The self-confessed mastermind behind a collapsed UK steel trading group’s US$150mn trade finance fraud has been handed a jail sentence of six and a half years for directing a “substantial, sophisticated and lengthy” scheme.
A Southwark Crown Court judge today found Nasser Alaghband, 62, the chief executive of the Balli group of companies at the time of their collapse in 2013, was the “principal orchestrator” of a fraud against banks including Bank ABC, DBS, KBC, Rabobank and The Economy Bank.
Balli Steel’s former treasury chief Melis Erda, 56, was sentenced to three years and 10 months in prison while Balli’s former head of operations in the Middle East, Louise Worsell, 68, was given a sentence of three years and one month. All will be eligible for release under licence halfway through their sentences.
Alaghband pleaded guilty in June last year to one count of fraudulent trading while Erda and Worsell were convicted in February, following a five-month trial, of multiple counts of conspiracy to defraud the five lenders, who were owed around US$150mn when the company went into administration. A further 18 banks and other creditors copped losses of some £350mn, almost none of which were recovered.
The trial heard how after decades of profitable trading, Balli began telling “increasingly egregious” lies to its banks in mid-2012 as it tried to fill a growing black hole in its books and began resorting to concocting fake trades.
At the direction of Alaghband, the company falsified transaction and shipping documents, and financial information to entice banks to open letters of credit (LC) for steel trades.
In many cases, no steel was being traded and the purported sellers, including the UAE’s Conares and China’s Tewoo, simply rerouted LC proceeds back to Balli for a small fee, prosecutors representing the Serious Fraud Office (SFO) told the court.
In other cases, steel was being traded, but when customers paid for the goods Balli used the funds to pay down other debts and falsely told banks chasing LC repayments that they had not yet received the money.
Justice Michael Hopmeier described the fraud as “very substantial, sophisticated and lengthy”. Addressing Alaghband, the judge said: “You acted thoroughly dishonestly for well over a year, you are responsible for a deliberate, sophisticated fraud.”
The judge said Erda “chose knowingly and willingly to materially assist Mr Alaghband in executing an important part of the continuing defraud and deception on the trade finance banks over a period in excess of about a year”.
Erda is an “intelligent woman and in my judgement knew exactly what she was doing”, he said, but found she played a “significant” but not a “leading” role in the fraud, as the SFO had argued.
There was “clear blue water” between Worsell’s offending and that of Erda and then Alaghband, the judge said, but added that he was “entirely satisfied that [Worsell] knew full well what she was doing and was lending her support to a long and sophisticated fraud on the trade finance banks”.
Banks are not “victimless”, the judge said. “Whatever the turnover of a bank, whatever its balance sheet, a fraud of this nature causing a bank to lose millions of pounds may plainly cause real damage, not merely to the bank but to ordinary men and women who hold their savings in the bank as well as employees of the bank, should the bank fail.”
The company purported to use a Cayman Islands-based shipping company, Trans Ocean Navigation (TON) for the majority of its trades. Balli gave the impression to banks that TON was independent but it was in fact controlled by Balli employees in London, who thwarted attempts by lenders to independently contact the shipping firm, telling them it was only reachable by fax.
SFO director general Lisa Osofsky said in a statement following the sentencing: “Using a Cayman Islands address, a fax machine, and a stream of blatant lies, these three individuals plied their criminal trade to defraud banks out of half a billion dollars. The information we gathered from 36 different countries means today, the law has finally caught up with them.”
Lawyers for Alaghband and Erda had argued for reduced sentences because the fraud was chiefly perpetrated in order to keep the company afloat rather than for personal enrichment.
Although in Alaghband’s case some funds from TON’s accounts were used to pay for school fees and hotel stays, the court heard Erda and Worsell’s only financial gains from the fraud were their salaries.
Erda told the court in January that she was diagnosed with a major illness in mid-2012, for which she is now in remission. Worsell and her husband have also suffered from “significant” health setbacks, the judge said.
Alabghand’s barrister told the court on April 3 that “he has at no stage sought to shirk his responsibility in this case” and accepts that “he put this fraud into action” but asked the court to consider that he did not consciously seek to exploit Erda and Worsell to assist him in the fraud or to “take a profit for himself”.
When Balli went into liquidation in February 2013, Bank ABC was owed £9.8mn, DBS £70.3mn, KBC £21.4mn, Rabobank £12.7mn, The Economy Bank £10.7mn and Chinese trader Tewoo was owed £24mn under trades in which they had no security despite promises from Balli that they did.
SFO prosecutor Jane Bewsey told the hearing that both KBC and Rabobank grew wary of Balli’s financial health during 2012 and the latter had suspicions about its relationship with TON.
During the trial the court heard that even after Deloitte was appointed as financial advisors in late 2012 as Balli’s financial woes deepened, the company still sought and obtained trade finance facilities from new lenders, such as ABN Amro.
Justice Hopmeier said that the company raised some US$22mn in new trade finance lines during the period it was “clearly insolvent”.
A hearing in confiscation proceedings against the three defendants has been set for December.