Some senior executives at Royal Bank of Scotland could face criminal charges in the United States over their dealings with the collapsed energy giant Enron.
Ben Glisan, a former treasurer at Enron who is now a key prosecution witness, has told a court in Houston, Texas, that he thought a deal between RBS and Enron had been fraudulent.
Among the deals he was involved in and which he now says were illegal was a series of transactions between 1999 and 2001 which involved a power plant in Teesside. It is alleged that RBS bought the plant temporarily from Enron and sold it back a few months later as agreed, inflating the profits of the Texas-based energy trader. Enron collapsed three years ago after it emerged that it had fabricated profits and hidden debts using off-balance sheet transactions.
A report by Neal Batson, an examiner appointed by the US Bankruptcy Court, claims that the people involved in the deal included Iain Robertson, currently chairman of corporate banking and financial markets (CBFM) and a board member of RBS; Johnny Cameron, chief executive of CBFM; Tom Hardy, head of project and export finance; and Iain Houston, director of structured finance at the British bank.
The fourth report by Mr Batson, who delved into the Enron collapse, America's worst financial scandal, singled out RBS along with Credit Suisse First Boston and the Toronto-Dominion Bank for condemnation. The report concluded that "RBS aided and abetted certain Enron officers in breaching their fiduciary duties."
The US government has drawn up a secret list of 114 unindicted co-conspirators in the collapse of Enron. A US judge ruled this month that the names of about half of the alleged co-conspirators could be made public, but it turned out that those names had already been released. It is not known if RBS executives are on the list, but the bank's role is being scrutinised by the US Department of Justice.
A spokeswoman for RBS said yesterday the bank was just one of 114 that are being investigated in the US. She said: "We continue to cooperate fully with the appropriate authorities investigating Enron. As this is a very complicated matter, involving a large number of banks and legal actions, it would be wholly inappropriate for us to comment on any detailed matters. Enron was well known for using complex structured finance transactions and the accounting treatment of these was the responsibility of Enron and its auditors. We do not accept any responsibility for the actions of those parties and we will defend these proceedings vigorously."
Mr Batson said RBS was fully aware of Enron's accounting of the transactions related to the Teesside power plant and agreed to verbal assurances from the energy company. He quoted an internal RBS memo as saying: "We are therefore looking to verbal undertakings (they cannot be formally documented for accounting reasons) from Enron" that it would repay the equity.
Under new legislation which came into force in January and was designed to speed up the extradition of suspected terrorists, Britons can be extradited to America more quickly than before. Under the act, US authorities are not required to present a prima facie case, while UK authorities must do so when seeking extraditions from the US.
Three British former NatWest bankers are awaiting a decision from the Home Office on whether they can be extradited to face charges over their alleged involvement in a £4m fraud linked to the collapse of Enron. In October, a UK district judge ruled that Gary Mulgrew, David Bermingham and Giles Darby should be extradited. The Home Secretary is expected to announce his decision in February.
Douglas McNabb, a US criminal defence lawyer who has given evidence on behalf of the trio, plans to open an office in London as he believes there will be a flood of extradition cases.
The first criminal conviction against financiers associated with Enron was secured last month when executives at Merrill Lynch were convicted of fraud charges over a transaction involving Nigerian barges.