically discussed by me with officers of HMRC at meetings on13 March 2006 and12 May 2006 and at subsequent meetings; • The trading in which Wood Works was involved had features which put, or should have put me on enquiry about the legitimacy thereof, as follows: o I had been a professional footballer before being employed in the retail trade and had no background in sales. Wood Works had quickly without significant effort or working capital generated huge turnover (some£248,712.824 in a little over nine months trading); o Wood Works was able to source goods and complete the onward sale within a very short period of time — usually on the same day; o Wood Works was able to sell exactly the same quantity of goods as it purchased; o the amount of profit made by Wood Works on the transactions in which it was involved reflects a pattern common in VAT fraud.”
“@tomic and all parties it dealt with in the relevant transaction chain transferred funds using the offshore First Curaçao International Bank.”
“(1) Mr Deuss used FCIB and TWPS, companies in his control, to create, facilitate the creation of, and/or to enable FCIB to profit from the existence of networks of companies engaged in MTIC fraud including the MTIC Companies. FCIB provided e-banking facilities to such companies, and those services were promoted by TWPS. Such companies (including the MTIC Companies) would not have been able to engage in the MTIC fraud without the assistance of banking services (which FCIB provided) and would never have been participating in such trading but for such services…. (2) The MTIC Companies were onboarded (alternatively, and to the extent different, which is not admitted, “pre-screened”) as customers of FCIB by TWPS. (4) (a) In breach of his fiduciary duty as a director of TWPS, Mr Deuss caused TWPS thereby to participate and assist the directors of the MTIC Companies in their MTIC fraud as a result of which TWPS has suffered loss and damage, namely its liability to the MTIC Companies; (b) Mr Deuss is liable to TWPS for breach of fiduciary duty in the amount of such VAT liabilities; (5) TWPS, FCIB and Mr Deuss (whether or not a director of TWPS) thereby dishonestly assisted the breaches of duty by the directors of the MTIC Companies. TWPS and FCIB and are all liable for such dishonest assistance to the MTIC Companies in the amount of their unpaid VAT liabilities (the MTIC Companies’ claims in dishonest assistance against Mr Deuss being time barred);…”
“(1) At all material times Mr Deuss and Mr Vallerey were aware that any honest bank needed to follow Anti-Money Laundering ("AML") procedures involving Know Your Customer ("KYC") requirements and on-going monitoring of its customers' transactional activity with a view to avoiding providing financial services to any company involved in any money laundering activity or other financial crime. (2) From late June 2004 Mr Deuss and Mr Vallerey knew that (alternatively shut their eyes to the fact that, or wilfully and recklessly failed to make enquiries that an honest and reasonable man would make as to whether) MTIC fraud was believed to be prevalent amongst the UK Telecommunications and Computer ("T & C") sector and such accounts were, as a result, considered to be, and were designated by FCIB as being, “high risk”. (3) Further by October/November 2005 at the latest, Mr Deuss and Mr Vallerey knew that (alternatively shut their eyes to the fact that, or wilfully and recklessly failed to make enquiries that an honest and reasonable man would make as to whether) many reputable banks had ceased to provide financial services to the T & C sector as they had concluded that there was evidence giving grounds for believing that the transactions in that sector were likely to be part of a VAT fraud. (4) Mr Deuss, despite such knowledge, dishonestly determined to capture (or to continue to attempt to capture) such business for FCIB by offering the e-banking services of FCIB without imposing any effective AML procedures. The Claimants contend that Mr Deuss was dishonest from June 2004 onwards (inclusive), or alternatively, a date thereafter, but in all probability no later than November 2005. (5) Further, to that end Mr Deuss decided to make FCIB attractive to fraudsters by emphasising the benefits that FCIB's electronic banking services offered to such companies, namely, high-speed international transfers that could be made from any jurisdiction and any time-zone anonymously in a closed loop with other traders in the cell who also had accounts at FCIB, thereby minimising the possibility of outside scrutiny of their transactions. TWPS positively encouraged the creation of the ‘closed loops’ used in the MTIC fraud by customers of FCIB as outlined in a document entitled 'Trading Segment action plan (December 2004)' produced by Mr Vallerey. (6) Thereafter Mr Deuss had FCIB provide e-banking facilities to companies in the T & C sector (including the MTIC Companies) knowing that there was a serious or real possibility that such companies were engaged in MTIC fraud but without making inquiries to see if that were the case. He was thereby dishonestly reckless as to whether he and FCIB were assisting in such fraud.”
“17. Furthermore, whilst aware of the need for a bank to monitor a customer's activity for any unusual transactions or volumes, at the latest by early 2005 Mr Deuss had formally charged TWPS with doing so even though he knew it would not be doing so and did not do so. In the alternative, TWPS through Mr Deuss was made aware of (alternatively deliberately shut their eyes to, or wilfully and recklessly failed to make the enquiries that an honest and reasonable man would make as to) the level of account monitoring on the part of FCIB and was aware, or ought to have been aware, that it was insufficient. 18. These failings of the AML procedures that FCIB should have had in place were all the more disreputable given that the substantial majority of FCIB's clients were, as Mr Deuss and FCIB knew, operating in the high risk T&C market sector in the UK where VAT carousel fraud was thought by many, including HMRC and reputable banks, to be prevalent and had no legitimate economic justification (and that as a result all reputable banks refused to provide banking facilities to such companies). Had he been an honest man, Mr Deuss would have been concerned properly to inquire about and understand the business model of FCIB’s customers in order to satisfy himself that such extensive trade was legitimate. 19. Mr Deuss gave lip service to the need to understand the business model of FCIB’s customers but did not cause steps to be undertaken in order to do so, whether as part of the onboarding process or in the discharge of TWPS' the purported monitoring of the accounts or otherwise. Mr Deuss did not do so lest it confirm what he already suspected and thought was likely to be the case, namely that FCIB’s clients in the T&C sector (or at least many of them) were engaged in illegitimate activity, specifically VAT fraud.”
“35. Furthermore, the dishonesty of Mr Deuss and FCIB is evident from the following particulars. PARTICULARS (1) Mr Deuss and FCIB knew that many if not all of the UK High Street banks refused to provide accounts to the companies in the T & C sector that it provided banking services to because of the risk that such companies were involved in VAT carousel fraud. Mr Deuss tried to avoid the involvement in any wire transfers of other banks and for that reason sought to persuade his clients not to transact in sterling. It should be inferred that this was for fear of any other bank questioning the legitimacy of the transactions. (2) Mr Deuss, FCIB and TWPS knew that many applications from T & C customers were organised by the same persons, known as "network heads", who vouched for the applicant. No consideration was given as to how such a "network" was consistent with the applicants being engaged in legitimate commercial activity or as to how the network head could vouch for that person. (3) At a meeting on4 October 2004 held in Dubai, Anthony Elliot-Square of Third Dimension Limited (who introduced prospective T & C customers for FCIB to Paul Bailey, a marketer for TWPS) informed TWPS' Antonio Calderon that traders in the T & C sector were reluctant to use the services of FCIB unless they knew that their counter-parties also had FCIB accounts (which, as they would have appreciated, would ensure no third party AMLscrutiny of the transaction). (4) Both the Chilterns Presentation and the FTI Best Practice Guide highlighted third party payments as indicative of VAT fraud. It appears that FCIB were able to check whether (or knew) that such payments were being made by customers but continued to process transactions on those accounts. (5) FCIB continued to operate accounts for companies that RMC (as defined at paragraph 2, above) recommended should no longer be accorded such facilities because of suspicions that such companies were involved in VAT fraud and for companies in respect of whom MOT reports (being reports filed in respect of unusual transactions) had been filed with Financial Intelligence Unit Curacao. Such accounts were not subjected to any special supervision or due diligence. (6) FCIB processed transactions for such companies which it knew to be of an unusual nature without filing a report of performed or intended unusual transactions to the Dutch Financial Intelligence Unit as required by Article 9 of theDutch Disclosure of Unusual Transactions (Financial Services) Act 1993 .”
“(1)(a) Prior to18 March 2005 Barclays was FCIB's correspondent bank for sterling transactions. (b) Barclays raised concerns with Ms Deuss (a director of TWPS and Mr Deuss' sister) in March 2005 about the account FCIB held with it because of suspicions arising following an increase in turnover from£60 million per month to£1 billion per month in the previous 14 months (though the actual increase in turnover on the Barclays account was from£180 million per month to£651 million per month in the space of 3 months). It is averred that analysis by FCIB would have disclosed that the sudden and dramatic increase in turnover was largely on account of accounts in the T & C sector which was known to be high risk for MTIC fraud. (c) Following a meeting with Ms Deuss Barclays sent FCIB a letter on18 March 2005 for the attention of Ms Deuss (the treasurer of FCIB) terminating the Barclays relationship with FCIB. Barclays having closed its account, FCIB simply moved its account, via the correspondent bank HSBC, to an account with Rabobank. Subsequently Rabobank too gave notice to terminate its relationship with FCIB in November 2005. (2) By April 2005, a number of FCIB’s customers in the UK had been made the subject of freezing orders in connection with VAT fraud; (3) In October 2005, Mr Potts of Blake Lapthorn warned Mr Ulrich of FCIB of the risk of MTIC fraud in the T & C Sector and at a meeting in November 2005 (also attended by Nick Oliver of Blake Lapthorn and Frances Coulson and Richard Saunders of Moon Beever) discussed with him the involvement of FCIB account-holders in such fraud. (4) Whilst TWPS, FCIB and Mr Deuss may have preferred that FCIB's customers were legitimate, they had no genuine concern about whether or not they were and they proceeded on the basis that all that mattered was the revenue being generated from the customers' transactional activity.”
“The belief that MTIC fraud was prevalent amongst the UK T&C sector was widely held among, at least the banking industry.”
“16. As I have mentioned above, the focus when I joined in 2001 was on developing the eBanking platform for BCB. In or around late-2002, the Transworld group was getting ready to launch the BCB eBanking project. At that stage, Mr Deuss decided to also launch a similar platform for FCIB. At the time that I joined TWICTS, my recollection is that FCIB was mostly involved in private banking. I was not involved in the decision to expand eBanking to FCIB (because my focus was on software development), but I recall thinking that the idea made sense, as FCIB had the same software systems that supported the running of its applications, so we could easily adapt the eBanking system to work for FCIB. 17. My recollection is that Mr Deuss had mentioned at the time that there were not enough staff in Curaçao to support the growing businesses of BCB and FCIB and that it was not easy to hire high calibre employees in Curaçao. At the same time, there were major global banks such as Rabobank and Standard Chartered who had already outsourced part of their operations to Indian subsidiaries. So Mr Deuss made the decision to start an operations team in Bangalore whose purpose was to provide back-office services to FCIB such as customer support and reconciliation of transactions. My role then expanded from software development to assisting with banking functions, and I was put in charge of facilitating the hiring of individuals from other banks in India (for example, Standard Chartered) to assist with the eBanking back-office support. Although I was involved in their hiring and management, the back-office operations team took instructions on their day-to-day roles directly from the FCIB team in Berg en Dal. 18. Around early-2003, the Transworld group launched ExactPay (initially for BCB and then for FCIB), which was a global payment software system. ExactPay was similar to eBanking in that it enabled customers to make intra-account, inter-account and cross-border wire transfers, with the key difference being that it was a card-based platform, where users would be issued a debit card and could access their funds anywhere in the world without needing to be physically present in Curaçao, as long as they had access to an ATM machine. Again, these are functionalities which most banks offer nowadays, but at the time it was uncommon (especially for offshore banks) to offer these facilities to retail customers. 19. When ExactPay was launched, the back-office team in Bangalore was expanded to customer support and software development services for the ExactPay platform as well. I was involved in facilitating the growth and management of the back-office team, and my role also expanded to being in charge of the software development team for ExactPay.”
“Part of the marketing strategy for eBanking and ExactPay, at least initially, was to recruit ‘multi-channel intermediaries’ (MCIs) and ‘master multi-channel intermediaries’ (MMCIs) across different market segments to promote them. MCIs could be (1) (for example) banks, trust companies, or corporate service providers, or (2) individuals. MCIs could open eBanking accounts with FCIB allowing them in turn to operate subaccounts for clients and share in the revenues produced (in the form of transaction fees and so on) through compensation agreements with FCIB. MMCIs dedicated 100% of their time to marketing ExactPay to MCIs, distributor banks and end users. Distributer banks were smaller banks which acted as franchisees of ExactPay (so-called ExactPay Representatives, or EPRs) to offer the platform to their existing client base.”
“Having reviewed the preliminary business plans for the individual marketers for Y-2005, it is my opinion that we must improve the quality of our clients, leads and opportunities. At many occasions I have made the point that large clients are easier to implement than small ones and of course the large clients need to be of sufficient substance and standing that we can have a high level of confidence that they will be able to generate the projected volumes of business. Each marketer should be instructed to review its database of leads and opportunities accumulated during the year in order to identify those prospects we already know about but received insufficient focused follow up to turn possible opportunities into realized business.”
“Attached is the approved template for Visit Reports. This document as indicated by Mr Deuss should contain the relevant business facts as discussed during your visits, including an indication of the type of client business, potential areas of interest and the follow-up required. Any basic forecast figures are welcome.”
“Companies involved in the sale/distribution of telecommunications or computer equipment in the UK.”
“My recollection is that before March 2005, FCIB’s compliance activities such as the review of account opening documentation were done by Martha Neuman-Rovira and her team in Curaçao, with the assistance of Victor de Wijze and Jan-Willem Smulders, who worked at Transworld Oil C.C. B.V. in Berg en Dal (“TWOCC”). Victor and Jan-Willem Smulders were also responsible for the scrubbing (i.e., checking names against databases such as World-Check to identify potential risks) of FCIB’s customers and their account transactions.”
“Currently International Phone traders are facing a difficult business environment in which to operate as a direct result of two main issues. Firstly proposed draconian European legislation aimed at V.A.T. measures which attempt to make all parties to a business transaction jointly and severally liable for the V.A.T. payable. In many cases a particular transaction to purchase a bulk order of mobile phones (av. deals between GBP 300k and GBP1m) can be traded across 5 traders in the process who although would properly account for their individual V.A.T. aspect to the transaction will as a result of the new proposed legislation potentially be held accountable for the V.A.T. to other parties to the overall transaction as well. The FTI (Federation of Technological Industries) has secured the right to appeal and challenge the case to the European Court of Justice and this is ongoing. The second issue relates to the major UK Banks apparent reluctance to continue to provide payment processing services within this industry. In view of the trading nature where often high value payments will pass in and out of bank accounts on a daily basis, this places a high emphasis on internal money laundering procedures within the banks which often result in manual checks with the clients for large value transactions both inward and outward having to be made with these companies before completion of the transaction can be made. The Banks are also risk adverse to the risks of money laundering within the sector despite the bona fide nature of the businesses represented within the industry. Banks used by the industry are generally high street banks. Fees paid range from 6£ to 20£, the lower fees applying to electronic transactions, the higher fees to manually submitted transactions.”
“I explained that Customs in the UK think this sort of fraud is prevalent but that we as PwC have not seen the evidence to suggest that it is as prevalent as Customs are suggesting.”
“I do not recall exactly, but I believe Victor’s email was the first time I had been told about VAT carousel fraud. I remember that Victor continued to speak with PwC even after sending me this email, and I remember being updated a short while after this email that PwC did not think the fraud was prevalent in the industry.”
“One of the reasons for this success is that UK banks are closing these traders accounts under pressure from the UK customs and excise, the latter are seeing this telecommunications trading activity as a vehicle for VAT carousel fraud.”
“Authenticity and best practice adopted by telecoms traders • Full due diligence is carried on each trader recruited to our ebanking solutions. This involves a visit to the business premises and full KYC satisfying the account opening requirements in Curacao. • I complete on the source of funds declaration under "business operating income" the annual turnover and anticipated annual number of wire and intra account transfers for risk control purposes. • I establish with each trader what proactive steps they undertake before commencing any deals with a potential supplier. This can include for example :- Taking reasonable steps to ensure integrity of supplies and supplier What is the suppliers history in the trade? Are normal commercial arrangements in place for the financing of the goods? Are the goods adequately insured? Taking reasonable steps to ensure commercial viability for the transaction Is there a market for this type of goods, such as superseded or outdated mobile phone models? Copy of VAT documentation evidencing that duty has been paid. Taking reasonable steps to ensure goods will be as described by supplier Do goods exist (consignment notes, invoice documents etc) Arrange inspection at bonded warehouse. In all cases a copy of companies VAT certificate is presented to me and invoice documentation of previous deals evidenced.” “• Risk Management / Money Laundering reporting requirements As mentioned previously, all traders that sign up to the ebanking platform fully satisfy all the KYC requirements for Curacao and realistic projections are provided as to annual turnover and annual number of wire and intra account transfers within the source of funds declaration within the application form. The issue therefore is whether it is sufficient having established the bona fide nature of the business and transactional activity through the account for this to satisfy Curacao money laundering reporting requirements. particularly as our web based solutions for sending intra account and wire transfers are virtually instantaneous with our direct straight through processing and speed of execution. Clearly additional risk monitoring especially for evidence of third party payments and potential carousel fraud will be required which is an issue which needs to be properly managed internally. Another area for consideration is whether we should go over and above the account opening requirements for Curacao and for example only accept traders in the future that have been established for a minimum period for eg 12 months or even produce a set of audited annual accounts. To do this would limit potential account opening opportunities within the industry for FCIB but would give us amore [sic] protection against potential fraudsters who recently open an account and possibly be more susceptible to carousel fraud.”
“What is a carousel fraud? The fraud itself is relatively simple and is usually perpetrated by organised criminal gangs. However, Customs have found that it is increasingly difficult to identify and prosecute organised crime bodies and, therefore, they are trying to stem the tax loss by tightening the rules that directly impact on the legitimate business community trading in these sectors. The term 'carousel' applies to goods that are sent on a circular or roundabout routing in order to disguise the origin of the goods. This process enables them to be sold into the open market via shell companies that do not account for the VAT. Because the trade in mobile telephones and computer chips is driven by demand, this demand has led to a significant market, where prices change daily. For some time now dealers have been involved in brokering the trade for profit (in many ways similar to other `futures' markets). The very speed of this market makes it extremely difficult to police and allows the unscrupulous trader to commit widespread fraud. Sadly, Customs' present view of the trade in mobile telephones and computer chips is sufficiently jaundiced to lead them to suspect virtually all traders who deal as brokers in these goods to be a risk. Any trader who purchases these kind of goods with a view to reselling them to another purchaser is likely to be targeted by Customs as someone who is potentially involved in fraud, whether knowingly or not. Unfortunately, Customs are not particularly interested at this time in seeking to differentiate between legitimate and illegal trade in this area, because legitimate and illegal trade are separated only by the failure of fraudulent companies in the supply chain to properly account for VAT.”
“• Met with `Jimmy' and associates at Mossop Street Office • Can introduce over 1000 traders? Will become MCI • Explained the actions activities required for MCI in trading environment and the certification qualification process — explained differences between MCI an referral agent — confirm the best activity • Banking facilities withdrawn unexpectedly within the industry — assumed following pressure to high street banks form Customs & excise VAT offices. • Demonstration of the system • Via Paris Prestige a number of company introductions will be made (Myriam Sacile) • Discussed activity requirements of an MCI and Paris Prestige do not want the overheads of performing the certification. The referral agreement was issued to them — but as such no confirmed plans for remuneration — all introductions are being monitored as `Paris Prestige' introductions. In some cases there is an overlap with previous introductions.”
“Apparently some traders are not using the accounts as they do not know which other traders have accounts.\how can each trader be advised as to who has accounts without braking [sic] confidentiality.”
“I asked Jimmy how many traders there are worldwide which are of real importance. He believes there are an additional 500 traders who have not yet applied for accounts with FCIB. Therefore, I suggested to Jimmy that we arrange a date in the not too distant future where we get the majority of the traders in one location. We would hire a room in a hotel where we would set up computers and printers. A number of our people would be at this location and in the course of lets say one week, we would just apply for all the accounts for all these traders, certify the documents and arrange for the applications to be couriered to Curacao. Jimmy believes this is the best way forward and told me he could get at least between 100 and 200 traders who are all over the world together in Dubai at the end of this month or at the beginning of December. He also asked if we could plan one of these events in the UK before the end of this year to do the same for the traders over here.”
“Trading strategy ▪ It is imperative that we develop our presence in the Trading world as swiftly as possible; this will create a sustainable critical mass and encourage an escalating number of transactions to become closed loop as the segment develops and matures (corporate clearing). ▪ This expansion must be geographic with a "spill over"/cross pollination into other trading universes (from telecommunications, computers and parts, electronics to textiles, telephone minutes, gems and precious metals). ▪ Find targets in the trading segment where we are currently active, extend into other types of trading, qualify as early as possible, use and coordinate referrals (London office). ▪The strategy is to lever our referrals to penetrate cells of traders with the result of signing all the traders within a particular cell. This will be achieved by using our presence in various jurisdictions across the world with intense analysis of each jurisdiction and communication with existing partners. ▪ It is essential to adopt a fitting methodology to identify approach and to gain signup of accounts. This includes early qualification of the leads and type/sector of business (Validation). ▪ Referrals of Traders by traders must be actively pursued as it is in the interest of the traders to create a closed loop environment and to benefit from the convenience of intra-account transfers. This must be a global initiative, although complicated by the general confidentiality associated with banking, several traders have indicated their willingness to openly display their association with FCIB on their websites and partner MCI websites (logo next to name). ▪ Activity levels of the traders are not sufficient (62 inactive); actions are required to make sure the activity will reach the levels initially indicated by the traders. This action will involve the proactive support of India and ongoing training/coordination of London to actively promote and energize these traders. At this stage of the business it is vital that we take a proactive role in the promotion of the trading platform, complaints and feedback must be carefully monitored and dealt with expediently. ▪ There is an interesting opportunity to sell EP cards to the traders as add-on products. To be pursued by each marketer at the time of sign up or shortly thereafter — note EP should not be promoted as a substitute to eBanking but as a differentiated product offering the trader the opportunity of accessing the excess funds of his eBanking account. ▪ There is an interesting opportunity to sell Global Gateways to the traders as it allows them to domicile themselves offshore while being able to operate their account online from any location.”
“As you will see, some applications were done on the phone. Basically Jimmy would speak to his contact and tell them about the Bank. He would than pass over the phone to me and at the request of the clients I assisted them on the phone. In addition, I have also provided them with the necessary training over the phone. We both sat behind our computers and I directed them to the ebanking demo site (www.twps.com/ demo/ebanking). Step by step I took them through this.” “Finally, I would like to quickly elaborate on the unfunded accounts issue. I know that there are quite a number of accounts that yet have to be funded but I think it is too early to panic. Don't forget, we have only just actively started. In addition, I saw an email in which it was mentioned that clients have applied for an accounts as a backup in case their UK accounts are closed. From my informal discussions with my clients on this subject I have the following information: - A lot of the traders are working in cells. There are typically one or two main people who are at the top of the cell. It is these people that make the other traders in a cell open accounts at FCIB. I have been told that the majority will only start to use the accounts once most of the people in a cell have active accounts. - My main contacts in the business do not agree that traders have applied for an ebanking account as a backup. Traders, especially the medium to small ones will be "forced" to open accounts with FCIB as the main traders in the business are telling people that they have to have an account with FCIB or otherwise they do not want to trade with them. In addition, the quickness and 24/7 intra-account functionality is one of the main reasons people want to bank with us. They also reiterated the above comment. - My main contacts in the business told me that we will see an increased activity and funding of accounts over the next few months. They all believe that by the end of this year FCIB will be used by 70% to 80% of the telecoms trading community with other industries appearing on the horizon. I fully agree that we need to monitor the activity very closely so that we can react to unfunded accounts in a timely fashion. At the same time, we need to be a bit careful that we do not approach this too aggressively and come across as being too hungry for business. We should definitely not say to clients that their accounts will be closed down if they have been unfunded after 2 or three months.”
“I originally signed this client on behalf of Bart in Dec, in fairness he did appear completely perplexed as to why his account should be refused. He was referred from a client of Bart's and they are in the same trading loop. Can I safely assume that there is no question of a mistaken identity or anything like that, the checks that are performed on our behalf, are they completely infallible?? I fully understand and agree that we cannot divulge the confidential information we have, however is there any area of concern that we have where we could give the applicant an opportunity to respond? Forgive me for raising this with you; I am not familiar with our background procedures and searches. I personally feel that we should give a declined applicant an opportunity to respond, but if this is not our policy I accept this and will advise accordingly. One of the reasons I raise this is from a business perspective, my view is that it may not reflect us in a good light to clients who refer us when we simply refuse the application, without, what appears to be any explanation. From their viewpoint, however, I stress, I will take your instruction and act accordingly.”
“As you well know, Barclays operates several accounts for First Curacao International Bank N.V., and we see many transactions of different types in your name. Our systems and people monitor your accounts with us, and we have become concerned about a number of different transactions involving your accounts, some of which we have already drawn to your attention. We have also noted the portfolio of clients originating transactions across your account. Many of these clients are entities that we have made a strategic decision not to deal with because of the business risk that we perceive such entities to have. We do not identify such entities as we are aware that other institutions may have a different business risk policy. We also have a concern that your KYC and AML procedures may not be as tight as we would desire. Again we recognise that other institutions may have different views on what appropriate KYC and AML procedures should be put in place. However we consider such matters to be of reputational importance. Reputational risk is a very major consideration for us, and as such we would not wish to continue a banking relationship where we felt that relationship could give rise to circumstances that may adversely impact our reputational risk.”
“Due Diligence Procedures FCIB applies strict KYC and AML procedures which include on site visits of significant clients and an in-depth analysis of their business activities, their KYC and AML procedures as appropriate, etc. When deemed necessary outside auditors are engaged to augment our in-house due diligence procedures. All records are kept in Curacao and routinely reviewed by the regulator of the Netherlands Antilles.”
“In my introduction I covered paragraphs 1, 2 and 3 of your Agenda. Mr. Croot then took over the conversation and started to talk about FCIB's KYC and AML procedures. He stated that he duly received our latest KYC manual. He was pleased with that. Victor explained the procedures we are following and the electronic systems we are using, how we perform our KYC procedures and the extra due diligence procedures we are following for certain businesses such as Telecom business. As part of the enhanced due diligence we mentioned the on-site visits and the use of auditors like PWC and Deloitte in various countries to assist us. We then asked if they could indicate to us which specific businesses or individuals they had problems with. They stated that they definitely could not give any names and they were also very reluctant in going into details. They had taken the strategic decision to definitely stay out of Telecom Business and Exchange Houses. They said that although they have some Telecom Business themselves, in this particular business they are only willing to rely on their own due diligence. In respect of the Exchange Houses they said that they had been facilitating that business but had pulled out because they felt uneasy about the control over the bulk payments and they said that the risk is not worth it. They then stated that over the last couple of months they had experienced a greater level of fraud (3 fraudulent checks) in such a short period than they had ever seen and they also gave the example of the Spanish Lottery in New York. We asked them for more details about the lottery scam in New York and they said that they would have to talk to their colleagues in New York about that. They also gave an example about the fraudulent cheques. The latest one they had come across was for USD 1.6 million, which they intercepted. We stated that we would obviously take away the types of businesses they are uncomfortable with, e.g. Telecom and Exchange House, as we have a system with the possibility to do so. At the end of the meeting they stated they would take all the input back with them, they thanked us for our open and frank discussions and said that they would internally review the situation. However, they were very non-committal about our statement that if we took certain businesses back they would unconditionally continue the business. Since a strategic decision has been made with regards to the business mentioned we have to take steps to take them elsewhere. We must however anticipate that similar objections may be raised by other correspondent banks.”
“Our concerns They were aware of our concerns and the reason for our meeting, and having explored the background, and their work practice, we outlined the following: a) we have seen three instances in NY: a. Traffic from Lespan — an institution identified by the NY District Attorney's Office as facilitating transactions for the benefit of Colombian drug trafficking b. A victim of internet fraud was trying to pay funds to a customer of FCIB c. A third incident – not discussed in detail — occurred where another US bank had cause to invoke sec 314(b) of Patriot Act to find out details of transactions FCIB were involved in. b) we have seen three separate fraudulent cheques in the UK a. two involving exactly the same sum£142,128.00 , paid into FCIBs £ a/c for Prime Commodities (UK) Ltd. One was picked up, the other was paid, and HBOS is out of pocket and pushing hard for the funds back. b. Earlier this week a fraudulent cheque for US$1,600,000.66 was paid into FCIB's a/c for Octagon Electronics Ltd. c) we expressed concern over the high percentage of mobile phone traders amongst their clients. An illustrative list of beneficiaries and remitters names, picked at random from transactions passing across their account was left with them. We explained how vital it is for us to avoid our name being linked with anything [sic] laundered money — something they fully understand. They suggested in reply, that for Barclays publicity of this nature would be a serious blow, but for them it would be the end of their business. Their reaction Most of the above, they already knew of, and whilst we had not mentioned mobile phone traders, or carousel trading, they mentioned it before we got to it! They expressed and demonstrated a huge desire to get their business totally clean and acceptable to us. They encouraged us to show them any procedure that would help them avoid doing business with any criminal elements. They immediately offered to send all elements of business that we did not like, such as mobile phone traders payments, to another bank. They struggled to grasp that we were not willing to specify what we wanted, and did not want. The only other bank names mentioned in this context were UBS and Rabobank. Earlier in the conversation we asked for a copy of their SSI's which TD promised to e-mail. As for the cheque loss, they suggested we asked for permission to debit their account (the implication being that this would be granted) and they would seek the funds back from their customer, who apparently has significant volume. When challenged as to the process at their end, when a customer pays a cheque into FCIB's a/c — they suggested that they would call us to identify the credit, but that this was not a practice that they were aware of. They said they would simply return the funds to us, if they did see this happen, and enquired how they could stop their customers paying cheque in in the first place. Whilst avoiding the threat to refuse their business and close their a/c's, they mentioned this themselves, as a possible, but unpalatable outcome (for them) if they did not satisfy us. We agreed to return home, consult with our colleagues and revert to them in due course. No specific time frame was given.”
“we have reached the decision that the anti-money laundering procedures that you have in place are not adequate to meet the standards that we feel are appropriate”
“FCIB's present marketing strategy focuses on Money Service Businesses (MSBs), B2B customers and Direct Sales organizations (DSOs or MLMs). Recently there have been several occurrences that put FCIB's reputation at risk. The high risk nature of our target markets and dealing digitally with global customers impose the need to go way beyond the KYC documentation as defined in our Anti Money Laundering Manual and checking applicants against relevant data bases, including WorldCheck. FCIB's golden rule is to deal only with LEGITIMATE CUSTOMERS who are engaged in LEGITIMATE BUSINESS. This is the only and most effective defense against the misuse of FCIB's financial system and in turn the misuse of the financial systems of FCIB's correspondent banks and the global financial banking networks. A comprehensive understanding and verification of the client, as business, business owners, directors and business practices need to be developed to protect FCIB's golden rule. To that effect draft enhanced due diligence checklists have been developed and sent to you separately by Tim Ulrich for the different target markets we pursue.”
“Client Maintenance: This involves monitoring of all approved customers to ensure that the transactional behavior is consistent with the stated customer business requirements as well as to ensure that there is no material change in the information verified during the initial KYC. The EDD team will need to fine-tune the initial customer profiles created during approval. The EDD team will verify the details of customers of MSBs (as provided by MSBs) against known watch-lists as provided by various International Organizations as well as in-house databases. Please note that, as described in Annexure K: Use of Field 50k Solution by MSBs, MSBs must provide FCIB with full KYC for all clients for whom they intend to process eBanking transactions (in order to receive FCIB's written approval). MSBs will only process payments for such approved clients. The EDD Team will also enforce this policy by conducting frequent randomly selected verifications of all outgoing wire transfers sent by MSBs on behalf of their clients (where the ordering customer - Field 50K does not contain the name of the MSB) to ensure that the MSB is only sending wires for approved clients. These are after-the-fact verifications, however, at some point in the near future, all outgoing wires will be scrubbed against negative and positive lists in real-time prior to the wires being sent out of the Bank. The EDD team will also be informed of any queries raised by the Bank's correspondent bank on outgoing wires for follow-up/additional investigation.”
“Once identified, a "High Risk" customer will be monitored on a monthly basis. Transactions must be viewed in the context of the other activity in the customer account(s), and the KYC information that has already been received about the customer. Unusual transactions are those that appear to lack a reasonable economic basis or a recognizable strategy based on what the EDD team knows about the customer. Examples of suspicious activity may include: 1. Customer indicates unusual concern with the compliance requirements, particularly with regard to his or her identity, type of business and assets, or is reluctant to or refuses to reveal any information concerning his business activities, or furnishes unusual or suspect identity or business documents; 2. Customer seeks to engage in transaction(s) lacking business sense, apparent investment strategy, or inconsistent with the customer's previously stated business or strategy;” “8. Customer's account has sudden extensive wire activity where previously there had been little or none, without any apparent business purpose; 9. Customer makes a deposit of funds followed by an immediate request that the funds be wired out or transferred to a third party or another firm with no apparent business purpose;” “11. Customer has multiple accounts, with no apparent business purpose, and makes frequent inter-account or third-party transfers;” “15. Customer exhibits inappropriate lack of concern regarding risks or commissions and other transaction costs.”
“Q. Can you help with why then you're now -- your proposal is now that you manage the team until December? A. I think, at that time, again, the expectation when we started creating the master plan was it would take a long time to evolve, but we did accelerate this. Actually, I think the number of people we had by December probably was not even five; we went to -- I don't know exactly, but probably ten or 12 people, my guess would be. That was because we understood that we had to accelerate transaction monitoring and so on, so we hired more people by then. So while this was the thinking at the start of RMC, things evolved as we understood more about the compliance risk, so that we could invest more and take proportionate actions.”
“The overall process of application approval consists of the following three steps: 1. Regulatory Compliance 2. Check against negative databases (World Check, etc) 3. Client underwriting (EDD) It is intended that applications would require the successful completion of all 3 steps, (a), (b) and (c), before being approved in Curacao. The RMC team needs to determine whether the documents are sufficient or not (A procedure for risk scoring and to determine whether the EDD documents will be circulated later this week). This is the process that will be followed once the enclosed EDD procedures are approved and implemented. As per the enclosed procedures, a "Master List of applicants" will be circulated by the RMC team with the status of each application on Step (2) and Step (3) above. Based upon this, Curacao can approve the application if they have received the full KYC documentation. In the interim, the following procedure would be followed: 1. Applicants will be approved provided they satisfy the full KYC requirements; and 2. World-check and other databases do not show any "hit" against these applicants. (In case a hit is registered, the applicant will be approved only after the full EDD documents have been received). All such approved applicants must supply all EDD documents within 60 days from the date of approval. In all such cases the applicant will be requested the EDD documents as per the current checklist(s) defined in the AML manual. Once I receive your and Ms. Deuss's approval/ feedback on the above draft procedures, I will circulate the same to all the recipients of the minutes of meeting held at Bangalore.”
“the Bank's AML Program appears to be satisfactory, however some areas might need additional enhancements”
“Lastly, in the next version of the document, we will incorporate best practices information provided by Deloitte, namely with regards to verification of customer identification, risk factors by product, and suspicious activity monitoring rule classes.”
“EDD profile enhancement Further to a discussion with JCMAMD, he suggested that I contact you with our input on enhancement of the EDD profile attachment. The objective of this modification is to reduce the number of times Risk Management is going to stop an incoming transfer or an outgoing transfer in order to collect additional information from the client so as to let the transaction go. Because of the time critical element in the transactions conducted by our B2B clients, we all know that this is a very sensitive point and one where proper planning can improve the security of our operations while maximizing the quality of service for our clients. The starting point for this review is that some transactions that are seen as extraordinary in terms of amounts for regular customers are routine for some of our B2B customers. We should let them inform us ahead of the transaction and provide the required information at this stage in order for there [sic] operations to flow seamlessly. In this respect, you should have received by now, directly from JCMAMD the current version of the EDD profile attachment and how we proposed to modify it to meet about objectives. Of course this will only work if you agree with the approach and put in place the appropriate relays. I look forward to receiving your comments on this proposed modification. Backdoor monitoring It has been agreed that it is the marketer's duty to identify among prospects, the ones who fall under the category requiring EDD and to make sure the required EDD information is provided. The same applies to customers applying for private accounts, even though, technically, the accounts will be used for professional purposes. We also discussed the fact that if a private or non EDD account has above average activity in terms of transactions then it will be flagged and the decision made whether the account should be subject to EDD.”
“BSA Reporter detects, analyzes and reports suspicious transaction activity that may be present, utilizing a powerful rules engine and customer profiling techniques. Determining potential suspicious activity requires establishing a baseline of legitimate business activity for each customer. BSA Reporter accomplishes this task with Customer Profiles, which capture the normal activity for legitimate customer transactions. Suspicious activity is presented to the compliance officer as a case. Through a review process, compliance officers and account officers can collaborate, via integrated e-mail facilities, to reach a final determination regarding the validity of the reported suspicious activity.”
“The following is a sample of an acceptable form of EPR/MCI reference letter. It should be noted that in order for an EPR/MCI reference letter to be acceptable the EPR/MCI must ACTUALLY KNOW THE PROPOSED CLIENT and that it not sign the letter in a pro forma manner. Thus, its letter must (i) be addressed to FCIB, (ii) identify the client, and (iii) confirm the basis on which it knows the client. The letter should be acceptable even if it does not exactly follow this format.”
“Following direction from JCMAMD I have revised the Corporate and Personal eBanking Application emails for FCIB to incorporate changes made in the new Anti-Money Laundering Manual. In summary these are: 1. added a National Identity Document as acceptable proof of ID; 2. added that a Letter of Good Standing can be supplied in lieu of a Bankers Reference (just the MCI or EPR number is no longer sufficient); 3. added to the end of the application forms a Beneficial Owner Declaration in the form mandated by the Curacao Regulations. When the first versions of these forms was produced in June, 2003 we endeavored to keep the Source of Funds Declaration and signature box on one page. With the addition of the Beneficial Owner Declaration that still works for the Personal application, but it doesn't work for the Corporate Application.”
“Reference letter: The standard approved practice was, that a bank reference letter was to be submitted by an applicant, unless he was being recommended by a MCI or EPR, in which case the insertion of the MCl/EPR number in the application would be considered sufficient reference. A Letter of Good Standing was never submitted nor requested. Even though the AML Manual and the checklist for account opening documents requirement both clearly state that a Letter of Good Standing from a FCIB recognized MCI/EPR is to be submitted, this is in practice not being done. Lastly, even though the AML Manual and the checklist only allows for certification of documents by a banker, notary or a bank's recognized MCI/EPR, we are now receiving documents certified by employees in the London/Miami office. When we questioned this procedure, Daniel Maurice Vallerey obtained authorization from JCMAMD to have certain employees certify documents. Tim, what I am trying to tell you in this elaborate e-mail is that the AML Manual, although a terrific tool for the Compliance staff, is not, as it is supposed to be, being followed by all parties concerned in all its entirety. We have a list of multiple applications (a copy was sent to you recently) for which we miss documents; if we are to require a beneficial owner declaration (which does not appear on the requirements, as explained above), a Letter of Good Standing from the marketers, correctly signed Corporate Secretarial Certificates and ID Documents individually marked as mentioned on the Manual, we will not be able to approve any accounts within a time frame considered reasonable. In order to fully comply with the Manual, the checklist has to be adjusted, the marketers have to be properly trained, the Compliance Officers have to follow the reporting rules to the letter and all other regulations mentioned need to be followed. Or the Manual itself has to be updated yet again, within the spirit of the law, but with certain flexibility so that it can be enforced.”
