Texan jail awaits bankers accused of £11m fraud

Click to follow
The Independent Online

The Houston Federal Detention Centre is a place where no visitor to Texas would choose to linger. But in less than 72 hours, three Britons will enter its forbidding walls as the unlikely pawns in a battle to define American power over British citizens.

Lawyers for the three former bankers known as the NatWest Three confirmed yesterday that the men will complete on Thursday their fast-track extradition to America to face charges relating to an £11m fraud involving the collapsed US giant Enron.

On the same day, the Home Secretary will dispatch a minister to Washington to try save the British Government from further humiliation by persuading US senators to drop their opposition to a reciprocal US-UK extradition treaty.

For the US authorities, the removal of David Bermingham, Gary Mulgrew and Giles Darby to Houston will be hailed as proof that those accused of white-collar crime will find no shelter in the beefed-up world of transatlantic justice.

Mr Bermingham, 43, a former soldier, said: "We are going to be put on a plane on Thursday morning, there will be US marshals on the plane. We believe we are going to be flown direct to Houston and on arrival there we will be issued with our orange boiler suits, our foot chains and our hand chains and, if we are unable to secure bail, which is increasingly likely at the moment, then we are going to go straight to the federal penitentiary."

Their incarceration will provoke dismay and allegations of foul play from a formidable array of British critics of the 2003 Extradition Act.

From captains of British industry to the human rights watchdog Liberty, opponents of the extradition treaty, designed to speed up the exchange of terrorism suspects, are now calling for its immediate suspension and renegotiation.

The treaty, which grants prosecutors the right to demand the extradition of citizens from each country without presenting prima facie evidence, has not been ratified by the US Senate.

The men are accused of executing a complex fraud in 2000 by selling the stake of NatWest in an Enron debt vehicle for less than its true worth and then buying it back at a profit of £4.2m. City sources have said that they were at best foolish for becoming entangled in the deal, which involved an off-shore company registered in the Cayman Islands.

It emerged yesterday that the Home Secretary, John Reid, will send Baroness Scotland of Asthal to Washington on Thursday to try to persuade senators to drop their opposition to a US-UK extradition treaty. In an attempt to separate their case from diplomatic horse-trading, she insisted that the men would have been extradited with the same amount of evidence under the rules that existed before the 2003 Act.

Margaret Beckett, the Foreign Secretary, yesterday put her weight behind efforts to persuade the US to ratify the treaty. Ms Beckett, who is currently on her first visit to the US in her new job, told reporters: " I understand and accept that the treaty may not be a top US priority, but I will make the case that the affair is causing increasing difficulty for the Government at home."

But the Government's embarrassment could be increased today if the House of Lords votes for a Liberal Democrat amendment that would see a return to the pre-2003 arrangement, compelling the US to produce evidence before British citizens can be extradited.

"The Government ...should never have agreed to abolish the need for evidence to be produced when the American government seeks extradition, while still leaving it necessary for evidence to be produced when extraditing the other way," said the Liberal Democrat shadow Lord Chancellor, Lord Goodhart.

The men's lawyer, Mark Spragg, said it was likely that the NatWest Three would have to raise a bail bond of $1m (£540,000) and offer their homes as security to avoid a lengthy incarceration. And that is before they have begun to meet individual legal bills of $2m (£1.2m).

The US indictment

By Julia Kollewe

The fraud accusations against the NatWest Three bankers are vastly complicated and have even confused the judges presiding over their extradition hearings.

This is what the US indictment alleges: During the late Nineties Enron hid billions of dollars of liabilities in a series of offshore vehicles. One of these vehicles was LJM Cayman, a partnership registered in the Cayman Islands that was run by Enron's finance chief Andrew Fastow and Michael Kopper.

Led by the NatWest Three, the UK bank's investment banking division, Greenwich NatWest (GNW), and the Wall Street investment bank CSFB invested $7.5m each in LJM Cayman in the spring of 1999. In June, LJM Cayman created a subsidiary known as LJM Swap Sub as part of a hedging effort to reduce the risks to Enron of an investment in an internet start-up, Rhythms Net. GNW and CSFB both invested in Swap Sub.

Because of Swap Sub's potential liability on Rhythms Net, GNW internally valued its Swap Sub interest at zero. In the autumn of 1999, NatWest was fighting two hostile takeover bids - the first came from Bank of Scotland which was then trumped by a rival offer from Royal Bank of Scotland. Each bank indicated it would sell all or parts of GNW if its takeover effort succeeded.

It was then that the three bankers persuaded NatWest to sell its Swap Sub stake for $1m even though they realised that it was actually worth a lot more. The trio then plotted with the Enron executives to skim for themselves the remaining interest. The GNW stake was sold in the spring of 2000 to Southampton, a partnership created by Mr Fastow and Mr Kopper.

The NatWest Three negotiated with Mr Kopper to give them an option to buy Southampton for $250,000. Upon exercising that option, they would own half of GNW's interest in Swap Sub.

Meanwhile Mr Fastow persuaded Enron to pay $30m to Swap Sub, which would enable it to unwind its investment. He represented to Enron that CSFB would receive $10m for its stake, which it did, and falsely represented that GNW would get $20m.

The three bankers left NatWest and the next day exercised their option to buy Southampton for $250,000. A few days later they reaped rich rewards - a total of $7.35m - while Mr Fastow and Mr Kopper pocketed a combined $12.3m - divvying up the $20m payment from Enron among themselves.