Fraud office goes into Barings

Bitter recriminations break out among crashed bank's bosses as Leeson vows to fight extradition
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The Independent Online
The Serious Fraud Office yesterday ignored a personal plea from Eddie George, the Governor of the Bank of England, and announced an investigation into the collapse of Barings. Mr George had telephoned George Staple, head of the SFO, asking him not to go public until the sale of the merchant bank had been concluded. Administrators are negotiating with the Dutch bank ING, and hope to finalise the purchase over the weekend.

The announcement came as bitter recriminations broke out among Barings directors. With executives now openly admitting inadequate controls enabled Nick Leeson to get away with the huge speculative trades that broke the bank, there is a witchhunt to find who bears main responsibility for this negligence.

In Frankfurt, a German High Court remanded the maverick trader in custody without bail to face extradition proceedings.

Leeson will now stay in jail in Germany until his return to Singapore for trial on charges of fraud and forgery is agreed or the extradition petition is thrown out of court. The proceedings could take up to four months. Three fraud squad investigators from Singapore's commercial affairs department arrived in Frankfurt yesterday with a provisional extradition request and an arrest warrant with the charges, covering 267 separate allegations.

According to the Frankfurt State Prosecutor, Hans-Hermann Eckert, the Frankfurt regional court decided that the warrant provided grounds to place Leeson in temporary "extradition custody" but requested additional evidence to support the charges of fraud and breach of trust. The court gave Singapore 40 days to present an official extradition petition and to firm up its case against Leeson. Leeson, who was said to be "feeling not so good" by his defence lawyer, was brought before a judge behind closed doors yesterday to listen to the charges against him for the first time. His lawyer, Eberhard Kempf, said he was calm and collected but "not quiet". Mr Kempf added that he planned to fight the extradition petition "no matter what kind of case was against him". He also said his client denied charges of forgery. A statement from the Singapore Embassy in Bonn on Thursday alleged that Leeson had "forged a certain document" confirming payment of about $81m "into a Citibank account in the name of Barings Futures" in Singapore. The alleged forgery was supposedly aimed at deceiving Baring Futures (Singapore) into believeing that this sum had been paid into the bank's account by an American company, which was untrue, the statement said.

Leeson was captured at Frankfurt airport on Thursday, drawing a dramatic week-long international manhunt to a close. Mr Kempf said Leeson and his wife Lisa, 23, had come to Frankfurt because "the flight he originally wanted to catch to London was full, so he had to go to Frankfurt instead". In Hoescht prison, where he is being held, Leeson has a bed, table and a radio and will be able to watch television in the building and wear his own clothes.

Yesterday's statement by the SFO said: "Allegations of fraud in Singapore relating to the activities of a trader employed by Barings bank have been made. The Serious Fraud Office, in conjunction with the City of London police, are investigating these allegations as far as they might relate to England." A senior detective has flown to Frankfurt, where Leeson is being detained while the Germans consider an extradition request from Singapore.

Barings accuses Leeson of using fictitious clients to conduct his massive derivatives speculation in Singapore and Japan, and of hiding losses in a secret account numbered 8888. In Chinese lore, 8 is a lucky number.

Although Leeson's alleged fraud was not conducted in the UK, the SFO has argued it has an interest because of the impact of Barings' failure on Britain. Sources indicated yesterday that the SFO's move, while on fragile legal grounds, may have been as much a tactical move to prevent a speedy extradition to Singapore, so that the case can be properly considered.

Inside Barings, the public facade of solidarity in crisis yesterday hid a growing storm of mutual recrimination and finger pointing. Peter Norris , the head of Barings Securities, under which Mr Leeson operated as a derivatives trader, and who is also a main board director, has assumed formal responsibility for the failure in controls that allowed the bank to collapse under undetected losses worth more than £600m.

But executives said an internal investigation was putting pressure on Ronald Baker, who was directly responsible in London for Mr Leeson. An internal audit last summer found a "significant general risk" in the Singapore operations, because Mr Leeson was unusually allowed both to deal and settle the accounts. But the recommended tightening of controls was never implemented.

Minister's fears, page 3

SFO inquiry, page 16

Breaking the bank, page 25