“In advancing the business of TWPS, marketers who are either employed by TWPS or who have a contractual relationship with TWPS must take care that they only provide information and make prospective clients of FCIB, BCB, ExactPay or Global Gateways aware of the Financial Services, and in doing so insure that TWPS does not act as a bank or expressly or impliedly indicate it is carrying on a banking business. Accordingly, to further clarify the role of TWPS, the following basic rules should always be followed: ▪ When visiting any country your purpose should be for "relationship calls" on existing or prospective Clients, and to provide general information about the Financial Services. You are not there to "sell" anything or to open accounts. ▪ At no time should you "market" or "sell" banking services; "open or establish" banking, card or other financial accounts; or accept deposits into any financial accounts. When asked you must explain that you are in the business of providing information about the Financial Services, developing a network of intermediaries and/or visiting for "meetings" with prospective with prospective Clients to provide information about the Financial Services and for no other purpose. ▪ You may leave with the Clients or prospective Clients information about each of the banks, ExactPay and Global Gateways, including financial statements; brochures, print materials or CD-Roms containing information about the banks, ExactPay or Global Gateways and the Financial Services they offer, including samples of account opening forms and requirements. It is acceptable to demonstrate and explain the account opening process, but the Client should be referred to the relevant web site for actual forms and procedures to open an account. You may assist the client in completing an online application form or otherwise completing his account opening forms. ▪ You may send or otherwise provide to prospective Clients the URL's where they can find information about the Financial Services, and you may also provide demonstrations of the function of any of the Financial Services. If requested, you may also provide information summarizing the information and documentary requirements which would need to be provided to any of FCIB, ExactPay, BCB or Global Gateways to establish a relationship with them. ▪ You should not ask a Client to complete account opening documentation and hand it to you while you are in the country. A Client who desires to establish a relationship should contact the relevant bank, ExactPay or Global Gateways via phone, email, the web site or fax to obtain the full set of account opening forms and instructions. ▪ You may "certify" copies of passports and other Know-Your-Customer documents for the Client and/or certify translations of documents for Clients. • Generally, you should not accept account opening documentation from the Client but should require them to send it directly to the relevant bank, ExactPay or Global Gateways. In no case are you authorized to reach agreement with a Client on the terms of any financial dealings with FCIB, BCB, ExactPay or Global Gateways, or to enter into any memorandum, letter of intent or other written document evidencing any such agreement. Moreover, in no case are you authorized to promise any financial service; modify the terms of any agreement, fee schedule or other document relating to FCIB, BCB, ExactPay or Global Gateways; or otherwise act in a manner which may expressly or impliedly indicate that you are an authorize representative of any of FCIB, BCB, ExactPay or Global Gateways. REMEMBER, YOUR SOLE RESPONSIBILITY IS TO PROVIDE INFORMATION AND MAKE PERSONS AWARE OF THE PROCESSING SERVICES.”
“Finally, kindly insure that in our KYC files that we receive either a Banker's Reference Letter or an EPR/MCI Letter of Good Standing for each applicant and advise me of any discrepancies. In the past I understand Martha would approve an account based on an EPR number only. Here is a good case where Bart's EPR number was used on the application; Bart does not know the person; and it turns out the applicant is wanted by Interpol.”
“This to avoid unnecessary delays in approval of the application as is now the case.”
“Please find hereby attached a spreadsheet which I would like you to organize for the highest volume telecom accounts in order to get some sense that account activity is related to meaningful activities i.e. profitable trading. In examining some of the trader account transaction information I noticed that very often transfers in are equal to the amount of transfers out and that the end of the day book balance from day to day changes very little begging the question what is the commercial purpose of these transaction activities. The attached spreadsheet gives an example of Duck Trading for the first of April 2005.”
“Analyze Telecom Trader Account Movements and Transaction Activities 1. Identify those accounts, where incoming funds leave the account: a. Within 1, 2 and 3 hours by means of: (i) intra account transfer, also showing frequency of intra account transfers to same intra bank beneficiary (ii) wire transfer, also showing frequency to same beneficiary b. Within 24-hours (> 3 hours) same format as per (i) and (ii) hereabove. 2. For carousel Intra-account transfers, establish: a. Which client initiated the carousel b. The ultimate beneficiary of the carousel payments: (i) name client at intra-account carousel end point (ii) beneficiary if intra-account carousel ends with wire transfers c. How many clients were involved in cash carousel trade. 3. What is the purpose of nearly identical incoming and outgoing wire transfer amounts and why do Telecom traders need to break-up the transfers, particularly if two incoming transfers are made by the same ordering party and for the same beneficiary. Could it be a design to intentionally cause errors by the remitting banks for the purpose of defrauding the banks out of "duplicate" payment amounts. We need to consider instructing our clients that they must inform ordering parties NOT to make payments in near identical amounts during any 48 hour period. QUOTE Subject: Avoidance of delays in crediting incoming wire transfers to your account Please instruct ordering parties to avoid making wire transfers into your account during any one 48 hour period if the difference in the amounts is less than USD200 (or the equivalent thereof in other currencies). Our processing rules for incoming wires could otherwise delay the timely crediting of your account with the second and subsequent payments. UNQUOTE”
“It seems that the only remaining active high street bank active in the Telecoms Traders industry in the UK (RBS) is starting to send 28 days notices of closure of accounts to some of its customers.”
“Following your input, I just had a discussion with Mr Deuss regarding the rumours they reported and the actions we should take. There is absolutely no substance behind these rumours, there are just that: wild rumours. It comes with the territories: news move fast in the telecoms world. You need to use your communication channels with: Large clients Introducers RA Intermediaries Web sites Associations to communicate the reality about FCIB's solidity and commitment to this market segment in particular and to ebanking in general. FCIB is the bank that is servicing the T&C market segment, it is a strategic direction we will always maintain. If you are a legitimate customer with legitimate business you will keep your account with FCIB If you are not a legitimate customer or your business is not legitimate, you will not keep your account with FCIB. Our commitment to the trading community is strategic and unchanged.”
“3. Cross engineering of transactions We need to leverage the information we have on the flow of incoming and outgoing wire transfers to identify the companies that are not current clients of FCIB and that send or receive a significant number of wire transfers to/from FCIB. The initial successes need to be generalized. The incoming and outgoing cross-engineering campaign will be reactivated.” “5. Risk Management Marketers need to exercise the utmost care in dealing with the prospect. In visiting the place of business of the clients, they need to establish the substance of the activity. In the course of the interview, they need to establish the financial substance of the applicant. Typical questions include: - how long have they been in business - what are the current bank(s) - asking for references from banks and reputable counterparts - availability of audited financial statements and identity of the auditors - evidence of the prospect have fulfilled all the tax, regulatory and financial reporting requirements to operate in its jurisdiction - copy of the tax returns - situation of stocks - trade references - turnover of the business for the period not covered by the current financial reports (trend over the past 3 months or past 6 months) In their own jurisdiction, the marketers must develop a form/check list that will be used to establish the financial substance of the applicant. By definition, this form must be jurisdiction specific. 6. Ultimate Beneficial Owner Marketers need to be particularly sensitive to accounts that are owned by one trader but are operated by a totally unrelated person/entity, as this might prove there is a beneficial owner that is not properly identified. 7. Risks associated to the Telecoms segment The risks associated to the telecoms segment exist at client level (legitimacy of the client) and at transaction level.” “11. Bart Van Laarhoven Introductions made by Bail van Laarhoven need to be reviewed at JCMAMD level as they require special scrutiny.”
“The traders in Dubai work in small circles. 85% of the traders are Asians: Indians and Pakistani nationals. One way to depict the T&C trading market are the Olympic Rings, as the rings are independent but there are parties active in multiple rings. Saf is regarded as an influential trader. He has brought over 100 accounts. He has contacts with traders, brokers and businesses. He trades but mainly is a dealmaker facilitating transactions between buyers and sellers. James has not identified cases where the accounts are operated by a person that is not known by the bank (Director, Signatory, B.O.). One issue faced is how to prioritize the accounts. The current approach is to increase the level of pre-qualification to increase the number of useful meetings. At the same time, we need to recognize the importance of the small players in building closed loop networks. The continuation of creating the closed loop network will lead to the natural expansion and diversification of our portfolio. The market is found to be of a fluid and unstructured nature. James is confident that he can maintain the current level of booked new accounts and transactions for the foreseeable future.”
“In the environment in which we operate compliance and regulatory issues are of the utmost importance. The risks associated with Trading in general and Telecoms & Computers Trading (TCT) in particular are tremendous. We have a proven business; we need to take risk management very seriously to protect this business. The regulators are aggressively on top of the money centre banks. The regulators are equipped with the ability to instantly detect high risk transactions. This is why we need to keep our correspondents comfortable about how we protect them. On our portfolio, we had, up to now: - 8 freezing orders (with 50 associated companies) - 8 freezing orders (with 50 associated companies) - 12 insolvency cases Even though the number of these problem accounts is less than 1%, they are attracting the attention of the regulators. There are only a small percentage of the participants that are bad apples. These need to be identified before they join our system. This is the role of the marketer, our first line defence. There are two types of "bad" participants we need to be concerned about: - Account holders who commit fraud. - Account holders who are incompetent and are at risk of being dragged into a fraudulent transaction. If any trader is turned down by a marketer (because he fails the questionnaire or because the activity/company is not old enough), it needs to be reported immediately to Compliance (Curacao or India) for recording in our negative database. This must be done at company level and/or individual level.”
“October 4 2005 Frances Coulson and Richard Saunders (of Moon Beever law firm), and Chris Potts, David Marshall and Lucy Edwards (of Blake Lapthorn law firm) inform me that HM Customs can't meet directly with me because of "internal legal and political problems". However, HM Customs are interested in a dialogue and would like us to meet with the law firms which represent them. They explained that FCIB is now identified as principal banker to the telecom traders. HM Customs are reluctant to disclose to us what they know about these traders, the trading patterns, the carousel fraud patterns, etc. They prefer that we meet with their outside lawyers to describe our KYC/EDD procedures for telecom traders, following which they will revert with comments relayed via their lawyers. Meeting November 2 2005; Connaught Hotel • Present: T. Ulrich, J-W Smulders and B. Partridge. For the Moon Beever law firm: Frances Coulson and Richard Saunders. For the Blake Lapthorn law firm: Nick Oliver, Chris Potts. • T. Ulrich gave overview of history of FCIB and its products and services. B. Partridge gave a robust demonstration of ebanking, global clearing, corporate clearing and exact pay. • T. Ulrich explained: FCIB's KYC/EDD policies and procedures in detail; our considered use of additional outside resources including Kroll, Baker & McKenzie, Ernst & Young, the FTI and the Tax Exchange; data base searches don't reveal who are the "bad guys"; we've signalled intention to cooperate not only with HM Customs but similarly in the US with the SEC, CFTC, Fin Cen; we only want squeaky clean client base, but we don't know how to identify the "bad actors" or how to stop it; voluntary freezing of accounts has subjected us to much criticism from clients, but it is the right thing to do; etc.” • UK Lawyers recommended/discussed the following: o FCIB KYC/EDD look very thorough and effective; their only suggestion is we should ask for a copy of the VAT Registration Application as part of our KYC — it shows intended turnover in first year and bank details. We could them compare actual volume vs. what they told Customs; we could also see who prior bankers are. o They would like FCIB to consider freezing accounts/sharing information with them on the basis of an Affidavit from HM Customs but before their cases go to court — they would use our information to build their case (they later phoned to drop this request since HM Customs did not want to give us advance notice of their investigations of suspected tax cheats). o They would like FCIB, when a freeze order is received, to merely "block" accounts so that incoming funds can be received but outgoing funds are blocked — they say there are numerous instances where traders continue to send funds to an account subject to a freeze order because they don't know the freeze order is in place — HM Customs want to capture these funds. o Asked how FCIB could speed up the process of complying with Freeze Orders — we agreed that so long as they are all in the usual, standard form (both freeze orders and insolvency orders) that they could be scanned and emailed directly to T. Ulrich, Saurabh and Martha: upon receipt we would act quickly.” “Overall the meeting went very well and we established a cordial, cooperative working relationship. We reiterated our request to meet directly with HM Customs which they said they would pass on; we also agreed to meet periodically when I was in London.”
“UK lawyers advised that without FCIB this trade would be dead. They think FCIB has over 90% of this business.”
“They said the process of sending Court Orders directly to Saurabh and Martha was working well. Also, the process of "blocking" rather than freezing accounts was appreciated.”
“MD: Oh well that's not too good, you're going to be working with that for a while I guess, unfortunately. Yes, I got your message and l understood from your message that you will be dealing with our accounts... DB: Yes, that's right MD:. ..well, what has happened to Bart because I have lost track of him and I'm ..... DB: Well he has gone, he has just left... MD: ...I heard some stories that he was fired but through, through other contacts because I don't know, it was a bit of a funny story, I never could get hold of him anyway. DB: ...yes well he was a mmm, I mean he is the nephew of the guy that owns the bank so... MD: Ah, o.k. DB: So, if you like, if you are the nephew of the guy that owns the bank getting fired is quite a difficult thing to do... MD: Yes DB: But I mean he basically, to my mind, he wasn't really a professional in the sense that.... MD: I think he put forward too many dodgy clients, I think he was basically, in the sense, that he was accepting anybody he could get the hold of. DB: Yes. MD: That was the impression he was giving me. DB: Yes that's right.” “DB: Let me just come back to one other thing that I think you'll appreciate and I'll tell this to you but I wouldn't tell it to the bank is that eight out of ten accounts that I'm opening at the moment are new companies... MD: Yes. DB:...for whom that EDD would be impossible to answer, absolutely impossible. MD: Of course.”
“In the UK, our approach has allowed us to capture, in 15 months, a very significant share of the UK Telecoms and Computers traders and import market, as these businesses were looking for a banking solution as the High Street Banks were closing their accounts. This has been done in collaboration with some of the Associations in the fields, such as the Federation of Technologies Industries http://www.fti.org.uld. Based on our experience of MT, the specific approaches we have developed to process their transactions and the indications you gave me about the current situation of some of the MT businesses in the UK, I am very confident we can provide a solution to these members of the MTA.”
“As indicated to you over the phone, here are the elements we have gathered from the market, consultants and accounting firms as regards the economic justification for the trades being done by our Telecoms and Computers traders: - There are a number of traders involved between the producer or the large distributor with exclusive agreements with the producer and the retailer (5-7 layers is the commonly accepted number). - The goods sold by the manufacturer have an official price: virgin price. - The involvement of traders in the official/white market is limited as there are a limited number of players on the manufacturing and operators side and they deal directly with each other. - The traders we are dealing with are involved in the grey market which represents 30% of the overall market. - The grey market is particularly strong for pre-paid users. - Traders mark up between 1% and 2.5% each. - The total margin available to traders is between 7% and 15% of the virgin price. - Retailers' margin is around 35% of the virgin price. - The market price (price at which retailers sell to the end user — outside of packages) is 50% above. - There are 800 million units sold on a yearly basis, the average cost is estimated at 100$ (virgin price). - The revenues available to traders from this activity can be estimated at: 800 millions units * 30% as grey market * 100 $ per unit * 10% average margin =$ 2.4 Billion . - Mobile phones are a whole unit, ready to work, contrarily to computer chips or memories, - There are no issues with standards or regulations (only some exceptions for hardware moved between Asia and Europe). - Official channels (the white market) are not as efficient as the unofficial channels (grey market) to service certain areas or to deal with certain products (hot products or products being discontinued). - The mobile phones have become fashion items with fluctuating prices and seasons”. “- Mobile phones are perceived by traders as being safer than other commodities because there is this feeling that if you cannot sell a lot in the trading market, you can always go and sell it to the end users. - The market will grow in developed markets as a result of 3G and in developing markets as the result of the introduction of entry-level phones priced at between$ 30 and$ 50 .”
“Please try to obtain written submissions from market consultants and accounting firms supporting the economic justification of the mobile phone market in addition to any other publicly available information supporting same. Obviously the written submissions I am asking for must be those which already exist and need not to be prepared specially for FCIB.”
“Opportunities for FCIB around refunds for traders and import/export companies with a focus on Telecom Traders/Computer Parts dealers (T&C traders)”
“Inactive accounts have the following consequences: Tying up of resources Generating debit revenues that we are not certain to recover Creating potential risk as they could have been set up for fraudulent purposes An alternative observation is that these accounts can easily be activated by the account holder and could be potentially play an essential part of the Corporate Clearing accounts pyramid/community set up. We need to determine policies that address the issues raised by inactive accounts without losing the potential benefits they present for FCIB (as an example no funding of the accounts 3 months after the account approval, would be frozen, which means that the first transactions would be blocked and subject to investigation). We will develop a document for JCMAMD dealing with the issues related to inactive accounts and what actions are required (London Office).”
“One issue we are facing is that of customers applying for private accounts (ebanking or ExactPay) even though they technically qualify as corporate users, in particular if they are B2B customers (traders). One of the consequences is that these prospects would not be subject to the stringent EDD process we now apply to B2B clients. It is even worse if this approach was to be chosen by clients whose company would not have qualified under our current terms. To avoid the existence of a backdoor into our system, we propose, based upon a discussion held with Mr Deuss, to put a place a process along the following lines: - on the online application for Private customers (eb or EP), add a mandatory account activity box to let the customer indicate the expected number of yearly transactions - if (i) the figures provided in the application, (ii) the prospect indicates to the marketer or somebody else in the organization that the account is in fact a professional account or (iii) the analysis on the activity of the account after it has been activated shows levels of activity more in line with those of a corporate account, the personal account will have to satisfy all the KYC and EDD if the customer had applied for a corporate account.”
“If after 90 days from the date of the account approval the customer has not yet funded his account we need to deactivate the account for risk management reasons. Customer support should, 30 days prior to the deactivation of the account, communicate with the client with the objective of getting the account funded and used. Once an account has been deactivated, it can be reactivated, at the request of the customer with an explanation of the delay in funding of the account and a review of the customer file by the compliance department.”
“Brian: we circulate the masterlist each week - however, we note that the "business category/sector" for a number of the customers that we know (Dhalomal Ramchand PTE and for Dhalomal Kishore) is "Other"/ "Combined Technology" while we know that he is primarily performing "Telecom" trading. He should therefore have been categorized accordingly. Similarly, there are a number of customers that are marked as "Other" on the masterlist. Could you please go through it once and update the masterlist business sector to ensure it reflects the current categorization (or ensure someone goes through the masterlist and gets this done). This is required urgently to provide to JCMAMD to categorize customers via different correspondent banks. Also, on an ongoing basis for all new customers we should be able to categorize them into business sectors correctly.”
“As the UBO declaration is not yet part of the documentary requirements for the opening of corporate accounts as per the PDF file and as the applicant has no knowledge of this requirement necessitating us to send a separate e-mail, after consultation with Tim Ulrich I hereby approve that all pending eBanking applications can be approved without waiting for the UBO declaration. Of course we will continue to ask our clients, existing ones and the newly approved ones alike, to provide the UBO declarations which we accept to receive by e-mail or fax as well. After the UBO declaration is included in the PDF file listing the documents required for the opening of a corporate bank account then the above temporary procedure will no longer be necessary.”
“Ganesh earlier this week prepared a report showing for each Telecom customer the ordering party and frequency of incoming wire transfers and the beneficiary and frequency of outgoing wire transfers. This report should be the starting point for a forensic investigation starting with the Telecom clients with the highest volume of incoming and outgoing wires. Particular attention should be given to the amounts of incoming and outgoing wires by using the time stamp of when the amount comes in and the time stamp of the like or identical amounts going out. The purpose is to determine the economic substance of the transactions. For instance if it were so that there would be a high occurrence of identical amounts coming in and almost instantaneously going out that would be the starting point for a discussion with the Telecom clients to ask for an explanation for such movements. Whilst in India, time permitting I would like you to start this exercise. Also Saurabh has done similar work and for instance is questioning the high turnover on certain accounts and the discrepancy of the turnover observed with the financial statements submitted by the client.”
“I have reviewed with Tim the missing documents for each of the pending eBanking applications and considering the confirmation of the Central Bank of Curacao authorizing us to accept faxed or electronic (scanned) copies of documents, I hereby clarify the implementation of our policy as per our KYC and AML manual (which requires "original documents") that based upon special authorization from undersigned we can accept in lieu of original documents faxed copies or electronic/scanned copies to clean up all missing documents of the pending eBanking and ExcatPay applications as they appear on the list Ellyanne sends daily until the end of 2005. All concerned need to make a maximum effort to clean up the pending applications. Saurabh needs to draft amendments to the procedures to update our KYC and AML manual accordingly.”
“We are aware that UK banks are in the process of getting out of the business of servicing the telecom market segment. As we understand their cost and time of the compliance staff to monitor transactions, report suspicious transactions, administer freeze instructions and administer Court issued freeze orders are not worth the commercial benefits. FCIB fully adheres to its commitment to combat the use or abuse of its facilities for the purpose of financial crimes, including money laundering. Our Anti Money Laundering manual and policy statement (latest version 2.3 November 19, 2005) and our vigorous implementation of our KYC and AML policies and procedures are a testament of the banks policy of dealing exclusively with legitimate clients engaged in legitimate businesses. FCIB's servicing of the telecoms market segment is not inconsistent with our policies as stated hereabove. Whilst the telecom market segment is classified as high risk we have implemented appropriate Enhanced Due Diligence procedures to make sure that we only deal with legitimate Telecom clients. The trading of telecom equipment and the high velocity of trades and trade settlements is consistent with the view that telecom communications equipment has become a fungible commodity, actively traded between market participants in the chain between manufacturers and consumers. The trading pattern is not unlike what we saw in the oil markets where cargoes of Brent crude oil at times changed hands as often as fifty times, representing a "Quasi futures market". Margins per barrel were small and for every trader who made a penny there was often a counterpart which lost. Not all trades were profitable. We have now reached a point that there is enough transaction history for Telecom Clients that we can begin the process of validating in the aggregate the economic purpose of telecommunications equipment trading. Whilst it is recognized that active trading accounts demonstrate high volumes of turnover we need to examine if for individual clients over a sufficiently long period of time the economic purpose of their activity can be confirmed. Our review of transaction history should amongst others identify: 1. Turnover information 2. Profitability information In order to further enhance our understanding of the industry and to go "the extra mile in confirming legitimacy" we should consider seeking following additional information from high volume clients as appropriate: 1. Copies of sales and purchase confirmations for each transaction 2. Copies of invoices (for purchases and sales) 3. Audited or at least internal income statements 4. Copies of the documents for each transaction evidencing the transfer of title/ownership 5. Any other relevant documents as may be determined. Our KYC manual defines "unusual transactions" as transactions which are inconsistent with a client's known legitimate business or "normal" for that type of account. Our EDD should include the establishing of a "base line" for each client to identify what is usual for that client. The Senior compliance officer must review all complex unusual large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose and should prepare a report for any unusual transactions that he believes should be reported externally. The report should be submitted to senior management for review for compliance with existing regulations prior to submission to the Unusual Transactions Reporting Center (MOT).”
“■ Telecom traders: During Jan-W and Victor's visit to Bangalore, RMC discussed the different fraud scenarios (for VAT/Missing traders etc) to get an understanding of what to analyze in the telecom traders accounts. Top 5 telecom traders' transaction accounts and EDD was collated for analysis. • Preliminary findings note has not been completed and would be completed post Christmas break. • However, the RMC team is analyzing the telecom traders (whose accounts were frozen) transaction history for any patterns and these findings will be published next week.” “• BSA Reporter o Team at BED is evaluating another product `Mantas'. A web-based demo of Mantas was held. Jan-Willem / Rajul to send out a note on issues faced with BSA Reporter.”
“Summary: • The pattern indicates clearly that the next companies that could be frozen are 'Callender Group' and 'K & S Communications' (the importer 'traders' in UK). • The sole purpose of the company 'Hi-tec Electronics' Denmark is to feed goods to the Cyprus based companies. • The 4 Cyprus based companies depicted in the diagram above are selling goods to a trader in UK. Recommendation: • The following companies should be closed for compliance reasons: o Cyprus based companies: Artlons Trading (marketer: Paul Bailey), CK Communications (marketer: Bart), E and I Trading (marketer: Bart), Rezaco Trading (marketer: Bart). o UK based Importer' traders: Callender Group (marketer: Paul Bailey) and K & S Communications (marketer: Bart). o Denmark based: Hi-tec Electronics (marketer: Bart). o Retro Jeans (UK) (marketer: Roy Nixson): this company has only traded with other UK companies frozen for carousel fraud. • Balmoral Ltd. (marketer: Bart) and First Touch Communications financial activity data is not sufficient to recommend any compliance steps as of now. This account will be monitored on an ongoing basis. • Export Company UK's (marketer: Paul Bailey) proportion of trading activity (based on transaction amounts) is 30% with the frozen accounts. The customer has a mix of genuine trading activity and activity with frozen accounts. However, since this is the second largest trader with the bank (with EDD score of 53), although our recommendation would be to weed out this customer since we believe that the pattern is structured to create such a mix of transactions, we should discuss the further course of action for this customer. Next steps - re-using what we have learnt: • Monitor patterns of companies trading between UK and EU based regions for possible cases of 'missing traders'. • Compile statistics of transactions on a weekly basis (amount and count of transactions: Intra-account and Wire Transfers) and notice the amount /number of transactions each week for the year 2005 for all customers. Based on freeze order served to a trader, map out if any trader account has a sudden jump in their activity indicating they might be the trader replacing the frozen trader.”
“FCIB's reputation and the integrity of all FCIB clients who are participants in the buying and selling of mobile phones is being seriously threatened because of the increasing number of FCIB clients being involved in VAT Carousel Fraud in the UK. At the same time H.M. Customs and Excise is shifting the burden of tackling carousel fraud from the tax authorities to the banks. Therefore there is the need for continuous review of "Telecom" clients to ensure and confirm that the "business" is not a facade created for the purpose of facilitating and undertaking the fraudulent evasion of VAT. All approvals of corporate account applications are subject to satisfactory completion of EDD. EDD backlog on existing corporate clients to be cleared by March 31st, 2006. Prioritize based on turnover (aggregate of wire transfers and intra account transfers). If clients don't timely provide requested information, account privileges will be suspended (15-days to provide requested information, 10-day follow-up reminder. If by that time no confirmation from the client has been received about dispatch of missing documents suspend account privileges until documents received and satisfactorily processed).”
“Q. In fact, the backlog might be said to consist of three elements: new accounts had been taken on between April and October on the basis that EDD was supposed to be supplied but wasn't being reviewed, because we see in the preceding (indecipherable) -- A. I'm sorry, I'm confused. Between April and October 2005? Q. Sorry. Before you arrived -- A. Yes. Q. -- the EDD review procedure hadn't been finalised? A. That is correct. And we were not asking the applicants to submit EDD documents. Q. No. A. Which is why we had to go back to them and ask them for documents. You are right. Q. But they were being onboarded? A. That is correct. Q. Their accounts were being opened? A. That is correct. Q. So we had -- you had people who had been onboarded between April and October; you had to get their EDD? A. That is correct. Q. You then had the problem that there were delays in them providing the EDD. And, at the same time, there's the new applicants who were making applications after October? A. That is correct. Q. And what I put to you is that with all -- with trying to cope with that backlog, but there wasn't, at that time, bandwidth, as you call it, for there being a continuous review -- the wording Mr Deuss uses in his e-mail -- a continuous review of telecom clients to ensure and confirm that the business is not a facade? A. Sorry. Do you mean continuous review of existing customers? Q. Well, I'm just -- you see, Mr Deuss, in his e-mail, you see the third paragraph: "There is the need for continuous review of telecom clients to ensure and confirm that the business is not a facade created for the purpose of facilitating and undertaking the fraudulent evasion of VAT." Now, sorry, did you understand that simply to be a reference to what was already happening with EDD? A. Your Honour, I understood that to be that we should implement a mechanism by which we can -- it's not a one time effort but an ongoing continuous process where we could review the telecom traders or the clients of the bank. I do recall telling Mr Deuss that we need to get through this backlog first. And I recommended March -- it was end of March, as Mr Deuss states in this e-mail, that around that time frame we can start transaction monitoring as a continuous process; and, second, that we were increasing our team so that we can do all of these processes in parallel.”
“9. Follow-up of EDD documentation: a. ALL follow-ups to be done by RMC-Bangalore. Miami + London to be involved only for the last follow-up round (in case they need to if the customer is important) for the most important customers only. b. We need to MAKE SURE that the EDD documentation and review process is completed. We cannot be in a situation where our manual speaks of lots of processes but in reality there is a gap. c. RMC to follow a `Missing Docs' report for EDD. d. Saurabh to raise alarm with JCMAMD if the EDD documentation and application approval gap is increasing. The mission is that we need to deal with legitimate customers only and we need to work intelligently towards that. 10. Analysis of Frozen Accounts Report: a. Report the customers to MOT that are recommended to be `closed' in the report. When we report to MOT we do not close the customers. b. Send a copy of MOT report to JCMAMD.”
“FCIB operates a global electronic banking platform and operates accounts, albeit a minor percentage of its total accounts, on behalf of approximately 90% of telecoms b2b traders in the UK.”
“9. The RMC team must: Develop procedures to identify common directors across customers. Develop procedures to understand customers business where funds flow out instantly as soon as funds are received. A report is to be developed to provide transactions which satisfy the following criterion: i. Amounts greater than a defined value ii. Outgoing funds are within a defined variance (amount) iii. Outgoing funds are within a defined time window. Develop procedure to identify the daisy-chains (apparently related intra account transfers between different customers) as this could be an indication of VAT evasion. MOT reporting must include transactions where customer does multiple transactions to stay below the reporting requirements at Curacao or at the originating country.”
“o We should monitor the transactions by frequency and by amounts. We need to find fingerprints in the transaction activity that triggers questions → analyze the information gathered for the questions → the analysis will lead to either clearing the suspicion or to a suspicious transaction. We should be careful that no matter at what stage of investigation we are, we are mindful of the relationship with the customer. We need to have a procedure to analyze transaction activity — what would frame the questions? — and perform the analysis of responses and the investigation leading to clarity or suspicion. o We need to perform random documentary checks of transactions (transaction checklist). The underlying philosophy is to identify the genuineness of the transactions. We should develop queries to perform transaction validations: to identify duplets, triplets etc and analyze them. As a last resort, in case we are unable to conclude from the information received during monitoring of transactions, we should require supplementary site visit (which is a costly process). o Transaction monitoring: we should proceed to implement monitoring based on slabs of transaction amounts such as: • Transaction amount more than USD 2mn = mandatory review of underlying documentation. • Transaction amount between USD 1 mn and USD 2mn = review of 5% of transactions for underlying documentation. • Transaction amount between USD 500,000 and USD 1mn = review of 4% of transactions for underlying documentation. • Transaction amount between USD 250,000 and USD 500,000 = review of 3% of transactions for underlying documentation. Etc. o We need to develop requirements for transaction monitoring and submit them to JCMAMD for approval. We need to ensure that reporting database is put in place on a priority basis.”
“14.2 Third Party Payments HMRC believe that third party payments are strong indicators of fraud. The best way to explain what is meant by a third party payment is by means of the following example:- • A sells B some goods; • A instructs B to pay C, D and E for the goods; • The payments by B to C, D and E are third party payments because B is not paying its supplier but other third parties. Notice 726 states that there must be a commercial reason for third party payments. As to what is meant by "a commercial reason" you should take legal advice. You should also ask yourself the question if, in the above example, B is paying all of the purchase price including the VAT element to C, D and E, how is A going to be able to meet its VAT liabilities? You should note the following: • Avoid third party payments unless where strictly necessary. • Third party payments are viewed by HMRC as the precursor to potential VAT fraud and have been described by HMRC as "the footprint of fraud". • Third party payments may lead to HMRC appointing a provisional liquidator who would put the company into liquidation. • This could lead to the liquidator freezing bank accounts and assets of any companies which have traded with the company in liquidation. 14.3 Cloning Of Companies • Known within the Industry as "hijacked VAT numbers" this involves trading with an organisation who is using another company's details. • Provided adequate checks are made a Trader should be able to determine whether or not the company they are dealing with is genuine or not. • As part of normal trading, traders fax their company details to many other traders each day. As a result it could be that a trader's details fall into the wrong hands and their company is `cloned'. An indication of this could be unsolicited calls/correspondence verifying your details. If a Trader has any suspicions in this area they should seek professional advice immediately. 14.4 Check Stock Before Making Payments • Check stock to ensure it is what it was described to be. • Beware of counterfeits. • Be careful of releasing goods prematurely as monies can be diverted to other jurisdictions. This will require freezing orders in the UK, and possibly abroad to rectify. This is a costly exercise. 14.5 Releasing Goods • Great care should be taken to ensure goods are fully paid for before they are released. • If the sale/export is part of a chain of transactions it is essential that the goods are fully released to the exporter before the exporter releases to the customer. • Special arrangements are required between the trader and the freight forwarder to ensure fraudulent release does not occur (i.e. a freight 'forwarder needs to speak to a trader and not just accept fax instructions which could be forged, or special release codes are required etc). 14.6 Unusual Transactions • If a trader regularly buys and sells large quantities of mobile phones or CPUs then their bank will be used to seeing large receipts and payments. • On the other band if a trader only trades wholesale once or twice a month and the rest of the month they trade retail then the large transactions could fall into the category of "Unusual Transactions" • If a bank sees an unusual transaction they are obliged to report it to NCIS who may in turn report to HMRC. This could result in funds being held in the account until NCIS and or HMRC are satisfied to the validity of the transaction. • To try and avoid this action it is advisable to keep the bank informed of any unusual transaction and provide them with documentation (purchase orders/sales invoices etc) and validation of the transaction before payment is received from the customer. • Unusual transactions may lead to a report to NCIS/Customs by your bank even where the transaction is innocent; e.g. sending money back from where it came. To ensure suspicions are not raised, as a precaution it would be wise to send a written explanation to the bank with documentary evidence before making such a payment. 14.7 Too Good to be True Offers • During the course of each day a busy trader will receive offers which are too good to be true. • It is quite likely the offer is just a wind up in order to stimulate the traders interest and eventually offer proper stock at a proper price. • However, if it appears the `too good to be true' offer is a genuine offer and stock exists and is available then caution should be exercised as it could be an enticement into a fraudulent activity.”
“The transaction monitoring has not been started yet for the randomly selected top 100 customers. I am putting down the procedure and the tracking mechanisms in place for the team regarding the same. Last week on a priority we were addressing the clearing-up of pending application to be online in terms of processing EDD for applications. We have started performing the "full EDD" (along with scoring, as discussed during your visit) for "all" applicants. We are also reviewing the site visit reports (that are available for all applications) and indicating the ones that did not have and. although the application was processed, we would require the site visit report in 90 days (but in no less than 180 days). One resource has been dedicated on the forensic analysis. As part of forensic analysis, he has been seeking underlying documentation for a few customers. The above was to provide you a snap-shot of activities performed in the last week. The plan is to start the transaction monitoring for randomly chosen top 100 customers by the end of this week. I will keep you updated regarding the progress made on this activity.”
“Hi Friends, You know what has been my position regarding this issues of EDD, Visit Reports, Risk Management, etc, from the beginning. But after to make more than 15 Visit Reports this week and get the feed-back from the clients, I really think that now is time to finish this discussions. Probably, some of you are surprised to read this from me, but I am going to explain why: If you compare the documents requested in the KYC and EDD with the ones that the real traders request to the new clients, you will see that they are totally different. The EDD has been designed by people that never meets a Telecom Trader and for sure they do not know nothing about "Shark Companies", "8 Payments System", 'Company Chain Structures", etc. They are only Risk Managers, sitting in their offices and their main function is to keep the Bank safe of legal problems. And I am 99% sure that the main functionality of the KYC and EDD is that. If there is a problem with any of our clients, the Bank is able to provide a full folder with all the documents required by the International Regulators and keep the licence without problems… For these reasons I have assume that FED and Visit Report are only "tools" to keep the licence of the Bank and it does not matter which type client we are working with. We do not have to forget where is based the Bank, because of its jurisdiction he can get clients that they will never open bank accounts in their own countries for the purposes that they are using FCIB, and this is nothing to do with Telecom Traders, It is for everybody. I really think that this is the environment where we are working and we have to deal with it in the safest way for the bank if we want to working in the company for a long, long, time... if we do not get a heart attack before.”
“As we want the Site Visits to be a very effective process, please find below a reminder of the codes to be used (and their implications) as part of the rating of the applicants or clients you visit: Green: Legitimate customers doing legitimate business. The standards are higher for high-risk businesses than they are for low-risk businesses. Within this Green category we can find the best managed companies as well as regular companies, but what they share is that their activities will not expose the bank. A Green rating means that no further investigation is triggered by Compliance on the basis of the results of the Visit Report (beyond the regular KYC and EDD). Amber: Based upon the judgement of the person signing the Visit Report, further investigation is immediately required, by TWPS, the Bank or a Third Party. This investigation will always take place. The decision on the nature of the investigation and who is going to perform it is made by Compliance. In the case of an application, approval of the application might be delayed. Red: The application should not be approved. In the case of an existing account, the account should be terminated immediately. Compliance will act upon the conclusion from the person having made the visit, without further review.”
“Continue Business As is”, “Modify Business” and “Get out of banking business before being forced out”
“In order to decrease our dependency on GBP in the field of Telecoms and Computers Traders, we propose to apply the following rules straight away: 1) Every client operating in the Euroland will be asked to always open an account in Euros (mandatory). 2) Customers will be influenced to settle in Euros or $ instead of GBP: a. When the customer is not certain about the currency of the account, we will strongly suggest Euros or USD (indifferently). b. The promotion of Euros or $ can take place to favour this currency by indicating that payments can be processed quicker than in GBP. c. Euros/$ funding instructions will systematically be provided over the GBP ones and the benefits of funding in Euros/$ will be highlighted d. The support/project teams will be told to favour $ when speaking with clients. 3) For traders not based in the UK, we will insist to have them trade in Euros or Dollars, explaining to them that the high visibility of GBP transactions could negatively impact their ability to make trade related bank payments in this currency in the future and that it would be better to shift right now.”
“The less GBP incoming or outgoing transactions we have, the less we depend on correspondent banks in the UK. These banks happen to be in a country where the government is not very much in favour of telecom traders and we know very well that a government can very well influence the behaviour of banks. The combination of the currency in which the traders trade being from a country that does not like this type of trading is not good. Our objective is to reduce the outgoing or incoming volumes in this category.”
“just received a call from Mr Raj of Best Buy computers in Singapore who has expressed his joy at being able to perform a cross currency transaction at a competitive rate and at T+0 (thanks to Dennis help) The functionality of T+0 and competitive exchange rates internally will gain us further business and adds to the value proposition of using FCIB.”
“I do not understand the reason why we do this. I thought that we said that the special calls to Dennis were to be dropped? What is the strategy?”
“JD does not want to do it anymore. The reason is that if we do it and actively shift clients away from GBP, it will not portray the bank in the right way with UK authorities (changing currency to reduce scrutiny... even though we know this is not the reason).”
“Progress review The current level of activity can be summarized as follows: -$ 11.6 million revenue for the first 3 months in 2006 The yearly trend is$50 to$55 million (profit target =$25 to$30 Million ) - 85% of the income is derived from GBP accounts - 80% of the revenue is derived from traders involved with an element of T&C trading Most of the income is eBanking related, ExactPay lags Our e-banking activity is almost exclusively in the high risk segment TWPS payment engine depends on FCIB having access to the clearing banks. There is 0 tolerance for reputational risk. The policy is to only take on board legitimate clients engaging in legitimate business.”
“Our objective is to grow our business in the highest contribution sector (cross border multicurrency global payments) while managing the reputational risk and correspondent bank relationships.”
“Whilst the position of the UK banks was to decide that they could not manage the risk associated with the Telecoms wholesale business, FCIB's position is that it can manage the risk associated to this industry and will use its position in this industry as a launch into the other international trade segments. Maintaining our presence in the T&C market is important. We cannot pull out of the market solely to absorb the applications backlog and to weed out the bad accounts. These actions need to take place in parallel.” “- The issue is to remove any "bad accounts" while preserving the economic situation of the bank. - We initially brought clients on board who should not be with the bank. Our challenge is to weed out these accounts. - FCIB has become the bank of the Telecom traders. Because of the negative image of the Telecoms, this results in a negative image for FCIB. Any bad transaction or bad account has a negative impact on the bank. - We always need to validate the economic basis for the existence of the activity of the client, when visiting the client. With the current pursuit of a good client base and with the current level of activity, we can be more discerning about whom we deal with. - Other banks are following the same path as relates to extended due diligence (the Citibank application is a very detailed questionnaire, and it takes 3 months to get the account). - The role of the marketer is essential in the initial screening of the customers. If there is any doubt, it is better not to initiate the relationship (legitimacy of the client and its business).”
