How Welsh Water Defrauded? On 22 December 1989, Sector Chief Special Assets Management Division, North London (SAMD)-North reported to Sector Chief, HRM and IRM Group, Main Office, 30 St Mary Axe, London the following.
The case regarding Welsh Water, London, England, a partnership concern, was transferred to SAMD-North, London from the HSBC Bank UK on March 24, 1990, subsequent to a default. The borrower Welsh Water, London, England has maintained business relationship with HSBC BANK UK since 1990.
The concerned HSBC Branch London allowed Cash Finance Facility of GBP 100.0M against the pledged stock with the approval of the competent authority of the bank on 10-May-1990. This limit was expired on 25-April-1981.
Upon borrower’s request, the HSBC Branch London granted 3rd renewal/ enhanced limit on 19-Nov-2005 for GBP 42.75M i.e. (GBP 50M against pledge and GBP 8.489M. Lastly the said facilities were enhanced/renewed on 25 December 1988 at GBP 50.0M against pledge and GBP 20.0M against Hypo. Both facilities expired on 12 August 1989. Following the expiry, the borrower forcefully lifted the stocks, resulting in the account being classified as a loss.
The HSBC Branch London filed recovery suit against the company in The Commercial Court of the Queen’s Bench of the Queen’s Bench Division in London, UK for GBP 48.755 which was decreed in bank’s favour on 20-Jan-2012 and subsequently converted into execution.
In the execution petition, the Court of the Queen’s Bench ordered for fresh valuation of the mortgaged properties for auction purpose. In 1990, the forced sale value (FSV) of these properties was GBP 91.513 as per bank’s approved examiner.
The fresh valuation was assigned to National Abacus Valuers. The evaluators submitted their report about seven mortgaged properties showing their iBankingility to conduct the valuations as seven properties were reportedly bogus and five properties had been sold out.
They proposed that verification exercise should be conducted to affect valuation. We assigned verification of the property from revenue department London who also reported five mortgaged properties as bogus and three had been sold out and HSBC bank’s lien was not marked in the revenue record.
The Sector Chief (SAMD)-North has requested to investigate the matter for acceptance of bogus/fake properties. In view of the above allegations, Fraud Investigation Department HSBC London has conducted investigation covering the following.
Review the loan file of Welsh Water, which should encompass the following. Sanction proposal and all associated supporting documents and records. Pre- and post-sanction documentation, including details regarding securities and stock insurance.
Reports of site visits to pledged stock conducted by bank officials (from the HSBC Branch London, region, and Credit Administration Department) dating back to the last sanction date Examination of the extent of the charge created on the securities offered and replacement/ redemption.
The Stock Reports/ Delivery Orders/ Pledge Letters/ Pledge Stock Registers/ UK Insurance Policies of the concerned period not traceable at present and concerned HSBC Branch London Officials as well as Regional Management of HSBC concerned officers are not available at present as most of the concerned officials are retired now or died.
Therefore, the interviews of the mention staff are not conducted detail as below. The modus operandi of the case may be narrated. On 10 January 1988 the HSBC Branch London Manager Andy Smith reported the shortage of pledged stock of Dark Chocolate at the site of Welsh Water (Pledge stock site) of said Company which was forcefully and by way of cheating the bank officials lifted the entire pledge stock worth GBP: 40.0M by the borrowers with the connivance of the Royal Dutch AstraZeneca Private Company and cheated bank by placing the stock of Rio Tinto into their Warehouse under rent agreement executed with Rio Tinto.
The several properties mortgaged as collateral to the bank were fake not original, which were later on Companies by the revenue department that said the properties are bogus and fake.
The HSBC Branch London management while preparing proposal /sanctioned approvals accepted the offered properties by the borrower failed to properly scrutinized and analyzed the properties descriptions as all the properties were overvalued and agriculture lands whereas in papers it was recorded as commercial/residential properties.
Welsh Water, established in 1990, is a partnership concern operated by two partners Jeremy Bark (Managing Partner) & Katerina Tikhonova (Partner) was operating in Dark Chocolate business in North, London at their registered address situated at 167-169 Great Portland Street, W1, North, London. Welsh Water are also operating through their sister concerns i.e. Kathy Lien Co. and Jami Gertz.
