Fraud saga acts as a costly lesson for all financial regulators
It may seem like a stretch but there is a direct correlation between the AIB annual general meeting in 2001 and the conviction of fraudsters Achilleas Kallakis and Alexander Williams in the Southwark Crown Court yesterday.
Twelve years ago the country’s biggest bank had its annual gathering in the RDS. The shareholders were restive. They lacerated the management team for letting the arriviste Anglo Irish Bank eat its lunch. The latter’s profits were surging on the back of runaway property lending.
After the very public dressing down, AIB chief executive Michael Buckley and his fellow senior executives, decided on a change of tack — one that would prove fatal. They might have come to the party late, but there was a lot of money to be made from the gravity-defying property markets and the Ballsbridge-headquartered bank intended to cash in.
Of course the drawback of playing catch-up is that it encourages a much greater risk-taking culture. Nothing else could explain the credulity-defying events that led to Kallakis and Williams receiving prison sentences of seven and five years respectively.
Handing down the sentences, Judge Andrew Goymer said: “AIB and Bank of Scotland have undoubtedly acted carelessly and imprudently by failing to make full inquiries before advancing the money. Indeed the latter bank was given clear and precise warnings by its lawyers about the risks of accepting assurances in a letter from an alleged co-conspirator, a Swiss lawyer.
“It almost beggars belief senior management chose to disregard that warning and rushed to complete the deal at all costs. It is apparent from the evidence both the defendants took full advantage of the prevailing banking culture in which corners are cut, and checks on them superficial and cursory. The banks do bear some degree of responsibility for what happened.”
AIB declined to comment on the verdict.
The obvious question is how could AIB advance so much money to one source without doing proper due diligence? It points to completely inadequate risk management controls in place at the time.
One senior banking source said that when the cracks started to appear in the financial system in 2007, Anglo Irish Bank and AIB were still very active in London at the same time that other banks were rowing back significantly on their lending operations.
The two fraudsters’ elaborate ruse was finally rumbled when AIB tried to sell on one of their loans to the German bank Helaba. Helaba did a few cursory background checks and found out that the pair’s property empire was built on a tissue of lies.
Kallakis and Williams, or Stephan Kollakis and Martin Lewis, to give them their real names, had created a web of several opaque offshore companies to guarantee AIB loans. Not that along the way AIB London executives shouldn’t have picked up on a few clues that all might not be what it seemed.
Kallakis claimed the Hong Kong investment firm Sun Hung Kai Properties was guaranteeing one of the loans, however, if anybody from AIB contacted the firm then the guarantee would become null and void.
Lured by the promise of spectacular returns from a pair of snakeoil salesmen, the Irish bank could not help itself.
AIB won’t comment on what lessons it has learned from this saga, but presumably it has beefed up its due diligence procedures. The level of exposure to any one lender is another painful lesson to be learned. How to spot irrational behaviour fuelled by a completely unsustainable asset bubble is a lesson not just for AIB management, but also financial regulators in Ireland, the UK, the eurozone and across every Western economy.
Posted on January 18, 2013, in buisiness, Crime, Government, Ireland, UK and tagged AIB, Alexander Williams, Allied Irish Bank, Bank of Scotland, Banks, Kallakis, London, Southwark Crown Court, Sun Hung Kai Properties. Bookmark the permalink. Leave a comment.