“The current rule is that no T&C application will be processed unless the company can provide accounts (audited or management accounts depending on the jurisdiction) for 2004 and the following years or unless the company is directly related to an existing account (sister companies). This approach is required from a risk management perspective but we need to leave the door open for some absolutely legitimated companies in order (i) to allow important but young players to join and reinforce the de facto closed loop network we created for the industry and (ii) to prevent such key players from being instrumental in the creation of a competitive hub. 1. Full documentation set for High Risk Applicants (KYC and EDD). In-depth EDD documentation if required by the Bank. 2. Satisfactory Kroll Phase 1 and Phase 2 Audit + Phase 3 Audit if required based upon the results of the initial Audit. The cost for such Audits will be fully paid for by the Applicant, in advance. The contents of the Kroll Audit are detailed below. A similar Audit program might be put in place with another bank approved security firm (RISC Management). 3. During the first year of operation of the account, all the outgoing payments made must be intra-account transactions. There will be no restriction on incoming transactions. 4. During the first year of operation of the account, the account holder must provide full transaction documentation a week maximum after the transaction has taken place (this comes on top of the Bank's real time Transaction Monitoring programme). This applies to all the transactions (incoming and outgoing). As a reminder, the current set of documentation to be provided for each transaction includes: Purchase Order sent to Supplier Goods Inspection Report Purchase Invoice from Supplier Purchase Order from Buyer Sales Invoice to Buyer Shipping Instructions to Freight Forwarder Stock Release Instructions to Freight Forwarder Proof of Export (if applicable)”
“Change to High Risk”
“We have gained a favorable impression of the management team as. well as their systems. We have also been assured that their staff is regularly trained to keep up with the ever changing regulatory environment as well as the new system functions and applications. The Compliance officers are continuously visiting the staff in Curacao as well as Bangalore where the respective KYC, EDD and exceptional reports are reviewed and investigated. As a matter of fact, the compliance officer is about to spend two months in India for this purpose. The frank and open exchange previously experienced with Mr. Deuss, President and owner of the Bank, was also evidenced with our hosts during our today's discussion. They are fully aware that they cannot allow themselves to be remiss in maintaining the highest standards. They realize that any mishap on their side will affect their correspondents and it would be to their detriment if a bank like ours would cut off their access to the various international payment systems.”
“Further to your request earlier today, please find attached the first list of 36 selected Telecom Traders sent to Ganesh, as per his request, for their outgoing transactions to be routed via UBS (password = Champagne). The following Marketers have provided clients for this list: Kevin Bullman, Antonio Calderon and Frederic Vernet. We will send other selected Telecoms Traders to Ganesh as soon as we get the related input from the other Marketers.”
“I need your urgent input as to the incoming GBP wires for certain clients which are immediately followed by corresponding outgoing wires. I am meeting with UBS in New York on Monday and this is a pattern we need to discuss with them before hand and thus the urgent need for this information. I also need your urgent advice on the status of revalidation of our entire GBP customer base. We must be absolutely certain that we will present UBS both for GBPs, Euros and US dollars with squeaky clean customers only.”
“The high level plan to migrate the customers from Rabobank to UBS in eBanking is as follows: 1. We suggest that we use Hypo bank to route all payments in SEK and JPY (as they are insignificant). 2. We use UBS for routing GBP and EUR payments (in addition to USD). 3. The payments in CAD would continue to be routed via NBOC. 4. We continue to use UBS Zurich for routing payments in CHF (they are very few in number).” “The focus of the initial RMC exercise is on all the UK customers (for their possible involvement in VAT fraud — 700 customers) and the top 160 customers. We would finish our analysis by 17th June to finalize migration of these approximately 160 customers and about 450 UK customers. We also recommend that the 820 customers doing less than 100,000 GBP be migrated to UBS. Although the RMC exercise has not been completed on these customers, it is essential that we move them to UBS to avoid unnecessary operational errors/issues. I believe that we are unlikely to get Correspondent bank queries on such customers. We plan to run daily reports to ensure that these customers do not exceed the amount thresholds (100,000 GBP).”
“fine tuning of the transaction monitoring process following the shift to UBS”
“The shift from Rabo to UBS for clearing of Euros and GBP transactions and the fact that straight through processing at UBS can only take place for clients who passed EDD and Transaction Monitoring resulted in delays and problems for our clients. Indeed, when the client is not vetted for UBS, the transaction is systematically investigated and the transfer does not take until the required documentation has been provided and reviewed. Clients who are investigated and do not meet the requirements for UBS processing will have their accounts closed as we no longer have a solution to process their transactions (as an indication there were 14 such notifications sent since the shift to UBS for USD, a month ago). At the moment, 875 clients are UBS grade, 2200 clients require systematic transaction monitoring (T.M.). Since the shift (Friday) 301 outgoing transfers were made by 202 clients. Out of these, around 50% are from UBS grade clients. The rest had to be subject to T.M. This situation created a lot of client related problems.”
“The business of TWPS is to: (1) directly provide information and make prospective clients of FCIB and prospective members of the ExactPay Global Payment System, aware of the Financial Services; and (2) to develop a network of intermediaries who, in turn, may make interested parties aware of the Financial Services.”
“Transworld Payment Solutions Collaboration with FCIB • TWPS payment solutions powered by FCIB • FCIB want to make available the best platform for international payments • FCIB's platform is based upon three equally important pillars: • Second to none international payments solution, • First class customer service, • Effective compliance, ensuring that the integrity of the bank is preserved while providing its clients unfettered access to the financial networks and global trading community. Transworld Payment Solutions FCIB Compliance requirements • To avoid that FCIB becomes a victim of illegal activities and to protect the reputation of the bank while preventing the illicit use of its banking services, FCIB has adopted ever more stringent policies and procedures to "Knowing Customers" and "Monitoring of Transactions" to detect suspicious activities in a timely manner. • To this end, FCIB will not be a party to, or in any manner process funds which may be proceeds of unlawful activities. • FCIB's Risk Management and Compliance processes include: • To confirm the legitimacy of its customers and their activities through a rigorous account application process, including strict information verification procedures • Real time monitoring of customer payments against expected transaction profiles • To request transaction documentation for selected payments • Compliance audits at the client's place of business” • Second to none international payments solution, • First class customer service, • Effective compliance, ensuring that the integrity of the bank is preserved while providing its clients unfettered access to the financial networks and global trading community. • To confirm the legitimacy of its customers and their activities through a rigorous account application process, including strict information verification procedures • Real time monitoring of customer payments against expected transaction profiles • To request transaction documentation for selected payments • Compliance audits at the client's place of business”
“This is day one of a new phase in the life of TWPS and FCIB.”
“Methodical, dynamic and aggressive on-going review of the existing client base” and “Starting July 1, the sole focus is on Low Risk accounts and we are not interested anymore in pro-actively pursuing High Risk accounts.”
“LTB: opened the discussions by explaining that he had acted for John Deuss (JD) on various occasions for at least 10 years. The reason for requesting the meeting was that JD was concerned about his banking reputation due to the continual closure of his corresponding accounts. FCIB would be unable to operate if it was not able to get a corresponding account. Due to this JD would like to offer assistance to HMRC re MTIC fraud but has been frustrated that HMRC lawyers have been communicating with him and has therefore not been able to gain direct access to the appropriate people in HMRC. JD is not involved in MTIC fraud and would like HMRC to accept that he is a fit and proper person. This was the reason JD had hired LTB and he in turn hired Penumbra.” “LTB: was aware the JD had a "chequered history" and was named and associated with breaking oil sanctions. JD has a significant oil business called Transworld and FCIB was initially set up to deal with his oil transactions. JD also set up an extremely effective ebanking system. JD would like HMRC to know that he is legitimate. He would also like a reference from us so that he could prove to his corresponding banks, that he is an honest businessman. JD would also like to know whether HMRC would like to prosecute him.”
“By way of background, about 2,300 of FCIB's existing accounts would fall into the category of Telecoms/Combined Technology/Computer Traders. Approximately 60% of these accounts are in the UK. More than 280 Telecom accounts are presently under suspension/closure either because of Court Freeze Orders or our own compliance requirements. Moreover, more than 1,000 applications are presently pending but have not yet been approved and the vast majority are unlikely to meet our current KYC and EDD requirements. FCIB may have unwittingly become a banker to "carousel VAT Fraud" which is hidden within the market segments referred to hereabove and recognizes that the proportion of illegal to legitimate businesses within these sectors is subject to debate. Whatever the opinions on this matter, FCIB has a clear policy with respect to any illegal activity using its accounts and continuously enhances it KYC and EDD standards and requirements to ensure that its policies on KYC and AML are fully met. Our business philosophy is only to do business with "legitimate clients engaged in legitimate business". Making those distinctions has become an increasing challenge for us and all bankers.”
“Q285 Chairman: Good morning, to you all, and may I in particular welcome Angela O’Hara from Vodafone, Dr Mike Cheetham from Bond House Limited, and Fred Howarth from the Federation of Technological Industries. You are aware that we are looking into the question of missing trader fraud and we would like to ask you some questions. There are three of you so I am not going to invite each one of you for a statement; your submissions have given us a start and our questions, I am sure, are going to elicit the things we want to know. Can I begin by asking all of you, what has caused your industry to be targeted by MTIC fraudsters? Mr Howarth: If I can begin on that, I think our industry is typical but not unique in being targeted in as much as we trade in high volume/high value commodities. Similarly the pharmaceutical industry has a very similar problem; if not as bad as our problem it is working its way towards that. So I would say it is the value of the product we deal in and the demand for the product. Ms O’Hara: I think I echo those comments; it is really high value/high volume. It is a very fast-moving consumer goods market and I think that is really why it has been targeted. Dr Cheetham: There was a legitimate market, and still is, which trades in chips and phones which are such high value. The grey market and parallel market, as it is called, are there to find excesses of product and fill demand for product, and it has to move very fast. If there are people building computer systems they need the chips the next day; if there is a production line running and it has run out of stock, those chips are needed for the next day. Thus it is a very fast, reactive market and this is ideal for the fraud.”
“Q. If we go back to page {F/1326/1}. We see, under "Progress review", consideration of the current level of activity. The fourth bullet point highlights the profitability of the T&C: "80% of the revenue is derived from traders involved with an element of T&C trading". And at the bottom of the page -- sorry, pausing there. You see this -- this identifies the economic imperative, doesn't it, not to weed out the fraudsters from the T&C sector that you've -- that FCIB is servicing? A. My Lord, I don't see how this shows that we should not weed out. This is an update being given -- and, again, I'm assuming Daniel Kornitzer and Daniel Maurice-Vallerey were both present in this meeting. They are both giving this update to Mr Deuss. Compliance is completely different and irrespective of what revenue those customers are bringing or applicants are bringing.”
“Mobile Traders (UK) - due diligence contract that traders need to sign Telecom Eqpt (UK) - significant risk management issue in terms of potentially losing corresponding banking relationships - as these companies are basically evading VAT (value added taxes)”. (2) In early October 2005 a meeting of the TWPS marketers took place and following the meeting a list of action points was prepared. I have set out the relevant extracts from the version dated21 October 2005 which was sent to Mr Deuss and Mr Thanki and his team accepted that he was either present or shown the note: see [291]. It recorded as follows under the heading “Risk Management”: “The risks associated with Trading in general and Telecoms & Computers Trading (TCT) in particular are tremendous.” (3) On2 November 2005 Mr Ulrich and Mr Smulders met Ms Frances Coulson and Mr Richard Saunders of Moon Beever and Mr Potts of Blake Lapthorn: see [293]. On17 November 2005 Mr Ulrich met Ms Coulson and Mr Saunders again: see [294]. His attendance note of the meeting stated: “UK lawyers advised that without FCIB this trade would be dead. They think FCIB has over 90% of this business.” (4) In his email dated15 February 2006 to the NCIS (at [320]) Mr Knuckey of RISC Management Ltd stated as follows: “FCIB operates a global electronic banking platform and operates accounts, albeit a minor percentage of its total accounts, on behalf of approximately 90% of telecoms b2b traders in the UK.”
“Having looked at the documents which I was sent by Victor de Wijze and Daniel Maurice-Vallerey they reflect my recollection of my understanding at the time which was that I was aware that there were issues with VAT fraud in the telecom sector but did not know it was a widespread issue. I understood that HMRC was trying to clamp down on the fraud by making legitimate traders equally liable with fraudsters, and also by pressuring UK banks to exit the sector. This meant that there were a significant number of legitimate telecom customers who were looking for banking services and that we could provide services to them so long as we had appropriate compliance procedures in place.”
“When I reviewed the transaction patterns of the accounts, I recognised the trading patterns and economics as being similar to those of the oil markets, which I had more than 35 years of experience in at this stage. Oil and petroleum products were often traded in both physical markets and unregulated markets created by traders themselves, both of which were perfectly legitimate. In the unregulated oil trading markets, trades can be very large, and cargos of oil can be traded multiple times between a limited number of parties, often within days or hours in the case of intra-day trading. The trades would eventually be settled between traders directly, by offsetting the trades against one another. Further, since multiple trades could (and often would) take place for the same cargos of oil, the scale of trading would often be unrelated to product supply and demand economics. When I reviewed the transaction patterns of the accounts, I recognised the trading patterns and economics as being similar to those of the oil markets, which I had more than 35 years of experience in at this stage. Oil and petroleum products were often traded in both physical markets and unregulated markets created by traders themselves, both of which were perfectly legitimate. In the unregulated oil trading markets, trades can be very large, and cargos of oil can be traded multiple times between a limited number of parties, often within days or hours in the case of intra-day trading. The trades would eventually be settled between traders directly, by offsetting the trades against one another. Further, since multiple trades could (and often would) take place for the same cargos of oil, the scale of trading would often be unrelated to product supply and demand economics.”
“Q. Now, if we look at the -- if we look at the final full paragraph beginning: "We have now reached a point ..." Do you see that that? "We have now reached a point that there is enough transaction history for Telecom Clients that we can begin the process of validating in the aggregate the economic purpose of telecommunications equipment trading. Whilst it is recognized that active trading accounts demonstrate high volumes of turnover we need to examine if for individual clients over a sufficiently long period of time the economic purpose of their activity can be confirmed." Now, could you tell us what you would have understood by that. A. My understanding of this is that we -- "we" as in FCIB -- would have, by then, at this time, when Mr Deuss sent out this memo or this e-mail -- that we would have sufficient transaction history of some of these telecom traders that we could go and start reviewing their account statements, their overall financial transaction activity and then evolve transaction monitoring to see: was there an economic basis to do that transaction? That's my understanding. Q. And if we look at the bottom of the page, we see that: "Our review of transaction history should amongst others identify: “1. Turnover information "2. Profitability information". Now, that was 16 December. That review never took place, did it? Because you were told to review the freezing orders instead. Let me just ask that question again. A. Sure. Q. That review never took place, because Mr Deuss asked you to review the freezing orders and you were then focused on reviewing the freezing orders? A. Your Honour, I do not recall if Mr Deuss told me 'do not do this activity'. That's not my recollection. And I'll state what my recollection is. As far as I recollect, in December as well I think we got some freeze orders. And there was a pattern of missing trader/carousel fraud that was mentioned in the freeze orders. And I did take it upon me to review those freeze orders to figure out: are there any patterns here that we could learn from? Is there an analysis that I could do? So that that could, in turn, apply to our compliance function and help us identify the -- I should say -- probable or suspicious telecom traders from the ones that we thought were genuine and -- which is why I took that analysis on. There's a second point here that, at this time, we were going back to do EDD documentation; and that itself -- for the customers, and we have catched up on this -- that itself was building up substantial documentation that we had to review that I did not think that -- that we should initiate another transaction monitoring exactly at that time. Plus I recall that I went back to Mr Deuss to ask for more resources, because definitely there was a need to expand the team. MR JUSTICE LEECH: Does this document go over the page? Or does it just finish there? It does. {F/886/2}. Are you coming on to the second page? MR PARKER: My Lord, in fairness, we can look at it, but I didn't have any questions arising out of the second page. There is obviously the reference then to Mr Sharma at the last paragraph: "[Mr Sharma] must review all complex unusual large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose and should prepare a report." So, again, it's part of your parcel of -- you're to do this report based on the history of the trading to date. But, as you say, you've got many other things to do including, as we will come on to, the freezing orders? A. I -- your Honour, I do want to state that we did start this in March of 2006, if my recollection is correct. MR JUSTICE LEECH: Can you just tell me whether you actually understood how, at least in rudimentary form, carousel fraud worked at this stage? So you understood -- did you understand about chains of traders and that there would be a missing trader who -- who wouldn't pay the VAT? A. When this e-mail came out, your Honour, I did not understand that. And I do not think we had that understanding within the bank at that stage. But I do recollect I did an analysis of the freeze orders; and I do not recollect the exact date -- maybe it was end of December or early January 2006 -- where I highlighted how this process worked, how a missing trader -- there's a probable suspicion of somebody that would go missing. Could we identify it? And by March is when we automated some of this so that we could actually start doing focused review of some of these customers. MR JUSTICE LEECH: It's just if we go back to the previous page, {F/886/1}, I mean, what Mr Deuss is instructing you to do is to look at the underlying economic purpose of a -- A. That is correct. MR JUSTICE LEECH: But if you look at a single transaction, as you say, you will find the purchase order and the invoice and the payment. So it's only by -- if you're able to connect up a number of different transactions -- A. Exactly. You are correct, your Honour. But manually to do that we did not really have -- like, you could pick up customer and spend an entire day and figure out that there's no real pattern here and then go to the next. And therefore what -- and I recall Ganesh and I both worked on this -- Ganesh took the lead -- is we tried to automate how could we identify chain transactions and then later -- and then -- and I think it was April 2006, we also identified how we could get probable third party transfers. And this is something that we automated on the banking system. So, because we had the transactions and we had most of the transactions transacting with each other, we were able to automate some of this.”
“Q. And then if you go to paragraph 37 of your witness statement, which is {C2/1/13}. You say in the second sentence: "I recall from various investigations I did into the sector shortly after I joined ... that the business model of companies the telecom sector was broadly comparable to futures trading, whereby the company would not necessarily have physical custody of the commodity but would transact on its value in a futures market". And then you say: "ie, large volume of sales of small units, which made economic sense at scale". Now, large volumes of small units isn't the definition of a futures market, is it? A. So here with the small units I meant the size of the -- of the commodity, rather than the number of the commodities being traded. Q. And if items are being bought and sold on the same day, that's not a futures market, is it? A. In a way, it is, because what -- what this communicated was that the goods are exchanging hands and there could be shillings, pence, pennies worth of margins, but on a higher number of commodities which are exchanging hands. Although there isn't -- there's no physical exchange of that commodity that is happening. So that's why it was -- MR JUSTICE LEECH: It's often in a container somewhere in the middle of the Pacific or something? A. That's right, which was the parallel that Mr Deuss drew with the oil trading activity, that the oil is on a container somewhere and before it even lands it has already exchanged hands multiple times. MR PARKER: But the futures market makes sense because the contracts allow for movements in price before delivery. So you fix -- you fix a price to buy or sell and then the obligation to deliver is at a later date, and you gamble with what happens with the price in between, informed gambling? A. That's right. Q. But if you've got an item bought and sold on the same day there's no real time period, is there, for movements in the price? A. There is, because there is -- I am thinking the price will move here and somebody else is thinking the price will move here. So there is a relative appreciation of where the price will move and that's why there would be a buying and selling of that commodity. Q. But if you're speculating -- A. Yes. Q. -- you're speculating. You purchase an item. And then if you think the market is going to go up, you're going to hold on to it for a while, aren't you -- A. Sure. Q. -- before you sell. You would only immediately sell if you made a bad call and you suddenly thought the market has gone against you? A. Yes. Q. So you wouldn't have a pattern, would you, of the money always going in and out? A. It's not necessary that everything that we saw was always going in and out, but what we saw indicated that the traders were betting on the price and therefore it's changing hands. MR JUSTICE LEECH: Just following up on Mr Parker's point, isn't that the same volatility? You don't know, suddenly one day, having -- I mean, the oil price has plummetted over the last week, hasn't it, because of the announcement of the US government of the tariffs. But it's difficult to see the price of iPhones changing in the same way, especially if they've already been purchased by the initial trader in the chain? So it doesn't have the same volatility which means that you, can as you say, speculate on the futures market? Because you're looking forward, aren't you, to this price that it ultimately will be sold when, I don't know, coffee beans or sugar or oil is landed in Europe, let's say, or in the States. But difficult to see that in quite the same way with sort of mobile phones or chips because, you know, it's going to be some kind of cost plus, isn't it? There's going to be a cost to buy it off the manufacturer. And then there's going to be a profit to the middleman. So it's sometimes difficult to see how it's going to go through so many different hands, isn't it, before -- or why it would do before it reached the end-user? Mr Thanki took me to the House of Lords report, so there are some economic justifications, but it does seem to me a fairly -- it's not an exact analogy, is it? A. And again I'll repeat, this was our understanding at that time; and it was also -- we also based it off understanding that, from the time of ownership to the time it lands and it is sold there could be price movements in the market. And that's what we based it on, rightly or wrongly. MR PARKER: And you say it is your understanding at the time. It was Mr Deuss' understanding at the time, as relayed to you in the e-mail we just looked at? A. Yes. Q. But he's the origin of this hypothesis, isn't he? A. Our understanding was shaped by Mr Deuss' inputs, that is correct. Q. Because you've never worked in the oil markets, have you? A. No, I have not. Q. And Mr Deuss said that the trading where it's a futures market involves the netting off of the transactions. So you don't pay for each transaction, as it occurs. At the end of the month you look to see whether you've made a profit or a loss as against the person you've been transacting with and you only pay that amount. That's netting off, isn't it? A. I understand what netting off is, but I do not recollect this exact statement. Q. I think I would suggest that Mr Deuss told you this hypothesis in his December e-mail and you didn't challenge it or give it a great deal of thought; you just accepted it because it was coming from the top man? A. I would restate that. I wouldn't directly put it that way. I would restate that, my Lord, to say when we looked at the transactions, we thought that there are pennies being made off -- off the phones or shillings or whatever that may be. It kind of got confirmed, in a way, by what Mr Deuss was saying, that this is how he has seen it in the oil business so he can correlate it to that in the telecom business. MR JUSTICE LEECH: So to you it had a logic, did it? A. We had a logic, but we had no visible proof; but I would say -- we had no industry proof because we had not worked in these industries. So I would say, yes, the confirmation came from Mr Deuss, but we definitely had that logic.”
“MR JUSTICE LEECH: I'm going to come back to this technical issue in a minute. But just looking at paragraph 3. Can you extract -- tell me something about the understanding in the bank of carousel fraud by the date of this memo. A. So this was around September? MR JUSTICE LEECH: Yes. A. So around September my recollection is that we had probably three or four freeze orders; and our -- and I think by -- I think close to -- my recollection is around end of 2005 we had nine freeze orders. So -- and I think the freeze orders started coming in, again my recollection is April, May, something like that, the first one or two freeze orders we got. And then around October, November -- MR JUSTICE LEECH: Slow down a little bit because the stenographer has got to take a note -- A. Sorry. I think the first two freeze orders were around April, May. And I think another few came in I think around October, November. My recollection is the overall numbers that we had gotten by end of December was around less than ten. And the -- there was of course trading going on in the accounts where the money was coming in and going out. But it wasn't clear what the modus operandi was and, like, which was legitimate and which was not legitimate. But the thinking always was this is similar to the oil trading -- Mr Deuss always referred to his experience in oil trading where people would buy and sell oil for very small change in price and they would sell it. And the idea was: okay, but we should get to the bottom of what's going on; we should establish the commercial viability and we should dig deep. Starting around October, I think there was a whole set of activity around trying to understand what these transactions are, beginning it was like one-off, where people looked at, okay, these patterns and tried to understand what the questions were, like asking for some documentation to understand what's going on. And then slowly that evolved into random transaction monitoring, to understand what the -- why transactions are happening. And in parallel around November, December we got, I think, like eight, nine, I think, freeze orders. And then we started looking into it in detail. That's when we understood this notion of third party payments, which was a big indicator of VAT fraud; and we started developing custom algorithms to detect those. And then, similarly, we also -- so Saurabh had done this analysis around the carousel trading, where money went in and around and it was strange; and I think one MOT report was filed for one client, which was the starting where we started understanding this. Then -- this was like one-off to begin with, end of December. Starting 2006 then this was converted into a structured process, where it was like almost the RMC team -- a separate team was created to do transaction monitoring, who would then randomly check for documentation and a whole set of procedures were evolved. MR JUSTICE LEECH: Thank you. Unless you want to pursue that, can I just ask another question about this memo, which is, if we turn the page. {F/648/2}. I mean, if you look at this, this looks a workaround, it looks as if he is saying, "We don't want to stop these payments", where there are endless repeated payments, but what he's saying is, "Well, we need to find a way for the customers to get around the 48 hour rule". A. So that's what I was saying. So this part, unfortunately, is dealing with the technical problem; but of course it doesn't give the right context. But here the idea was: how do we prevent two wire transfers for the same amount going out technically, because it's exposing the bank to commercial risk. And the rule Mr Deuss was proposing if the amounts are exactly the same we pause one of them and therefore tell the customers, "Don't do exactly the same amount because our systems are going to stop this duplicate payment because we are exposed commercially". So this -- I mean, I can see it now when reading it might appear related to the telecom aspect of it, but this particular message was related to the technical issue. MR JUSTICE LEECH: So you say this is unrelated to the -- A. Unrelated. MR JUSTICE LEECH: It's not saying, "Well, the problem for our T&C traders is that they're sending the same amounts, passing through very quickly; we've got to find a way to help them to make these payments"? A. No.”
“We have no evidence to support theory that a futures market exists.”
“If there is a cell phone futures market why don't we see one in the U.S., Canada or other jurisdictions that don't have a VAT regime?”
“Companies involved in the sale/distribution of telecommunications or computer equipment in the UK”
“…It was surprising to me that Barclays had taken issue with FCIB providing services to the telecoms market segment given they had said in their meeting with us that they were involved in the market segment as well. 143. The loss of a correspondent banking relationship is a very serious matter, especially for a bank such as FCIB, which specialised in receiving, maintaining and sending deposits. Without correspondent banks, FCIB would be out of business because we would not be able to make transfers outside the bank on behalf our clients. 144. I reached out to John Demaine, who was a contact that I had in Barclays, to see if he could help fix the situation. The next month, in April 2005, I travelled to London with Tim for a meeting with Mr Croot at Barclays’ offices in Canary Wharf. We went through the same points that Tineke had discussed with them in Berg en Dal. Barclays refused to change their mind, and did not give any additional reasons. 145. FCIB took Barclays’ termination of its correspondent banking relationship very seriously, and my recollection is that in the months afterwards the bank took steps to improve its compliance. One of the motivations for doing so was to ensure that FCIB was able to maintain its correspondent banking relationships.”
“160. I understand that the Claimants have alleged that I knew that “UK high street banks had refused to provide accounts to companies in the telecoms sector because of the risk that such companies were involved in carousel fraud”. 161. As I have explained above, I first became aware around August or September 2004 that some UK banks were exiting the telecoms sector. My understanding was that they were doing so under pressure from HMRC, and because they were not willing to devote the necessary resources to build up their compliance procedures to deal with the risks of the market segment. 162. However, my understanding was that there were always UK banks servicing the telecoms sector during the period that FCIB provided services to it. As I have explained above, Barclays informed Tineke at their meeting in March 2005 that they were continuing to service clients in the telecom market segment. I also remember that even after March 2005, FCIB continued to receive wire transfers from Barclays and other UK banks to accounts of FCIB’s customers which were in the telecoms sector. I understood from this that they continued to remain in the sector.”
“Barclays termination of the relationship appears to have been the catalyst for Mr Deuss to instigate the steps set out below: without that, it seems that FCIB would have continued for many months more with effectively no compliance at all. The response to Barclays’ intervention was not a concern that FCIB had been facilitating VAT fraud in the T&C sector, but simply a consideration of what was needed in order to be able to preserve correspondent bank relationships without which servicing of T&C sector couldn’t continue.”
“Q. And if we look at {F/1326/2} again. If you look at the eighth bullet point under "risk management". You see: "With the current pursuit of a good client base and with the current level of activity, we can be more discerning about whom we deal with." Now, that is -- that is identifying as a reason why FCIB can be more discerning with the people they deal with is because they're doing -- were doing very nicely from their existing clients, isn't it? A. I do not understand what you mean by doing very nicely from their existing clients. Q. That they are now a profitable, financially successful company, as a result of the level of activity that they have from their existing clients? A. My Lord, that's not my area or domain to comment on. Q. Well, what did you -- well, what would be your understanding when you see their current level of activity? A. Okay. You're asking for the existing clients current level of activity? Q. Current level of activity is a reference, is it not, to the business that they currently have as at the date of this document, April 2006? A. Okay. Thank you for clarifying the question. It's more clear now. My Lord, the way I interpret this is we were seeing a number of freeze orders and, therefore, there was a comment made: will we be able to identify from the current activity who we should deal with and who are bad apples? And that's the comment that was made here. And given that we were able to automate third party transfers and we were just starting to review how we could find chain transactions or the carousel fraud, our take was we should be able to identify that. So that's my take. I don't read "current level of activity" as revenue or anything else. That's not my domain; and I did not interpret it in that manner. Q. If we look on the same document, at the third bullet point: "The issue is to renumber of any bad accounts while preserving the economic situation of the bank". So isn't that saying: we don't want to strip out all of the bad accounts if it means it's going to threat the profitability of the bank? A. I think you're trying to -- you have amazing imagination Mr Parker. What it is saying is we do not want to exit the telecom customers yet because we only want to weed out the bad accounts. We still thought, and still today think, that there were genuine customers whom the bank should service. So that's my take, my Lord, that the economics mandates that we should not weed out bad accounts.”
“Q. So what we can see here, particularly that -- let's look at that first paragraph numbered 1, there's now a concerted effort, isn't there, to identify the clients where there are no indicia of fraud in their trading? A. I will re-frame what Mr Parker has stated, my Lord. The mandate that we were given is any customer that we are migrating to UBS, we need to -- compliance needs to put a stamp of approval that all of them are squeaky clean customers. We were still identifying bad apples from our transaction monitoring, from our chain transfers. And, therefore, what Mr Deuss instructed is: take a holistic review, from EDD review, site visit reports, transaction monitoring. And, before you migrate, confirm that you have reviewed the customer, again if required. So, again, if we had already reviewed it in January, Mr Deuss wanted us to review it again. So this was the effort. I do not state it as: well, now, finally, the bank is trying to weed out the bad apples. It was always an ongoing effort for the ten months that I was part of compliance team.”
“Q. Well, if we look at {F/1326/1}, because this is certainly a clear statement of the position that's been adopted by, shall we say, the management of FCIB. So from the "Progress review", we see: "The current level of activity can be summarized as follows: "$11.6 million revenue for the first 3 months in 2006". The fourth bullet point: "80% of the revenue is derived from traders involved with an element of T&C trading". So 80% of 11.6 million, for the first three months, is all down to T&C trading; yes? A. Possibly. Like I said, I didn't have much to do with the revenue or marketing side. I don't know. Q. And if we go over the page to page {F/1326/2}. You see the third item: "The issue is to remove any bad accounts while preserving the economic situation of the bank". And that suggests, doesn't it, that FCIB wasn't that interested in removing the bad apples because it would impact on their profitability? A. I don't -- again, I don't know the context of this meeting. I was not there. But, from a compliance perspective, the mandate was always compliance -- we need to ensure squeaky clean customers. And every time we had interaction, it was never discussed or debated whether commercial aspects would overrule compliance, where compliance would take a back seat. That was never the way that we ever worked, at least from a compliance perspective. I was not in this meeting so I have no idea what the context of these statements are.” “Q. And the first item, asking about in and out payments by wire activity, this isn't because Mr Deuss wants to find out whether FCIB is assisting fraudsters, it's because he wants to make sure that UBS don't discover that FCIB is facilitating fraudsters? A. Again, in my mind, my interpretation of that is, again, it's an incorrect characterisation, because, even though UBS was not involved, the incoming wires and outgoing wires were going through mainstream banks. You know, we had Barclays and Rabo and others. So it was just that UBS was considered the premier correspondent banking relationship, we couldn't risk losing them at all. So it wasn't like those transactions or the customer base was being hidden from the correspondent banks; it's just that UBS -- commercial risk of losing the UBS relationship was much higher than the other correspondent banks.” “Q I put to you that what is happening here, for the very first time, is a review of the transaction statements for known fraud patterns? A. I think, again, that's completely incorrect characterisation. Here what was happening here is just to double-check and be doubly sure that the customers we are moving to UBS are squeaky clean and, therefore, repeat and double-check all the things that have happened.” “Q. And then if we look at {F/1496/1}. This is you to Mr Deuss. See the title: "Migration of customers from Rabobank to UBS", 7 June. States: "The high-level plan to migrate the customers from Rabobank to UBS in eBanking is as follows". Then the final third of that page: "The focus of the initial RMC exercise is on all the UK customers (for their possible involvement in VAT fraud ...)" And that's because you are focusing, for the first time, on all the UK customers for their possible involvement in VAT fraud, which is not something that you have actually been doing previously? A. Again, like I said, I think in the past the way we were doing transaction monitoring was based on these targeted patterns for different things that we had identified and random transaction monitoring. Right now, because we are migrating customers from Rabobank to UBS, we wanted to be doubly sure everyone was, you know, squeaky clean. So this was just an extra scrutiny to ensure that that goal was met. I don't think it's correct to say that no checks were being done before. Q. So I think you're -- the evidence you're giving is, shall we say, wholly unreliable on this topic. There's no suggestion here that you're responding saying: well, we've looked at it once already; we will have another look if we assist? A. I think it was clear that we wanted to be doubly sure; and that's what we did. I mean, this -- there are lots of reports we can see where we have MOT reports that were filed based on transaction monitoring; customer accounts that were suspended. I'm sure you would have found e-mails and -- Q. This is all happening urgently, isn't it? Mr Deuss sends you an urgent e-mail: how are you getting on with re-validation? If you had already looked at a large number of UK customers for their possible involvement in VAT fraud, you would say to Mr Deuss, we've already looked at this. There's a number of customers we've still to do, but we've done a large number already". That's what you would have said not: "The focus of the initial RMC exercise is on all the UK customers (for their possible involvement in VAT fraud ...)" A. Again, I think that's not the intent of what is written here. Here the intent is we wanted to be doubly sure and triply sure that we are not risking our UBS correspondent banking relationship. That's why we are doing this analysis. But I don't think anyone -- Mr Deuss, of course he already knew that we were doing all these reports and analysis because we've been sending him weekly and daily reports on what's going on and to Tim. So they knew that we were doing this. Q. And then you carry on: "We also recommend that the 820 customers doing less than 100,000 GBP be migrated to UBS. Although the RMC exercise has not been completed on these customers, it is essential that we move them to UBS to avoid unnecessary operational errors/issues. I believe that we are unlikely to get Correspondent bank queries on such customers." So you're telling Mr Deuss that it's okay to move the small customers because they're not going to cause any compliance -- they're unlikely to cause compliance problems with UBS? A. Sorry, again, I'm not sure what the question is. Q. According to you that the reason why you're recommending the 820 customers doing less than£100,000 can be migrated to UBS is because they're unlikely to cause any problems with UBS from a compliance point of view? A. Sir, I'm still not clear what the question is. Q. And the concern of FCIB is not with having a clean client base for the sake of having a clean client base, it's only because if you send clients to UBS who aren't clean, UBS is going to pick up on that and it will damage the correspondent banking relationship? A. I think, again, that's an inaccurate characterisation of the problem. Mr Deuss told, I think in multiple meetings, "If you all believe that the telecom segment in general was" -- you know, we believed was not the right segment to be in, he said he's happy to exit the business completely. Because, for him, being in the banking business, and ensuring that correspondent banks were, you know, retained was more important. And that's why we are transparent with all the correspondent banks, including all our clientele, we had shared the complete list. It was not that anything was hidden.”
“Network heads 165. I understand that the Claimants have alleged that I “knew that many applications from T&C customers were organised by the same persons, known as “network heads”, who vouched for the applicant.”
“Mr Deuss clearly had good knowledge of both the scale of the problem of MTIC fraud in the T&C sector from these documents, but also of how such frauds operated. They highlighted and explained a number of features of MTIC fraud such as: (1) Closed loops or “cells” of traders: i.e. the same traders dealing consistently or exclusively with one another. It is difficult to reconcile such trading with legitimate commercial trading, wherein participants would seek the best price; (2) Similarly, circular trading patterns and carousels, with goods being traded multiple times, often between the same parties; (3) Large volumes, which are a feature of carousel trading (and an explanation for, as we will see, volumes of trade which far, far exceeded anything that might be expected from a legitimate ‘grey’ mobile phone market); (4) That is especially the case for traders with no experience or expertise in the market who were able to generate enormous trading volumes in no time at all; (5) Back to back trading, with identical or near identical amounts going in and out of accounts in rapid succession; and (6) Third-party payments.”
“Now, before we move on to the detail, we do submit that there are several overarching conceptional problems with the claimant's case theory. The first point, Mr Deuss's obvious concern about maintaining correspondent banking relationships, which he accepts in his witness statement, rather cuts across the profit at any cost theory. That's point one. Point two, the existential importance of the correspondent banking relationships strongly suggests that Mr Deuss' overarching interest was in preserving FCIB as a viable bank, including the real value ascribed to the genuinely cutting-edge e banking platform. Point three is that once that overarching imperative is recognised, it underlines that entering a risky market sector armed with a compliance function which you know is inadequate or woeful, in the claimant's words, knowingly woeful, would be suicidal for Mr Deuss and the bank. The fourth point is that the claimant's repeated emphasis on the importance attached to maintaining correspondent banking relationships is in fact a point heavily in our favour. It provides a strong motivation not to knowingly facilitate fraudsters. My Lord will be aware that the correspondent banking relationships all pre-dated engagement with the T&C sector, and provided a strong motivation to have, as Mr Deuss repeatedly put it, a squeaky clean client base. In our submission, the much more realistic explanation of the period 2004 to 2006 is that Mr Deuss thought that FCIB's compliance was, as he says in his witness statement, commensurate with the perceived risks as he understood them from time to time.” (4) I accept those submissions. They are consistent with Mr Deuss’s conduct at the time and, in particular, his instructions to carry out a review of all customers for the purpose of the migration to UBS and then his ultimate decision to withdraw from the T&C sector as set out in his letter to Mr Watson dated8 August 2006 . Mr Parker portrayed this as a cynical decision which FCIB had only taken once UBS had made it clear that it was terminating the relationship. But both Mr Sharma and Mr Ganesh gave evidence that Mr Deuss had taken this decision in June 2006. Mr Sharma’s evidence was as follows: “In June the -- as far as I recall, Mr Deuss by then had instructed us to exit the telecom business and focus only on low business -- on low risk businesses. The procedures we had put in place, and there must be a documented procedure which called out how we should treat the low risk businesses. As soon as we approved, we should monitor their first five transactions and review that they are not telecom trades and, if they are, we should immediately freeze and then close them.” (5) I accept that evidence. Mr Ganesh gave evidence to similar effect and it is consistent with Mr Vallerey’s email dated3 July 2006 in which he stated that FCIB was entering a new phase and that starting on1 July 2006 the sole focus was to be is on low risk accounts. I find as a fact that Mr Deuss decided to withdraw from the T&C sector in June 2006 and that one of his motives for doing so was to preserve FCIB’s correspondent banking relationship with UBS (although it did not ultimately have the desired effect). (6) Finally, both Mr Sharma and Mr Ganesh gave evidence that Mr Deuss was not prepared to sacrifice compliance to commerce. Indeed, Mr Ganesh gave evidence in terms (in the passage which I have quoted above) that it was never suggested to him that “commercial aspects should overrule compliance” and that the “mandate was always compliance”
“97. I do not recall these particular emails or memos, but they reflect my recollection of the developments at the time, which is that following the receipt of two freeze orders from the English High Court in or around June to August 2005, Tim and I reviewed the wire transfer activity of the companies mentioned in the freeze order documents (whose accounts we had frozen) and noticed certain transaction patterns. 98. Based on these observations, I asked Ganesh and the RMC team to carry out an analysis of a sample of FCIB’s top trading telecoms customers, to investigate whether there was a commercial justification for the transaction patterns we had observed in the frozen accounts. I also sent these observations to Daniel Maurice-Vallerey, and asked for his input and for him to carry out further research on the market so we could establish the commercial justification for the transaction patterns we were observing. Tim and I were trying to establish whether the transaction patterns we had observed were in fact indicative of fraud, or if they just reflected the trading patterns in the market segment.” “100. I asked Ganesh and the RMC team to carry out further investigations of the transactions of FCIB’s telecom customers and any freeze orders which the bank received, to try and identify fraudulent transaction patterns. My recollection is that the RMC team carried out this analysis over a period of months, and this work eventually led to specific account opening measures and transaction monitoring tools being put in place to deal with the risks of VAT fraud in 2006. “I have been shown an email from Saurabh to me and Tim on4 January 2006 , which attaches a report and a summary analysis of VAT fraud, based on the patterns of accounts which FCIB had received freeze orders in respect of. I remember receiving this report, but do not recall if I asked Saurabh to carry out this investigation or prepare this report. It is likely that it was the product of the aforementioned investigation which the RMC had been carrying out, although I would not be surprised if he did so of his own initiative following discussions with Tim and me in the broader context of dealing with the risks of the telecom sector and maintaining a squeaky clean customer base.”
