Imperial stung by Caribbean probe

Threat to UK finance group as regulators move in at Grenadan bank subsidiary

Financial regulators on Grenada have taken over administration of Imperium Bank, the flagship offshore subsidiary of the controversial British-based Imperial Consolidated Group.

For over a year The Independent on Sunday has been documenting the growing list of controversies involving this international finance group. But the intervention in the Caribbean tax haven Grenada is the most serious banana skin for Imperial Consolidated so far.

Last week Grenada's financial regulators took over the bank and asked auditor PricewaterhouseCoopers to conduct a 15-day review of Imperium Bank's books. This is all the more remarkable given that Grenada remains one of the few offshore havens resisting international pressure for tougher financial regulation. In April, the US Treasury Financial Crimes Enforcement Network issued an "advisory" against Grenada.

The intervention comes just a few weeks after the Syrian arms dealer Monzer al Kassar obtained a $8.5m (£6m) asset freeze order in Spain on Imperium Bank and two other related firms. This follows a bitter legal dispute between Imperial Consolidated and the notorious arms dealer over a failed mining deal. A spokesman for Imperial Consolidated said yesterday: "It is our belief that this review has been prompted by the often inaccurate reporting of the relationship between Imperial Consolidated and Mr al Kassar. PricewaterhouseCoopers is receiving the full co-operation of the Imperium Bank staff and will deliver its report within 15 days. The Imperial Consolidated Group is confident that this report will totally exonerate its position in this matter."

The Miami-based newsletter Offshore Alert reported that a source close to the review said the Grenada International Financial Services Authority took action after Imperium Bank had failed to adequately comply with requests for information about its activities.

Offshore Alert publisher David Marchant said the intervention may have serious consequences for Imperial Consolidated: "The regulatory action in Grenada is extremely significant to Imperial Consolidated because Imperium Bank controls the group's offshore mutual funds which raise money to fund its underlying business operations, including those in the United Kingdom.

"Imperium Bank is currently prohibited from disbursing any funds without the consent of PricewaterhouseCoopers. This is likely to lead to cash-flow problems and hinder the group's ability to meet its liabilities as they fall due, both to trade partners and to the bank's many depositors and mutual fund investors around the world." However, if PricewaterhouseCoopers finds the books in order, Imperium will be allowed to resume trading.

Founded in 1994, Imperial Consolidated is a UK-based financial group with subsidiaries in 11 countries, mostly offshore. Its headquarters is at the former RAF Binbrook base near Market Rasen in Lincolnshire. It started as a debt-collecting agency employing 340 people in the UK, but laid most off last year after a series of legal cases hit the loan side of the business. It says it has 28,000 UK clients for its various investment schemes and up to £200m invested.