A number of senior executives at Barings Bank may face prosecution as a result of evidence given by the the former futures trader Nick Leeson in return for lenient treatment.
"The bosses knew something was amiss but took no action," Leeson's lawyer, John Koh, told the court in Singapore yesterday. He said Leeson's immediate bosses, Simon Jones and James Bax, were aware of the fact that Leeson was hiding the extent of his trading losses from Coopers and Lybrand, Barings' auditors, as were many senior executives in London.
Mr Jones and Mr Bax remain in Singapore, where their passports are held by the authorities. Both men have been closely questioned by the financial crimes unit which is investigating the Barings collapse.
However, the most severe criticism in the Singaporean inspectors' report on the collapse is reserved for Peter Norris, the former chief executive officer of the Baring Investment Bank Group, who may face extradition from London.
In the ruthless free market of financial trading, Barings' competitors punished the bank for its negligible controls and left Leeson with the responsibility of appearing before the court to determine his punishment, Mr Koh said.
Leeson has no reason to protect those who left him with this responsibility. It is clear that he will tell the authorities everything he knows about their role in unlawful activity at Barings.
Singapore needs his evidence because, as the independent inspectors' report - commissioned by the minister of finance - shows, there was little co-operation with either the Bank of England or senior Barings executives outside Singapore.
Leeson can fill in some of the gaps and be a witness with direct knowledge of events. This knowledge is the key to the bargain he has struck with the authorities in return for a reduced punishment.
Less important, but crucial, have been his lawyer's many references to Leeson's regret over having cast doubt on the impartiality of Singapore's legal system. The government is determined to ensure that the Barings fall-out does not damage the credibility of the island state as an international financial centre. Part of that credibility depends on trust in the legal system.
Even though Leeson has negotiated a deal for himself, it is clear that he was involved in criminal acts which went beyond simple financial manipulation.
Lawrence Ang, who led the prosecution's case in the trial, described in detail some of the ingenious ways in which Leeson hid the extent of his losses and managed to trick Barings' auditors into believing that his losses did not exist.
At the end of January 1995, Leeson was having trouble explaining the loss of 7.8bn yen (pounds 50m), which he had tried to disguise by alleging that an American customer would be paying this sum back to Barings.
However, there was no customer and there was no more cash (although Leeson forged letters from the customer stating that the cash would be paid). As the auditors closed in, he devised a plan to transfer the missing money from one Barings bank account to another, before swiftly moving it back to the account to which it belonged.
The purpose of this subterfuge was to obtain documentary evidence that the alleged debt had been repaid. However, the statement which showed the payment, also showed the transfer, so Leeson set about cutting and pasting the bank statement to remove references to the transfer.
The cut and pasted statement was then photocopied and passed on to the auditors. The original collage was found in Leeson's desk.
Meanwhile Leeson had identified the weak link in the reporting system of the Singapore International Monetary Exchange (Simex), which required futures traders to maintain a reserve account with the exchange to protect the exchange against default. He saw that it was possible to key a false trade into the exchange's computer, which had no means of knowing whether it had actually been transacted. Once this was done the false Barings client's account making the loss could be said to be in balance, therefore allowing Barings to recover almost $115m (pounds 75m) of its money held as security with Simex at a time when it was falling into deeper and deeper debt.
As for Leeson himself, he too is in debt, according to Mr Koh. He now has no assets, only liabilities. The proceeds from his forthcoming book will go to the lawyers in Britain, Germany and Singapore, as well as his agent and ghost writer.
Mr Koh said Leeson made no profit from his reckless unauthorised trading, he was simply trying to cover up losses.Reuse content