“Q. Well, let's just go back. Mr Deuss has raised the question as to the legitimacy of the accounts where money is coming in and leaving in short order? A. Correct. Q. That is, if I use the word -- phrase again -- because that's a red flag? A. I think that's a compliance question: why is a similar amount coming in and a similar amount going out, your Honour. I think, Mr Parker -- that's your name; right? Q. Yes. A. I think what Mr Parker is pushing for is to say this analysis should have given me insights to change the EDD documentation or the procedure. And I still maintain the EDD procedure was developed to -- for the incoming applicants primarily. Yes, we were going back and applying it to the existing customers. The -- the reason we would have wanted to do this investigation would have been to look at the underlying documentation, to determine what's the economic -- what is the economical reason for doing this kind of activity. So this, in my mind, was the beginning of us questioning and trying to figure out the activity of the telecom traders. And here is where we started enhancing and thinking of transaction monitoring for those customers. Q. Thank you. If we look -- stay with 875 and we look at the final paragraph there. There's reference to the fact that you questioned "the high turnover on certain accounts and the discrepancy of the turnover observed with the financial statements submitted by the client". Now, that's obviously about existing clients? A. That is correct; and I think this is directly in relation to the previous -- you know, the evidence that you had submitted where I had questioned based on the analysis the high turnover of some of the customers. Q. But those accounts that you had spotted this high turnover and discussion of financial statements, those accounts weren't closed, were they? A. Is your question: were they already closed? Or did we close them after the question? Q. No. Did you, in the course of reviewing the accounts and seeing the high turnover and the discrepancy with the financial statements -- did you recommend that those accounts be closed? A. Your Honour, I do not recall that I recommended those accounts be closed. I do want to add to that, to say on those accounts we went back to ask for underlying transaction documentation. And I think that was our first beginning of the transaction -- underlying transaction monitoring and documentation. We reviewed those and did not really find anything to be suspicious. That was one. And two was because this is now eBanking, where the transactions are much faster, so if you use intra-comp transfers, you can -- this is happening within minutes, rather than wire transfer, which could take up to 48 hours. That itself allowed our customers to do more transactions than they normally would and therefore their turnover was higher. So it did make sense to me as a compliance person; and, therefore, I did not file any -- I do not recall having filed a suspicious transaction report.”
“MR PARKER: Mr Sharma, just before the enforced break, we were talking about the incident with Callender Group, where you recommended that The Callender Group's account be closed, but it wasn't until after a freezing order had been received and the freezing order was dated 23 February. Now, I asked you a question, but I'll ask you, if I may -- withdraw that question to ask a more focused one. Paragraph 45 of your witness statement. Page {C2/1/15}. You deal with the fact that your recommendation wasn't followed, the second half of paragraph 45. Do you see that? Are you able to recollect why that was thought to be the best course of action? A. Yes. Yes, I recall that I had a call, your Honour, with Mr Deuss on a memo that I had sent or this analysis that I'd done. And Mr Deuss first appreciated the effort, the analysis and identifying the pattern; but he also then told me that we don't just close accounts on suspicion. That if we have a suspicion we go ahead and work with the regulatory environment, we file the MOT reports. And that's exactly what I did. My understanding was that Mr Deuss was also working with -- if I recollect his name correctly -- Dr Tromp of the Central Bank of Curaçao, to see how those MOT reports could also make their way to HMRC. That's my recollection. Q. And did you have any idea as to what the regulatory authority would do upon receiving an MOT report? A. I did not. The only input I had was: that's the regulation and that's the environment in which we should work.”
“This is where it starts. You see Mr Partridge sends you an e-mail in respect of Movil 2000. Then if we go up the e-mail, so back to {F/2368/2}. We see at the bottom of that ... if we carry on, I'll -- sorry, please carry on. Go to the top. "Brian: we circulate the masterlist each week - however, we note that the 'business category/sector' for a number of the customers that we know ... while we know that he is primarily performing 'Telecom' trading. He should therefore have been categorized accordingly. Similarly, there are a number of customers that are marked as 'Other' on the masterlist. Could you please go through it once and update the masterlist business sector to ensure it reflects the current categorization (or ensure someone goes through the masterlist and gets this done). This is required urgently to provide to [Mr Deuss] to categorize customers via different correspondent banks. Also, on an ongoing basis for all new customers we should be able to categorize them into business sectors correctly." So your EDD is only being applied to the high risk customers, as identified in the AML manual which had telecoms as high risk, the AML manual. But that, as you recognise, is being evaded by individuals trading as such even though it's a corporate trading activity, and also by the corporate applicants simply not declaring that they're T&C. Now, having been aware of the problem, there's no real solution provided to that, is there? A. So I think you have -- what you have brought up here, your Honour, is the personal accounts. So if you have a personal account you would obviously not have done enhanced due diligence. It's not a corporate account. But what we identified was some personal accounts were actually involved in trading activity and therefore, in a way, would have bypassed the corporate requirements of enhanced due diligence. To answer the question, we did come up with a procedure, and it should be in one of the documents, that said personal to corporate account conversion or monitoring of personal accounts for corporate reasons. One of the two. I don't remember the exact name now. And we implemented that so that any personal account that we could monitor was doing trading activity, they had to be converted to a corporate account and, therefore, they would undergo the enhanced due diligence process. So that was step 1. And this was probably March -- February or March 2006. I don't recall exactly when. And then we came up with the process for monitoring low risk segments and then monitoring their first five transactions, as I called out earlier, and making sure that they are not indulging in any telecom trading activity. So yes, we addressed both of them, but at different points in time.”
“Q. So you've identified the need for transaction monitoring. But, as at the middle of February, you're just wondering what are the fingerprints you should be looking for? A. That is correct. Q. Now, had you been shown the suggestions from Deloittes that had been made in June 2005? I will show you the document. The document is at {F/1993/2}, it starts at. And if we go to -- you see that's -- obviously you weren't there at this time. This is June 2005. If we go to page {F/1993/4}, we can see this is Deloitte, "Account Opening. Verification of Identification Process. Best Practices ". And there's an Appendix A. Best practices in verification is what we're looking at. So if you go to page {F/1993/9}. Sorry. If you turn to page 9, one sees it is headed: "Suspicious Activity Monitoring Rule Classes". And we see from the left-hand column "Rapid Movement of Funds": "(That is, quick turnover in an account or high velocity that is uncharacteristic or does not make business sense, based on customer profile.)" And then if we go across to the next column, we see what is said at RMF1 and RMF2. And we see also, just above that, they've identified the problem with dormant accounts. A. Yes, I see that. Q. Is this the first time you've seen this document? A. In my recollection, yes. Q. And then could we also look at the presentation by Chilterns which is at page {F/731/1}. Now, this is a presentation that Chilterns gave, as we can see, on14 November 2005 , where certain fingerprints of MTIC fraud were set out in bullet point form. If we go to page {F/731/3}. You see items identified: "large turnover", you yourself had already picked up on that one: "Little knowledge of trade. "Change of trade". Then: "Few trading partners" -- few trading partners would be consistent with FCIB's closed loop network, wouldn't it? A. I do not know the answer to that question because I do not recall, on an average, how many other trading partners they were interacting with. I don't know if it was two or three or if it was 30 or 40. Q. So far as you can recollect, you didn't attend the Chilterns presentation? A. Not that I recollect that I attended, no. Q. And you haven't seen -- you haven't seen this document before? A. I do not recall.”
“Q. And we see that, don't we, if we go to {F/883/1}. A process that you were involved in. You see Mr Deuss' request. Requested you, Ganesh and Mr Smulders to send him a report on the pros and cons of using BSA and Mantas. And there's a draft note underneath about BSA. And if we go down to that note, the second half of the page, we can see that BSA Reporter is installed and running at the office in Holland. But the office in Holland had nothing to do with enhanced due diligence or transaction monitoring, did it? A. That is right, but the office in Holland was our IT back end systems, as far as I recall, which is why there might be a reference to it being installed in Holland, your Honour. Q. Well, then, if we go to {F/888/2}. This is your note that we looked at this morning. And if we go to page {F/888/3}. It's the second bullet point. At this point, which is 22 December, you note the team in Holland is evaluating another product, Mantas. MR JUSTICE LEECH: Sorry, where is the reference to Mantas? I can't see it at the moment? I see, middle of the page. MR PARKER: Sorry. MR JUSTICE LEECH: The second black bullet point. MR PARKER: So BSA hasn't been implemented in Bangalore. And, at this point, it's being recognised that BSA is not the way forward; and you're starting -- starting to look at the possibility of using Mantas instead. A. Your Honour, I'd like to clarify that I don't think there was a need to implement BSA Reporter in Bangalore. The backing systems and the systems of record that had the transactions were either in Holland or in Curaçao. So implementing the BSA reporter or Mantas in those places made sense. We should have had access to those systems. But what you're calling out is right. And this is my recollection because I wasn't leading the implementation of these nor mapping of these requirements to what BSA or Mantas was offering. But I recollect from Rajul, who was a business analyst in Bangalore, who was leading this implementation, and Jan-Willem is that there were a number of rules that FCIB wanted to implement in BSA Reporter; and I do not know the exact -- exactly what they came back with, but BSA came back with like the amount of time it would take them to implement that and the cost seemed prohibitive. And Jan-Willem and Rajul were also evaluating Mantas in parallel. I do think, to correct you Mr Parker, that BSA Reporter in the existing shape was already -- was implemented but wasn't proving to be useful. It was not identifying patterns that we wanted to monitor. And that's why the team was reviewing Mantas. So that's the clarification on this that I recall. Q. Well, as I understand the documentation, BSA has been installed in Holland? A. That's right. Q. And it's -- the consensus has been arrived at that it isn't suitable for your purposes? A. That's right. Q. So it isn't rolled out in the RMC department; and, as we've seen, around December that dissatisfaction is leading to consideration of whether or not Mantas should be used? A. Your Honour, while Mr Parker is right on most of points, the fact that whether it's rolled out or not, I think that's incorrect. It was rolled out, but was it useful? No. Which is why the team was looking at another product. And, second, it wasn't really useful because the kind of patterns we wanted to monitor, more specific to telecom trading, the BSA Reporter did not really provide us any of those patterns or did not cater to those patterns. Q. Well, when you say it was rolled out, what was it being used for? A. It was -- so the BSA Reporter would have flagged, based on the rules it had, certain transactions to be reviewed. But we did not find any patterns in those transactions. Q. Well, we saw -- we saw that the transaction -- the transaction monitoring -- not the high value 2 million limit, the transaction monitoring was starting in the middle of February. A. My recollection is March, but, please, go ahead. Q. Yes. And are you suggesting -- well, let's look at {F/1296/1} to get a precise time frame on this. 1296. This is Mark Deuss. This is 12 April "As you are probably aware and seen yesterday we terminated the contracts for BSA Reporter for FCIB and BCB. "The system as bought at the time did not suit the needs for both of us". And then they start talking about Mantas. So the transaction monitoring starting in February/March. The BSA Reporter is terminated on 12 April. If it was used it could only have been used for a very, very short length of time, couldn't it? A. You're right.”
“Q. And you see that Mr Deuss has identified Duck Trading -- Duck Trading's account as showing these in and out payments. Nothing happened to Duck Trading's account, did it, at that time? A. Sorry, I don't remember -- Q. If you're able to say. A. I don't remember a specific customer. It's so long ago. Q. You can take it from me that Duck Trading's account was not suspended until April 2006. Are you able to explain why that was so? A. Again, like, I think there was a procedure that Tim had developed, which was for accounts like for transaction monitoring, so it would start -- I think I've written it in my witness statement as well, where people would do the analysis. Then there would be a question. And then we had to follow through a series of checking with customer and seeking documentation which would either result in okay or not okay. The next stage was filing MOT reports. And the final stage was closing accounts. And basically the idea was to follow these procedures. Q. We don't see any trace of this exercise of writing to all the customers whose accounts who demonstrate in and out transfers asking for some explanation as to their business model? A. But there was -- there was this transaction monitoring where -- including one that was around carousel trading. I think there was one analysis where Saurabh did on a specific set of customers; and then that was expanded into a carousel trading. There was another Pardeep, a Pardeep Nair, who was doing this transaction monitoring for these customers. That, I think, was early 2006.”
“Q. And if we can go back, please, to {F/507/1}. Just to remind you of Mr Vallerey's e-mail of 29 June. This e-mail is about avoiding a situation where customers' transactions are investigated on the basis that they appear extraordinary because Mr Vallerey and Mr Deuss want those transactions to be treated as ordinary, isn't it? A. I think -- I think I already clarified that. That wasn't the intent here at all. It was just to improve the operational aspects of how the documents are reviewed. So instead of the bank seeing the wire transfer and then asking for documentation, the request was to create a procedure where the customer goes to Barclays, for example, initiates a wire transfer and he immediately can send documentation to the bank, so that the money is not held up for process. It was just an operational improvement. None of the policies or procedures were being asked to be changed. It was just a question of instead of you getting a wire transfer from Barclays and then the bank saying, "Hey, I've got more than 2 million, why did you do this transaction?" Their request was the customer proactively saying, "Hey, I've sent you 2 million and here is the documentation so you can process it quickly". That was only change that was being proposed here. Q. And I put to you that when they're referring to these customers, the extraordinary transactions, they are -- they have in mind the T&C customers? A. Well, no, I don't think it was referred -- specifically targeted at T&C. It was in general. I don't -- again, my recollection is I don't remember how many transactions -- large volume transactions we got from T&C, but they were all subject to the same rules. It wasn't different at all for any customer.”
“Q. Then looking at ways in which EDD was evaded. At {F/1881/2}, an e-mail of13 June 2005 that you were copied in on. You see there it identifies one: "One issue we are facing is that of customers applying for private accounts ... even [though] they technically qualify as corporate users ..." And this is back on 13 June. He says: "One of the consequences is that these prospects would not be subject to the stringent EDD process we now apply to B2B clients." So this is a problem that's identified back on13 June 2005 . And it's been identified because it's a back door into FCIB evading EDD. Now, that doesn't appear to have been acted upon, because if you look at {F/1437/1},16 May 2006 , you're e-mailing Mr Sharma. "Personal accounts being used for telecom trading: "I discussed the emerging trend where newly approved personal accounts are being increasingly used for T&C trading activities. "Mr Deuss has instructed that we do the following: "Suspend all such personal accounts that are involved in T&C. "Give them 30 days to open a corporate account ..."Please note that the above process is to be followed only for high risk customers ..." Now, it's not an emerging trend, is it? I don't know what -- it's been something he's identified back in June 2005? A. I don't know -- because if you go back to the earlier one I don't know if I was copied on that or anyone from RMC was copied on that. Q. The previous one was at {F/1881/2}. A. Yes. So I think, at that time, it was like in June, I think, 2005, that was when RMC was being set up. So this was listed to Tineke Deuss. I don't know between then and, you know, like, the other one that you showed, what happened. I don't recall actually. But I think what we had done was we were looking for -- because this was something that within the RMC -- the people in the RMC team had come back and said, "Hey. Look we're finding people who are using personal account for telecom trading"; and then we started running reports to see how big the problem was. That's when we started escalating to Mr Deuss. Q. Looking at the content of {F/1437/1} again. It is only identified as being a problem for T&C trading, isn't it? A. Yes, because I think the report that we ran showed that there were people who were -- who had personal accounts the biggest area of problem was that they were working -- they were trading with telecom customers. Q. But you see this is -- this is a high risk -- it says in this e-mail itself, it's a high risk trading sector and it is only in that high risk trading sector that people are using this device for the purpose of evading EDD? A. Sorry, but I'm not sure what the question is. Q. Yes. On the basis of that, it is obviously dishonest of the people engaged in this high risk T&C trading to be pretending not to be a company? A. So I think -- I think that's exactly what this e-mail is saying. So it's dishonest, that's why we should suspend their accounts. Q. Well, except they're then -- the account is suspended but they're given 30 days to open a corporate account. They're not told: that's it; you're dishonest; we don't want your business. They're told: would you please close your personal account and open a corporate account. A. So I think maybe -- I mean, the question here is -- I don't remember what the discussion was. The question really is did the people do it intentionally, like in a fraudulent behaviour, or it was like they did not know what the right procedure was? But if they had opened a corporate account they would have gone through all the EDD and all the procedures; we would have known whether they were legitimate or not. That was the whole premise of the RMC, that you can underwrite these customers and know that they are in legitimate business. Q. So why are you bothering? Why are you making them open a corporate account if they're going to (overspeaking) to anyway? A. Because when they had opened their personal account we did not get the EDD documentation and all the procedures that were put in place.”
“Q. It's the same point for those people who haven't actually said what their business is. You just -- A. So there was also a rule for people who had specified "Other"; they had to say exactly what their line of business was and so that it could be matched against the EDD policy, so that was also a rule in the approval process. Q. And if you look at dormant accounts. Dormant accounts had long been recognised as suspicious. We can see that at {F/350/1}. This is April 2005. I'm not saying that you would have been privy to this, but FCIB clearly recognised the problem with dormant accounts. Go to page {F/350/7}. In the middle of the page: "Strategy regarding inactive accounts. "Inactive accounts have the following consequences", the third one: "Creating potential risk as they could have been set up for fraudulent purposes". There's a strange observation: "An alternative observation is that these accounts can easily be activated by the account holder and could potentially play an essential part of the Corporate Clearing accounts pyramid/community set up". But going on: "We need to determine policies that address the issues raised by inactive accounts without losing the potential benefits they present for FCIB." And that a document is supposed to be developed dealing with the issues. So, back in April 2005, FCIB have recognised that dormant accounts create a risk that they are set up for a fraudulent purpose. And then we see an e-mail -- Mr Deuss raises this with you,9 November 2005 , at {F/787/1}. Once again, do you read that there? A. Sorry. Q. Have you read that? A. Yes. Q. Yes. Yes. You see, once again, it's on the basis Mr Deuss is saying, "Well, we're not going to just close the account on the basis this is highly suspicious", the customer is going to be given the account -- given the option of keeping that account open? A. Again, like the earlier, again my reading of Daniel's memo was it's never clear. I don't think Daniel is even saying just because an account is dormant it is necessarily fraudulent; right? So this policy, again, was based on the premise that we have an account that's not been activated. We don't know if the ownership has changed or, you know, it could potentially be used for fraudulent activity; and therefore we should be careful, even if customers want to fund, we should review the customer file again before it's activated. Q. You don't see a draft policy on this produced until7 February 2006 . That's {F/1213/2}. I put to you that this all takes so long because RMC is just swamped with work? A. That's not -- I don't think that's an accurate characterisation; there was definitely a lot of work in RMC. I think there was a road map for RMC where we started with EDD and ensuring the procedures were set up; and then started the transaction monitoring and putting in place a whole set of policies and procedures. So if you really look at the -- my view on that is, if I step back and look at it, in the course of one year we went from roughly zero people to 25 people in compliance. We went from no transaction monitoring to something like -- we had some transaction monitoring in Berg En Dal to a lot of telecoms specific transaction monitoring. And we -- we implemented all these policies and procedures. Plus we implemented two big systems which was directed for compliance, the BSA and Mantas. So actually in the course of a year we had to build this whole organisation and policies and procedures to deal with a variety of issues.”
“67. I have been shown the following documents: (i) an email chain dated24 November 2005 [QE_0000018885]; (ii) an email from Mr Deuss to Mike Sanchez and Daniel Maurice-Vallerey dated26 January 2006 [QE_0000021751] and (iii) a draft procedure for review of site visit reports [QE_0000022744]. Having reviewed these, I set out my recollection below. 68. Until 2005, site visit reports were not a part of mandatory requirements of EDD; they were a tool used by TWPS’ management to keep track of and review the activities and performance of the marketers, including lead generation, initial contact with prospective as well as target customers, presentation of products to the prospective customers and so on. On26 January 2006 , Mr Deuss informed Mike Sanchez and Daniel Maurice-Vallerey that moving forward, all new applications had to be submitted along with completed site visit reports; this email was forwarded to me by Daniel Kornitzer. At that stage, the RMC became involved in developing procedures for reviewing the site visit reports. 69. My recollection is that Mr Deuss explained to us that the rationale for making the site visit reports mandatory was that the marketers were the first line of defence for the bank, and therefore they should visit the customers to confirm their legitimacy. This did not imply that they were responsible for compliance, they were not able to approve or reject a new customer and were simply providing the RMC with more information to help it filter out illegitimate customers.”
“REFERRAL FROM RAPID GLOBAL LTD. COMPANY ESTABLISHED SINCE 1998 AND TRADES UK TO UK AND EXPORTS IN COMPUTERS. MET AT THE HOLIDAY INN HOTEL HEATHROW. FULL EBANKING DEMO PROVIDED AND ALL DOCS CERTIFIED. WILL ALSO COMPLETE A PERSONAL EXACTPAY APPLICATION.” “SIGNED UP. ANNUAL T/O 450M ANNUAL COMPLETE PERSONAL EXACTPAY APPLICATION.”
“168. In at least two respects, reliance was placed on TWPS marketers for compliance activities: (1) Letters of Good Standing. In January 2004, Martha Neuman Rovira wrote to Mr Deuss updating him on meetings with the Curacao central bank, and the requirement for a “Bank Reference” from their clients. Mr Deuss had confirmed to the central bank that FCIB was complying with this requirement but it is clear from the fax that in fact it was not doing so (one of many examples of Mr Deuss overstating FCIB’s compliance efforts). Responsibility for providing such letters was ultimately placed on TWPS marketers, notwithstanding that they were obviously in no position to provide such letters. The requirement that the marketer attest to the client’s honesty based on his having known him for a number of years was obviously something that could not honestly be attested to. (2) Site visits, which were part of Mr Bailey’s recommendations in September 2004, were supposed to be mandatory from as early as June 2004, but were designed with commerce and not compliance in mind. As at November 2004 Mr Deuss’ concern was still that the marketers carrying out the site visits should communicate the “right things” to the traders, promoting FCIB’s services rather than rooting out potential fraudsters. Site visits were then abandoned before being announced as ‘mandatory’ on26 January 2006 ; in fact, the process was not mandatory until April 2006. The site visits included a ‘traffic light’ system (a) which appears to have been highly influential in the decision to approve an applicant for an FCIB account but (b) for which the marketers appear to have had no training or expertise. In short, the marketers were charged with “validat[ing]the economic basis for the existence of the activity of the client, when visiting the client”
“The role of the marketer is essential in the initial screening of the customers.” (2) The contemporaneous documents provide clear evidence that it was not the role of TWPS marketers to carry out AML or KYC checks. Indeed, Mr Ulrich’s Marketing Guidelines made it absolutely clear to the TWPS marketers that their role was limited to providing information and making potential customers aware of the processing services, that they could only certify copies of passports and other KYC documents or translations and that they could not accept account opening documents. (3) The Claimants were forced to allege that these guidelines (together with other documents which were consistent with them such as Mr Vallerey’s presentation and Mr Kornitzer’s memo) dishonestly masked their role: see paragraph 13(b). But they did not pursue this allegation at trial either in their opening submissions or their closing submissions or the narrative chronology. The highest they put it in opening was that TWPS marketers did not follow the rules and that Mr Vallerey must have known this: see Cs, O221 and O222. (4) I reject the Claimants’ pleaded case that the Marketing Guidelines were intended to mask the true position and I find that Mr Ulrich issued them with the intention that the TWPS marketers would follow them. I also reject the Claimants’ submission that the TWPS marketers ignored the Marketing Guidelines in practice and I find that they did no more than carry out initial screening as described in the action point list for the quarterly meeting in April 2006. I do so because the contemporaneous documents provide clear evidence that FCIB and TWPS observed this demarcation in practice. (5) In particular, in Annex II to their opening submissions Mr Thanki and his team provided a number of examples where FCIB’s compliance department had refused an application even though it was strongly supported by the TWPS marketer. For example, UTL Enterprises Ltd was recommended by Third Dimension (an MCI) and Mr Mallaburn processed its application but FCIB declined it on three separate occasions. In one email dated26 April 2005 Mr Mallaburn also stated: “He was referred from a client of Bart’s and they are in the same trading loop.” (6) I also accept the evidence of Mr Ganesh and Mr Sharma in relation to site visit reports and I find that before January 2006 they did not form a mandatory part of EDD at all. I also find that in January 2006 Mr Deuss gave instructions for them to become mandatory but for the limited purpose set out by Mr Ganesh, namely, that they provided the RMC with more information to help it filter out illegitimate customers. (7) Mr Ganesh’s evidence is supported by the form and content of the original site visit reports. Moreover, it is clear from Annex II (above) that FCIB’s compliance department continued to reject applications after January 2006 and whether or not TWPS marketers had supported the application. For example, FCIB compliance declined the application of Phones 2u Ltd despite Mr Nixson stating in an email dated3 July 2006 : “This client met the criteria that I use to prequalify the application.” (8) Mr Calderon’s email dated2 February 2006 and Mr Vallerey’s email dated16 February 2006 ([327] and [328] above) provide no support for the inference that Mr Deuss deliberately relaxed FCIB’s AML or KYC procedures or reduced them to a “tick box exercise”
“"Please provide a reference letter from a Bank for yourself (and any joint applicant) confirming that you are known to such Bank and that you have maintained your relationship with that Bank in a satisfactory manner. NOTE: if you were introduced to FCIB by (i) an Intermediary, or (ii) a representative of FCIB, then a Bank reference letter is not required provided you can supply the "MCI Number" for the Intermediary or "EPR Number" for the FCIB representative, as applicable, on your application." (3) It may be said with the benefit of hindsight that it was very unwise to accept a reference from either an MCI or an EPR whether in the form of a letter of good standing or simply a reference number. It may also be that this was in contravention of guidance given by the Central Bank (see below). But whether or not this criticism is justified, it does not support the inference which the Claimants invited me to draw because of the date on which the practice was introduced. (4) Furthermore, in February 2005 Mr Ulrich changed the policy and in July 2005 Ms Neuman raised a concern that the policy was not being followed. I am also satisfied that by July 2005 FCIB’s compliance department was strictly observing the change to the AML Manual introduced earlier that year. This is clear from the email chain dated5 December 2005 between Mr Bailey, Mr Reeve and Ms Salas (see [283]) and FCIB’s decision to decline the application of Appliances World UK Ltd (see [282]). In my judgment, these actions are inconsistent with the Claimants’ case that Mr Deuss turned a blind eye to the failure of TWPS marketers to perform AML or KYC checks adequately. (5) I reject the pleaded allegation that TWPS marketers were performing a tick-box exercise as a form of window dressing (or that Mr Deuss knew they were). Neither Ms Neuman’s email dated21 December 2005 nor Mr Calderon’s email dated2 February 2005 provide support for such a conclusion and, if anything, they corroborate Mr Deuss’s evidence. I have addressed Mr Calderon’s email above and I am satisfied that the new site visit reports involved far more than a “tick box exercise”
“During the ExacPay/EBanking demonstration for the CB staff, Mr Veldhuizen inquired whether we required a Bank Reference from our clients, to which you replied in the affirmative. Mr. Veldhuizen made a written notation of this. This needs to be implemented as we are now only requiring an EPR or MCI reference which is not been supplied by the EPRs or the MCIs. Only a mention of the EPR/MCI number on the application is being made in lieu of a Bank reference and only for the company or individual applying for the account No references whatsoever are being submitted for the individual signatories. Reference letters for the signatories do not form part of our present application requirements.”
“Nor are they required by law.”
“93. Most striking of all, in the risk scoring model that was implemented, T&C was graded as “medium risk”
“Q. In fact, the backlog might be said to consist of three elements: new accounts had been taken on between April and October on the basis that EDD was supposed to be supplied but wasn't being reviewed, because we see in the preceding (indecipherable) -- A. I'm sorry, I'm confused. Between April and October 2005? Q. Sorry. Before you arrived -- A. Yes. Q. -- the EDD review procedure hadn't been finalised? A. That is correct. And we were not asking the applicants to submit EDD documents. Q. No. A. Which is why we had to go back to them and ask them for documents. You are right. Q. But they were being onboarded? A. That is correct. Q. Their accounts were being opened? A. That is correct. Q. So we had -- you had people who had been onboarded between April and October; you had to get their EDD? A. That is correct. Q. You then had the problem that there were delays in them providing the EDD. And, at the same time, there's the new applicants who were making applications after October? A. That is correct. Q. And what I put to you is that with all -- with trying to cope with that backlog, but there wasn't, at that time, bandwidth, as you call it, for there being a continuous review -- the wording Mr Deuss uses in his e-mail -- a continuous review of telecom clients to ensure and confirm that the business is not a facade? A. Sorry. Do you mean continuous review of existing customers? Q. Well, I'm just -- you see, Mr Deuss, in his e-mail, you see the third paragraph: "There is the need for continuous review of telecom clients to ensure and confirm that the business is not a facade created for the purpose of facilitating and undertaking the fraudulent evasion of VAT." Now, sorry, did you understand that simply to be a reference to what was already happening with EDD? A. Your Honour, I understood that to be that we should implement a mechanism by which we can -- it's not a one time effort but an ongoing continuous process where we could review the telecom traders or the clients of the bank. I do recall telling Mr Deuss that we need to get through this backlog first. And I recommended March -- it was end of March, as Mr Deuss states in this e-mail, that around that time frame we can start transaction monitoring as a continuous process; and, second, that we were increasing our team so that we can do all of these processes in parallel.”
“Q. Now, moving on to what you say, paragraph 32.1 {C2/1/10}. You say: "By November 2005, the general framework of RMC operations was broadly in place" -- obviously we don't accept that. But focusing, for the moment, 32.1: "collecting, verifying and analysing customer information (including EDD documentation) to ascertain the legitimacy and risk profile of existing customers of the bank and new applicants (and later, for high risk customers refreshing such information on an annual basis)". But there was no annual review in place at any time of T&C customers, was there? A. Your Honour, the -- there was a plan to do the annual review. If you look at the timelines -- and Mr Parker has already pointed this out -- in January we were doing all the EDD documentation backlog. Our next annual review was planned to be January 2007. The bank of obviously came into emergency measures in September or October 2006, so that never materialised. Q. Yes. So I think it's fair to say, given you gave a date, in your witness statement, of November, we see reference to the annual review in the document we just looked at {F/1384.1/1}. And if we go to {F/1384.1/6}, at the bottom of page 6. You there see: "Annual review of the accounts For risk management purposes, the Annual review of the accounts", is to start in the third quarter. And, as you rightly say, FCIB didn't make it into that third quarter. Just -- but none of this is happening in November 2005, is my point, is it? A. I think what this is saying is for 2006 the annual reviews will start in Q3 of 2006. Q. Yes. A. What we started in January 2006, which was all of the backlog of the customers, that was a first review. And the next annual review would therefore happen in January 2007, which we did not hit the timelines for. Q. Yes. A. There was -- so if you're pushing on whether in November 2005, as on page 10 of my statement, 32.1, were we refreshing such information on annual basis? The plan was in place; and we started with the January 2006 EDD review. We never touched the January 2007 EDD review. Q. Well, I think -- I think, for present purposes, it is probably sufficient to clarify that in November 2005 there was -- no actual programme for refreshing existing information on an annual basis was being operated? A. It was not being operated. There was a plan to -- for us to do that. I do recall Mr Deuss had sent out an e-mail -- whether it was November or December 2005, I do not recall exactly. But there is an e-mail from Mr Deuss which had said we should do annual review of refresh the EDD documentation annually. So, yes, the plan was in place.”
“I understand that the Claimants have alleged that I “tried to avoid the involvement in any wire transfers of other banks and for that reason sought to persuade [FCIB’s] clients not to transact in sterling…for fear of any other bank questioning the legitimacy of the transactions”
“This strategy was communicated to FCIB’s T&C customers in or around April 2006.”
“These requests are not necessary for Mr Deuss to understand or meet the case against him. Further or alternatively, they are requests for evidence and are inappropriate. Without prejudice to that position, it was recorded in the judgment of the Dutch criminal court that Mr Deuss received money laundering reports with recommendations for the closure of accounts but that such recommendations were not actioned. The companies in question were not even subject to further scrutiny or enhanced due diligence. The request for documents is inappropriate. No document is mentioned.”
“(1) 861 applications out of 2,511 received were turned down for compliance reasons. A failure rate of approximately 34%. (2) 110 accounts were frozen due to receipt of freezing orders and 33 following receipt of insolvency orders. (3) 164 accounts were suspended and/or closed following the application of FCIB’s transaction monitoring process. (4) 158 accounts were suspended or closed due to other compliance monitoring, including VAT deregistration, personal account misuse, dormancy, red site visit reports and failure of EDD. (5) 757 accounts were reported to the MOT for unusual transactions.”
“(1) The earliest MOT reports and account suspensions expressly connected to MTIC fraud (which were prompted by receipt of freezing orders) are in September 2005 (Nariman Intertrade Ltd, Orincano Ltd Dipal Ltd, Mohammed Maktari, Wandcall Ltd). There are subsequently further MOT reports connected to pattern analysis in January 2006 (Artlons Trading Limited, CK Communications Limited, E and I Trading Limited, Rezaco Trading Limited, Hi-Tec Electronics, The Callender Group Limited). (2) The earliest MOT reports citing third party payments are in February 2006 (in respect of Electron Global Ltd, Murgai Anjan, Puri Susheel, Murgai Richa). Thereafter there are MOT reports filed in March and April 2006 which lead to account suspensions. (3) The earliest MOT reports for failure provide EDD (in respect of Middlebrook UK Ltd, The Brokerage Company Ltd and Zetec SARL) and suspensions (Zetec SARL) are in April 2006. (4) The earliest MOT reports based on personal accounts being used for business (which also noted high volume) (Luis Archer De Carvalho, Ismail Rafiuddin, Imtiyaz Ahmed Patel) are in April 2006 and associated suspensions in May 2006. (5) The earliest account suspension for a dormant account is late April 2006 (Bayshore Bank and Trust Barbados Corporation). No MOT reports have been located for dormancy. (6) The earliest (and only) MOT report based on back to back trading is on30 May 2006 (Safeguard Insurance Company AD, Lucas Reinsurance Company, Genstar Inc, Porta Like Company, Berth Reinsurance Company Ltd, Rise Reinsurance Company Ltd); there is no record in the frozen summary report of that being a basis for account suspension. (7) The earliest MOT reports based on circular trading are on30 May 2006 (Euro Trading Assets Ltd, Ali Taher); there is no record in the frozen summary report of that being a basis for account suspension. (8) The earliest MOT reports and account suspensions for invalid VAT numbers are in July 2006 (Cherry tree co. Ltd, Joseph Patrick Connolly).”
“Change in FCIB’s policy for freeze orders 111. In around June or July 2005, FCIB received a freeze order issued by the English High Court from lawyers in the United Kingdom. I do not remember which company was involved, but do remember that it concerned a telecoms client and that HMRC was involved. With Tim’s meeting with the SEC in Washington fresh in my mind, I suggested to Tim that he should seek contact with the UK authorities as well to see if we could reach or achieve similar cooperation with them. 112. This led to a change in FCIB’s policy for dealing with court orders issued from outside the Netherlands Antilles, whereby FCIB would act on a freeze order if it received sufficient information to put it on notice of potential criminal activity. My recollection is that thereafter, when FCIB received a freeze order from the English High Court and the supporting documents contained information that put FCIB on notice of potentially fraudulent activity, FCIB would voluntarily take action by freezing the relevant customer accounts mentioned in the freeze order and filing MOT reports in respect of them. FCIB’s cooperation with UK law firms 113. As I have stated above, following the successful meeting with the SEC in Washington, I discussed with Tim in or around June 2005 seeking contact with the UK authorities as well to see if we could reach or achieve a similar level of cooperation. The end goal was to establish a cooperative working relationship with HMRC, which I understood was carrying out its own investigations to prevent VAT fraud. Tim and I had in mind, for example, being alerted by HMRC of the names of suspected fraudsters, which we could input into our monitoring systems such that any involvement in transactions involving the bank could be detected immediately. As with other matters for which he was responsible, I left this to Tim, and he kept me informed of his meetings and discussions. 114. My recollection is that during the course of the second half of 2005, Tim was in contact with lawyers from two law firms. The names which I recall are Frances Coulson and Richard Saunders, both of Moon Beever, and Chris Potts of Blake Lapthorn. These were the firms who had been faxing freezing orders to FCIB. 115. Tim had established a cooperative working relationship with them when implementing FCIB’s new policy for freeze orders received from the English High Court. Tim met the lawyers from these firms between October and December 2005. I did not attend those meetings, but, as usual, Tim kept me informed afterwards. My recollection of this engagement and these meetings is based on Tim’s reports to me. 116. I understood from Tim that the lawyers had indicated that HMRC wanted to engage with us, but could not meet or speak with us directly, and so they wanted us to meet with and talk to the lawyers instead. I do not recall if I ever found out what why they did not want to speak with us directly. Given our understanding of the lawyers’ role and since they seemed to be offering a cooperative approach going forward (which was what we wanted), we took them at face value. As I explain below, I found out some months later that these lawyers from Moon Beever and Blake Lapthorn were not in fact representing HMRC. We were given the impression that HMRC was appreciative of FCIB’s efforts to cooperate and wanted to establish further cooperation such as changing the way in way in which FCIB froze accounts (to allow incoming funds only) and also to try and freeze accounts more quickly. 117. After his meeting with the lawyers, Tim and I discussed how we could cooperate more with HMRC. We discussed the possibility of trying to establish a Memorandum of Understanding between Curaçao and the UK to set up a channel of communication that would allow the Curaçao authorities to share unusual transaction reports with the UK authorities. My recollection is that FCIB held a meeting with the Curaçao authorities in around March 2006 to discuss this possibility. 118. In mid-January 2006, I met with Frances Coulson of Moon Beever in London. Tim was unable to attend. I do not remember everything that was discussed at the meeting. I remember that Frances Coulson told me that HMRC was appreciative of FCIB’s cooperation by freezing and suspending accounts. Despite these positive messages we had not been able to speak to HMRC directly, which was what we really wanted as that would have better allowed us to develop a cooperative relationship like the one that FCIB had with the SEC. After the meeting, I sent Frances Coulson and Richard Saunders of Moon Beever a paper which I had prepared on the flight back from London to Bermuda, which laid out the benefits of HMRC working with FCIB. [QE_0000021395] I also updated the Central Bank and contacts at various correspondent banks of FCIB of our ongoing engagement with the UK lawyers.”
“Q. You've not given a date as to when you started sending freezing injunctions to FCIB, but, presumably, it was some point in 2005. Does that sound about right to you? A. Yes. Q. And you say, in that passage we looked at, in the hope that FCIB would comply. And, in circumstances in which you had only obtained an English freezing order, you, presumably, mean there that there was no obligation on FCIB to freeze accounts; correct? A. Correct. Although the freezing injunction we obtained, we were able to enforce in Curaçao. Q. There was no obligation on FCIB to freeze accounts as a result of an English court's freezing order? A. Correct. Q. And it must have been a welcome outcome to see that FCIB did, in fact, freeze accounts, notwithstanding that? A. Yes.”
“Q. And then: "The purpose of the meeting would be to discuss the carousel fraud matter, including to provide us with an understanding of these transactions so that we can implement further changes to our client Enhanced Due Diligence requirements for opening and maintaining bank accounts for clients who are involved in trading telephones, computers, etc." Yes? A. Yes. Q. And Mr Ulrich was explaining to you that FCIB wanted to meet with HMRC in order to improve its understanding of VAT fraud as an issue; is that right? A. That's what it says in the e-mail. Q. And it was a repeated theme of Mr Ulrich at this time to try and arrange a meeting with HMRC. Do you remember that? A. Yes.”