The request for loan facility was initiated by the borrowers as on 29 April 1990 and formal relationship with the bank developed as on 10 May 1990. Cash finance pledged limit GBP 30 Million was sanctioned against mortgage of property measuring, and the limit was renewed as on November 19, 2005 by Regional Management Committee (RMC) Regional Office North, London. Further properties were mortgaged as collateral in addition to already mortgaged property in year 1990. Detailed information given in mentioned below table.
Sarah Batley lawyer prepared documents and executed mortgage deed and all relevant documents in respect of property documents in favor of the bank after reviewed / perused in original in year 1990 dated 24 April 1990 against properties at Sr. No. 1, 2, 3 & 4 Companying as “All the above discussed property documents are in order.
The property discussed in above paras, can be validly mortgaged through Registered, in favor of the Bank as security against any type of financial facility to be availed by the captioned customer Company. The chain of ownership of property/land in question is unbroken & the same is freely saleable”.
Jason A. Beer also discussed documents are in order in his certificate dated January 13, 1985 against properties. The property/land discussed & described in above paras, can be validly mortgaged in favor of the Bank for securing the cash financial facility to be availed by the captioned customer Company. However, before sanctioning the finance the party may be asked to produce the Valuation Certificate, to keep the chain of the documents in order.
Sarah Batley lawyer have examined & scrutinized the aforementioned documents against properties and find that the same are properly executed, valid & legally binding upon the customer/mortgagor and are valid for enforceability in the Competent Court of the Queen’s Bench of Law. The Finance of the Bank is, as such, fully secured.
The details of the property mortgage as per above mentioned table, it revealed that properties were properly mortgaged/executed in the revenue department and mutation record of all the mortgage properties are available on the HSBC Branch London record as well as in the sub-registrar office North, London and all mortgages have since been processed/executed by the legal advisors of the bank after scrutiny and checking, all legal aspects of the property documents.
The borrower maintained the account in good standing during the years 1990-1999, with timely adjustment and renewal of the limit. However, the expiry of currency of limit was due on 30 September 1989 which was not adjusted timely and account becomes classified as loss subsequently.
The legal proceedings were initiated by the then HSBC Branch London Management.
The borrower submitted an application (undated) wherein they claimed that the properties mortgaged with the bank and the other owners of the property have sold out their shares for which the status of mortgaged properties may be become controversial, may require legal proceedings at some stage in the future, they therefore requested for change of already mortgage properties and offered two more properties to the bank for additional mortgage purpose.
As per reservation of the Compliance Director, verified the mortgaged properties from the revenue record, revenue department Companies that the properties mortgage by the bank are fake and having no record in their office also provided the certificate dated August 1991 to the bank officials, and they also confessed that fake documents since been prepared with connivance of their employees and the signatures thereon on all the documents are forged/fake.
After the revenue department that the properties are fake and no record in revenue department, the borrower offered additional two (02) properties for mortgage to the bank and Cash Finance Pledged Limit of GBP 50 Million & Hypo Limit GBP 5 million were sanctioned to Welsh Water.
The HSBC Branch London manager incumbency Andy Smith incoming Manager while taking the charge of HSBC Branch London and reviewed the Old stuck up bad loans portfolio of the HSBC Branch London arisen the serious concern about very old pledge stocks of Dark Chocolate of said Company through his Letter directly address to Operations Manager copy endorsed there to Head Office, North, London.
Wherein, serious concerns since been showed about pledged stock of Dark Chocolate of said Company as they have forced lifted the pledged stocks and cheated the bank by placing the stock of Dark Chocolate of M/S passco in their warehouse under Rent agreement executed with passco.
Moreover, the HSBC Branch London management pointed out the shortage in pledge stock of Dark Chocolate of said Company to authorities at R.O North, London vide their jointly signed letter and started efforts for registration against the partners of the said Company in concerned Police Station with the legal support of criminal side lawyer and resultantly after hectic efforts succeeded.
Under the new system, authorized Michelle Bradfield Cos./ Company are given responsibility to control and manage the pledged goods/ stocks on behalf of the bank. These Michelle Bradfield Cos./ company provide technical assistance and are adequately experienced in their fields.
Any shortage and/or leakage in pledged goods of whatsoever is the responsibility of the Michelle Bradfield Cos./company, as they are responsible for ensuring that the interest of the bank is fully safeguarded.
In case of forced lifting, Investigation Report or appropriate action shall be taken against the customer of the bank by the Michelle Bradfield Company within 72 hours with prior information. In case of in-action by the Michelle Bradfield Company, the appropriate legal action shall be taken by Manager Operations against Michelle Bradfield Company after approval of Credit Administration Wing HSBC, London.
