The implications for intermediaries in handling (innocently or otherwise) the proceeds of corruption
| DOI | https://doi.org/10.1108/13590790310808637 |
| Pages | 91-93 |
| Date | 01 January 2003 |
| Published date | 01 January 2003 |
| Author | Michael Tugendhat |
| Subject Matter | Accounting & finance |
The Implications for Intermediaries in Handling
(Innocently or Otherwise) the Proceeds of Corruption
Michael Tugendhat
INTRODUCTION
The Kuwait Investment Oce (KIO) had a number
of subsidiaries. Grupo Torras SA (GT) was one. It
operated in Spain. THL was an English subsidiary
of GT. It was formed to enable loan capital to be
raised outside Spain. It was the victim of a very
large fraud carried out by its own directors. This
occurred at the time of the Gulf War, when
Kuwait needed its vast ®nancial resources, and
when everything was in a state of crisis. There were
over 50 defendants in the civil claim brought by
GT in England to recover the proceeds of the
frauds (Grupo Torras SA v Al-Sabah, Court of
Appeal, 2nd November, 2000). That is not
uncommon in cases of large-scale fraud.
The cases of two of the defendants provide good
illustrations of the circumstances in which interme-
diaries can be held liable for involvement in such
frauds. One of the defendants, SK, was held not
liable. The other, F, was held liable. SK became
Deputy General Manager at the age of about 35,
at the time the frauds occurred. F was a Spanish
lawyer who was retained by the KIO and its subsi-
diaries shortly before the frauds commenced. He
provided his services as a lawyer in respect of
many transactions, including those that were frau-
dulent. Although he was not a party to the fraudu-
lent conspiracy of the directors, he was held liable
for the frauds, as a result of the assistance that he
gave.
There were several separate fraudulent transac-
tions. In general terms, the frauds were carried out
by causing GT and THL to make large payments
to shell companies. The payments were disguised as
loans to the shell companies. In fact the directors of
the two companies never intended that the loans be
repaid. Instead the money found its way to accounts
in Switzerland, which were in eect bank accounts of
the directors themselves. Setting up the scheme, and
the shell companies, required the services of skilled
lawyers, and that is what F provided. He was not
himself a conspirator, because he did not know that
the money was not intended to be repaid. Explana-
tions for what had happened included what were
said to be Spanish business practices involving `com-
plimentary payments' to oshore entities.
THE CASE OF SK
SK personally received $20m from these so-called
loans. Out of this he later made payments to F and
another person of $2m each. In relation to the two
payments of $2m, the case against SK was as an inter-
mediary. It was said that he had dishonestly assisted in
the misappropriation of GT's assets. In relation to the
balance of the $20m he had received, the case against
him was that he was a participant in the conspiracy to
defraud. On both counts, the question of whether or
not he was liable for the fraud depended on whether
the court found him to be dishonest.
The explanation SK gave for these transactions was
this. Originally he said that one of the directors of GT
had invited him to join a small consortium to partici-
pate in the management buy-out of a Spanish com-
pany. The idea was to acquire the company and sell
it on to a multinational company. SK was invited
to put up $2m of capital for the purchase. SK said
he was later told that the buy-out had taken place,
that his capital investment had not been needed, but
that his share of the pro®ts of the buy out and
resale of the company was $20m. This was his share
of the total gain of $300m. SK said that he did not
know that the $20m had actually come from GT,
the company for which he worked. As to the pay-
ments of $2m each, which he had made to F and
the other person, SK said that he was told that these
were loans to them. SK said the directors told him
that he should make the loans because of the help
these people had given.
In the litigation GT claimed that this explanation
was incredible. GT said that the reason for the pay-
ment of the $20m to SK was to ensure his cooperation
and silence over the fraudulent misappropriation of
GT's assets. By the time of the trial SK accepted
that there had been a fraud, not a management
buy-out as he ®rst thought. So the explanation for
the payment of $20m to himself that he gave at the
trial was that the money was paid to secure a hold
Page 91
Journal of Financial Crime Ð Vol. 10 No. 1
Journal of Financial Crime
Vol.10, No. 1, 2002, pp. 91 ±93
#HenryStewart Publications
ISSN 1359-0790
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