“Q. I'm just really asking you whether it's possible that the internal political and -- internal legal and political problems might have been alluding, at least in part, to the acquisition that HMRC were keen to avoid being levelled at them? A. I accept that's certainly possible. Q. Thank you. And the suggestion appears to be that HM Customs understood it wasn't appropriate to force banks not to deal with the telecoms market and so they didn't want to be seen -- seen to be doing that; correct? A. Again, that's what the note says. Q. That's what appears to have been conveyed in the November 2005 meeting; yes? A. Yes, that's what it appears.” “MR THANKI: Yes. And I think we've discussed why FCIB might have come away with that impression, particularly based on what Frances Coulson was expressing about HMRC's views. But I don't want to go back to that discussion. It's not the biggest point in this case. So you're not aware of any reason why Mr Ulrich would not record what was discussed at the Connaught accurately, are you? A. No. Q. No. And we discussed yesterday that FCIB was freezing accounts -- A. Apologies. Can I change a bit? Because -- in answer to your previous question -- there was not a misunderstanding but not a full understanding by Mr Ulrich of the process by which we came in. Because you start with HMRC with a provisional liquidation and then we come in piggybacking on all that evidence, and all our evidence to get the freezing injunction when the claims comes from HMRC officers. So, to answer your previous question, that -- his misunderstand -- it's not so much misunderstanding, but his -- the fact that he doesn't appreciate all of the complexities of the various relationships might be a reason why his note is not accurate. Q. That last comment is really focused on whether Mr Ulrich fully understood the role that the UK solicitors were playing; correct? A. Yes.” “Q. And wasn't it in the interests of the UK -- the various UK lawyers and their clients, the insolvency practitioners, for telecom traders to continue to bank with FCIB, that is a bank that was continuing to cooperate with them? A. I -- yes, I accept in circumstances where we're running these claims against MTIC fraudsters it is easier -- and also, my Lord, with doing them on a contingent basis, because there's usually no assets in the company. So, in that context, I accept that there is an advantage to us that MTIC fraudsters continue to act with -- use a bank that's cooperating with us, rather than go and use a Cyprus bank or something else. MR JUSTICE LEECH: Or a Latvian bank I think, as well. A. Yes, which they were doing. There were other banks they were doing. And -- I'll leave it there. MR THANKI: Thank you, Mr Potts. Not at all. Certainly, I think we can agree that you never told Mr Ulrich, or FCIB, that it should exit the telecoms sector. A. I certainly wouldn't have said that.”
“And if we go back to the meeting note of November 2005, please. If you look at the second white bullet on that page, you see what is said is: "They would like FCIB to consider freezing accounts/sharing information with them on the basis of an Affidavit from HM Customs but before their cases go to court -- they would use our information to build their case ..." So this is what Mr Ulrich is recording was said to him. And then you will see in brackets, he says -- he records: "(they later phoned to drop this request since HM Customs did not want to give us advance notice of their investigations of suspected tax cheats)". You see that? A. I see that. Q. So it looks like your -- A. So I remember that I did not call Mr Ulrich after the meeting. And, as I explained before, it's Frances Coulson who -- and then also after the meeting I did not convey what had happened at the meeting to HMRC because that was left to Frances Coulson and maybe Nick Oliver. So, therefore, where -- that part in brackets will refer to probably Frances Coulson. Q. So the "they" is probably a reference to Frances Coulson -- A. Yes. Q. -- in that passage in parentheses. So you've got no reason to doubt the note that -- and probably you'll say it is likely to have been Frances Coulson, was suggesting that FCIB freeze accounts and share information on the back of affidavit evidence only, at this stage? A. Yes, no reason to doubt. Q. Thank you. And certainly, as we see from this note, that request was not rejected by FCIB, was it? A. No. Q. Instead, as we see, the point doesn't appear to have been pressed because HM Customs decided they didn't want to pursue it; yes? A. Hmm, hmm. Hmm, hmm. Q. Sorry, Mr Potts, if you say "hmm, hmm", it doesn't go on the transcript. A. Oh sorry. Yes. Q. Thank you. So it looks like Ms Coulson certainly was in regular dialogue with HM Customs at this point in time? A. Yes, that is correct.”
“Whilst TWPS, FCIB and Mr Deuss may have preferred that FCIB's customers were legitimate, they had no genuine concern about whether or not they were and they proceeded on the basis that all that mattered was the revenue being generated from the customers' transactional activity.”
“The Court is of the opinion that the transactions mentioned in the charges, given the pattern of these transactions, have to be qualified as "unusual", in this sense that they (should) create a suspicion of money laundering. The pattern of these transactions is that large amounts are transferred to accounts of the companies involved, which are subsequently transferred to other FCIB accounts within a few hours or even faster, divided into partial payments. Of course, FCIB N.V. also recognized that the companies mentioned in the charges were involved in unusual transactions, evidenced by the fact that it filed MOT reports with the FRI Curacao concerning all these companies, whether or not concerning specific, earlier transactions.”
“171. If I had known that FCIB needed a license for the work which TWOCC was assisting with, I would have made sure that FCIB applied for a license and would have filed the unusual transaction reports with the Netherlands authorities as well, not just in Curaçao. Nevertheless, FCIB and I were found guilty of the second and third charges and the court imposed a fine of€327,000 . In relation to the third charge, we were only fined in respect of instances in which FCIB did not file a unusual transaction report for customers or specific transactions in either Curaçao or the Netherlands. 172. FCIB and I filed appeals against the second and third charges on which we were found guilty. The Dutch prosecutor filed appeals against the charges we were acquitted on. After filing the appeals, the parties entered into a settlement. The details of the settlement terms are confidential, but what is public is that the case was settled between me and the Dutch prosecutor without any agreement on the facts or admission of guilt or wrongdoing.”
“Approach to effectively tackle VAT Fraud without violating Free Trade Principles.”
“3. If FCIB were to discontinue to serve the Telecoms market, the traders will bank elsewhere and are likely to end up in jurisdictions and with banks which may exhibit a less "co-operative" attitude than FCIB. They would probably also lack in the human resources and understanding of the complexities to deal effectively with the challenges of the Telecom market segment. After all it took FCIB the better part of 9-months to reach its today's level of understanding. 4. FCIB with its establishment in Bangalore, India (presently employing over 130 people) can meet the massive resource requirements needed to implement, manage and operate highly sophisticated and otherwise digitized KYC and AML procedures. processes and procedures. TWPS's marketing presence around the world facilities one-on-one client interviews and the detailed site visits. Banks in more remote locations are unlikely to have access to resources. FCIB has demonstrated that it can manage effectively the cost/benefit ratio of the Risk Management of the Telecoms market by a combination of charging additional "compliance" costs by increasing monthly account maintenance and transaction fees and the availability of human resources at affordable costs in India.”
“● Using the "fingerprints" of known fraudulent transactions, First Curacao analyses trading patterns of its clients to identify potentially suspicious transactions, which will trigger further investigation. First Curacao passes such information on to the local money laundering and proceeds of crime agencies. ● "Baseline transaction profiles" are being established for all clients, monitoring payments and transfers into and out of accounts. Exceptions to the norm will prompt further investigations, and any suspicious transactions will be reported. ● First Curacao requires its clients to explain any third party payments they make. Those clients who make frequent third party payments without explanation are promptly reported to local regulatory agencies.” “● Software is being developed which will automatically extract the supply chain for each transaction by "following the money trail". This will help identify any and all parties related to suspicious transactions enabling further investigation potentially leading to the filing of suspicious activities reports. These systems are at a minimum on par with similar systems used by leading financial institutions, including WorldCheck, SIDE Safewatch, BSA Reporter (transaction monitoring rules under development) etc.”
“412. The B&M briefing paper stated that “[FCIB] considers its current system to be “state of the art” ” and “sophisticated” and claimed that: (1) “Using the “fingerprints” of known fraudulent transactions [FCIB] analyses trading patterns of its clients to identify potentially suspicious transactions, which will trigger further investigation”
“The Bank has recently implemented an automated software system of transaction monitoring (Mantas) that is risk base focused.”
“Obviously, in our submission, given what they knew about their existing client base, it is commercially unacceptable to the point of dishonesty not to be adopting methodical, dynamic and aggressive review of that client base for the purposes of weeding out the fraudsters. Again, we say one is hard pressed to find any details about how this methodical, dynamic and aggressive ongoing review was actually being undertaken. And we also say that Mr Deuss is well aware that even the compliance, as it existed in 2006, wouldn't pass scrutiny by outsiders. And one particular example of that, again with reference to the Vance report, on which the defendants rely, is that when Mr Deuss was having problems convincing UBS to maintain their correspondent banking relationship with FCIB, he wrote to them, on28 July 2006 −− and we have that at {F/1999.1/1}. If we go down, that's a coversheet from October. Sorry. Next page. {F/1999.1/2}. MR JUSTICE LEECH: That's a fax, is it? Or is it an e−mail? It's hard to tell what it is actually. MR PARKER: This is −− this is the −− this puts the date of the e−mail from Mr Deuss −− MR JUSTICE LEECH: So 28 July. MR PARKER: Mr Bandelier is at UBS. MR JUSTICE LEECH: Yes. MR PARKER: And he −− Mr Deuss sets out findings from the Vance report. And if you go to page {F/1999.1/7}. We should hopefully −− MR JUSTICE LEECH: Well, that's saying its strengths include all these programmes have been put in place. MR PARKER: Yes. And in there there's a reference −− sorry, there's a statement that the bank uses Mantas, the software, for transaction monitoring. Have we got the right page? Yes. Thank you. It's third bullet point from the end: "The bank has recently implemented an automated software system of transaction monitoring (Mantas) that has risk base focused". MR JUSTICE LEECH: Yes. MR PARKER: But Mr Deuss, we say −− Mr Deuss knew that wasn't true, if one compares that with what he said when he was writing to HMRC on 13 July, very shortly before, as we have at {F/1606/1}. This is to Mr Watson at HMRC. And on page {F/1606/2} one sees there item 2: "Mantas Information. "FCIB has licensed Mantas software to replace it semi- automated transaction capabilities with fully automated transaction monitoring software ... the Mantas software installation and implementation is expected to be complete by September 30, 2006." My Lord, we say, obviously, this is not a case of Mr Deuss doing his honest but inadequate best. We say that he knew that his decision to service the T&C sector could only be justified if he had −− to use his words −− state−of−the−art compliance. And that is how he sought to justify FCIB servicing the T&C sector.”
“1. The statutory regime was imposed by a Court order (Art. 28(1)) dated9 October 2006 at a public hearing (the "Order"). FCIB and the Bank of the Netherlands Antilles (the "BNA") (renamed the Central Bank of Curacao and Sint Maarten or CBCS on10 October 2010 (“the Central Bank”)), had the opportunity to be heard (Art. 28(3) and (5)). 2. The Order was made on9 October 2006 to protect the interests of the joint creditors in the winding up of the business of FCIB (Art. 28(1)). 3. The official press release of the BNA dated11 October 2006 stated that, “As a result of several criminal investigations in the United Kingdom and the Netherlands related to alleged VAT-fraud involving numerous FCIB clients, a few FCIB clients undertook legal action and subsequently embargoed FCIB funds. As a consequence thereof and after a few banks discontinued their correspondent banking relationship with FCIB, FCIB became unable to make payments…… “ and “In light of the emergency measure and the subsequent unwinding of FCIB’s activities, the Central Bank will do its utmost to achieve that all depositors rightfully entitled to their deposits will receive said deposits after a due investigation." 4. The Court made the Order as it agreed with the BNA’s assessment that the situation which FCIB had found itself in could result in a negative solvency and liquidity position for FCIB (which is closely analogous, to the English law concept of being balance sheet and cash flow insolvent) and that the interests of the joint creditors in the winding up of FCIB demanded special provision. 5. The emergency measures included that the powers of management and supervisory directors of FCIB rested exclusively with the BNA. 6. The Order was not subject to any appeals (Art. 28(8)). 7. The substance of the Order was published in the newspaper in which official notices are published nationwide (Art. 28(7)). 8. A. By the Order and the national ordinance Art. 28(2), when declaring emergency measures, the Central Bank was authorized, to: a. transfer all or part of the obligations of FCIB (the credit institution which it has assumed in the course of its business as a credit institution to obtain funds), or b. wind up all or part of FCIB (the credit institution's business); c. (since 2015) restructure FCIB; B. As long as it has not yet become apparent to the Central Bank that the credit institution (FCIB) has negative equity (which is closely analogous, to the English law concept of being balance sheet insolvent), the authorisation shall also serve to liquidate the credit institution’s assets (Art. 28(2)). 9. Upon emergency measures being pronounced the Central Bank assumed all the powers of the directors and supervisory directors of FCIB to the exclusion of all others (Art. 30(1)). 10. The directors and supervisory directors came under an obligation to render all cooperation requested by the Central Bank in the exercise of those powers (Art. 30(3)). 11. The Central Bank was authorized, notwithstanding the provisions of FCIB’s articles of association, to issue and collect all payments not yet made on the shares in the subscribed capital of FCIB (Art. 30(9)). 12. The Central Bank had the power to dismiss the directors (Art. 30(5)). 13. The Central Bank was tasked with looking after the interests of the joint creditors (Art. 30(2)). 14. No transfer of FCIB’s rights and obligations by the Central Bank that would have prejudiced the rights of the remaining creditors was permitted (Art. 34). 15. The Central Bank could make payments to creditors to the extent justified by the liquidity position of FCIB (Art. 31(2)). 16. Once it becomes apparent to the Central Bank that the credit institution has a negative equity and (it is a cumulative requirement) either: a. the objective to be achieved with the emergency measures has been or can no longer be achieved, or b. if the emergency measures were not previously declared - there is no longer a reasonable prospect that the objective to be achieved with the emergency regulation can still be achieved; the credit institution must be placed under bankruptcy (Art. 37(1)) where the curator and the judge commissioner would be responsible for the further liquidation of the institution under bankruptcy whereby the unsecured assets of the company are realised and the companies debts are discharged in accordance with their ranking in the insolvency. 17. Upon the credit institution being declared bankrupt, the emergency measures come to an end (Art. 37(3)). 18. Upon bankruptcy the acts performed by or on behalf of the Central Bank during the emergency measures are treated as having been acts by the bankruptcy liquidator and debts incurred during the emergency measures are treated as expenses of the bankruptcy (Art. 37(3)(c)). 19. The Central Bank is to report to the Minister of Finance after the termination of the emergency measures (or during the emergency measures if requested to do so) (Art. 38). 20. No enforcement for payment on an unsecured claim could be brought against FCIB (Art. 31(1)) and the running of limitation periods for such claims was suspended (Art. 31(1) incorporating Art. 32 of the Bankruptcy Decree 1931 mutatis mutandis). 21. There is no prohibition under Curacao law or a moratorium preventing claims being brought against the credit institution (FCIB) whilst it is subject to the emergency measures. 22. Upon FCIB’s entering into emergency measures; (1) the relevant time for the assessment of mutual dealings and set-off was the date that emergency measures were imposed; (2) the Central Bank could terminate the contracts of FCIB’s employees; and (3) the Central Bank could terminate hire-purchase leases and any lease of which FCIB was a tenant (Art. 32).”
“Article 32 1. In the event that a limitation period, relating to a legal claim as referred to in Article 22, would expire during the bankruptcy or within six months of its end, the period shall continue until six months have elapsed after the bankruptcy has ended. 2. The first paragraph shall apply mutatis mutandis to automatically commencing limitation periods.”
“(a) He set management objectives and marketing priorities. (b) He gave direct instructions to TWPS marketers about site visits. (c) He received TWPS marketing reports. If reports were not forthcoming when the marketer at fault would be chastised by using Mr Deuss' name. (d) He received TWPS performance data. (e) He reviewed individual business plan objectives for the marketers. (f) He held scheduled meetings with the marketers. (g) He set and controlled the bonus plan. (h) He set TWPS' marketing priorities. (i) He attended TWPS quarterly meetings world-wide. (j) Daniel Maurice-Vallerey (“Mr Vallerey”), TWPS' President, reported to Mr Deuss and not to the de jure directors of TWPS (who were Martina Deuss, Mr Deuss' sister ("Ms Deuss") (who was also referred to as "Tineke Deuss"), and Charles Geerts). (k) Unlike Mr Deuss, neither of TWPS’ de jure directors were included on emails about TWPS' operational and marketing decisions.”
“21. The first sentence of paragraph 3(2) is denied: 21.1. Mr Deuss was not a de facto director of TWPS. Any participation by, or concern of, Mr Deuss in the affairs of TWPS was in his capacity at FCIB (to which TWPS was a service provider) set out at paragraphs 19.3 and 19.4 above and/or as the UBO of TWPS, as to which paragraph 19.6 above is repeated. 21.2. Mr Deuss was not a shadow director of TWPS: 21.2.1 Mr Deuss did not give directions or instructions to the directors of TWPS on which they were accustomed to act within the meaning of the applicable legislation at the relevant time. 21.2.2 Alternatively, any directions or instructions given to directors of TWPS by Mr Deuss were given by him in his capacity at FCIB (to which TWPS was a service provider) set out at paragraphs 19.3 and 19.4 above and/or as the UBO of TWPS, as to which paragraph 19.6 above is repeated.”
“32B. The claim relies on the assistance of FCIB in providing bank accounts that facilitated the MTIC trading of the MTIC Companies (and TWPS pre-screening/on-boarding and failure to monitor) as pleaded in paragraph 6 above and/or in the following ways: - (1) Transactions giving rise to the VAT liabilities were processed through the FCIB account of the MTIC Company, including where the evidence is that the transactions of the MTIC Company were predominantly through its FCIB account so that it should be inferred that the transactions giving rise to the VAT liabilities were processed through the FCIB account of the MTIC Company; (2) Money in respect of the transaction giving rise to the VAT liability was paid into the MTIC Company's FCIB account; (3) The MTIC Company gave third party payment instructions for money to be paid to other MTIC fraud companies (who had been pre-screened/ onboarded by TWPS and whose accounts were not monitored) and the money was paid into their FCIB accounts; (4) The unpaid VAT liability arose as a result of the failure of the MTIC Company to be able to claim for input VAT paid on purchases prior to export sales as part of the MTC fraud, which purchases and sales were processed through its FCIB account.” “38. (3) TWPS is liable to the MTIC Companies in the amount of their undischarged VAT liabilities as a result of its dishonest assistance by promoting FCIB’s services and onboarding them as customers of FCIB and/or failing to monitor their trading activity (alternatively under s213 or theCivil Liability (Contribution) Act 1978 ).”
“28. But another issue that may arise is whether the acts relied on are actually the acts of a director at all. Holland’s case did not address the question what actions make a person a director, save in so far as the majority clearly make it clear that the court should ask whether the defendant formed part of the corporate governance structure of the company. However, that is merely to restate the question. The real issue in some contexts will be whether the acts demonstrate the assumption of acts as a director. That question was not explored in this case. There was simply no argument as to whether the acts on which Hobart relied lacked the quality of directorial acts. 29. In Holland’s and Jones’s cases, the acts in question were plainly directorial in nature. In Holland’s case, the corporate director was the sole director: there was no evidence of any other person taking management decisions on its behalf or on behalf of the composite companies. 30. In this case, Hobart challenges the judge’s failure to make findings about its corporate governance structure. This case raises the fundamental point of why the court needs to undertake that exercise and (in consequence) what makes a person a director. 31. The Companies Act definition does not elucidate that matter. Provisionally it seems to me that that term is to be tested against the usual split of powers between shareholders and directors under Table A, i.e. on the basis that the powers of management of the company’s business are delegated to the directors and the shareholders cannot intervene except by special resolution. On that basis it means a person who either alone or with others has ultimate control of the management of any part of the company’s business. In the usual case, in my judgment, it would not include a purely negative role of giving or receiving permission for some business activity. 32. The role of a de facto or shadow director need not extend over the whole range of a company’s activities: see In re Mea Corpn Ltd[2007] 1 BCLC 618 ; Secretary of State for Trade and Industry v Deverell[2001] Ch 340 . A person may be both a shadow director and a de facto director at the same time: In re Mea Corpn. Practical points: what makes a person a de facto director? 33. Lord Collins JSC sensibly held that there was no one definitive test for a de facto director. The question is whether he was part of the corporate governance system of the company and whether he assumed the status and function of a director so as to make himself responsible as if he were a director. However, a number of points arise out of Holland’s case and the previous cases which are of general practical importance in determining who is a de facto director. I note these points in the following paragraphs. 34. The concepts of shadow director and de facto are different but there is some overlap. 35. A person may be de facto director even if there was no invalid appointment. The question is whether he has assumed responsibility to act as a director. 36. To answer that question, the court may have to determine in what capacity the director was acting (as in Holland’s case). 37. The court will in general also have to determine the corporate governance structure of the company so as to decide in relation to the company’s business whether the defendant’s acts were directorial in nature. 38. The court is required to look at what the director actually did and not any job title actually given to him. 39. A defendant does not avoid liability if he shows that he in good faith thought he was not acting as a director. The question whether or not he acted as a director is to be determined objectively and irrespective of the defendant’s motivation or belief. 40. The court must look at the cumulative effect of the activities relied on. The court should look at all the circumstances “in the round” (per Jonathan Parker J in Secretary of State for Trade and Industry v Jones[1999] BCC 336 ). 41. It is also important to look at the acts in their context. A single act might lead to liability in an exceptional case. 42. Relevant factors include: (i) whether the company considered him to be a director and held him out as such; (ii) whether third parties considered that he was a director. 43. The fact that a person is consulted about directorial decisions or his approval does not in general make him a director because he is not making the decision. 44. Acts outside the period when he is said to have been a de facto director may throw light on whether he was a de facto director in the relevant period. 45. In my judgment, the question whether a director is a de facto or shadow director is a question of fact and degree. The principles of appellate review are well established. I need only summarise those applicable here. Where the decision depends on the judge’s assessment of weight to be attached to various facts, the test to be satisfied on appeal is that in most cases the judge was plainly wrong. Where the appellant contends that the judge misdirected herself as to the law, the court must determine what the law is and whether the judge applied it.”
“59. Mr Marshall’s first submission is that the judge failed to make findings about the corporate governance structure of Hobart and to take it into account. She was right to say that the Hobart board did not make the important decisions. As in the Mumtaz case[2012] 2 BCLC 109 , Hobart’s business had been run informally and major corporate decisions had been taken by Mr Naggar and Mr Townsley, who had operated like partners in Hobart’s business. There was only one board minute. There was not even a board meeting to deal with the interim dividend. There were meetings of a board committee called Exco. That was set up before Hobart was incorporated and while it was still a division of DD Brokers. But, submits Mr Marshall, that committee did not deal with any important matters. 60. Mr Marshall submits that the de jure directors of Hobart did not make any significant decision, whether as to IT, investment, staffing, premises or otherwise, without Mr Naggar’s agreement. Mr Naggar received regular information and gave regular instruction concerning the day-to-day operation of Hobart’s business. Mr Naggar for instance exercised considerable control over the hiring and firing of staff. 61. In my judgment, Mr Marshall is correct to say that the judge focused on “hat identification” rather than on ascertaining the corporate governance system of Hobart. He is also correct in his submission that determining whether Mr Naggar was part of the corporate governance system was an important step in deciding whether he had assumed the responsibility of a director. The corporate governance system will vary from company to company. Therefore in the normal course, it is vital that the trial judge makes findings about the role which the defendant played in running the company in question. 62. However, in this case, Mr Naggar did not at trial dispute that he performed directorial acts. He sought to run his defence on the basis of “hat identification” i.e. that he had multiple roles and that he had acted in a different capacity at all times from that of a Hobart director. In those circumstances, there is no material error of law on the judge’s part in not seeking to meet a defence which was not run.”
“64. The judge’s conclusion was not in terms that at the material times Mr Naggar acted as chairman of DDI or as an investor but rather that nothing which the judge had seen “goes beyond the involvement one would expect to see from a person who combined the roles of major client and chairman of the majority shareholder”: judgment, para 125. 65. Mr Marshall interprets this as a holding that all the acts were ones to be expected of a client and chairman of the major shareholder and that they were to be attributed to that capacity without considering whether they were actually done in that capacity. While I accept that those words read on their own can be interpreted in this way, in my judgment they have to be read in the context of the judgment as a whole. In particular the judge took the view that in the light of the JVA and the need for directors of Hobart to be authorised by the FSA it was unlikely that Hobart would have permitted Mr Naggar to act as a de facto director: judgment, para 73. In other words, the passage on which Mr Marshall relies is to be read as saying that she had considered Mr Naggar’s involvement objectively against the conduct to be expected of a major client and chairman of the majority shareholder, that his involvement was consistent with that conduct and that he had in fact acted in that capacity. So read, her conclusion is in my judgment unassailable. 66. The assessment of the capacity in which a person acts is one of fact and degree and all the circumstances must be taken into account. Mr Marshall relies on this appeal on passages in his closing submissions in respect of a considerable number of specific categories of acts or specific episodes as showing that the judge came to the wrong conclusion. He does not contend that the judge was not entitled to come to the conclusion to which she came, and so it is clear that the challenge is in reality a disagreement with the judge’s findings. As such, it does not amount to a good ground of appeal.”
“(1) “In this Act, ‘director’ includes any person occupying the position of director, by whatever name called”. (2) In relation to a company, “shadow director” means a person in accordance with whose directions or instructions the directors of the company are accustomed to act. However, a person is not deemed a shadow director by reason only that the directors act on advice given by him in a professional capacity.”
“The individual respondents also personally acted as de facto or shadow directors of the company as hereinafter pleaded in relation to them respectively.”
“I would interpose at this point by observing that in my judgment an allegation that a defendant acted as de facto or shadow director, without distinguishing between the two, is embarrassing. It suggests - and counsel's submissions to me support the inference - that the liquidator takes the view that de facto or shadow directors are very similar, that their roles overlap, and that it may not be possible to determine in any given case whether a particular person was a de facto or a shadow director. I do not accept that at all. The terms do not overlap. They are alternatives, and in most and perhaps all cases are mutually exclusive.”
“A de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the management of the company's affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level. A de facto director, I repeat, is one who claims to act and purports to act as a director, although not validly appointed as such. A shadow director, by contrast, does not claim or purport to act as a director. On the contrary, he claims not to be a director. He lurks in the shadows, sheltering behind others who, he claims, are the only directors of the company to the exclusion of himself. He is not held out as a director by the company. To establish that a defendant is a shadow director of a company it is necessary to allege and prove: (1) who are the directors of the company, whether de facto or de jure; (2) that the defendant directed those directors how to act in relation to the company or that he was one of the persons who did so; (3) that those directors acted in accordance with such directions; and (4) that they were accustomed so to act. What is needed is, first, a board of directors claiming and purporting to act as such; and, secondly, a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the directions of others.”
“55. TWPS UK was a small company within the larger Transworld group, and one of a few Transworld Payment Solutions or ‘TWPS’ companies. I mostly dealt with it at a high level. Although I was the ultimate owner of TWPS UK, I was not a director of the company, nor was I involved in its management or day-to-day affairs. 56. During the relevant period (i.e. 2003 to 2006), the directors of TWPS UK were my sister, Tineke, and my cousin, Charles Geerts. Daniel Maurice-Vallerey, who was the President of TWPS EMEAA, was in charge of TWPS UK’s day-to-day affairs, and he was helped by Brian Partridge, until Brian moved to head TWPS Malaysia. I left the management of TWPS UK’s affairs to Tineke, Daniel and Brian. I was involved with TWPS EMEAA because I was the ultimate shareholder of the companies, and they were providing marketing services to FCIB. 57. I was sent several types of reports from those working at the various TWPS entities, including marketing reports, business plans and performance reports. As I have explained at paragraph 33 above, the reports were primarily a management tool, and whether or not I read a particular report, and how detailed my review of it would be, would depend on its importance or relevance. I was mainly copied to ensure that the company’s employees were doing their jobs properly; the reports were largely intended for the TWPS executives, such as Daniel-Maurice Vallerey in the case of TWPS UK and Mike Sanchez in the case of TWPS Miami. I understand that the Claimants allege that if these reports were not forthcoming from the marketers, those at fault would be chastised using my name. I do not remember there being such a practice, although whether others did it without my knowledge is not something I can speak to. 58. As with most companies in the Transworld group, TWPS UK held quarterly meetings. My recollection is that sometimes these were held together with TWPS Malaysia, as TWPS EMEAA meetings. These meetings would usually have been held in London. I would generally attend these meetings. The agenda would have been circulated in advance of the meeting and action points afterwards. I would often not read either of these; if there was something which needed to be brought to my attention, I would be briefed at the meeting and I would participate accordingly. This included running through individual business plans with individual marketers and Daniel Maurice-Vallerey, although I would not usually follow up on these afterwards. It is possible that during these meetings I discussed the importance of site visits with the marketers and while doing so I may also have given them instructions about site visits, but I do not recall any specific instances of doing so. My recollection is that such direct instructions to TWPS UK marketers would have been given by Daniel Maurice-Vallerey. I understand that the Claimants have made allegations about a TWPS UK meeting held on7 October 2005 . I do not have any specific recollection of this meeting. 59. I understand that the Claimants have alleged that I approved new recruits for TWPS UK. My recollection is that I would not usually get involved in the hiring of employees at the level of marketers. I may have been informed and have approved the positions which needed to be filled. This is something I would have done for all companies within my group. I do not recall having participated in the decision as to the individuals who were eventually hired (or not) to fill those positions. 60. I understand that the Claimants have alleged that I “set and controlled” bonus plans of TWPS UK marketers. I do not recall setting and controlling bonus plans. My recollection is that the bonus plans would have been set by the relevant company’s executives (in the case of TWPS UK, Daniel Maurice-Vallerey), although they would have been escalated to me for my approval as the ultimate owner of the company.”
“Please find attached the O3 Quarterly meetings documents: - YTD performance analysis (per client and per marketer) - Q3 Actuals vs. targets transactions on a per marketer and per product line (eb and EP) basis - B2B segments (% by segment and countries) - Referrals made and received by marketers - Trends analysis In addition to the above, the YTD financial results (eb and EP) referred to in the Meeting Agenda are the documents sent by Susan on Monday.”
“Mr Deuss is against any incentive plan for marketers at our current stage of development”
“Examine what "deal" they can offer if we retain them to recruit for us 5-10 marketers with base salary of£50,000 . We will not include any incentive compensation in the fee entitlements for Page.” (2) As the Claimants point out, in 2003 and 2004 Mr Deuss appears to have been against the introduction of a bonus scheme for TWPS marketers: see Mr Vallerey’s email dated1 July 2004 (above). However, on10 June 2005 he sent a memo to Mr Sanchez and Mr Vallerey copied to Ms Deuss, Mr Ulrich and Mr Kornitzer in which he set out detailed proposals for introducing a “formal incentive compensation plan for marketers”. (3) By email dated15 December 2005 Ms Rebecca Lanigan, a TWPS marketer, wrote to Mr Vallerey stating that she was disappointed to be excluded from the bonus scheme. On the same day Mr Vallerey replied stating that the bonus was discretionary and “the decision always rests with Mr Deuss.”
“Overall, the Claimants submit that a shadow director is someone whose wishes the directors as a board are accustomed to act upon, whereas where a person is giving instructions to the directors otherwise than as a board such that he acts as the boss, the appropriate concept is that of de facto director. Mr Vallerey was in no doubt that Mr Deuss was in charge of TWPS: see (1)17 June 2005 email from Mr Vallerey which states that in relation to TWPS London and Miami “the two groups are now run in parallel by Mr Deuss” (Document List #37), and (2) a note of a Mr Deuss/ Mr Vallerey meeting on16 October 2005 which records, under ‘12. Organisation’, “TWPS Miami and TWPS London are two separate entities, each reporting directly to [Mr Deuss]” (Document List #45).”
“(1) The business of each of the MTIC Companies has been carried on with intent to defraud the creditors of, inter alia, those companies and/or other companies and for a fraudulent purpose and TWPS, FCIB and Mr Deuss were knowingly parties to its carrying on business in that manner. (2) Mr Hunt has accepted that TWPS is liable to make a contribution to the assets of each of the MTIC Companies but has not adjudicated on the proofs of debt of the MTIC Companies submitted in TWPS’ liquidation.”
“(1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect. (2) The court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above- mentioned are to be liable to make such contributions (if any) to the company’s assets as the court thinks proper.”
“What must be established is that the company’s business (or a discrete part of that business), taken as a whole, had been carried on fraudulently. Whether that is established in any particular case is a question of fact. Mr Scorey submitted that if the defendant was carrying on his own business, he could not be said to be party to the carrying on of a different business. I do not agree. The extent to which a counterparty must be involved in the carrying on of the fraudulent business may depend upon the facts. Suppose that a manufacturer regularly supplies counterfeit designer clothes to a retailing company, knowing that the retailer will pass them off as genuine. It is, in my judgment, no misuse of language to describe the manufacturer as “party to the carrying on” of a fraudulent business, even though he exercises no managerial or controlling role within the retailing company; and the manufacturer may have other business activities that are not fraudulent. The manufacturer knows about the retailer’s fraudulent business and is actively participating in it in the sense of furthering and facilitating it. In my judgment, the allegedly odd results are more apparent than real.”
“22. Section 213 creates a statutory cause of action. As I have indicated, it is conceded thatsection 9 of the Limitation Act 1980 applies to that cause of action. It follows that if the application issued on 30 November was more than six years after the statutory cause of action accrued, then it was out of time. The ingredients of the statutory cause of action must be ascertained from the statute. It appears to me that section 213 imports two essential conditions quite apart from the need to prove that the business of the company had been carried on with intent to defraud creditors. Those two essential conditions are: (1) that the company is in the course of being wound up and (2) that the application is made by the liquidator. 23. The need to satisfy the first condition is clear from the opening words of subsection (1) and the decision of the House of Lords in R v Schildkamp[1971] AC 1 , a decision on the comparable provisions ofsection 332 of the Companies Act 1948 . The need to satisfy the second, namely, the application is being made by the liquidator, is apparent from the express term of section 213(2). Counsel for Mr Andreous contends that the terms of 129(2) show that the first condition was satisfied as from the time the petition on which the order was made was presented, that the date of presentation is the date of the winding up is deemed to have commenced. 24. I do not accept that submission. The need to deem the commencement of the winding up to be the date when the petition is presented arises from the terms of, for example, sections 127 and 128 of the 1986 Act. Without some such provision, the presentation of a petition would invite a race by creditors to grab such assets of the company as they could find which is the exact opposite of the purpose of a winding up. But the very fact that it is necessary, for some purposes, to deem the winding up to commence at a time before the winding up order is made shows clearly that as of that date for other purposes the company is not “in the course of being wound up” for the purposes of section 213.”
“Because the application under section 213 can be made only by a liquidator in the course of the winding up of the company, the six-year limitation period undersection 9 of the Limitation Act 1980 runs from the date of the winding up order or when the company goes into voluntary liquidation. As the winding up orders of Bilta, Weston and Vehement were made more than six years before the claim form was issued on8 November 2017 the claims by their liquidators under section 213 are statute-barred, while the claims of the liquidators of Nathanael and Inline are not, because their winding up orders were made on19 March 2012 and8 June 2015 .”
“42. (1) No limitation defence has been or is being taken by TWPS or its liquidator in respect of the claims against it by the MTIC Companies, and it is not open to the Defendants themselves to raise a limitation defence to the claims of the MTIC Companies and their liquidators on TWPS; and (2) In the circumstances set out below, none of the MTIC Companies discovered or could with reasonable diligence have discovered TWPS’ fraud prior to22 September 2008 , 6 years prior to the date of TWPS’ liquidation. 43. (1) The MTIC Companies went into liquidation on dates between22 July 2005 and15 June 2015 . At the time of their liquidation, none of the MTIC Companies had the requisite knowledge to bring any claims against TWPS. (2) The knowledge of the dishonest directors of each of the MTIC Companies is not to be attributed to that company. (3) It follows that in respect of those companies which went into liquidation after22 September 2008 , they could not have discovered TWPS’ fraud before22 September 2008 ; (4) As regards those MTIC Companies which went into liquidation prior to22 September 2008 , those liquidators could not with reasonable diligence have discovered TWPS’ fraud prior to22 September 2008 : (a) Save for the limited instances adverted to in the Schedule for each of the MTIC Companies, a review of the company’s books and records would not have revealed TWPS’ involvement or revealed only that TWPS had a role in the opening of the MTIC Company’s FCIB account; (b) The liquidator of the MTIC Company could not have known and could not with reasonable diligence have discovered: (i) that TWPS knew that MTIC fraud was prevalent in the T & C sector nor that TWPS was targeting companies in that sector despite in that sector despite such knowledge; (ii) that TWPS knew that once onboarded such clients’ activities were not being monitored properly or at all, as set out above; (iii) that Mr Deuss had any connection to TWPS (let alone as set out above that he was a de facto director of TWPS, still less the degree of control he exercised over TWPS (as set out above)); (5) Such facts were only discovered following the receipt by Mr Hunt of CD-Roms from HMRC, described below. Mr Hunt was appointed as liquidator on17 November 2014 ; (6) On25 September 2015 , Mr Hunt received three CD-Roms of documents belonging to TWPS from HMRC. Based on the information contained on those CD-Roms, Mr Hunt prepared an annual progress report to the creditors of TWPS on or around16 November 2016 regarding the status of his investigations and the potential claims against TWPS, FCIB and Mr Deuss; (7) (a) Until at the earliest the receipt of the three CD-Roms from HMRC, TWPS and the Griffins MTIC Companies did not have, and could not with reasonable diligence have obtained, the requisite knowledge to bring any claims; (b) Until Timothy Bramston’s appointment as liquidator of Notebook Express Limited (“Notebook") on6 October 2015 , Notebook did not have, and could not with reasonable diligence have obtained, the requisite knowledge to bring any claims; (c) Until receipt of the annual progress report dated16 November 2016 , the non-Griffins MTIC Companies other than Notebook did not have, and could not with reasonable diligence have obtained, the requisite knowledge to bring any claims; (8) Accordingly time did not start to run for the claims of the MTIC Companies against TWPS until at the earliest on25 September 2015 , less than 6 years prior to the issue of these claims.”
“I conceive that it is the duty of the liquidator to discharge out of the assets in his hands those claims which are legally enforceable, and to hand over any surplus to the contributories. I find no words which vest in him a discretion to meet claims which are not legally enforceable. It will be remembered that, so far as is relevant for this purpose, the law is the same whether the winding up is voluntary or by the court, whether the company is solvent or insolvent, and that an additional purpose of a winding up is to secure that creditors who have enforceable claims shall be treated equally, subject only to the priorities for which the statute provides. It would be a strange result if it were found that the statute introduced a new category of creditors to compete with those who alone, apart from it, could enforce their claims.” “I am, on the other hand, satisfied that the case of a statute barred debt presents a very close analogy and that in concluding that the present claim cannot be admitted your Lordships are assisted by such cases as In re Lorillard and In re Art Reproduction Ltd which were in my opinion rightly decided.”
“In In re General Rolling Stock Co, James L.J. quoted section 98 of the Act of 1862 and proceeded: "A duty and a trust are thus imposed upon the court, to take care that the assets of the company shall be applied in discharge of its liabilities. What liabilities? All the liabilities of the company existing at the time when the winding-up order was made which gives the right. It appears to me that it would be most unjust if any other construction were put upon the section." Mellish L.J. said: "It appears to me to be the clear meaning of that section, that the assets should be applied in satisfaction of all the liabilities which existed at the time of the winding-up order." In Buckley on the Companies Acts (12th ed.), at p. 634, in the notes to section 316, it is said: "But, of course, a debt barred at the date of the order cannot be proved"; and for that proposition there is cited Mitchell's Claim, which, in my judgment, bears out that proposition; for in that case it appears that the proposition to the contrary was not even argued. The note continues: "and, semble, cannot even in a solvent voluntary liquidation properly be paid against the wishes of the contributories." Mr. Sykes, for the liquidator, contended that that statement in its present form was, if anything, too cautious, and ought to read: "and, semble, cannot even in a solvent voluntary liquidation properly be paid unless the contributories consent." In my judgment, that would be a correct statement of the law.”
