This article appears in International Banker and discusses an interesting case of fraud perpetrated by the CEO of a company involving payments made at his request and executed by the securities company where the accounts were held. The twist is that the securities company was eventually (10 years later) held liable for executing these payments and made to pay back the money (along with interest, etc.) to the company whose CEO was the fraudster.
‘In the summer of 2009, the London brokerage arm of Japanese banking group Daiwa Securities Group Inc. received instructions from its client Singularis Holdings Limited to make a series of payments to various companies in the Saad Group, to which Singularis was affiliated. The instructions were provided in accordance with established procedures and originated from Singularis’s chairman, Maan Al-Sanea. Daiwa’s compliance team raised certain enquiries concerning the instructions and received assurances and documentation in support from Singularis. Daiwa’s in-house legal function provided advice on the situation. Senior management in London and Tokyo were kept informed.
After the payments were made, it transpired that this was an asset-stripping exercise orchestrated by Mr. Al-Sanea. Daiwa had inadvertently facilitated this scheme. Singularis subsequently entered insolvent liquidation, and in 2014, the company’s liquidators commenced proceedings against Daiwa. In October 2019, the Supreme Court of the United Kingdom held Daiwa liable for negligently facilitating the misappropriation of funds out of Singularis’s account. Including interest and costs, Daiwa was ordered to pay Singularis in excess of US$200 million.’
The author is a partner at a NYC-based law firm with offices in London and elsewhere and the case was adjudicated in the U.K., eventually making it all the way to the Supreme Court. So what would seem like a real head scratcher in terms of a final ruling is further explained in the detailed posting. What it came down to was the interpretation of a specialized legal standard in the U.K. called ‘duty of care’.
There is some equivalent standard in U.S. tort law as well, although we are not qualified to discuss it. Therefore, we recommend taking the five minute to read through this detailed analysis to understand a bit more about what FIs need to do in order to protect themselves from this situation and similar ones.
‘It will not necessarily be enough for a bank to show that it has appropriate compliance procedures in place, or even that those procedures were followed correctly. The central question will always be whether the bank behaved according to the standard of an ordinary, prudent banker.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