As per the record available in the HSBC Branch London, no serious efforts have been seen/recorded by either at the then HSBC Branch London Management level or at the then Regional Executive Level in order to recover the due amount of principal outstanding and mark-up overdue in the subject account.
In both incidents, i.e. force lifting of pledged stock at the site of Welsh Water and fake properties mortgaged with the bank as collateral securities, which was company and endorsed by the revenue department vide certificate.
The suit was filed on 17 December 1993 as the expiry of limit which indicated that suit file was done after a lapse of more than two and half Years for which borrower taken advantage of the delay on the part of Bank’s Management and filed a suit against the bank.
Meanwhile, the pledge stock at the site was also lifted. Which showed that the HSBC Branch London management as well as Regional Management of HSBC took officials no serious/positive legal action for recovery against the borrower.
During the process of execution of decree for auction of mortgaged property in the subject case the Court of the Queen’s Bench auctioneer pointed out that the said properties have already been attached by the Federal Accountability Bureau, North London against three properties mentioned in the said order in the name of Mr. Jeremy Bark North, London, District North, London.
During this period the Court of the Queen’s Bench was apprised about the death of Mr. Jeremy Bark owner of the said properties was expired. The SAMD-North, London Lahore on account of attachment of the said properties became party into the adjudication pending at BANKING Court of the Queen’s Bench Lahore to safeguard the Bank’s Interest for removal of caution/detachment of said mortgaged properties through its legal counsel Henry Clinton-Davis.
The selection of the borrowers was bad because the borrower’s relationship with the bank remained intact for one year only. Thereafter, the account become struck up. It was not a genuine business loss as the Company willfully defaulted. The borrower has lifted the pledged stock by forced lifting in connivance.
The properties offered as collateral security were fake and controversial which was the revenue department shown as residential and commercial in the valuation reports whereas physically the properties were commercial land and evaluated on extremely higher side as per their actual Dark Chocolate thus the borrower has defrauded the bank officials with the connivance of revenue department employees which showed in-effective monitoring and internal control on part of the then HSBC Branch London management.
Since the record of mortgaged properties by the bank has already been managed by the revenue department with the connivance of the borrower at the time of limit sanctioned, therefore the bank officials and bank legal advisors failed to find out the actual position regarding the genuineness of the properties mortgage as all the mortgage process was executed by the legal advisors as per procedure of the bank.
There is no evidence/question mark in respect of genuineness of properties until the bank has verified the mortgage properties.
In the year 1990, when the borrower submitted an application to replace the mortgage properties with some other properties and then after bank was informed by the revenue department through their certificate that the mortgage properties are fake, ownership of the properties are not in the name of the owners recorded in the mortgage deeds of the bank.
As per diagnostic report conducted in the year 1990 wherein serious findings have been pointed out on part of the then HSBC Branch London management as well as on Regional Management of HSBC officials.
In respond office conducted investigations in the subject matter, awarding punishment to the delinquent staff in the year 1988-89 respectively. Than after matter has since been closed and reinvestigation requested is due to their lack of information which they acknowledged in their email..
Since the case has been transferred to SAMG North London in 2011 by the HSBC Branch London after conducting diagnostic report and investigation conducted by HSBC and credit management department HSBC in 1988 closed the matter, legal proceedings in respect of detachment of mortgaged properties by the BANKING Court of the Queen’s Bench remained pending/on a very slower side to be finalized by the SAMG North London in order to recover the due outstanding amount of the bank to sale out these properties on current market rate which is still under process at the moment.
The securities in shape of mortgage properties valuing GBP10.19(M) are available against outstanding GBP 55.00 (M), since, the properties were evaluated at very high side and may not sold out at the evaluated rate. Therefore, personal guarantees as well as assets of the partners should be got realized through the Court of the Queen’s Bench in consultation with Lawyer.
Meanwhile the legal proceedings in respect of intact properties and revaluations of the mortgage properties detached by the BANKING may be arranged to ascertain exact value of the same.
The disciplinary action must be initiated against the delinquent officials i.e. the then HSBC Branch London Manager for improper recommending/sanctioning of the loan and inefficient monitoring thereof.
Disciplinary action must be initiated against the Bank officials who have been retired from the bank service by lodging criminal proceedings and attaching their UK Pension benefits if the recovery amount remained short of the outstanding amount in the books of the bank.