“90. All these are powerful arguments for concluding that the adjudication is indeed determinative and binds the court. However, it appears to me that it if I were to conclude that it was, that would be contrary to the case law. Indeed, in this case it is not a question of the court not being bound by the decision of a previous judge who has heard evidence. This is a case where the adjudication has been made essentially as an administrative step without necessarily the benefit of any representations by a person directly affected, namely John. If the position is as stipulated in Rogers I asked myself rhetorically how much more so it must be the position where the decision in issue is not one by judge after a trial but merely an administrative step taken by a liquidator? 91. Furthermore, I do not think that concluding, as I do, that the adjudication is not determinative undermines the importance of Rule 14.8 and the need for people to comply with it. The position in this case is that I am presented with a specific claim under section 212. That requires a consideration of what it is just to order to be repaid, if anything. In my view, that means looking at the matter on a clean slate basis. The jurisprudence does not point in favour of treating the adjudication of£87,000 odd as the starting point and simply considering what it is just to deduct from it, if anything. That it seems to me would be to undermine the integrity of the principle which requires me to apply a judicial independent assessment as to what loss has been sustained by the Company by virtue of John’s breaches. 92. Further, the purpose of the liquidators’ adjudication and the courts obligation are different. The adjudication represents what the liquidators (and perhaps Ms Birkhead) accept is the extent of the Company’s debt to Ms Birkhead. The court’s obligation is to assess the loss to the Company. In short, the adjudication may be binding on the Company and Ms Birkhead but the question of whether it is binding on the court is a different one.”
“53. The manner of discharge by the liquidator of his responsibilities with respect to admission or rejection of proofs of debt is, for the purposes of these proceedings, res inter alios acta. 54. Observations such as that made by Kitto J in Motor Terms Co. Pty. Ltd. v. Liberty Insurance Ltd. (in liquidation) (supra) that "a creditor's right to recover his debt by ordinary legal proceedings is taken from him at sequestration ..." (116 CLR p 180) must be regarded correctly to identify the exchange of a right of action at the suit of a creditor against the debtor for a right to prove in the debtor's liquidation. But that exchange of rights does not speak to the question whether or not the debt continues to exist at Common Law. 55. It seems to me that the fact that the Court may, pursuant to s.137(1) of the Code, give leave to a creditor to proceed by way of ordinary action in the Courts against a company in liquidation, points very strongly to the fact that the existence of a debt at Common Law survives an order for liquidation.”
“56. Mr Lander submitted that to yield to the plaintiff's argument would result in a situation where the liquidator of the plaintiff could, by his own decision, determine the quantification of this part of the damages, and that this would place him in a position of conflict of interest. 57. There is much to be said for that contention, and it is not answered by reference to the fact that the liquidator is obliged to act judicially. On the contrary, it is highly desirable that, given that he is obliged to act judicially, the appearance of impartiality is not affected by the creation of a situation in which he is faced with an apparent conflict of interest. However, I do not determine this aspect of the matter by reference to that consideration.”
“Postponement of limitation period in case of fraud, concealment or mistake.”
“(1) Subject to subsections (3) , (4A) and (4B) below, where in the case of any action for which a period of limitation is prescribed by this Act, either— (a) the action is based upon the fraud of the defendant; or (b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or (c) the action is for relief from the consequences of a mistake; the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it. References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent.”
“(1) The burden of proof in establishing their case under section 32 was on the Claimants: Paragon Finance plc v D B Thakerar & Co[1998] EWCA Civ 1249 ;[1999] 1 All ER 400 , per Millett LJ at p. 418b-d. This is a passage cited as “authoritative” by the majority in the Supreme Court in Test Claimants in FII Group Litigation v HMRC[2020] UKSC 47 , at [203] per Lord Reed PSC and Lord Hodge DPSC; see also [209(2)], [213(16)]. (2) Discovery of the fraud, for the purposes of section 32(1), means knowing that there is a worthwhile claim, i.e., having sufficient confidence in the facts it is necessary to allege to justify embarking on the preliminaries to issuing proceedings: Gemalto Holdings BV v Infineon Technologies AG[2022] EWCA Civ 782 , per Sir Geoffrey Vos MR, in particular at [45] and [53], applying in the context of fraud the reasoning in Test Claimants in FII Group Litigation v HMRC (above) at [192]-[193], [196] and [213(14)]. (3) The requirement of “reasonable diligence” for the purposes of section 32(1) means that the Claimants (the burden being on them) must show that they could not have discovered the fraud (in the sense just explained) without “exceptional measures which they could not reasonably have been expected to take”: see again the “authoritative” passage from the judgment of Millett LJ in Paragon Finance plc v D B Thakerar & Co. (4) Although not necessary, it can be useful to consider whether, and if so when, something happened to put the Claimants on notice of a need to investigate: OT Computers v Infineon Technologies[2021] EWCA Civ 501 , per Males LJ at [47]. This is sometimes referred to as the “trigger” for investigations, and in many cases can be identified when it is objectively apparent that something has gone wrong, which ought to prompt the Claimants to ask "why?" and investigate accordingly: Granville Technology Group Ltd v Infineon Technologies AG[2020] EWHC 415 (Comm) , per Foxton J at [48].”
“150. Discovery can in some cases create a debate. Two different "tests" or points in time have been discussed in the authorities, namely the point at which the claimant had (or would acting with reasonable diligence have had): (a) sufficient knowledge to plead its claim ("the Statement of Claim Test"); and (b) sufficient knowledge " to justify embarking on the preliminaries to the issue of a writ " or " in the sense of recognising that a worthwhile claim arises " ("the Worthwhile Claim Test"). 151. The cases in which there is a difference between the two will be rare: In Gemalto Holdings BV v Infineon Technologies[2022] EWCA Civ 782 Sir Geoffrey Vos MR observed at [45]: " there is unlikely in most cases, as in this case, to be a real difference between the application of the statement of claim test and the [worthwhile claim] test. Indeed, the statement of claim test is, perhaps, little more than a gloss on the [worthwhile claim] test ". 152. The Statement of Claim Test which the parties have agreed that I should apply in this case requires that the claimant is in a position (i.e. has sufficient actual or constructive knowledge) to plead a complete cause of action, which in fraud cases entails the critical allegations that a representation has been made, that it was false and that the representor knew it to be false: see Barnstaple Boat Co. v Jones[2007] EWCA Civ 727 at [34] ; Bilta (UK) Ltd v SVS Securities plc[2022] BCC 833 at [31(7)(h)].”
“98. However it appears that the judge in Upham was not referred to Seedo v El Gamal[2023] EWCA Civ 330 and referred only to Gemalto. Further I note that in Gemalto it was said that "if the putative claim would be struck out as not disclosing a cause of action, it would be right to say that the claimant had not discovered that it had a worthwhile claim". Accordingly when Bright J referred to a " worthwhile claim " as being "having sufficient confidence in the facts it is necessary to allege" that would mean having sufficient confidence to allege that a representation has been made, that it was false and that the representor knew it to be false. It is for that reason that there may not be a difference in most cases. However on the authorities which are binding on this Court I proceed on the basis that the appropriate test is the Statement of Claim test. 99. I further note that in order to plead fraud: "… The claimant does not have to plead primary facts which are only consistent with dishonesty. The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence. As Lord Millett put it, there must be some fact 'which tilts the balance and justifies an inference of dishonesty'. At the interlocutory stage, when the court is considering whether the plea of fraud is a proper one or whether to strike it out, the court is not concerned with whether the evidence at trial will or will not establish fraud but only with whether facts are pleaded which would justify the plea of fraud. If the plea is justified, then the case must go forward to trial and assessment of whether the evidence justifies the inference is a matter for the trial judge…". (Flaux J in JSC Bank of Moscow v Kekhman[2015] EWHC 3073 (Comm) at [20] referred to in the White Book at 16.4.4) [emphasis added].”
“59. In my judgment a similar approach applies to section 32. The section requires an objective standard (what the claimant could have discovered with the exercise of reasonable diligence) but what assumptions are appropriate in the case of a claimant from whom wrongdoing has been deliberately concealed and the degree to which they reflect the actual situation of that claimant will depend upon why the law imports an objective standard. Here, the purpose of the section is to ensure that the claimant—the actual claimant and not a hypothetical claimant—is not disadvantaged by the concealment. In achieving that purpose it is appropriate to set an objective standard because it is not the purpose of the law to put a claimant which does not exercise reasonable diligence in a more favourable position than other claimants in a similar position who can reasonably be expected to look out for their own interests. Rather, claimants in a similar position should be treated consistently. However, a claimant in administration or liquidation which is no longer carrying on business is not in a similar position to claimants which do continue actively in business and it is unrealistic to suggest otherwise. 60. Mr Jowell protested that it is necessary to treat a claimant in administration or liquidation as if it were still carrying on business in order to achieve certainty, and thereby avoid injustice, for defendants who might otherwise be exposed to claims by companies in administration or liquidation many years after the event. However, as I have explained, an element of uncertainty is inherent in section 32. It is, moreover, unnecessary to be too sympathetic to defendants who have committed fraud (section 32(1)(a)) or who have deliberately concealed wrongdoing (section 32(1)(b)) and who, if they wish to ensure that the limitation period begins to run, can always make a clean breast of their wrongdoing by contacting their victims. This latter consideration does not apply in the case of section 32(1)(c) (relief from the consequences of a mistake) where the running of limitation may be postponed without wrongdoing by the defendant. However, as the facts of FII demonstrate, it may be many years before a mistake comes to light and, even then, there may be considerable uncertainty as to precisely when time begins to run. 61. For these reasons I conclude that there is nothing in the language of section 32 which requires the claimant to be treated as if it were still carrying on business at the time when facts concerning the wrongdoing begin to emerge and that achieving the purpose of the section does not require any such assumption to be made. As Lord Hoffmann NPJ put it in Peconic[2009] 5 HKC 135 , it does not follow that because an objective standard is applied, the claimant must be assumed to have been someone else.”
“The question whether a claimant could not with reasonable diligence have discovered the fraud (or concealment or mistake) is plainly an objective one, at least so far as the identification of reasonable diligence is concerned. But, generally speaking, the court will take the facts about the fraud (including how deeply it may have been concealed) as read. It will in an ordinary case where the claimant is a company which has not during the relevant period been dissolved also take the company as it finds it, rather than construct some equivalent company the affairs of which are presumed to be in the hands of reasonably competent, honest and properly resourced officers, if that is not the case: see OT Computers Ltd v Infineon Technologies AG[2021] EWCA Civ 501 ;[2021] QB 1183 .”
“We see that you, as Chairman, had the vote as to 6.61% of the creditors by value; is that right? A. They were -- yes, so they are -- as the "type" says "special", so it's a special proxy, giving me no discretion. So I voted in the way as directed. Q. And those were the Kingston Smith claims, weren't they? A. I assume so. I think they are, yes. Q. And Mr Latham, he had the vote as to the remaining 98.39%, based on the TC Catering assigned debt that Griffins had paid for? A. Yes. Q. And we see that the resolution passed unanimously? A. Yes. Q. Mr Hunt, if we can just stand back on this meeting. It's a meeting chaired by you, about your remuneration, at which the vast majority of the votes are held by a company under the control of one of your partners, based on a judgment debt that your firm paid for, and the proxies are held either by you or Mr Bramston's appointee at a law firm with whom you have a well-established relationship. With respect, how is that a process driven by compliance? A. Well, it's order and compliance for sort of the same reasons, but this is probably articulated in a different way. The remuneration had to be fixed and so a meeting had to be called. Then, having considered that, we turned our mind to the special circumstances of the case, where we would have a conflict agreeing our own remuneration? And so what we did was we made sure that others would decide our remuneration instead of ourselves. Q. Those others were effectively Mr Latham of Moon Beever? A. Representing HMRC's interests in all the estates -- essentially all the estates -- TC Catering, but essentially all the MTIC cases. Q. Isn't the reality, Mr Hunt, that the process we see here did nothing whatsoever to address your conflicted position? It was a process that was designed to achieve your preferred outcome, being remunerated at 50%? That's the reality, isn't it? A. Absolutely not. Everyone was available to vote any which way they wished. It follows exactly the standard procedure in every other insolvency, taking into account the conflicts in this particular case.”
“Without prejudice to that position, it will be appreciated that there is a difference between remuneration being set at an amount which is calculated by reference to a percentage of the realisations, and there being sufficient realisations remaining to pay that amount after all prior claims on those realisations have been discharged. While it is correct that the resolution for Mr Hunt's remuneration provides for his remuneration to be calculated at a rate equal to 50% of realisations, you will also be aware (for example from issues around security for costs) that there are numerous other calls and claims which the realisations will have to meet, including funder costs and the costs of insurance. There is (without waiving confidentiality as to its content) a hierarchy of claims before any part of the realisations can be paid to Mr Hunt. The Defendants do not require, and are not entitled to, any further information or detail in that respect.”
“Q. And if we can go back to a question I asked a moment ago. Let me pose it again. And I think the answer is "yes". Have I correctly understood that if one takes the total value of the calls and the claims they will be more than 50% of the realisations in TWPS' insolvency? A. What was the word you used there, something and claims? Q. The calls and the claims. A. The calls and the claims? Q. I mean, I'm using the language from your letter. A. From my letter? Q. The letter that we have on screen in front, from your solicitors. A. Oh, I'm sorry. Yes. I see so they've used "calls and claims", I would use "expenses". Sorry. What was the question again? Q. The question is: have I correctly understood that the total value of these calls and claims was more than 50% of the realisations in TWPS' insolvency? Whatever those realisations may be. A. You have to have a number for that question to make sense, don't you? If the realisations are one figure, it's a different percentage to another. So greater than 50% of a number. MR JUSTICE LEECH: Well, let's say that your claim is entirely successful. 220 million. A. Yes. MR JUSTICE LEECH: What proportion of that will be calls and claims? A. Approximately half. Maybe just under. MR JUSTICE LEECH: So if there is any recovery at all -- A. Yes. MR JUSTICE LEECH: Let's say you absolutely recover in full in these proceedings. A. Yes. MR JUSTICE LEECH: Will any money go to HMRC? A. Yes, but for slightly different reasons; but, yes. MR SCOTT: Well, how much will go to HMRC? A. The general position is that whilst I may have an entitlement to remuneration, what tends to happen is there are subsequent discussion about making sure creditors benefit from the claims that you bring. So it's slightly more voluntary but you have a discussion about paying a dividend and in effect waiving some of your fee. Again, that depends on the outcome. So if I recovered 100 million it would be quite difficult to retain that in the face of creditor claims from other IPs and things like that. So we would negotiate; and that's what tends to happen. Q. Can we go back to his Lordship's question and let's put to one side, for one moment, the possibility of this voluntary discussion. The position, is it not, that once the numerous calls and claims have been paid and you get your 50%, there's nothing left for HMRC, is there, unless you choose to give it to them? A. Well, no, the claim includes interest, for example. So the claim is not 225 million; it's substantially more. But that's just the number that we've just been discussing. So there are any tens of millions possibly in excess of 100 million, depending on the judgment on interest, depending when it runs from, what rates etc, etc; recoveries of costs, all of that is part of the calculation.”
“I refer to your conversation with Steve and attach a copy of our recent progress report which incorporates the documentation for a meeting of creditors due to be held this Wednesday at 11.15 a.m. at which we are seeking to fix the basis of the Liquidator's remuneration. Can you please confirm which of your appointments are creditors in the liquidation of Transworld? As suggested, this could be all MTIC companies with VAT losses who traded through FCIB and whose date of liquidation is after22 September 2014 . The proxy and proof of debt forms are at appendices E and F respectively, should you wish to complete these.”
“Q. Now, as liquidator of TWPS, you decided to accept all of the proofs that I've mentioned: your own for the ten Griffins companies, Mr Bramston for his three MTIC companies and Ms Hall for her six companies. You accepted all of them; correct? A. No. Q. What do you mean "no"? A. My recollection is that we -- we -- having received the proofs, I had no evidence to adjudicate on whether or not they were proper claims or not. So the -- the creditor could make the claim, but that wasn't, on behalf of Transworld, something we could accept. So the position, I think, is under the Act, at the time, that you could accept the contingency or the possibility; and so, effectively, accept them for£1 but make no admission as to the validity of the claim. Q. Mr Hunt, as you know, the question wasn't about adjudication; it was about your acceptance of the claim. Can we get up {B/3/6}, please. This is your particulars of claim? A. Yes. Q. Which carries a signature of truth from you. A. Yes. Q. Can I just ask you to, please, read sub-paragraph (2) of paragraph 7. A. Yes. Q. And that's correct, isn't it? You have accepted that TWPS is liable to contribute to the assets of each of the MTIC companies? A. That's a completely separate exercise, in a different context in a different period. There's no equivalence between the two in any way, shape or form. Q. When do you say you did this acceptance? A. The acceptance was the end of last year, I think, just limited to the 19 companies. Q. Mr Hunt, with respect, that cannot be right, because these particulars of claim date back to when you issued the proceedings in September 2020. As at that point in time, you had accepted these claims? A. Sorry, I'm misreading it. What are we talking about here: "Mr Hunt has accepted that TWPS is liable to make a contribution ... but has not adjudicated on the proofs of debt ..." Q. I'm just asking, at the moment, about your acceptance that TWPS is liable to make the contribution? A. So I misunderstand the word "acceptance". Q. It's in your particulars of claim, Mr Hunt. If you didn't understand the word, why did you sign the statement of truth upon it? A. The word "acceptance" doesn't -- sorry, "has accepted that TWPS is liable to make a contribution", yes. But that is not the same as acceptance of the proof of debt. I'm confused. We may be at cross purposes.”
“Q. How did you manage the conflict, Mr Hunt? A. By instructing another firm of solicitors to go through the process (indecipherable) the proofs of debt. It's quite a long series of steps up to 2020, but there's quite a lot of different examinations of the process and the conflict. Q. Can we go, please, to your trial witness statement at {C1/6/37}. A. Yes. Q. And you tell us there, in the final sentence of 127: "Later on, when the Respondents raised questions about the claims, I decided that the Proofs of Debt should be reviewed by independent legal advisers, and so Enyo Law was engaged by the MTIC Companies to carry out this review." Do you see that? A. That's correct, yes. Q. Now, I think the respondents that you intend to refer to here, that's the defendants, FCIB and Mr Deuss; correct? A. Yes. Q. Because it is only when the defendants in the action raised concerns about these proofs that you took this step that you describe in the witness statement? A. I was alive to the point, but, yes, the -- the order of events was that -- that I think the defendants had raised issues about it pre-issuing the proceedings. And so we were -- we were alive to it anyway, but we were looking at it further. Q. And it's similar, is it not, to the situation with your progress reports for TWPS, where it was only when my solicitors chased you to comply with your duty that you filed those progress reports at Companies House towards the end of last year? A. That's not correct. Q. I see. A. That was a -- it's another unfortunate document here. Companies House had all the documents on the right dates, at the right time, but Companies House refused to file them because there was a redaction in the public version; and Companies House took the view that they could police the wording of the report. So we spent, effectively, three or four years arguing with then. And, as it happens, in the week that you wrote a letter saying: where are these documents, companies House had, coincidentally, released them. So I sent an e-mail to my lawyers saying: you're about to get some grief from the other side because they think -- they're going to think that one caused the other, but it didn't. It's entirely coincidental. Q. I see. Very well. Now, Enyo Law, to whom you refer here, they were not independent legal advisers, were they, Mr Hunt? They were legal advisers engaged by the MTIC companies? A. Yes. Q. And it would have been the duty of Enyo Law to act in the interests of their clients, the MTIC companies, not in the interests of TWPS, for which they did not act? A. That's correct, yes. Q. Now, given that the MTIC companies are in liquidation, presumably, they were unable to pay Enyo Law for their services in reviewing the proofs? A. I think that's right, yes. Q. Did Griffins pay Enyo Law for their services? A. No. Q. Do you know who did pay Enyo Law? A. I think it was paid for by the litigation funders -- I think. Q. You don't suggest, Mr Hunt, in your witness statement that TWPS ever instructed independent legal advisers to review the proofs. Is that because TWPS has not done so? A. No, I think -- I think my lawyers have reviewed the proofs as part of the claim. Q. And that's your lawyers acting in this litigation? A. That's right, yes.”
“Q. Let me suggest this, again in lay terms: surely if TWPS UK had an arguably -- arguably legitimate limitation defence to claims against it then you should, as the liquidator of TWPS UK, want to take that defence rather than simply trying to remove it from the court's consideration? A. No, because ultimately that question comes down to my knowledge and the knowledge that was available to me. So if -- if I did defend it then essentially it would be me versus myself in those -- in those sort of conceptual proceedings. But, in the alternative, I agree with myself. I agree that the knowledge of myself, but also with the other liquidators in the other cases is substantially the same. Q. So I think you recognised a moment ago your potential conflict in this context; yes? A. In the context of agreeing it as a proof of debt, which is my sort of statutory -- the procedure I'm familiar with. I'm less familiar with this procedure, which is a form of acceptance which sits slightly outside my sort of statutory remit. I'm not normally required to accept a claim except within the governing structure of a proof of debt. Q. So recognising the potential conflict, can I suggest to you that the reason you've chosen to try to prevent the limitation defence being considered is because you simply wouldn't want it to succeed, would you? A. Well, that's the danger in the conflict: is that I would have an incentive for it not to be heard. Q. Hmm. A. But I've -- I'm effectively not conflicted with regard to, say, Ms Hall's claim. So I am effectively being neutral on the point. Q. I mean, you wouldn't want a limitation defence to succeed, would you? Because if it did TWPS' claim would be reduced and so would your consequential fees; correct? A. That's correct; but also the recoveries to the creditors, so our position, wearing that particular hat, is we are in accord with each other. Q. You have a number of hats, don't you? A. Yes, I do. Q. Let me ask you this: if the court were to conclude that TWPS has a limitation defence for some of the claims by the MTIC companies, would you still not take that defence? A. No, I would take the defence. Q. You would follow the court's guidance on that matter? A. Absolutely, yes.”
“14. My first MTIC fraud appointment came in October 2003, when I was appointed as liquidator over a company called Amitel Ltd. The particular fraud in that case involved trading in mobile phones and computer processing units where Amitel Ltd acted as the 'broker', receiving large amounts of VAT refunds. The liquidation involved aspects of European law and the evolving understanding of how MTIC fraud might be tackled. My firm invested heavily in modelling the fraud to prove the lack of commerciality of the transactions. The company was one of a number of cases given to a group of IPs on the same point of law and my recollection is that my firm was the only one to succeed in making a recovery (which was against the defendant directors). 15. Another significant case that assisted in the development of my understanding of MTIC fraud was a case called Fresh-n-Clean (Wales) Limited, which was brought against the company’s sole director, Mr Miah, for breach of his duties to the company, and against others for dishonestly assisting Mr Miah in that breach. It involved a newsagent business in Birmingham that was trading millions in a carousel fraud. Having reviewed Griffins' case management system, I am reminded that I was appointed as the provisional liquidator in that case in January 2005, and appointed as the liquidator in March 2005. 16. By 2005, the IPs who had been appointed by HMRC on MTIC fraud work formed an informal group to liaise with HMRC about it (the "IP Group"). The IP Group was made up of Kevin Hellard at RSM Robson Rhodes (later merged with Grant Thornton), who I had first met in around 2002, along with David Ingram at Chantrey Vellacott (now merged with Moore Stephens and then based in the same building as Griffins), Tim Bramston who was then at Kingston Smith, Louise Brittain at Baker Tilly, and lawyers Frances Coulson at Moon Beever (now merged with Wedlake Bell), Chris Branson at Boyes Turner, and Nick Oliver and Chris Potts at Blake Lapthorn (now Blake Morgan) ("Chris Potts"). We were all involved in discussions with HMRC, which I recall would have been facilitated by Frances Coulson, who had very good connections with HMRC having acted for them for some years. The earliest meeting that I recall was at Somerset House sometime in 2005, where a senior figure from HMRC (I believe it was Bob D'Cruz but cannot specifically recall) had asked us to attend to 'pick our brains' on how HMRC could best utilise and work with the private sector (being IPs). 17. Shortly after the IP Group was formed, in 2005-06, there were meetings between some of the IPs of account holders and representatives from FCIB including Tim Ulrich and Mr Deuss. Others in the IP Group were involved and would share any results with the IP Group. I do not recall specific events from any of these meetings but I would have listened to the information coming out of them, for example who in the IP Group was getting the most work from HMRC and how the other IPs were approaching their cases. 18. By this stage, I had some experience of MTIC fraud mainly through the Amitel case but was not particularly into the mechanics of the fraud to the same extent that some of the other IPs were. That said, I would have understood the basic principles of the chains of transactions that were a necessary part of the fraud and would have understood terms such as 'misser', 'broker' and 'buffer'. I cannot now recall I cannot now recall how much I knew about the Telecoms & Computing (“T&C”) sector as a whole, or when I became aware that UK banks were closing accounts of customers in that sector: the role of the banks had not been a significant factor in my cases. In 2005, others in the IP Group such as Frances Coulson and Richard Healey (of Gateley LLP (now PLC)) would have had greater knowledge and experience in their direct dealings with HMRC.”
“When I was first appointed, I did not have any idea what TWPS’s role had been.”
“Q. I've already addressed with you most of the points you make in paragraph 103, but there is just one of them I need to explore further. If I can ask you to look at the third sentence in paragraph 103. It begins on the sixth line. You say: "When I was first appointed [ first appointed to TWPS] I did not have any idea what TWPS's role had been ..." A. Yes. Q. That's not true, is it, Mr Hunt? And you must have known that it was not true when you gave this witness statement. A. In what sense? Q. It was false to state that you did not have any idea upon appointment what TWPS' role had been. You did have an idea about that, didn't you? A. Yes, to be fair, I knew what was in the criminal judgment. So I knew that it was involved in the marketing. Q. If I ask my question again, this part of your statement, where you say you did not have any idea what TWPS' role had been, it is untrue, and you must have known it was untrue when you signed the statement? A. But I think it's sloppy language on my part. The −− what I mean is that I didn't know the role that came to learn that they took is what I'm intending.”
“Now, before FCIB went into emergency measures in 2006 −− in the autumn of 2006, it was often the case that FCIB accounts over companies, over which you were the liquidator, had already been frozen; yes? A. Yes. Could you take me to that statement, please. Q. Paragraph 23, page 8 of the same statement. A. I recall when I was reviewing my witness statement yesterday, paragraph 23 I had difficulty with the language. That's what I wanted to check. Because, again, I think it's generalised, it's not very specific. And I just wanted to re−read it. I think in terms of the accounts had often been frozen, we may be talking about one, possibly two. So I think it's −− it −− Q. Some companies. A. Some. It just didn't feel quite right. Thank you. Q. Before it went into emergency measures. A. I think I detail elsewhere, but I think I can recall one freezer but the other one may have been simultaneous with the emergency measures or very −− Q. Or shortly before. A. It's just literally one or two companies. Q. Okay. We'll look at that −− A. Yes. Q. −− with you and other witnesses. In late 2007, Mr Hunt, do you remember you brought proceedings against FCIB in Curaçao in your capacity as a liquidator for a company called V2 UK Limited? A. Yes, I do. Q. And that was to force the payment of account balances; yes? A. Yes. Q. So it's fair to say, isn't it, that you were well aware of FCIB and its involvement in companies being accused of MTIC fraud by at least 2007; yes? A. Yes. Q. And you were aware that raids were carried out in London offices associated with FCIB in 2006; yes? A. Yes. Q. And you were aware that the raid was at the behest of the Dutch authorities; yes? A. I assume that I knew at the same time, but I became aware of it some time in that period. Q. Some time in that period. Thank you. And in 2007 you were aware that Mr Deuss and other directors of FCIB had been accused of money laundering offences and were awaiting trial in the Netherlands; is that right? A. Yes. Yes.”
“Q. Thank you for that. If we go then, please, to {F/1739.1/1}. This, you will see on the page, Mr Hunt, is an article from The Guardian of21 September 2006 . Do you see that? A. Yes. Q. And if we go to the top of page {F/1739.1/2}, second line. Do you see it says: "The results could not have been more spectacular: this month the bank's offices on the first floor of an office block in Curaçao were raided by officials of the Dutch Ministry of Justice and local police ." Do you see that? A. Yes. Q. And then on the third page, {F/1739.1/3}. Do you see, halfway down, there's a heading, "Customers vetted"? A. Yes. Q. Yes. You see under that heading it says: "Simultaneous raids were carried out at the offices in Knightsbridge, London, of Transworld Payment Solutions UK"; yes? A. Yes. Q. −− "which vetted potential British customers of FCIB". And then "at a farmhouse in Monmouthshire, which Ms Deuss used as a holiday home. Dutch officials are now You see that? A. Yes. Q. And anyone reading this article would have known that it was understood or being reported that TWPS UK vetted FCIB's potential British customers? A. Yes. Q. Point (a); but their London offices were raided in relation to MTIC fraud, point (b); yes? A. Yes. Q. And that Mr Deuss and Ms Deuss were in some way connected; yes? A. Well, they're brother and sister. Q. No, no, no, with the underlying events, MTIC fraud. A. I don't see it from that paragraph. Are you saying from the overall article ? Q. I 'm saying that anyone reading this article would appreciate that raids had been carried out at the offices of Transworld Payment Solutions UK, that that company had vetted potential customers of FCIB, and that Ms Deuss and Mr Deuss were connected with the enquiries being made? A. Yes. Yes. Q. Right. And anyone reading this article would have known that it was at least being reported that TWPS −− TWPS UK vetted FCIB's potential British customers; yes? A. That's what it says, yes. Q. And you would agree with me that The Guardian is a major UK newspaper; yes? A. Yes. Q. And this is the type of article that your policy of keeping track on FCIB related articles would have or could have been identified; yes? A. If we'd seen it, yes, we would have. Q. Well, it's the type of thing your searches, for example in relation to FCIB or MTIC fraud, should have detected. Surely you agree with that, Mr Hunt? A. Yes; and we would have saved a copy of it.”
“74. When TWPS was mentioned in the Dutch Judgment, the Griffins team looked into it further. I suspect (based on usual practices when first looking to obtain some information on a company) Andrew or his team would have done a company search and identified that Martina Deuss ("Ms Deuss") was one of the directors, and noted the connection to Mr Deuss. I was keen to obtain the data on the FCIB main server (and improve upon the failed attempt to information gather (described at paragraph 31(b) above)) and I thought that TWPS might be an avenue for this, as it was not one MTIC company applying for all the data about all the companies (cf. XYZ 8), but an agent of FCIB. If TWPS had access to the entire server then I thought it might fall legitimately within the bounds of s.234 ors.236 of Insolvency Act 1986 . I do not recall planning to make claims through TWPS at this point. 75. I recall suggesting (to whom I cannot recall, but likely Andrew or Chris Potts) that we see whether we could restore TWPS and become appointed as liquidator. Chris Potts then located a County Court Judgment against TWPS from a company called Chubb Fire Alarms. This debt was assigned to TC Catering Limited Document 43 {GOW_00014034}, which was a company Tim Bramston was the appointed IP over, who then petitioned for TWPS to be restored to the register and wound up on6 August 2014 Document 62 {GOW_00011492}.”
“81. In around November 2015, Andrew's team were starting to go through the CD-ROM documents. During the course of that review (which spanned at least a few months) I recall quite clearly Andrew showing me several documents over a period of a few days. It was obvious he was getting quite excited about what he was finding, and I recall seeing 3 documents in particular. The documents that stand out in my memory are: (a) A document about using a currency other than GBP to effectively hide the fraudulent transactions from HMRC. I was able to recall the purpose and content (at an overview level) of this document nearly 10 years after having seen it, because the content was so striking – that a bank was identifying solutions to allow account holders to hide suspicious transactions from HMRC. Document 40 {GOW_00005731}; (b) A document that summarised discussions at a TWPS meeting in London which showed that TWPS and FCIB recognised that T&C customers were unable to bank with other banks Document 41 {GOW_00012344}; and (c) A document evidencing a big TWPS meeting in Kuala Lumpur at which Mr Deuss was shown to be heavily involved in the running of TWPS Document 42 {GOW_00012334}. 82. It was not until after receipt of the CD-ROM documents and some of their contents being shown to me during the course of late 2015/2016 that I became aware of the following points in relation to TWPS: (a) Mr Deuss was actively involved in the management decisions and running of TWPS. He attended and gave presentations at key meetings, and took responsibility for strategic decisions such as TWPS employee remuneration; (b) TWPS (and FCIB, given Mr Deuss' heavy involvement with TWPS) was not only aware of the risks posed by T&C traders but also the fact that UK banks were unwilling to deal with T&C account-holders; (c) TWPS was actively targeting T&C traders despite the recognition of the risks that they were engaged in MTIC fraud. FCIB was aware of and encouraged the targeting of this sector; (d) TWPS was responsible for monitoring customers’ activity but did not do so properly; and (e) TWPS had a clear understanding of how MTIC fraud worked – the description of Olympic Rings was as good an explanation as I had heard, and it was designing its policies (such as delaying transfers in GBP and requiring all traders to have their primary account in a foreign currency Document 40 {GOW_00005731}) to permit MTIC fraudsters to hide suspicious transactions from HMRC. 83. I did not know about TWPS’ true role, and its fraud, until the CD-ROM documents were reviewed, which significantly post-dated22 September 2008 . It was when I instructed Andrew to send some of the key documents to Chris Potts (I cannot now recall exactly when this was), that I first considered that I had evidence (indeed good evidence) which would support claims against FCIB and/or Mr Deuss.”
“Q. What happens in your witness evidence in support of your application to serve out, you'd said you didn't even have any knowledge of facts that could have triggered an investigation into whether FCIB or Mr Deuss had been involved in fraud until 2015, following the receipt of the CD Roms. But you now accept that that wasn't correct, on a fuller review? A. Yes, I had a suspicion at that stage. Q. Well, we'll look, in a few minutes, at when you in fact found out about possible claims against FCIB or could have found out about such claims. But, to be clear, you must now accept that what you said in your second witness statement was wrong and you, in fact, knew about the possibility of claims against FCIB before you received the CD Roms. That's right, isn't it ? A. Yes. Q. And that's quite a significant error, isn’t it, in the evidence you gave to the court in support of your application to serve out? A. I don't −− I think the difficulty I had at the time −− sorry, (indecipherable) answer the question. I don't know −− Q. Yes, if you would just answer the question and then if you need to amplify −− A. I don't know the seriousness of the consequence of that. Any mistake is obviously −− Q. Well, in lay terms, would you accept that when you're giving evidence to the court it's quite a serious error? A. Any error is serious; and I've tried to (indecipherable) −− Q. Well, there are errors and there are errors; but this is quite significant, isn't it, when you're giving evidence to the court? A. I −− I −− yes, but I don't understand what I'm measuring against, but I accept it's an error. I don't know (indecipherable) seriousness, but ... Q. Presumably, you were advised about −− I think you accepted with Mr Scott −− the duty of full and frank disclosure on this type of application? A. Yes; and the document will be put together with the genuine intention to give disclosure of absolutely everything, based on every document that I've −− Q. So it's a general intention to give full and frank disclosure and −− A. Exactly; so that was the intention of the document, so not a deliberate error.”
“Q. If we go to {F/2575/1}, please. Moving on in time. 21 A. Yes. Q. This is a letter sent by Blake Morgan, your solicitors; yes? A. Yes. Q. Well, you can see it in the first paragraph. A. Yes. Yes. Q. And you will see it's a letter to HM −− HM Revenue and Customs. And Blake Morgan was writing to request TWPS UK's books and records from HMRC. Do you recall that? Let's look at the final paragraph of the letter on page 2. A. I don't recall that Blake Morgan were involved in that exercise, so ... Q. Let's look at the last paragraph on the second page, {F/2575/2}. A. Yes. Q. Yes. And then if we go to the −− back to the first page, {F/2575/1}. If we go to the bottom half of the page. Do you see the penultimate paragraph says: "Transworld was closely linked with FCIB. The directors of Transworld from 2005 onwards were Martina Deuss and Charles Geerts. Martina Deuss is the sister of John Deuss who owns FCIB." Do you see that? A. Yes. Q. And in the bottom half on that page you say it appears −− Mr Potts says −− well, Blake Morgan say: "It appears that the function of Transworld was to collate applications and undertake due diligence visits to companies applying for FCIB e−banking accounts." A. Yes. Q. "In some instances, Transworld certified the suitability of applicants (who were involved in MTIC fraud) to open bank accounts with FCIB." A. Yes. Q. And, as I understand it, this was the letter that requested documents that resulted in the CD Roms being provided to your clients by HMRC. Does that accord with your recollection ? A. No, my recollection is that Mr Fatherly did it directly with HMRC; so I didn't −− I don't recall this letter. Q. Well, we will take this up with Mr Fatherly, but I suggest that's wrong. It was this letter which prompted the CD Roms to be produced, but it doesn't matter, particularly, for present purposes. A. That's just my recollection. Yes. Q. And then if we go to −− back to page {F/2575/2}. You see at the top of the page Blake Morgan write that: "We are aware from media coverage (including the enclosed article from the Guardian dated21 September 2006 ) that HMRC officers raided Transworld's offices in Knightsbridge, London in 2006. It appears that during the raid, Transworld's books and records were seized by HMRC. Copies of the books and records were then provided to the 25 Dutch authorities." A. Yes. Q. Do you see that? A. Yes. Q. The reference to the media coverage is to at least one of The Guardian articles that we looked at previously; yes? A. I think that's right, yes. Q. Yes. And in the penultimate paragraph on this page, do you see it says: "It may be that through investigating the affairs of Transworld, claims could be established that could be brought by the liquidator or Transworld itself for the benefit of creditors. Given Transworld's close affiliation with FCIB and its involvement with companies which committed MTIC fraud, it is possible that HMRC could benefit as a creditor from such claims if brought." Do you see that? A. Yes. Q. Now, for TWPS UK or its liquidator to have been able to bring claims, as this −− as this passage suggests, it would, presumably, have been necessary for there, first, to be claims against TWPS UK; yes? A. Sorry. Can you just repeat that? I was reading. Q. My fault. I probably asked the question too quickly. But for TWPS UK or its liquidator to have been able to bring claims, as this passage we just looked at suggests, it would presumably have been necessary for there, first, to be claims against TWPS UK? A. I think that's right. I can't think of (overspeaking) −− Q. (overspeaking) so here the suggestion being made is that TWPS UK was closely connected to FCIB and companies involved in MTIC fraud? A. That's what it says, yes. Q. And these points were being made before the CD Roms had been obtained; yes? A. That's correct.”
“Q. And if we go to row 2, we can see that the entry, this time, is for7 March 2014 . Do you see that? A. Yes. Q. And column E shows that this is an entry for Mr Benjamin; yes? A. Yes. Q. And column H shows that Mr Benjamin spent six and a half hours working on −− in respect of this work A. Yes. Q. −− that's described across the page at row −− column M. And you see that's refers to: “reviewing FCIB 'KYC' [documents] to obtain details of referees for each [account] [ Griffins cases and 3rd party claims]"; yes? A. Yes. Q. "Referees include agents of Transworld Payment Solutions Ltd [[ Company Secretary] Martina Deuss]"; do you see that? A. Yes. Q. So this entry shows that a review which took six and a half hours was carried out over FCIB's KYC documents; and that led Griffins to consider that TWPS UK was providing referees for accounts. That's what it looks like; yes? A. Yes. Q. And the review was being conducted of FCIB's KYC material. And it must have been conducted on or before 7 March. That must follow; yes? A. It probably was on the date. It is effectively a day's work, by the looks of it. Q. Okay. And this was certainly before you saw a translated copy of the Dutch judgment; yes? A. Yes. Q. And before you saw the CD Roms; yes? A. Yes. Q. And so this understanding of TWPS UK's role must have been arrived at using documents that Griffins already had in its possession by this point; correct? A. Yes. Q. If we go down to row 5. You will see this relates to an entry for11 March 2014 . And if you look across at column E, you see it's a reference to Mr Fatherly; yes? A. Yes. Q. And column H shows that Mr Fatherly spent just under six hours working on this; yes? A. Yes. Q. And then, if we look across to the narrative, we see it says: "Internet/[Companies House]/deep web/searching on Transworld Global Payments/Bart .../James Mallerun/various companies to identify evidence that those giving references from Transworld link"; yes? A. Yes. Q. The reference to James Mallerun is presumably a reference to James Mallaburn; yes? A. I was going to ask who James Mallerun is; I don't recognise the name. Q. So he is −− from the dramatis personae, he was a marketer at TWPS. Do you remember anything about him? A. I 'm not familiar with the name, no. Q. Okay. It looks like if −− it looks like a typo for his name. Do you want to see the dramatis? A. No, I'm fine; it's just a list of names. Q. And I suggest that this shows that your investigators at Griffins must have been aware of and looking at specific TWPS marketers. That's what it looks like; yes? A. I don't know why those names are in his time sheets; so I don't know if they have more or less or what the reference is. Bart Van −− is Bart Van Laarhoven mentioned in the criminal judgment? No, that's why they're looking for it. I don't know James Mallerun or −− Q. I don't think James Mallaburn is though. A. I 'm sure there's effectively an audit trail to why −− what they're actually looking at, so ... Q. At this point in time that audit trail would be focused on documents already held by Griffins. I think we can agree on that? A. Yes and it −− depending which company he's actually looking at will tell you when we received a particular document in a particular way. And you will see, from column E, that this is work relating to Mr Benjamin. You see that, MDP? A. Yes. Q. And column H shows that he spent 2.7 hours working on this; yes? You see that? A. Yes. Q. And then if we look at the narrative at column M it refers to: "Prepare i2 charts, outlining links /interaction between entities −− including FCIB, Transworld ... and identified MTIC traders". Yes? A. Yes. Q. And you can't help me with what "i2 charts" means? A. No, i2 was a −− I think it may have changed its name now, but it was owned by IBM and it was the industry standard chart. You will be familiar with those charts with lines and pictures of heads of people and the accountant had glasses and things like that. That's an i2 chart. Q. Ah, okay. Thank you. So this entry suggests to you, presumably, that Mr Benjamin was looking at links interactions between FCIB and Transworld and identified MTIC 24 traders; yes? A. Yes. Q. And it suggests that Griffins investigators were investigating role of TWPS in relation to MTIC traders; yes? A. Probably I would say, yes.”
