FINANCIAL FRAUD: THE UBS-CANTRADE JERSEY BANK SCANDAL
(a paper submitted by Diego Martinez, Dominica - 25 November 1998)
THE EXTRAORDINARY STORY OF AN ON-GOING MULTI-YEAR FIGHT BY A SMALL GROUP
OF INVESTORS WHO
WERE DEFRAUDED OF THEIR MONEY IN THE OFFSHORE ISLAND OF JERSEY. THE FIGHT IS NOT JUST AGAINST
EUROPE'S BIGGEST BANK AND ONE OF THE WORLD'S BIGGEST AUDITING COMPANIES, BUT AGAINST THE
SWEEP-IT-UNDER THE CARPET, COVER-UP POLICIES OF JERSEY'S INCESTUOUS CITY HALL ELITE.
A DISHONEST BANK, AUDITOR & JERSEY GOVERNMENT
In 1988, 90 innocent investors placed their collective money and trust in a bank called Cantrade, a subsidiary of the huge triple-A rated Swiss UBS bank group, in the offshore island of Jersey in the Engish Channel. They trusted a British currency trader called Robert J. Young, highly recommended and touted by Cantrade bank as being honest, astute and profitable. They trusted the bank to monitor the trades and the 10% downside limit agreement between trader and trustee, and to report to the trustee any breaches or losses. They trusted Certificates issued by a Partner of one of the world's Big Six auditing firms Touche Ross (UK), now Deloitte & Touche, which confirmed the false multi-year performances of the trader as being consistently profitable from 1990 onwards. They trusted, too, the Jersey Island authorities who projected a mirage of their offshore haven as being a secure, well-regulated financial centre.
On all counts, the investors' trust was misplaced.
The investors lost almost all their money between 1988 and 1993. There were secret charges applied by the bank, shared with the fraudster Young, resulting in massive churning which was covered up by the bank, Young, the Touche partner and the Jersey government. The investors have been fighting to recover their money ever since, against overwhelming odds. The losses, originally over $17 million, have now, after some 10 years, compounded into a claim of approximately $90 million.
CANTRADE BANK GUILTY OF CRIMINAL CHARGES
The civil case has had to wait a long 5 years for the criminal case to be concluded, the handling of which by Jersey's Attorney General has been roundly criticised as a result of an extraordinary event: most of the criminal charges were unnecessarily time-barred or dropped altogether.
Cantrade finally pleaded guilty to 4 of 33 criminal charges in a mysterious out-of-court plea-bargain in 1998 which avoided their crimes from being exposed at public trial. The bank was fined a paltry £3 million (about US$5 million), the judge calling the bank's conduct "deplorable". Amazingly, only one bank employee was charged, and even those charges were dropped as part of Jersey's "deal" with the bank. This, in spite of the bank's own lawyers admitting that another bank officer (Jersey-born) had been involved in "corrupt arrangements" with the convicted fraudster Young (in 1998 Young was convicted of fraud and sentenced to 4.5 years in jail).
THE UBS - A DEPLORABLE BANK
(Holocaust, Illegal Shredding, Fraud and Corruption)
The UBS has recently been the subject of headline news concerning its
50-year theft of holocaust survivors' monies and the illegal shredding
of important holocaust-related documents.
For many years this bank proudly owned a series of front-companies called Edsaco, represented in Jersey and other offshore centres. In April 1996 London's Serious Fraud Squad raided Edsaco's offices. Late in 1997 Edsaco was sold to unknown investors and provided with the new name of Chiltern under the management of the ex-General Manager of the UBS in London.
According to Barron's (August 25th 1997), Edsaco "provided camouflage for people engaged in fraud and money-laundering." And that's just the tip of the iceberg: other newspaper reports (The Independent, Daily Telegraph, The Times, etc.) have painted a picture of Edsaco as a front for members of the Mafia and for people and governments involved in extortion, bribery, corruption, kidnapping and murder. It doesn't paint a pretty picture of UBS-Cantrade's activities and associations.
Against this background, UBS-Cantrade's fraud in Jersey may appear to be small potatoes: but they're not small to the defrauded investors. Here is a bank which regularly, over 5 years, helped themselves to $17 million of the investors' money but never reported any losses, or breaches of the 10% downside limit, to their client the trustee.
In July 1992 a junior Cantrade bank officer wrote a memo to top management, warning of the losses and raising concerns of the bank's responsibilities. The management ignored the warning. Instead, they (i) continued to cover up the fraud, (ii) appeared at investment conferences soliciting more business for Young to trade, (iii) continued to provide glowing references for their secret colleague Young and (iv) in August 1992 bought him a luxurious, million-dollar house. Cantrade had sponsored Young into Jersey, the Jersey authorities falling all over themselves to arrange the appropriate permits for work and residence without making the slightest effort to check the man's credentials.
WHAT ABOUT THE AUDITORS ?
The auditor in the scandal had a Partner named Alfred G. Williams. Williams was convicted in 1998 to a 1.5 year prison sentence for his role in the fraud. Williams claimed that Touche Ross had "audited" the false figures of convicted currency trader Young between 1990 and 1993. Williams had also issued signed Touche Ross certificates confirming profitable performances when there had only been huge losses.