“Q. But don't worry about that reference to the meeting. If we go to page {F/1082/4}. You see at the bottom of the page there's a reference to FCIB's establishment in Bangalore. Do you see that? A. Yes. Q. And then, if we go to the next page, {F/1082/5}. Do you see there, at the top of the page, a reference to "TWPS's marketing presence around the world" -- A. Yes, I see that. Q. -- "facilitates one-on-one client interviews and the detailed site visits". A. Yes. Q. So, from this document that was sent to you, it would have been apparent that TWPS was involved in this part of the process, involving FCIB; yes? A. Yes. Q. And then if we go to {F/1083.1/1}. This is the blank site visit report that Mr Deuss attached. A. Hmm, hmm. Yes. Q. And the reference letter. And you can see in the top left-hand corner, we can just blow that up, the Transworld -- Transworld -- you can read it -- A. I can read it. Q. The Transworld Payment Solutions logo; yes? A. Yes, I can see that. Q. And then at the bottom left-hand corner of this document, if we can go down the page, we see a reference to "Transworld Payment Solutions"; yes? A. Yes. Q. You can take it from me that that appears at the bottom of every page of this document. And you will see the type of information, if we just glance through this document. If we go to the next page. I'm not asking you to concentrate on the detail. {F/1083.1/5}. But you'll see the type of information. And you'll see on the final page, page {F/1083.1/7}, "Remarks" and then a box for recommendations? A. Yes, I see that. Q. And if this document had been sent to you by Mr Deuss, it's something -- it's material which you would have looked at? A. Yes. Q. Yes. And it would have been apparent to you that a company called TWPS was involved in -- in relations with FCIB's customers? A. Yes. My recollection is that there were a large number of -- I probably only knew this later -- there were a large number of companies that were called TWPS something; so I wouldn't necessarily have known which one it was. Q. No, but you would have appreciated that a company TWPS was involved in the KYC, for example -- A. Yes. Q. -- process involving FCIB. Thank you. And the e-mail dated 8 February, from Mr Deuss, presumably was regarded as quite a significant e-mail from the owner and a director of FCIB? A. It's -- so, yes, but it's part -- there's been a continuing dialogue between me and -- starting between me and Mr Ulrich; and then I have meetings with Mr -- or meetings with Mr Ulrich that I'm at and Frances Coulson is at. Then there's meetings with Mr Deuss. And then this e-mail comes after that. So it's in that context. Q. It's a process? A. Yes. Q. But you would have attached a degree of significance to a communication from Mr Deuss personally to you? A. Yes. Q. And the aim of the e-mail we can see was to allow you to better understand FCIB's approach to tackling VAT fraud; yes? That's what it looks like, isn't it? A. That's what the e-mail says. Q. And if, as you say you did, you would have looked at the e-mail and the attachments, you would have shared whatever you gleaned from that documentation with -- with Mr Hunt? A. Yes, I would have. I would have forwarded the document to him.”
“FCIB was aware in 2005 that it was being used by companies allegedly involved in the trade in mobile phone and CPU's to conduct MTIC fraud. For example, in June 2005 Mr Chris Potts, a partner at Blake Lapthorn who acts for our clients, spoke at length with Tim Ulrich, the General Counsel at FCIB, about MTIC fraud and the claims being brought against companies with accounts at FCIB.”
“The suspicions relating to the conduct of the bank were widely reported in the public press. They also referred to the Committee Report and then stated as follows: “It was therefore a matter of public record in July 2007 that the majority of MTIC fraudsters seeking to defraud the UK tax authorities used FCIB. Further the part played by FCIB can be seen quite graphically from the estimates in the Report (at page EV15) of missing trade associated with MTIC fraud in the UK. In the period Jan - Mar 06 it was GBP11.6 billion, rising to GBP14.3 billion in the period April - June 2006. FCIB was forced to cease trading in August 2006. The estimate of trade related to MTIC fraud dropped to GBP2.2 billion in the period July - Sept 06 and to just GBP0.6 billion in the period Oct - Dec 06.”
“Q. Now, Mr Fatherly, you began working at Griffins in 2011; yes? A. That's correct, yes. Q. So, as a result, you're not able to say what was known by people working at Griffins before that date? A. Generally, no. Q. Generally, no. Thank you. Now, in terms of your processes, Mr Fatherly, it's correct to say, isn't it, that if you discovered a company you were investigating had a bank account, it was standard practice to request statements, confirmation of any account balances and account opening information? A. That was the process that was used in Griffins, yes; and would be the same process when I was a financial investigator for HMRC. That would be the same process. Q. Yes, it was standard practice that that's really the first port of call, isn't it? A. Absolutely. Q. That type of material? A. Yes. Q. And a failure to take that very basic step of requesting those bank documents, including account opening information, would -- would, I assume -- would mean the investigators weren't doing their job properly? A. Yes. Q. Thank you. And, having received that type of information, an investigator would obviously look at it? A. They would schedule it normally; put it into an Excel spreadsheet, my Lord. Q. And look at it carefully? A. Relatively carefully. It depends exactly what they're looking for. Q. Well, it's your starting point for further investigation, isn't it? A. It's one starting point, yes. Q. Well, okay. Thank you. You certainly thought it was a useful -- useful source of information. We can agree on that, I think? A. Yes, I mean, in terms of liquidations where you're looking for money and assets then looking at the bank account is always a good place to start. Q. Indeed.” “So I would like to ask some questions about the process by which you came to look at the position in relation to TWPS UK. On27 February 2014 you attended a meeting in Curaçao to discuss account balances; yes? A. That's correct. Q. And following that meeting you asked your team to look at the account opening and statement disclosure packs that you had on file for FCIB; is that right? A. That's correct, my Lord, yes. Q. And during that process you came across documents that referred to TWPS UK? A. Yes. Q. You can't remember what specific document that was? A. No. Q. No. A. I mean, I think there were probably a number of them that came later. Q. More than one? A. Yes. Q. So it's plainly a document that Griffins already had within its files; yes? A. That's correct. Q. Yes. You didn't need to go to any third party to obtain such documents? A. No, sir. Q. Having found reference -- a reference or references to TWPS UK, you or one of your companies did a Companies House search? A. Yes. Q. You then did a Google search that resulted in your connecting TWPS UK to Mr Deuss? A. That's correct, through ownership, yes. Q. And you also made the connection between TWPS UK and the raid in London, which you considered significant; correct? A. Yes, it was a fact, that struck me, yes. Q. So a significant fact in your mind? A. Yes. Q. The process that we've discussed of looking through account opening statements, identifying TWPS UK, making the connection between TWPS and Mr Deuss, is a process that you could have started at any time; yes? A. I think, in theory, it could have been started at any time. However, you merged two things there: the statements themselves were dealt with by the investigator. That's what they were interested in. The account opening documents, they were looking for other leads, perhaps to other bank accounts, if there was a reference to another bank account, it could be a home address, some other -- there could be a copy driving licence, a passport with a name and address on that they would be looking – looking for. So I don't think they -- when they were -- when the material was coming in, they were primarily interested in what does the bank statement, not what -- how much detail is in the other documents. Q. With respect, Mr Fatherly, we are talking about periods before 2011 you're not able to comment, are you? A. That's correct. Q. So you're speculating? A. I'm -- based on what happened post 2011, I think that's what my investigators did, yes. Q. And so far as TWPS is concerned, you may not have started that process until after your Curaçao meeting. But I think we can agree that was nothing to stop you having done it sooner; correct? A. If there was a reason to, yes.”
“MR JUSTICE LEECH: Why schedule the -- you know, gather all the information about the individual referees? What was the target, if you like, of that exercise? A. For me, my Lord, it went back to the meeting in Curaçao. I thought was -- my view was very slightly different, I suspect, to Mr Hunt's and Mr Bramston’s and what have you. I thought it was very strange that the curator and his lawyer, appointed by the Central Bank, were saying: we're a victim. FCIB is a victim. You know, this is -- there's -- there's nothing there. We're a victim in all this. And I thought that seemed really quite odd that we knew there had been a Dutch judgment; and, in fact, just prior to the meeting, we had heard about the -- that there was a criminal judgment. And it -- it didn't tie up for me. So my thought process was: has FCIB been duped by someone else? Is there referees in the middle who have however profited and fooled FCIB? Or does FCIB have a major compliance issue? So that was my thought process, was to start looking at T -- go through the account papers that we had and start to see: well, is it possible that FCIB actually was duped? So a very -- a slightly different way of looking at it.”
“Thank you. And if we go to row 2, you will see an entry for7 March 2014 . A. Yes. Q. And you'll see this relates to Mr Benjamin -- A. Yes. Q. -- it's six and a half hours; yes? A. Yes. Q. And you'll see the narrative there -- A. Yes. Q. -- for Mr Benjamin's work: "Reviewing FCIB 'KYC' documents to obtain details of referees for each [account] [Griffins cases and 3rd party claims] Referees include agents of Transworld Payment Solutions [[Company Secretary] Martina Deuss]". Yes? A. Yes. Q. So this shows, doesn't it, a review that took some six and a half hours, being carried out over FCIB's KYC documents; yes? A. Yes. Q. And that led Griffins to consider that TWPS was providing referees for accounts? A. Yes. Q. Yes. And we can see that the review was being conducted of FCIB's KYC material; yes? A. Yes. Q. And it had been conducted on or by 7 March; yes? A. It was on; it wouldn't be by. The date is when the work is actually completed. Q. So these are daily entries? A. Yes. Q. I see. Thank you. And I think we can agree this is before you saw the Dutch judgment in translation; yes? A. Yes. Q. And certainly long before the CD Roms were received from HMRC? A. Yes. Q. Yes. So, again, the understanding of TWPS' role recorded here would have been arrived at using documents that Griffins had in its possession already or, as you clarified to me a moment ago, publicly available information? A. Yes.” “MR JUSTICE LEECH: Just before we go further down. I'm just looking at 7 March. A. Yes. MR JUSTICE LEECH: So ADF. That's you? A. That's correct. MR JUSTICE LEECH: "FCIB update to SJH" -- A. Yes. MR JUSTICE LEECH: -- "re lists and work being undertaken/tasking MB re Transworld Global Payments". So it looks as if the project was specifically related to Transworld Global Payments. Was that -- is that a fair interpretation of that entry, that you were asking them to do something specifically in relation to Transworld Global Payments, rather than in relation to FCIB? A. Yes. It was to look at the referees and see what information we could glean from the papers that we already held. MR JUSTICE LEECH: And that seems to be supported by the next one down which is: "Reviewing tribunal decisions, for further info re involvement of Transworld and its agents". And there you've just identified Mr Nixson and Mr Bailey, whose names we've encountered before? A. Yes. MR JUSTICE LEECH: So the first task you set yourself on 7 March or asked Mr Benjamin to carry out is to identified, from whatever sources you could find, the referees who had given references by TWPS to FCIB; is that right? A. Yes, from the liquidation estates that we held. MR JUSTICE LEECH: Yes. A. Yes. MR JUSTICE LEECH: Thank you. MR THANKI: Thank you, my Lord. And James Mallerun is, presumably, a reference to James Mallaburn; yes? A. That's me typing with thumbs again, I'm afraid; yes, Mallaburn. Q. And he was a marketer at TWPS? A. Yes. Q. And this suggests, doesn't it, that Griffins investigators, including you, were aware of specific TWPS marketers; yes? A. Once we started this exercise, yes.”
“Q. 2014. And you'll see column M refers to: "Continue work on drafting Transworld report". Do you see that? A. Yes. Q. And can you help me with this: what was being drafted in relation to Transworld? A. I have no idea. Based on what my time entries say I would have thought I was probably pulling together Companies House information and any articles I could find on the internet. But I cannot remember the report itself or whether it was even finished. I have no idea now. Q. So it refers specifically to a Transworld report. It looks as if a report was being drafted on Transworld; Yes? A. It certainly looks as though that was my attention at the time, yes. MR JUSTICE LEECH: There's a reference to a chart, two entries immediately above. MR THANKI: Can you help my Lord with what Transworld chart refers to? A. That -- that would be -- I think Mr Hunt referred to i2 charts (overspeaking) -- MR JUSTICE LEECH: (overspeaking) refer to an i2 chart, yes. A. And it's a schematic chart. MR THANKI: And can you remember that? Or does that just sound like a likely explanation? A. No, that's what it will be, a chart, because the individual who is named there, MB, is Mark Benjamin; and Mark was one of the people who knew how to use iBase to produce those charts. MR JUSTICE LEECH: And when you say it was schematic, what the connections between the company? A. Yes. MR JUSTICE LEECH: Common directors, employees, that kind -- reporting lines; that would be the kind of thing? A. Yes, it uses symbols for people, companies, locations, so you could link a person. I mean, it was quite often -- sorry, my Lord, it was quite often used to map links between trading counterparties. So you'd have money, you know, A trading with B, trading with C -- MR JUSTICE LEECH: And presumably the chains; you could do that in chains -- A. That's correct. MR JUSTICE LEECH: -- in the same software? A. Yes.”
“Q. And the narrative refers to i2 charts. "... interaction between entities -- [including] FCIB, Transworld [Van Laarhoven] and identified MTIC traders"; yes? A. That's correct. Q. If we go to row 9, please. Sorry. My fault. In terms of the identified MTIC traders, it suggests, this entry, doesn't it, that Griffins had come to the view that TWPS UK had a role in relation to specific MTIC traders; is that right? A. Could -- could it just be moved slightly further to the right so I can see the full entry. Sorry. Sorry. Could you repeat the question. Q. Yes. It shows that there was a view within Griffins that TWPS UK had a role in relation to specific MTIC traders? A. Yes. Q. And once we've introduced the reference to MTIC here, there can't be any doubt that one is talking about potential fraud; yes? A. Yes.”
“Q. Thank you, Mr Fatherly, that's very helpful. If we go, please, to line 1383. You'll see an entry for19 March 2014 ? A. Yes. Q. And if you look at the narrative it says: "Checking MB progress on chart for Fresh N Clean to identify where Transworld gave referee/adverse judgment/and same referee continues to produce FCIB account recommendations." A. Yes. Q. Mr Hunt was a little bit unclear in relation to this entry. And he referred to Fresh N Clean as being slightly a confusing part of this possibly. Can you help us with what this entry relates to? A. I'm afraid I can't. If -- it could be an error, but I -- I honestly don't know. I can't recall what Fresh N Clean was about. Q. Well, what we can see here is Transworld -- references to Transworld giving references; yes? A. Yes. Q. And in connection with FCIB account recommendations. We can see that much from this entry, can't we? A. Yes. MR JUSTICE LEECH: The way I understood this entry and perhaps -- so I don't know whether Fresh N Clean was an MTIC company. So what you've got is identify where Transworld have given a reference. A. Yes. MR JUSTICE LEECH: There was an adverse judgment, presumably a published judgment, in relation to an MTIC case. And then the same referee who gave the judgment in that -- in relation to that particular company was then -- you were then checking to see whether that same referee also gave a further FCIB account recommendations. Does that sound a fair assumption -- a fair interpretation of that entry? A. That's correct, my Lord. MR JUSTICE LEECH: So you're chasing down -- where somebody has given a reference for -- someone from Transworld has given a reference for an MTIC company, that company is then found to have committed a -- a VAT fraud. And then you're checking to see what other account recommendations that individual has given. A. Cross-checking, yes, my Lord.”
“Payment from office account” and in it Mr Fatherly asked Mr Goldfarb to sign off on a payment to fund the assignment to TC Catering of a judgment debt against TWPS: “We have this morning received confirmation that the judgment debtor against Transworld has signed the deed of assignment to TC Catering (TCCAT01). The assignment will now allow us to apply for the restoration and winding up of Transworld. Transworld was, you may recall, the agent through which accounts were opened with FCIB. The company was a creature of Mr Deuss. The value of the judgment debt, assigned at face value, is£1,833.06 . I am currently waiting for details of the account to which the assignor wants the funds transferred. Once I have those details I will ask CPT to raise a requisition. TCCATO1 is unfunded and therefore it will be necessary for Griffins to fund the payment.”
“Q. Can you just focus, for a moment, on your use of the word "creature". A. Yes. Q. Have you seen that in the e-mail? A. Yes. Q. In your witness statement you say, when you wrote the e-mail, you only understood Mr Deuss as the ultimate shareholder? A. Yes. Q. Yes. But I suggest to you that when you describe a company as the creature of a person, that really means only one thing; it means that the person is in complete control of the company? A. It can mean two things. It can mean in control of or belonging to. And factually it belonged to, the extent to which it was controlled by, well, there was an SLA -- service level agreement -- between FCIB and TWPS, which is what it says in the document. So the extent to which Mr Deuss was involved day-to-day, I had no idea. Q. It's your e-mail. I'm just trying to understand your intentions. It's a rather pejorative term, isn't it "creature"? A. It's the one I've used before. Q. It means subservience to a person, doesn't it? Suggesting complete control over --A. I said before it can be belonging to or control of. Q. Okay. A. And Transworld Oil owned TWPS UK and Mr Deuss owned Transworld Oil. Q. Are you suggesting that Mr Deuss was more than just a shareholder? A. I didn't know. Q. You didn't know? A. No. Q. And you've not explained in your witness statement how you came to have that knowledge about Mr Deuss? A. It's from the Dutch judgment, my recollection would be, where it describes a similar situation for one of the other companies where his sister and someone else are directors but I think the Dutch judgment says he controlled it. Q. Let me -- A. It appeared to be similar circumstances, so ...Q. Can we just go back, briefly, to the spreadsheet we looked at, {F/2511.1/1}. And go up the page to row 9. We looked at this a moment ago. It was Mr Potter. And we're talking about the reference in the narrative column to individuals behind Transworld. A. Yes. Q. Can you help me with who was being referred to there. A. Could I see what date that entry is, please? Q. Yes. A. 12 March. We didn't have the Dutch judgment by then so I still think it's the referees, so people -- Q. You really -- that's your answer to what "individuals behind Transworld" meant? A. That's what I think it means, but it's Mr Potter's entry, so ... MR JUSTICE LEECH: Well, having looked at your e-mail, having looked at that entry, is it possible that you instructed Mr Potter to look into who the directors and shareholders of TWPS and its ultimate beneficial owner were? A. I think we knew that the day before, on 11 March, when we were looking at Companies House, at line 5. It is a possibility, my Lord, that that that's what I add asked Mr Potter to do, but I can't recall.”
“Q. Can we turn to {F/2941.3/1} and can we go to page 8 {F/2941.3/4}. So this is a letter from the Insolvency Service dated17 January 2007 . And you will see the first paragraph says: "The Callender Group Limited was placed into liquidation on4 April 2006 , and Robert Valentine and Mark Reynolds of Valentine & Co were appointed joint liquidators". Do you see that? A. I do. Q. And can you read the second paragraph of the letter for me. A. "Under the provisions of Section ..." Q. You don't need to read it out loud; read it to yourself. A. Oh, sorry. Q. Let me know when you've finished with it. A. Finished. I've finished reading. Q. So that second paragraph makes clear that you sent a report to the Official Receiver? A. It would appear so, yes. Q. And that seems to be a reference to the report that was referred to in the Griffins' note that we saw earlier, the annual progress report. That seems to be a reference that we saw in the annual progress to the ...? A. If you would ping back to it, please. Q. So that's at {F/2941.4/1} -- sorry, {F/2941.5/4}. The reference is {F/2941.5/4}. So we saw this earlier: "The computerised records maintained by the former office holder indicates that a report has been submitted to the Insolvency Service ..." Do you see that? A. Yes. Q. So that seems to be a reference to that report that's referred to in the computer records that were passed on to Griffins? A. Yes, it does. Q. Okay. Sorry. Can we go back to the document we were just looking at, which is {F/2941.3/4}. We don't have a copy of that report. Do you recall sending it? A. No. Q. And do you recall what was in the report? A. No. Q. Now, the wording in bold in the middle of that letter, it says: "Please note that the Official Receiver has identified this as a possible Carousel enquiry." Do you see that? A. I do. Q. And then, if you look over the page, {F/2941.3/5}, it sets out the information that is being sought. Do you see that? A. Yes. Q. So it's clear that the Official Receiver considered that there may have been MTIC fraud. That's right, isn't it? A. It would appear that way, yes. Q. And if the Official Receiver was able to work that out then a reasonably diligent liquidator would also have been able to work that out, wouldn't they? A. Yes.”
“Q. And can we turn to paragraph 20 of your witness statement, which is {C1/1/5}. What you say is: "As part of my investigations, I would write to the director for the books and records of the company I was investigating and I would then write to the bank to seek copies of bank statements and a copy of the mandate." Do you see that? A. Yes. Q. So that's a standard part of what you would do as a liquidator, isn't it? A. Correct. Q. And any reasonable -- any reasonably diligent liquidator would have done that, wouldn't they? A. Yes.”
“Q. And we have some invoices from the TCG group. If we could turn to one at {F/2098/33}. This is an invoice from The Callender Group. You will see it's an invoice sent to MG Components Limited. Do you see that? A. I do. Q. And it's for the sum of -- the total at the bottom, 184,988.48. Do you see that? A. Yes. Q. And if we turn over to the next page, {F/2098/34}. These are payment instructions. And we can see that the customer is instructed to pay IQ Trading to an account FCURANCUXXX; do you see that? A. Yes. Q. And then also instructed to make a payment to Barclays; do you see that? A. Yes. Q. If we turn to just one more invoice at page {F/2098/37}. It's another invoice to MG Components. Do you see that? A. Yes. Q. And this time for£632,000 -odd. Do you see that? A. Yes. Q. And if you turn over the page, {F/2098/38}, you will see payment instructions. And we see that the payee is being told to pay£606,000 to IQ Trading. And we've got that FCURANCU swift code again. Do you see that? A. I do. MR JUSTICE LEECH: Could you go back to the invoice again, the previous page, {F/2098/37}. It says "HOW TO PAY THIS INVOICE", do you see there? There's a reference to First Curaçao International Bank NV. And then it's got the same swift code. It just looks as if there's a typo on the actual payment instruction, but it does look as if that's the correct swift code. And if we go back to the -- go to the following page, {F/2098/38}. You see again -- Mr Lemer took you to this. So it does look as if that was a -- even though the First Curaçao number looks as if it is a typo, it does look as if it's the correct swift code. MR LEMER: Do you see that? A. I do. Q. There are other invoices, I won't take you to all of them, but these show very large sums of money that were owed to TCG being paid to other specific bank accounts. You've seen that, haven't you? A. I've seen that now, yes. Q. And surely, as the liquidator, you would have wanted to understand what had happened to TCG's assets; correct? A. Yes. Q. And so, surely, that would have led you to investigate these payments, wouldn't it? A. One would assume so, yes. Q. But you don't recall doing that, do you? A. I don't. Q. And you don't know if Mr Valentine did that, do you? A. I don't.”
“197. With respect, this analysis is wrong. It is a fact (not disputed by the Defendants) that Mr Hunt has not taken a limitation defence against the claims of the MTIC Companies. The issue is properly to be framed as follows: (1) Has Mr Hunt’s decision not to take a limitation defence been challenged and if so how? (Question 1) (2) If it has, what are the consequences? (Question 2) 198. As to Question 1, the Defendants complain about Mr Hunt’s decision (see the conflict of interest section) but do not challenge it, either by an application in the liquidation of TWPS or by alleging a failure to mitigate TWPS’s loss. Question 2 does not therefore arise. 199. It is easy to see why Mr Hunt did not raise a defence of time-bar and why the Defendants have not challenged his decision as an unreasonable one. The matter is addressed in detail at Section I.4.3. Mr Hunt was plainly correct not to force the MTIC Companies to incur the time and cost of defeating a limitation defence by reliance on s.32, unnecessarily adding to the costs of bringing these proceedings against dishonest defendants. 200. As with any litigant, the Court should recognise and respect the decision of the liquidator of TWPS that, in view of the MTIC Companies’ ability to rely on s.32 of the Limitation Act (“s.32”), there were good reasons for not taking the six year limitation period as a defence. The Court does not second-guess a person’s decision not to take a limitation defence (subject to any argument on failure to mitigate) and the liability to those MTIC Companies which rely on s.32 is not therefore extinguished. The Court cannot raise of its own motion a limitation defence and nor can the Defendants. Had it been thought that Mr Hunt’s decision to accept that the limitation period was extended by s.32 was unreasonable, then his decision should have been challenged as a failure to mitigate TWPS’s loss.”
“TWPS's marketing presence around the world facilities one-on-one client interviews and the detailed site visits.”
“Glover resolved to place Blue Fox into creditors’ voluntary liquidation on22 July 2005 due to the fact that Blue Fox could not, by reason of its liabilities, continue to trade, less than 4 months after trading commenced. On22 July 2005 , Gordon Johnstone was appointed as liquidator. Mr Johnstone filed a return dated23 October 2007 for the final meeting of creditors showing no realisations had been made. Blue Fox was dissolved on27 January 2008 . Mr Johnston could not with reasonable diligence have discovered TWPS’ fraud by22 September 2008 , the date 6 years before TWPS went into liquidation on22 September 2014 . The books and records of Blue Fox do not contain reference(s) to TWPS prior to Blue Fox’s dissolution on27 January 2008 . In addition, Mr Johnston’s files for Blue Fox do not contain any material obtained prior to22 September 2008 which is relevant to the matters pleaded at paragraph 43(4)(b) above.”
“TCG went into a CVL on4 April 2006 and Mark Reynolds and Robert Valentine were appointed liquidators. They could not with reasonable diligence have discovered TWPS’ fraud by22 September 2008 , the date 6 years before TWPS went into liquidation on22 September 2014 . The books and records of TCG do not contain reference(s) to TWPS in the period up to22 September 2008 . In addition, the liquidators’ files for TCG do not contain any material obtained prior to22 September 2008 which is relevant to the matters pleaded at paragraph 43(4)(b) above.”
“Northdata was compulsorily wound up on5 April 2006 and Mr Bramston was appointed as liquidator by the Secretary of State (having previously served as provisional liquidator from13 February 2006 ). Mr Bramston could not with reasonable diligence have discovered the fraud of TWPS by22 September 2008 , the date 6 years before TWPS went into liquidation on22 September 2014 . The books and records of Northdata do not contain reference(s) to TWPS prior to22 September 2008 . In addition, Mr Bramston’s files for Northdata do not contain any material obtained prior to22 September 2008 which is relevant to the matters pleaded at paragraph 43(4)(b) above (as opposed to material which is consistent with TWPS having a role in the opening of Northdata’s FCIB account).”
“How did you get introduced to Curacao? JASON WALKER: Just by talking to people. They said to me that you know, are you into First Curacao and I said, "What is that?" It's something that I'd never even heard of. TIMOTHY BRAMSTON: But which people? JASON WALKER: Just one of the companies perhaps. TIMOTHY BRAMSTON: Could it be the Lets Talk IT? WARREN HEYMAN: It could have been anybody. JASON WALKER: I can't remember. TIMOTHY BRAMSTON: And did it -- were you given an introduction, or did you approach them yourself? How did -- TIMOTHY BRAMSTON: And did it -- were you given an introduction, or did you approach them yourself? How did -- JASON WALKER: He gave me a number. Whoever I spoke to gave me a number of a guy called Roy, Roy Nixson, who I contacted. I thought, "Oh well, that's great anyway", because I couldn't get a bank account, I couldn't continue to use my personal bank account. TIMOTHY BRAMSTON: Okay, and why was the account put in your name as opposed to the company name? JASON WALKER: Because I hadn't got any paperwork. I needed a -- like a lot of paperwork, you know, to say I'd been trading for a while, which I hadn't got at the time. But I set the First Curacao Bank account up, so he said to me, what I'd have to do is same again, put it in your own personal name until you start building a business up and then when you've got records, paperwork and things, then we'll transfer it into a business account, which will be round about February time, which is something that I was originally doing. TIMOTHY BRAMSTON: Okay. Did you set up two accounts at the same time? JASON WALKER: No I didn't. TIMOTHY BRAMSTON: Right. So remind me the name of the other account? It was -- JASON WALKER: It was ExactPay. TIMOTHY BRAMSTON: Yes. When did that get set up? Months later? JASON WALKER: Yes, a few weeks later, yes. TIMOTHY BRAMSTON: Okay. JASON WALKER: I set this one up and then Roy explained to me about that one. TIMOTHY BRAMSTON: Right. The purpose of this account is what, as you saw it? JASON WALKER: Which account, sorry? The ExactPay? TIMOTHY BRAMSTON: No, not the ExactPay, the main account. JASON WALKER: This one? TIMOTHY BRAMSTON: Yes. JASON WALKER: To run it as a business account. TIMOTHY BRAMSTON: Right, so it is to carry on the business of the company? JASON WALKER: Yes.”
“(vii) Kingswood entered administration on12 May 2006 and Gagen Sharma was appointed as administrator. On31 July 2006 , Kingswood’s creditors approved a resolution to place the company in liquidation and to appoint Stephen Hunt as liquidator. The CVL commenced on30 August 2006 . (viii) Neither Mrs Sharma nor Mr Hunt could with reasonable diligence have discovered TWPS' fraud by22 September 2008 , the date 6 years before TWPS went into liquidation on22 September 2014 . The books and records of Kingswood do not contain reference(s) to TWPS in the period up to22 September 2008 . In addition, Mr Hunt’s files for Kingswood do not contain any material obtained prior to22 September 2008 , including any material received from Mrs Sharma, which is relevant to the matters pleaded at paragraph 43(4)(b) above (as opposed to material showing that TWPS appeared to help FCIB to apply its purported ‘enhanced due diligence requirements’ to Kingswood).”
“MTL was placed into CVL on18 April 2007 . Stephen Hunt was appointed as liquidator on the same date. Mr Hunt could not with reasonable diligence have discovered the fraud of TWPS by22 September 2008 , the date 6 years before TWPS went into liquidation on22 September 2014 . The books and records of MTL and the liquidator files include material dated prior to22 September 2008 , and obtained by Mr Hunt before that date, which (1) concerns the suspension of MTL’s FCIB account because of third party payments on two transactions, and (2) shows that MTL’s KYC documents were certified by a TWPS employee (although the individual concerned is not identified as such). Taken together, that material is, on its face, consistent with TWPS assisting in the carrying out of a bona fide compliance function, and consistent with post-account-opening monitoring. None of the material obtained by Mr Hunt prior to22 September 2008 is relevant to the matters pleaded at paragraph 43(4)(b)(i) and (iii) above.”
“I had absolutely no idea until the recent email from Compliance that third party payments contradicted your terms and conditions, and had I known I would, of course, found a different way of transacting the business. I now know that FCIB do not like these transactions, and that they are considered an indicator of a potential missing trader. I must point out that I did not know this at the time, but I do know that our supplier is not a missing trader and is, at the time of writing, still very much in business, and offering me stock daily. They have also told me that although they have no relationship with FCIB, they are happy for your representatives to visit them at their offices in Wembley London to discuss these transactions. With reference to EB000000859784: This is a commission payment to Network Trading in Dubai, the company that introduced us. There has been some confusion on my part as to whether this transaction will attract VAT in the UK, and my accountants are currently investigating the situation. It's my belief that it will not attract VAT and therefore it is very likely that the commission invoice that you have will be credited by Mediawatch360 Ltd, and I will hold an invoice with no VAT liability from Network Trading FZE for the transaction.”
“Please note I was at the customer [sic] premises he did not know 3rd party payments were not allowed by the bank. He gave me all the paperwork regarding all 3rd party payments he has done – he is willing to stop straight away.”
“ACEL was placed into liquidation on25 July 2007 on the application of HMRC and the Official Receiver was appointed. The Official Receiver gave notice that the winding up was complete on15 April 2008 at which date he would not have and could not with reasonable diligence have discovered TWPS’ fraud. For example, a review by the Official Receiver of the KYC material collected by FCIB, had it been available to him, would have revealed only that TWPS had a role in the opening of ACEL’s FCIB account.”
“MML was struck off for failing to file accounts on29 May 2007 and dissolved on5 June 2007 . By an order dated27 February 2008 , on the petition of HMRC, MML was to be restored to the Register of Companies (which occurred on26 July 2008 ) and compulsorily wound up. The Official Receiver was appointed as liquidator. He gave notice that the winding-up of MML was complete on25 September 2008 . The Official Receiver could not with reasonable diligence have discovered the fraud of TWPS by22 September 2008 , the date 6 years before TWPS went into liquidation on22 September 2014 . For example, a review by the Official Receiver of the KYC material collected by FCIB in October 2005, had it been available, would have revealed only that TWPS had a role in the opening of MML’s FCIB account. Otherwise, the books and records of MML do not contain reference(s) to TWPS prior to22 September 2008 .”
“(vi) ETP was struck off undersection 652(5) of the Companies Act 1985 on2 October 2007 and dissolved on9 October 2007 . On16 April 2008 , on the application of HMRC, the court ordered that ETP be restored to the register (which occurred on29 May 2008 ) and be compulsorily wound up. The Official Receiver was appointed as liquidator. The Official Receiver could not with reasonable diligence have discovered the fraud of TWPS by22 September 2008 , the date 6 years before TWPS went into liquidation on22 September 2014 . For example, a review by the Official Receiver of the KYC material collected by FCIB in June 2005, had it been available, would have revealed only that TWPS had a role in the opening of ETP’s FCIB account. Otherwise, the books and records of ETP do not contain reference(s) to TWPS prior to22 September 2008 . (vii) Ian Defty was appointed as liquidator by the Secretary of State on26 August 2008 . He could not with reasonable diligence have discovered TWPS’ fraud before22 September 2008 , the date 6 years before the liquidation of TWPS. Mr Defty’s files for ETP do not contain any material obtained prior to22 September 2008 , including any material received from the Official Receiver, which is relevant to the matters pleaded at paragraph 43(4)(b) above.”
“The principle upon which I think our enforcement of foreign judgments must proceed is this: that in a court of competent jurisdiction, where according to its established procedure the whole merits of the case were open, at all events, to the parties, however much they may have failed to take advantage of them, or may have waived any of their rights, a final adjudication has been given that a debt or obligation exists which cannot thereafter in that court be disputed, and can only be questioned in an appeal to a higher tribunal.”
“If there were a stay on the New York judgment it would not be possible, while that stay persisted, to sue on that judgment in this country, because present enforceability is relevant to the question of the finality and conclusiveness of a foreign judgment; but on the question whether a judgment lacks finality or conclusiveness for lack of enforceability, regard can only be had to the system of law applied by the court whose foreign judgment is in question, and not to other systems of law.”
“3.2. In the actions with numbers CUR201601573 and CUR201601574 (through which latter proceedings the failure to also involve Hunt in his capacity as liquidator of defendant number 4 TWPS in the first proceedings was rectified), FCIB, by provisionally enforceable judgment, still claims as follows: I. principally (i) to rule that, under the so-called TWPS claim, to the extent based on an unlawful act with regard to facilitating or assisting in the MTIC fraud, nothing is owed by FCIB to TWPS, nor to Hunt as liquidator of TWPS, to the extent that this claim does not relate to the claim pursuant to section 213 Insolvency Act (in respect of which the court does not have jurisdiction) and (ii) to order TWPS and Hunt as liquidator of TWPS to confirm in writing to FCIB, within two days from the date of the judgment, that the letter referred to above in 2. r. above, to the extent based on an unlawful act, has been revoked and that they have no claim whatsoever against FCIB and/or "FCIB entities", to the extent based on an unlawful act, subject to a periodic penalty payment; in the alternative to order the English Claimants, as well as Hunt, Brampton and Hall, both in their capacities as such and in person, to indemnify FCIB and hold that party harmless from and against the TWPS claim for any amount that FCIB may turn out to owe to TWPS; II. to rule a) that the English Claimants, as well as Hunt, Bramston and Hall, both in their capacities as such and in person, have been in breach of their obligations towards FCIB and/or have acted unlawfully towards FCIB, and b) that they and Hunt, Bramston and Hall in person have acted unlawfully towards FCIB; III. to order the defendants to comply with the settlement agreements and to refrain from any conduct towards FCIB and "FCIB entities" in breach of the provisions of article SECOND (1) of those agreements, subject to a periodic penalty payment.”
“4.2. According to FCIB, the liquidators, TWPS and the English Claimants have nothing to claim from it, both on substantive grounds and because they are bound by the settlement agreements, or in any case have forfeited their rights, if any, in the matter of the TWPS claim. 4.3. FCIB argues in this regard, in summary, that the purpose of the settlement agreements, as also follows from the preceding correspondence with the liquidators and with the UK tax authorities HMRC, was that `total peace' would be achieved and that the entire dispute between FCIB, its account holders, the liquidators and HMRC would be permanently resolved. This concerned not only the account holders` balances, but also their liquidators' complaint against FCIB that FCIB had facilitated the MTIC fraud committed by the account holders, HMRC's claims, and FCIB's allegation that, by taking part in the fraud, the account holders had caused harm to FCIB. According to FCIB, the MTIC fraud had, in the view of HMRC, been settled as far as FCIB was concerned, through the settlement agreements and the payments received by HMRC as a result from these, meaning that HMRC no longer asserts any claims against FCIB or its account holders. According to FCIB, the liquidators had by means of a trick, prior to the settlement agreements, while not disclosing this to FCIB, revived FCIB's sister company TWPS, which had been liquidated years earlier, and, as liquidators of the English Claimants (who had no or hardly any balances with FCIB and whom they failed to name as account holders on whose behalf the settlement agreements were entered into) had constructed claims against TWPS in respect of HMRC debts on account of the involvement of TWPS in facilitating the MTIC fraud, which claims were subsequently indiscriminately accepted by Hunt as liquidator of TWPS and presented to FCIB by him (up to an amount of approximately GBP 182.5 or GBP 415 million), all this while, according to FCIB, HMRC no longer has any interest in the case and considers it closed as a result of the settlement agreements, including in respect of the English Claimants. 4.4. According to FCIB, all that the liquidators are now still out for is their own gain only, pointing out that - as has not been disputed by the defendants and, according to them, is nothing special in the English system - the liquidators receive 50% of what TWPS collects from FCIB by way of `remuneration', and subsequently another 50% of what the English Claimants receive from TWPS.”
“4.6. The court agrees with FCIB that rights have been forfeited and that the liquidators cannot, after the conclusion of the settlement agreements, approach FCIB after all and present it with a claim from the revived TWPS in respect of claims by the English Claimants. 4.7. The reason for this is that it should have been evident to the liquidators and the other parties involved in the settlement agreements, as also appears from the correspondence, that the intention of those agreements was for a final resolution to be reached to the dispute and the emergency measure that had been dragging on for many years. The purpose of the settlement agreements was clear to all those concerned: after (at least) 10 years since the discovery of the MTIC fraud and eight years since the imposition of the emergency measure in respect of FCIB under the supervision of the Central Bank, a final settlement had to be reached. This is reflected in so many words in the waiver provision SECOND (1) of the settlement agreements. The words 'total peace' do not appear therein, but they do appear in the correspondence preceding it, and it was clear— it had to be clear – to all parties that 'total peace' was the objective. In line with this, it must have been clear to all the parties that the 'deal' was concluded on the assumption that everything known to the parties and interested parties at that time would be covered thereby. This is not consistent with the fact that the liquidators, who were also liquidators of TWPS and the English Claimants at the time, came up afterwards with alleged claims on behalf of TWPS and account holders not mentioned in the annexes to the settlement agreements. Account holders who, please note, had no significant balances, and, therefore, were not likely to have any relevance in terms of the envisaged amount of the settlement. 4.8. The liquidators did not mention and involve the English Claimants in the settlement agreements, nor did they notify FCIB that they had revived TWPS. Meanwhile, however, in their capacity as liquidators of the English Claimants and TWPS, they did take note of the negotiations that they themselves, in their capacity as liquidators of the Settlement Companies, were conducting with FCIB. The liquidators negotiated with FCIB/the Central Bank in their capacity as liquidators of the Settlement Companies, but at the same time, in that same capacity, also acted in their capacity as liquidators of the English Claimants/TWPS. As such, (in part in their capacity as liquidators of the English Claimants) they also learned of the aim envisaged by FCIB (and by the Central Bank's) of bringing about 'total peace' between FCIB, its account holders and HMRC, which 'peace' would also benefit all FCIB-affiliated entities (such as TWPS, see below). The liquidators, TWPS and the English Claimants saw all this happening, so to speak, and allowed FCIB to believe that a final settlement was reached, only to subsequently present their TWPS claim, after the settlement amount had been paid. Even if, contrary to FCIB's contention, there was no preconceived plan and this was not done in bad faith, the liquidators, in their capacity as liquidators of the English Claimants, must nevertheless have realised that the negotiations would have looked very different if the claims of hundreds of millions alleged by the English Claimants/TWPS had been involved in those negotiations and that, in that case, these claims would have been expressly included in any settlement. 4.9. By failing to disclose their capacity as liquidators of the English Claimants/TWPS in the negotiations and when entering into the settlement agreements, they have, in view of, in particular, the circumstances outlined in the two preceding paragraphs, forfeited their right to nevertheless hold FCIB liable for wrongful conduct in the matter of facilitating, or assisting in, the MTIC fraud. Holding FCIB liable for the TWPS claim, as happened with the letter quoted under 2.r. above, is unacceptable by the standards of reasonableness and fairness as referred to in article 2 of Book 6 of the Curacao Civil Code, due to its being incompatible with their attitude during the negotiations and when concluding the settlement agreements. FCIB was entitled to be confident that the liquidators would not afterwards come forward with claims in their previously undisclosed capacity. Moreover, FCIB is unreasonably disadvantaged by this. It was entitled to consider the dispute with HMRC and its account holders in connection with the MTIC fraud as settled after the execution of the settlement agreements. A further claim relating to the same dispute defeats the completion envisaged by the settlement agreements and hinders the winding down of the emergency measure. 4.10. The foregoing entails that the declaratory decision claimed by FCIB under (i) is admissible.”
“4.14. The court does not concur with FCIB in its view that the English Claimants should be deemed to be parties to the settlement agreements. The English Claimants are not named as parties to those agreements and the agreements were not co-signed on their behalf. Nor were these English Claimants named as parties, or intended parties, in the preliminary stage. There is no provision in the agreements that these are also entered into on behalf of all other, unidentified, account holders whose liquidators were the liquidators. The fact that FCIB assumed that the liquidators had listed all their companies is not, in the court's view, sufficient to consider the unlisted companies as contracting parties as well. 4.15. Therefore, the English Claimants were under no obligation to perform the settlement agreements, which implies that it cannot be ruled that they have failed in the performance of these. However, all this does not affect the possibility, as also held above in respect of TWPS, that the settlement agreements and the acts and omissions of the English Claimants and their liquidators preclude claims by the English Claimants against FCIB.”
“17. Before I deal with res judicata and the general principles of civil procedure, I would like to stress that under Curaçao law, while a judgment decided at first instance which is the subject of an appeal does not carry res judicata effect, it nonetheless qualifies as a final judgment at first instance where the entire claim is the subject of the proceedings decided upon by the Curaçao court and the proceedings in first instance have come to a final end. 18. A judgment in which a court (either the Curaçao First Court of Instance or the Joint Court of Appeal) terminates the proceedings with regard to any part of the claim by an explicit operative part, qualifies as a final judgment (eindbeslissing). Because of such final judgment, the proceedings in that instance (either first instance or appeal) come to a final end. No additional procedures are necessary, and in principle the court cannot alter its reasoning and decision(s) in that judgment anymore (except for third party opposition and revocation). 19. Although the term ‘conclusive’ does not have a distinct or independent legal meaning under Curaçao law, given that a final judgment is a judgment that represents a final determination of all the matters raised during the proceedings in that instance and determines the rights and obligations of the parties to these proceedings, on these grounds a final judgment can also be considered to be a conclusive judgment. 20. Whereas a final judgment does not have to be irreversible, in the sense that the parties cannot affect it anymore by taking recourse to a legal remedy through the appeals process (as explained below with respect to res judicata), such judgment is still final and conclusive in the sense that it is not subject to additional proceedings before the same court that rendered the judgment. It should be noted that a final judgment of the Curaçao Court of First Instance consisting of a negative declaration, for example that one party owes nothing to the other party (as is the case in the Curaçao proceedings), and which has been appealed (as is also the case as between FCIB, Mr Hunt and TWPS), will remain in force during the appeal, and this would only change if (and only if) the Joint Court of Appeal would set aside such final judgment on appeal. The appeal does in particular not suspend the decision with the negative declaration in the operative part of the final judgment (as it would, if it would have been a condemnatory order). Also, should the final judgment be set aside on appeal, the final judgment will always have been in force between the parties from the date of the final judgment of the Curaçao Court of First Instance until the date of the judgment of the Joint Court of Appeal in which it would have been set aside.”
“FIRST …(5) The Liquidator and the relevant Griffins Company represent and warrant the correctness of Exhibit A and, save for the account balances, Exhibits B and C.” “SECOND (1) Except for the enforcement of the IP Settlement Agreements, the Liquidator and the Griffins Companies (together the “Griffins Entities”) “unconditionally and completely release, remise and forever discharge, and covenant not to sue, any of FCIB, CBCS, the Curators and any person responsible for or involved in the management of FCIB after6 October 2006 , and any corporation or other person or entity controlling, controlled by or under common control with any of them, and each of their respective present and former officers, directors, employees, agents, their heirs, executors, administrators, predecessors, successors and assigns (collectively the "FCIB Entities") of and from any and all claims, demands, obligations, actions, causes of action, suits, controversies, proceedings and liabilities of any nature whatsoever which have been asserted or could have been asserted, including but not limited to those in connection with (a) the Account; and (b) any account applications, account activity, account statement and any other agreement, document or instrument at any time signed by or agreed to by any of the FCIB Entities, the Clients or the Griffins Entities; and (c) any and all transactions at any time executed by any of the FCIB Entities for the Clients or the Griffins Companies; and (d) the remaining balance in any and all Accounts of the Clients or the Griffins Companies. (2) Except for the enforcement of this IP Settlement Agreement, FCIB unconditionally and completely releases, remises and forever discharges, and covenants not to sue, the Griffins Companies in respect of which a Settlement Payment is made hereunder, and the Liquidator (together the “Griffins Entities”) of and from any and all claims, demands, obligations, actions, causes of action, suits, controversies, proceedings and liabilities of any nature whatsoever which have been asserted or could have been asserted, including but not limited to those in connection with (a) one or more Accounts of the Clients; and (b) any account applications, account activity, account statement and any other agreement, document or instrument at any time signed by or agreed to by any of the Clients, the Griffins Entities or FCIB.”
“102.1 FCIB made clear to the Insolvency Practitioners that FCIB was seeking a settlement which would release totally, amongst others, FCIB from any future claims from the Insolvency Practitioners in their capacity as liquidators of FCIB’s account-holders and/or of companies who had claims against FCIB account-holders, and thereby achieve total peace. 102.2. FCIB understood that it was entering into a full, final, and global settlement with all entities which the Insolvency Practitioners were able to represent. FCIB held that understanding in particular because the Insolvency Practitioners held themselves out to FCIB as acting on behalf of all account-holders at FCIB for whom they had been appointed in that capacity and thereby represented that they had authority from them to negotiate and enter into the IP Settlement Agreements on their behalf. 102.3. The Insolvency Practitioners were aware that this was FCIB’s understanding and did not suggest to FCIB that it was wrong. 103. On the basis of such understanding, induced by such representation, and to achieve the purpose referred to at paragraph 100, FCIB entered into the IP Settlement Agreements. 103.1. Pursuant to section SECOND (1) of the IP Settlement Agreements, the parties agreed to: [see section N above]. 103.2. Pursuant to section NINTH of the IP Settlement Agreements, the parties agreed that the IP Settlement Agreements would be governed by Curaçao law and that the parties would submit to the jurisdiction of the Curaçao Court. 103.3. Pursuant to section FIRST (5) of the IP Settlement Agreements, the Insolvency Practitioners warranted to FCIB that they had included all parties for whom they were acting in the lists attached to the IP Settlement Agreements (see section FIRST (5) IP Settlement Agreements).”
“1. Unless otherwise provided for in this Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur. 2. However, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply. 3. Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question.”
“1. The law applicable to a non-contractual obligation arising out of dealings prior to the conclusion of a contract, regardless of whether the contract was actually concluded or not, shall be the law that applies to the contract or that would have been applicable to it had it been entered into.”
“1. Construction and interpretation of the IP Settlement Agreements i. The 'limiting function of reasonableness and fairness' Second, the so-called ‘limiting function of reasonableness and fairness’. The limiting function of reasonableness and fairness entails that a holder of a right (including a claim) is not, or is no longer, entitled to rely on a right or claim because that will be held unacceptable according to standards of reasonableness and fairness (Article 6:2 (2) and 6:248 (2) DCC) (BvdW 7.2.1; JB 85; RJT 123, 127-132). j. Precontractual duty to disclose The DSC holds under Curaçao law that already when parties start negotiations regarding a contract, a legal relationship will arise that is governed by reasonableness and fairness (Art. 6:2 (1) CCC) which entails other’s reasonable interests. The principles of reasonableness and fairness in the negotiating phase are also the general basis for a duty to disclose information to arise. The basic requirements to accept a duty to disclose information according to Curaçao and Dutch law are: (i) a party knew or ought to know the correct state of affairs, (ii) that party knew or ought to know that the relevant fact is relevant for the other party, (iii) that party must take into account that the other party is not aware of the correct state of affairs, and (iv) that party should in the given circumstances according to generally accepted views in society (in Dutch ‘verkeersopvattingen’) enlighten the other party. A duty to disclose entails the disclosure of the correct state of affairs as far as is relevant for the other party. He who neglects his obligation to disclose information regarding the (in his opinion) correct meaning of a term or clause may be bound by the interpretation that the other party reasonably could give to that term or clause (JB 57, 78; RJT 69-74).” “2. Forfeiture of rights (rechtsverwerking) a. Legal framework for forfeiture of rights in general The legal concept of forfeiture of rights is an application of the restrictive effect of reasonableness and fairness, laid down in articles 6:2(2) and 6:248(2) CCC (BvdW 7.2.2, JB 85, RJT 122). The concept of restrictive effect of reasonableness and fairness is discussed in general in par. 1(i) above. As forfeiture of rights is based on the restrictive effect of the reasonableness and fairness, a party can only forfeit its rights if this party acted in a manner that cannot be reconciled according to the standards of reasonableness and fairness with the subsequent enforcement of the right in question. The concept of forfeiture of rights must be applied restrictively and can only be applied if enforcement of the right in question is unacceptable (BvdW 7.2.2, 7.2.5, JB 87-89, RJT 122-123, 132, 139-142). b. Applications of forfeiture of rights In inter alia its Bab/Cordial judgment the DSC held that a mere lapse of time is in itself insufficient to reach the conclusion that the rights holder forfeited its rights. According to the DSC, inaction (stilzitten) on the part of the rights holder can only lead to forfeiture of rights if, based on the circumstances of the case, a certain action by the rights holder could reasonably have been expected (BvdW 7.2.5(a), JB 89, RJT 142, 145). Reliance on forfeiture requires special circumstances on the basis of which (i) the other party has a legitimate expectation that the rights holder will no longer pursue its right or (ii) the position of the other party would be unreasonably aggravated or disadvantaged if the rights holder were to enforce its right. If one of these grounds are fulfilled, the requirement of the existence of special circumstances to invoke forfeiture of rights is met (BvdW 7.2.3-7.2.4, JB 89, RJT 142-143). The question whether the aforementioned requirements have been met depends on all the circumstances of the case and is thus case-specific (BvdW 7.2.5-7.2.6).”
“Q. The suggestion made on the basis of a letter sent for and on behalf of Griffins. I'm just trying to understand your answer that this is a Mr Fatherly letter. Are you suggesting he was on a frolic of his own? A. To some extent, yes; but there are no claims against HMRC, so it doesn't sound like (indecipherable) me. I don't quite see what your point is, but that's a more Mr Fatherlyism than myself. So it's not the house style, no, is the answer to your question. Q. Right. You see in the fifth paragraph Griffins or Mr Fatherly, whoever it may be, they say: "We have, today, received a message from Curaçao that representatives of FCIB and the Central Bank are prepared to meet with Griffins for a confidential discussion on possible settlement." A. Yes. Q. And you must have known that Griffins was being invited to Curaçao to discuss settlement of all claims by companies represented by Griffins? A. No, or being, at its highest, we were going to meet with FCIB about our claims, including a global settlement as referred to in their letter in November. Q. And "our claims" for those purposes, that is the claims of the Griffins represented companies, all of them? A. Well, that wasn't our intention; and then, at the meeting, I think we clarified exactly what the scope of the meeting was. So the meeting was talks about talks, I suppose is probably the best way of describing it.”
“SJH said that Griffins there to settle. We had a meeting with HMRC and had spoken to lawyers for other IPs, and that we had been working out how to put in place a structure for a settlement. We did not intend going into the merits of the various claims and counter claims. CP said that was "perfect".”
“HMRC has contacted just Griffins to act on behalf of all the IPs in negotiating a settlement. HMRC want closure and have plans for an agreement involving the CPS as well. It may be that there are Dutch angles and international relations going on that we have not awareness of. There could be Russian money or terrorist money going through Curacao and we are a small cog in a very big wheel. Whatever the game is, we have been given a steer as to a percentage recovery and HMRC are taking a pragmatic view on the their recovery. HMRC want a bigger deal and settlement with all the IPs is a big part of that. You then have all the other IPs. They have their own WIP and reputations to guard and are at different levels of awareness of the bigger game and their own lack of knowledge. We should take note that the person with probably the most information is Richard Healey and he is advising his client to stay well away from us. GT did Softwarecore and so have some direct experience of the Dutch political angle. If you put this together then it seems that an individual IP doing a deal is of very little consequence and is of no help to HMRC. In the case of Griffins, we have fought to be at the forefront of the FCIB problem and we are known by HMRC, the other IPs and the lawyers as having achieved this. If we settle we get some cash and abandon HMRC and the other firms to start from scratch, incur costs and delays which harm HMRC. We gain some fees but lose all our political capital with HMRC and probably the group. There are many problems for Petersen. The IPs care about their money but can't do a deal blind. They never do it in normal cases and they will certainly not cut and run when they are in competition with other IPs. This is a practical example of the 'Prisoner's dilemma' game, where people will not act rationally even where it is in their interests to do so. They would rather go to court and lose than do a weak deal with this audience. Petersen is trying every variation on a very basic strategy of trying to dictate a range without offering to provide any verifiable proof of anything he says. If the bank can't pay out in full then all he has to do is get us to sign up to confidentiality agreements and show us the numbers. If that's too hard, show HMRC and their lawyers. If he doesn't, we will pack his bags for him as he is insulting our intelligence. On the other hand, if FCIB is solvent, what is this pantomime about???” “If Petersen plays the bigger card of the desirability of a deal to save the reputation of Curacao then he needs to read his own legislation. The Central Bank can absorb the assets and liabilities of FCIB and pay its debts in full now. It can collect the other assets over time and even make a profit. It has a balance sheet of over$1.6bn in net assets.” “I see my job tomorrow as making these points without making it appear as if he is losing face. He needs to understand that there is a trick to getting all these parties together and that is politics not litigation. If he misunderstands us then he is going to fail. If he is trying to pull a fast one he is going to fail. If he gets found out he is going to fail and we are going to carpet bomb is [sic] little crooked island and make sure everyone on that island knows that it was because he lied to do a deal. We are going to find out one day what the solvency position was during the 8 years and now and if he has lied we will come after him.”
“Q. Let's have a look at it. You say in the second sentence: "This is not a conventional negotiation where we can make a claim and settle for a good sum. It is all politics." And in the next paragraph you elaborate on that sentiment. Can I ask you to read the third paragraph, please. It's the one that begins: "HMRC has contacted just Griffins to act on behalf of all the IPs in negotiating a settlement." A. Yes. Q. And you don't mention in your trial witness statement, do you, that HMRC had contacted just Griffins to act on behalf of all the IPs in negotiating a settlement? A. I don't, no. Q. Because you are at pains in the witness statement to suggest that you were only negotiating for yourself? A. That's correct. Q. And that is a false account given to the court, is it not? A. No, this is a false document. Q. Sorry. It's a false document. It's your document, Mr Hunt. It's your e-mail. Were you lying to Mr Bramston in it? A. Yes. Q. Can you explain why you were lying to Mr Bramston. A. I have some sympathy for you in terms of this unusual document, but allow me to explain. It's sent, I believe, after a late night phone call from one of the other IPs or actually, I think, their lawyer, to complain to me about Mr Bramston's behaviour. Mr Bramston had a -- decided that he -- he came up with some scheme where he was going to settle, for a very small amount of money, his estates because it benefited him personally. And everyone was upset with Mr Bramston. so I knew that I had the meeting with Mr Bramston first thing in the morning. And this e-mail is essentially an exercise in gobbledygook. It's to discombobulate him so that he has no idea what I'm talking about. So the whole of it is performative. Tim was -- the way to stop Tim when he got a sort of tunnel vision was to overload him with facts, give him information that he couldn't cope with. So the whole of this stream is an exercise in nonsense, to be honest, to completely discombobulate him, so that when we went in the meeting first thing in the morning he didn't quite know what the lie of the land was. So it's a fairly extraordinary document. I'd completely forgotten it. It would have been in my partner filing sent items. It wasn't in the case file. So it was -- and it was -- it was a device between -- that I used to rein Tim in, I suppose, on behalf of all of the IPs who were complaining about his behaviour in the negotiations. So I accept it's a very unusual document. Q. And is this generally how partners at Griffins treat one another, discombobulating and so on? A. No, I mean, Tim did resign the following year; and he -- I had received a further complaint against him, so we put him on gardening leave, for the same reason. He was starting to sort of not make good decisions. So, without airing too much of his position, we -- that -- this was my attempt to rein him in, late at night, having received a phone call. I had completely forgotten the incident, to be honest, until I saw the document. But that's its function; so ... Q. And when you say Mr Bramston wasn't making good decisions, do you mean he was making decisions for his own personal benefit, rather than -- A. Exactly that. He seemed to be more interested in his fees and Griffins' fees, than he was in the interests of the creditors. So I took it very seriously. But I did it in a fairly unusual way because it was late at night; and I didn't want -- and there was a series of communications going on where Tim was talking to Mr Peterson and the other IPs were unhappy with Mr Bramston. Q. And you thought it would be enough to send him this two page e-mail to get him back on the straight and narrow? A. At that time of night, the purpose was simply I didn't know what conversations were happening in what context. So the idea was simply to send him a note that would confuse him; so he didn't quite know what the position was. And that, in my experience, was how you sort of stopped Tim. Tim would like to plan and understand strategies and bits of pieces. So giving him some strange information would cause him to pause; and that's how you sort of slowed him down. Q. I see. Mr Hunt, in fairness to you, I will be inviting his Lordship to conclude that the account you have just given of this e-mail is a false account and you know it to be false. I should give you the opportunity to comment on that. A. I accept it's an extraordinary document, but it's the sort of thing I do. I have sent one with a similar sort of intention in January this year, where it's sort of like a strategy to -- to ex -- to change or anchor a conversation a different way, for someone, the recipient, to react to, to create a different angle. So this -- this -- this is an extraordinary document but its intention is purely to -- to shock Tim into sort of reminding him that there's -- there's more than just simply fees involved in this case. Q. Where you said a moment ago that you've done the same sort of thing before, do you mean sending a document which you know contains lies? A. No. No, it's more -- as I say, it's more anchoring. So you are sending a -- an unconventional document -- I suppose an unconventional position -- so taking a position, in a particular way, to create the (indecipherable) in a particular direction. So I see it as a form of that. In this particular case, it was just simply a word soup of as many concepts -- there's a reference, I think, to game theory, I think in here. It is literally a dump of every word I could think of that Tim would just be confused by. Because Tim was a strategic thinker, but he would slow when he reached an obstacle; and that was the purpose of it. It's an extraordinary document, I accept.”
“Q. Okay. But we can see what Blake Lapthorn are doing here is making a very serious allegation here against FCIB? A. That's in 2014, where a −− there's a whole raft of events that would lead up to that. But essentially they're taking into account what was known up to that point, including the criminal conviction, essentially. Q. Perhaps, I think my Lord was interested in this and he asked you about −− asked about this a little while ago. But if it's not the material we've been looking at, I 'm struggling to see on what material this allegation is based. Perhaps it's not stated in the letter. A. My recollection of the letter is it's, along with the appointment of TWPS is one of the threads that we were looking at in terms of negotiations, could TWPS be used, could essential −− and yes, there's a letter in late August essentially putting claims to FCIB and whatever else was essentially putting claims to FCIB and whatever else was going on at the time. I can't remember. But the whole point was to state, at its highest, our suspicions that the defences by FCIB to paying the balances was not right in that they insisted that FCIB was a victim.”
“Transworld acted as an agent for an offshore company against who TC Catering has a number of claims. In July 2012 a Dutch criminal court handed down a decision which seems to suggest that Transworld was party to conduct which affects those claims although Transworld is not specifically named. The Liquidator wishes to appoint Stephen Hunt to attempt to recover records that belong to Transworld that may assist in establishing the relationship between the entities. This may gave rise to further claims against Transworld but without an investigation it is not possible to express a firm view.”
“Q. And do you see your proposed text begins: "Transworld acted as an agent for an offshore company against TC Catering has a number of claims." A. Yes. Q. And the offshore company you had in mind here was FCIB, wasn't it? A. Yes. Q. And the claims you had in mind in this first sentence, they were claims by TC Catering against FCIB, weren't they? A. Presumably. Q. And they would have been claims arising out of your suspicion that FCIB and TWPS were involved in MTIC fraud, wouldn't they? A. I don't know specifically, but that would be logical. Q. Well, what other claims would you have been contemplating here? A. Exactly (indecipherable ).”
“Creditors may included [sic] MTIC S213 Claims from Griffins Liquidators”; “Keep eye on intercompany claims although they are likely to pass through Transworld and on to officers. Transworld has no outside creditors beyond MTIC”; and “Blake Morgan will keep an additional eye on this. We anticipate other IP assistance will be available if required.”
“1) 75% already paid out; 2) protocol cleared and no monies paid out; 3) broader category where claims by the group of IPs pending or awaiting resolution, including protocol pending through to cases where claims just identified. This includes claims where there is English and overseas litigation not yet concluded. 4) everything else i.e. everyone else involved in mobile phone trading.” “SJH proposed that proceed on the basis that FCIB not in negative asset position otherwise would be in bankruptcy and proposed that FCIB pay all (1) and (2) + (3) in full, but that the content of (3) could be for further discussion. SJH said that he was aware some IPs had more (3) cases than Griffins, and that there may be special circumstances/commercial positions on each of those in (3)” “SJH said that the bank cannot benefit from the fraud. If the banks takes all the account balances, he questioned who gets the money? MW said that if you took the legal costs, the charges incurred by the bank, and the admin costs, that is close to the value of the total balances on the effected accounts. SJH suggested that we could issue against the banks and then stay. We would then wait to see if the cat (4) accounts brought a claim. C Potts then explained that the bank has its existing procedures and an ability not to pay out to companies involved in MTIC fraud. A discussion on Cayenne then ensued. TJB said the group of liquidators may hold useful data to assist the bank defeat cat (4) claims. TJB said that we do not know what their costs, or the account balances of the cat (4) claims [which FCIB would keep]. TJB said we were working on an assumption that cat (4) cases had enough in them to cover the bank's costs. If that was not the case we would re-consider the level of settlement to reflect the commercial reality.”
“88. At the meeting we discussed structures and ideas for how FCIB might pay out the account balances, and we came up with categories of accounts. I independently recall these being: (a) Category 1 – accounts where FCIB had already paid out 75% of the account balance, and there was the remaining 25% to be discussed/paid; (b) Category 2 – accounts where a request had been made for payment of the 75% under the Protocol but no payment had yet been made; (c) Category 3 – accounts that had been identified as being processed for payment in the future – i.e. a request was still to be made under the Protocol but the companies were in liquidation and IPs were appointed; and (d) Category 4 – all the other T&C accounts. 89. I recall us discussing how FCIB would deal with Category 4 claims if they wanted to achieve finality, as there were potentially thousands of accounts that would fall within this category. The category had been loosely anticipated in the HMRC meeting of September 2011 (referred to at paragraph 32) when it was explained to us that FCIB intended to pay out the balances of all remaining non-insolvent account holders. We proposed to FCIB that one solution would be to give me a list of all the account holders, and then I, along with the other IP's could work it out between us by winding up the companies and taking the appointments between us all, and recovering the FCIB balances. This would leave the legitimate non-fraudulent account holders. We explained a bit about the iBase software that we had, and how we could play a role in managing Category 4, if FCIB were prepared to share that information of accountholders with us. 90. FCIB said that they were not interested in dealing with Category 4, and did not want to accept the offer of help in exchange for the information. They said that they had their own strategy and had done their own 'data mining' for dealing with Category 4, so this was not a concern and the remainder of discussions focussed on Categories 1–3 only. My understanding was that FCIB had their own plan for finality and I (and the other IP's) were just a piece in that puzzle. That was the end of discussions regarding finality (in a global sense), as that would need to involve dealing with Category 4 and FCIB were clear they did not want our help in dealing with that.” with that.”
“Q. Yes. The point I understand you to be making is that the IP group could bring their claims, category 1, 2, 3, claims −− A. Yes. Q. −− they could be stayed. And then you would see whether the claims of everyone else, the category 4 cases, would be brought? A. I think that paragraph is saying −− it's not very long, but I −− but I think what that's saying is that if we identify balances then −− Q. If I can just stop you there. No mention of balances in this paragraph, is there? No. No, but we're only talking about balances. We would then wait to see if the category 4 accounts brought a claim. I think what we're trying to do is to attach to the balance in a some way. So imagine there was£1 million that wasn't in category 3. So Official Receiver in some way. So it seems to be a contemplation of attaching to a balance and then see effectively in the owner of the account then disputed it in some way. So we're trying to work out how −− how do you deal with the rest of the list and give them −− because of course what would happen is they would just sit there; they wouldn't be closed, they wouldn't be open. Someone could come along later and claim it. So we were trying to work out how to do it. And we suggested −− having first offered effectively forensics, we're then trying to say: maybe we could claim it in some way with their −− a bit like there's a Harvey attachment. So there's a Harvey attachment, same sort of thing. So register sort of a generic claim, maybe HMRC a claim in fraud and then see who claims. It was about trying to sort of ring−fence the balances and how that would work. Q. And the point I'm putting to you, Mr Hunt, let me try one more time, is that we have, on the one hand, the category 1, 2, 3 claims −− A. Yes. Q. −− which are claims of the IP group. Now we have category 4, which are the claims of everyone else. That's −− that's the distinction that you are drawing (overspeaking) −− A. (overspeaking) no, the category 4 was anything that's not in category 1, 2 and 3 (overspeaking) −− Q. So are you suggesting that there could be category 4 cases where the companies in question were represented by Griffins? A. No, I don't think we've contemplated that. I don't −− well, I'm trying to think. There was −− what we were contemplating −− so, for example, a −− an MTIC company with no balance, didn't have a claim to a balance, so we weren't thinking about −− it's surprising in hindsight, but neither side were talking about claims against FCIB in fraud. We just weren't in that space. We were trying to −− we were trying to resolve the emptying of the balances; that was the start, beginning, end of the negotiations. Not because of any artificial line; it's just why we were there and why the bank wanted to deal with its balance liabilities. I don't think the bank was thinking about claims at all. It didn't consider it had done anything wrong; and, therefore, it didn't need to worry about claims, to some extent.”
“Category 4 we see is "everything else ie everyone else"? A. Hmm, hmm. Q. And that means everyone who is not represented by a member of the IP group, doesn't it? A. No, we're talking about the cases. So it's easier to understand as the cases, because category 1, 2, 3 and 4 −− so 1 and 2 are the ones we've already got to −− an ability to recover. Category 3 are the ones that we're working on or we've identified, because I had identified in my head that if we go into settlement negotiations and have a full and final settlement, we're waiving the right to pursue any claims. So category 3 is there to preserve those claims that the IP group have got so they can continue to appoint and we can recover the money. And then the 4 is everything else. Q. Just focus on the words. So it's "everyone else"? A. It says "everything else". Q. "Everything else, ie everyone else". That's what it says? A. Yes. Q. And the point I'm putting to you is that what “everyone else" is for the purpose of this category is everyone who is not represented by an IP group member? A. So that is correct in terms of what the word says, but what's envisaged in relation to the IP −− I mean what became the IP settlement agreement is everything outside category 1 to 3. So, for example, if an IP is appointed over a company but it's not in category 1 to 3 then that will be in category 4. Q. And that explanation that you've just given, do we find any trace of that in the composite note? A. I think this is the composite note. Q. Yes, it is. What I want to know is if the explanation that you have just given about an IP group member being appointed and that being a category 4 case, is that explanation to be found in this composite note? A. I presume −− no, because we didn't −− Q. And it's not an explanation that you ever gave to FCIB, is it ? You never suggested, "I'm here to negotiate for the IP group, but some of my clients may have claims in category 4 and we're not settling those". You never said that, did you? A. The conversation was −− Q. Did you ever say that or not, Mr Potts? It's a straightforward question. A. No. I 'm so sorry. No.”
“MR PARKER: Could we possibly please pull up {DAY7/69:12} of this morning's transcript. It's a question, I think, that you'll find at line 12. You were being asked about the February 2014 meeting in Curaçao. A. Hmm, hmm. Q. And Mr Scott asked you a question -- sorry, at line 12. A. Yes. Q. "And your clients, for the purpose of this meeting, they were Mr Hunt and Mr Bramston, in their capacity as liquidators for companies that may have claims against the [claimant]?" MR SCOTT: I think that's the bank; I think it's a mistake on the transcript. It's claims against the bank. MR PARKER: Thank you. That may have claims against the bank. A. Hmm, hmm. Q. And you answered in the affirmative? A. Hmm, hmm. Q. Now, when Mr Scott was referring to "companies that may have claims against the bank", what sort of claims did you understand Mr Scott to be referring to? A. Balance claims. MR PARKER: Thank you.”
“Q. And you would have known that FCIB was looking to meet the liquidators in London with the objective of reaching an overall settlement agreement? A. That's what it says, yes. Q. You would have known that that was the case at the time −− A. Yes. Q. −− when you read these e−mails? A. Yes. Q. And you would have known that HMRC was putting Griffins forward to participate in that meeting, to discuss overall settlement agreement with FCIB? A. Yes. Q. So far as concerns the September meetings, presumably you attended those meetings? A. Yes. Q. Do you recall who else attended on the Griffins side? A. Mr Bramston certainly. Presumably Mr Fatherly. Q. Anyone else? A. Not that I can recall. Q. Do you recall whether anyone on your side took notes of the meetings? A. I don't recall if Mr Potts was, then Mr Potts would have taken his own notes; if Mr Fatherly was there, Mr Fatherly would take his own notes, but that's normally it. Q. And at the September meeting, there was no suggestion from the Griffins side, was there, that there were Griffins represented companies with claims against the bank, that you were not negotiating on their behalf? A. Sorry. Can you just repeat the question again? Q. Yes. There was no suggestion from your side, was there, that there were Griffins represented companies with claims against the bank but that you were not negotiating on their behalf? A. That's correct. Q. Can we go, please, to {F/2236/1}. This is an e−mail from Mr Potts to Mr Welten on2 September 2014 . And we see it is sent the day after a meeting the day before. Can you read the first paragraph, please. A. Yes. Q. And can you see that Mr Potts writes: "I am in a position to make a global offer in relation to all of the cases of Griffins, Baker Tilly, Kingston Smith and Chantrey Vellacott." A. Yes. Q. And, presumably, you would have seen and approved of this e−mail before it was sent? A. Not necessarily, but possibly. Q. Presumably you would have given instructions to Mr Potts to send this e−mail on behalf of Griffins? A. Broadly, yes. I mean, I'm not trying to make a point on it, but broadly, yes. Q. And there's no suggestion, is there, in this e−mail that the global offer being made in relation to all of the Griffins, Baker Tilly cases, and so on, somehow excludes Q. And there's no suggestion, is there, in this e−mail that the global offer being made in relation to all of the Griffins, Baker Tilly cases, and so on, somehow excludes companies that they represented with claims against the bank? A. That's correct.”
“Q. When the decision was taken in 2014 to have TWPS restored and a Griffins liquidator put in place −− A. Yes. Q. −− your side, the Griffins team and Mr Potts, you didn't inform FCIB about that decision, did you? A. That's correct. Q. And your side didn't inform FCIB about any Deed of Assignment, the petition to wind up and restore, any court order, your appointment as TWPS' liquidator −− none of that was disclosed prior to the IPSAs being entered into, was it? A. Only except by way of advertisement but not directly.”
“Q. Well, can we look at −− maybe we can go back to the agreement in {I/1/3}. And you see the middle of the page there, clause one, sub−clause (5)? A. Hmm, hmm. Q. "The Liquidator and the relevant Griffins Company Q. I'm saying clause 1 sub−clause (5) addresses that situation, doesn't it, by saying that the liquidator and the Griffins company represent and warrant that the list is correct? A. My Lord, I would love to say "yes" to this question, just to move on to the next topic, but I can't. It's −− you could say −− you could say that this warranty address −− could be read as certainly addressing this question, but it's not that easy. I 'm sorry to say that. Q. Well, you do need to answer the question, Professor Biemans, I put to you, because if you don't answer that question you can't then move on to the question of forfeiture of rights, can you? A. I think you can move on straight to the question of forfeiture of rights. If you work on the assumption that none of the parties listed on Exhibit A are not contract to the party then you can move on to that issue. Q. Staying with FCIB's complaint. FCIB says the list is incomplete. Yes? A. Yes. Q. Clause 1, sub−clause (5), on the wording −− I would put to you on the wording FCIB have agreed with the parties to the agreement that in that eventuality the warranty comes into play. And if the warranty comes into play FCIB can claim their losses on the companies on the list not bringing claims, can claim their losses from the Exhibit A companies? A. Okay. So if −− my Lord, if I understand the question correctly the question deals with who can be sued in the case that the list is incomplete. And I would say if you −− if you read the literal wording of this clause, it would be the liquidator and the relevant Griffins companies. Q. It ended up being a rather long question. I apologise for that. What I'm putting to you is clause 1, sub−clause (5) on its wording appears to assume that a company that's not on the list but should be can bring a claim against FCIB. A. So, my Lord, if I understand the question correctly, it says that if there's not a company on the list it should be able to bring a claim, right. And that would be the interpretation of this clause. I would say if you go for the interpretation of this clause you would need more than only this clause, so only on the face of it. It would be hard under Curaçao law to make that claim, but that could be a claim, yes. And it could also have been the reasonable expectation or an expectation of the −− of the liquidator entering into this agreement. Could have been. Yes. Q. I think we're all agreed the starting point −− the starting point under Curaçao law −− A. Yes. Q. −− is the literal meaning of the words of a clause? A. Yes. That's correct. Q. Yes. A. Yes. That's also in the report. Q. So what else could it mean other than if companies aren't on the list that might cause a loss to FCIB that the Exhibit A companies are liable for? A. One explanation of this contract and this clause could be that you say the liquidator hereby guarantees, in person, that all the companies that he can enter into a settlement agreement with FCIB are listed in this list, so so it's a full disclosure of all the companies that he's representing at the moment and that have to be entered into the settlement. Q. And if it isn ' t −− and if it isn't −− A. Hmm, hmm. Q. −− then FCIB can sue the Griffins −− the Exhibit A companies? A. FCIB would then also −− but that's my −− my reading of the contract also sue the liquidator for withholding all these names in person. And that −− but that would also be Curaçao insolvency law. Q. So, despite it twice being said that the liquidator is only contracting in his capacity as agent of the companies −− A. Hmm, hmm. Yes. Q. −− nonetheless you are saying he assumes a personal liability? A. Yes, my Lord. And there's a two step reasoning for that. The first one is that, despite the contract saying that you act only as a liquidator in that capacity, some clauses could be read as that you have the personal guarantee, because who else can guarantee that all companies are on the list? I don't think the Griffins companies can guarantee that. And the liquidator, as being a representative of the Griffins companies, cannot guarantee that is all the companies because it presumes it is more than the companies that are listed in the Exhibit A. So that's one thing. There's another thing under Dutch −− under Curaçao insolvency law. Even if you act in your capacity as a liquidator, you can be held personally liable. And if you exclude your liability under Curaçao law, it’s only valid up to a certain point. So if you do things on purpose or there's gross negligence, it does not work. So that would be my answer. Q. But you would agree, would you, that under Curaçao law −− A. Hmm, hmm. Q. −− if the parties to the agreement have agreed that the claims of companies that should have been on the list remain and can be brought? A. Hmm, hmm. Q. That, in those circumstances, Q. That, in those circumstances, those claims can't be said to be forfeited? A. Oh, my Lord, if the question could be more specific then that would really help for me to say "yes" or "no", because forfeiture of rights is a very −− it's a very different principle; and then you need to take into account all the circumstances, as Bart van der Wiel also explained.”
“Q. Presumably you would agree that FCIB had a reasonable interest in knowing what you were up to in trying to have an affiliated company restored and you put in charge of it? A. I don't know if it was in their interests or not. Q. The question is: they would have had a reasonable interest in knowing that. Is your answer that they would or they would not? A. I don't know what their reasonable interest would be. Could you be more specific? It's a very straightforward, Mr Hunt. You seem reluctant to answer it. You were negotiating a settlement with the bank. In the course of that negotiation, you procured control of an affiliated company of the bank. I'm asking you: did the bank have a reasonable interest in knowing about that? Yes or no? A. No. Q. Why do you say "no", Mr Hunt? A. Because I don't think it was relevant to the negotiations that were going on at the time. Q. How was it irrelevant to the negotiation when the purpose of having TWPS restored was to shake the tree and find out whether there was something with which to leverage the negotiation? A. Because the tree had already been shaken, to use your phrase. And by the time events transpired and the appointment made, the negotiations were all but over. So −− Q. But the IPSAs hadn't been signed. A. Yes. Q. The IPSAs were signed in February of 2015. So you had ample time to tell them: by the way, I've been appointed a liquidator of one of your affiliated companies? A. Yes, but, as I said, sort of the majority of the reasoning in March/April 2014 looked like it was ending. So the appointment was becoming moot. If it had been signed, if the IPSAs had been signed then I'm not sure there would have necessarily been the purpose of the appointment. If it hadn't been started then I don't think we would have actually pursued it per se. But it's −− the idea or the circumstances in March changed in September when the negotiations became more live again. Q. Presumably, Mr Hunt −− MR JUSTICE LEECH: I'm not sure I understand that answer, Mr Hunt. Are you saying that it wouldn't have been necessary to restore TWPS to the Registry if the IPSAs had already been signed by that date? A. In 2014, I don't think it could be described as necessary at all, the entire exercise with Transworld. It was one of other −− several other ideas to try and advance negotiations. By the time −− I think the petition happens in August 2014, the −− the approach by FCIB to restart, essentially, negotiations or develop them a bit further happens at the end of that. So the petition is already running whilst the first week in September negotiations happen. So it's becoming sort of slightly redundant, the entire process, if we're going to do a deal. So we are effectively going through the motions of continuing with the expectation or hope that the IP settlements would be signed. So this is just happening on the same time line, but they're not related. So there's no −− there's no huge purpose −− well, the purpose in March is not really made good because other events have transpired in negotiations, if that makes sense.”