In answer to a question at an investment conference in June 1993 "Does Touche Ross audit the Troy Trust Service ... and if so, how often" the Touche Ross Partner's reply was tape-recorded as follows:
"Yes it does. It audits the Troy results on a quarterly basis and I personally am in charge of auditing those results that are supplied to me from records which Rob (Young) keeps in Jersey. The results are allocated monthly with a formal audit which takes place on a quarterly basis and the information which is signed out and stamped by myself is formally audited and verified with third parties."
The fact that Touche continues to deny liability in the face of the
criminal conviction of its Partner and the rest of what can only be described
as overwhelming evidence, and refuses to offer any compensation, is unethical.
THE JERSEY GOVERNMENT COVER-UP OF FRAUD &
HOSTILITY TO DEFRAUDED INVESTORS
In September 1994, the defrauded investors and the plaintiffs wrote to the Jersey bank regulators, the Jersey Attorney General and other authorities, demanding an investigation into Cantrade bank and its connections with Young. The regulators inexplicably refused.
The real reasons for the government cover-up became clear when certain facts surfaced. First, the bank regulators were and are responsible for the promotion of Jersey's finance industry. Second, two of the bank regulators were connected to Cantrade but did not recuse themselves when the regulators flatly refused to investigate the bank: one was a former Director of the bank, and the other the senior partner of the law firm which advised the bank. Third, the bank regulators coincidentally provided Cantrade's parent, the Union Bank of Switzerland, with a branch licence in October 1994, bringing with it billions of dollars. Fourth, a bank regulator's File Note dated December 19th, 1994 recording their meeting to discuss the demands to investigate, stated that any such investigation of a "Swiss bank" was a "very serious matter", that it would "unavoidably become public knowledge", and that "this could be damaging to the Committee and the finance industry".
The Jersey government's actions, injustices and cover-up of fraud over the last 10 years are unethical, short-sighted and against the interests of the Jersey people. As one honest Jersey official put it (November 1997): "I find it simply extraordinary that a situation can have developed whereby members of the island's legislature, its Crown Officers, and civil servants are now seen to be, effectively, on the same side as the alleged criminals." and "the authorities are seen to be desperately doing all they can to defend a company and individuals who appear to have been engaged in long-term racketeering and large-scale fraud." and "It does not take a stroke of genius to recognize that certain politicians, civil servants and Crown Officers now have a strong common interest in seeing Cantrade completely exonerated."
JERSEY GOVERNMENT INVESTIGATED
As a result of 5 years of effort by investors and plaintiffs, the entire Jersey government has now been investigated by the UK government. However, the UK "Review" of Jersey's Financial Regulations completely ignores the lack of separation of powers between the judiciary, legislature and executive which inevitably lead to the corruption and conflicts of interest which permeate throughout Jersey.
One ethical Jersey official put his finger on the problem: "Jersey is - in all reality - little more than a single party state with no clear division between the judiciary and the legislature. The same narrow self-interested, ruling clique have governed the island, without any meaningful opposition, for more than a century. The Crown Officers and the huge majority of politicians and senior civil servants are drawn from this ruling elite. The result of such a lengthy and unchallenged monopoly of power is a body-politic which is intellectually and ethically bankrupt. Whenever they face a threat to their wafer-thin veneer of credibility they invariably close ranks ..."
The bank regulators, the Financial Services Commission - FSC - are of course loudly protesting their innocence to allegations of cover-up, corruption and incompetence.
JERSEY REGULATORS STILL TRYING TO WHITEWASH CANTRADE
After the results of the criminal trial, the FSC saw fit to issue a "Review" of Cantrade bank but their "conclusions" are as disappointing as they were predictable. They strenuously defended their position of refusing to investigate the bank in 1994 when requested to do so.
There was no sign of penitence for the plight of those whose monies had vanished in Jersey. There was no mention of the Cantrade-Young series of crimes or how to prevent them from occurring in the future: the secret charges, the churning, the sponsorship and support of the fraudster-trader, cover-up of the warnings of a fraud-in-process by an honest junior bank officer, or the suspicious antics of the Attorney General. Instead, the Jersey Regulators have attempted to exonerate themselves and whitewash Cantrade's crimes by claiming that the criminal fine was adequate punishment: to add insult to injury, they even mimicked Cantrade's deception by claiming that the bank had "offered all investors full recompense" - nothing is further from the truth.
THE INVESTORS - ANGRY, DETERMINED
The investors, the majority of whom are American, are angry. They have been deprived of their money for some 10 years. They are expressing their anger through the internet and by writing to their Congressmen, Senators, and Financial Officials of US States and cities, notifying them of the unethical, immoral and dishonest treatment they have received at the hands of UBS-Cantrade, Touche Ross and the Jersey "government".
INTERNATIONAL TV NETWORKS AND THE PRESS ARE LOOKING FORWARD
TO THE CIVIL TRIAL
It was bad enough for the plaintiffs and investors to have to take on one of the largest banks, and one of the largest auditing partnerships, in the world. But to be forced as well to take on Jersey's hostile government and dishonest regulators amounted to having to fight City Hall itself. The odds looked insuperable 5 years' ago.
The story is one of massive fraud, cover-up and intrigue at the highest levels. Overwhelming evidence, the free press, and dogged persistence have now turned the tide. The civil trial will finally expose many of the on-going, unhealthy aspects of Jersey's financial, regulatory, government and judicial structures; and expose the multi-year premeditated fraud perpetrated by a deplorable bank subsidiary of the Swiss UBS.