world go round

Money makes the world go round

A good example of how a Paci fic island chartered shell bank can be used to defraud Amer ican investors is that of the International Bank of the South Paci fic, chartered in Tonga.

The description comes from the office of Oregon State Attorney Gen eral, Dave Frohnmayer, which has sued the Bank, and its owner, seeking restitution of funds deposited by Oregonians.

The bank was chartered by Dennis Walker, an American citizen operat ing in the Medford, Oregon area. The other officers included his wife, Shar on, his brother-in-law, Rex Jensen, and several other US citizens. They are charged with misappropriating more than US$3 million.

The Walkers appeared to be pillars of the community. They were both active in the local Mormon Church, and he was a bishop in the Ashland weird of the church, “the lay spiritual and administrative leader of his con gregation”, according to the Portland Oregonian. Walker had received a bachelor’s, a master and a doctorate in political science. He had spent ten years as a professor at Southern Oregon State College.

Walker’s scheme was a simple one, and reminiscent of a time honoured scam first practised in the United States 60 years ago by a fast talker named Charles Ponzi. Ponzi said he was in the international currency exchange business, and that if one invested money with him, he would pay such remarkable returns as 50 per cent and 100 per cent a year.

What Ponzi did was to pay high rates of interest to old investors from his newly secured deposits, thus attracting new investors, and still more money. Eventually the bubble burst, and America’s banking laws were tightened to prohibit those prac tices. Such operations are now called Ponzi schemes in the US.

The Walkers sold certificates of deposit promising 19 per cent to 50 per cent in interest. There also, apparently, was at least a suggestion that the International Bank of the

South Pacific would not report the earnings to American tax authorities, so the high rates of return would be tax free. Many of those investing in the Tonga bank certificates were the Walkers’ fellow Mormons.

Though the Oregon Attorney Gen eral’s Office does not make the point, an operator like Walker can make little headway unless he encounters (or encourages) a little greed on the part of the victims, a willingness to take a risk for a substantial return on investment.

While the bank business was booming, Walker decided to insti tutionalise a hobby of his, collecting sports memorabilia. He used his ill-gotten gains to lease a building in Medford, a small city of 40,000 without any outstanding tourist attractions. He fixed up the building, opened it as the National Sports Hall of Fame, and filled it with uniforms and equipment associated with America’s sporting heroes. All of this was an expensive proposition, and most of it was funded by his unwitting investors.

According to Jim McLaughlin, the Assistant Attorney General working on the case. Walker would go to a Medford area bank and cash cheques made out on the International Bank of the South Pacific account in that bank in amounts as high as $50,000 each. After a while the bank became suspicious of these transactions, and held him down to less than $lO,OOO a cheque federal law requires that any cash transaction amounting to $lO,OOO or more be reported to the US Treasury.

Ultimately the scheme collapsed, but before any corrective action could be taken Walker had closed the sports museum, emptied it of its contents, cleaned out his bank accounts, and disappeared, as have some of his associates. His wife is reported to be living near Las Vegas, Nevada.

While Walker (and perhaps some of his associates) clearly made money out of the deal, the scam did little for Tonga but cast doubts on the Tonga Offshore Banking Act of 1984,

the statute that set up the bank used by Walker.

“As far as we can tell, the only money left in Tonga was a $lO,OOO - deposit with the Govern ment, established at the time of the bank’s charter, and some $3OOO in fees,” McLaughlin said. He suggested that additional fee payments were required by Tonga law but probably were not paid by Walker. There is a 0.25 per cent excise tax set by Tonga.

While the Government of Tonga got little out of the deal, one relative of a Tongan official was on the bank’s payroll. McLaughlin said that David Cocker, then but not now a resident of Auckland, served as a member of the Board of Directors of the In ternational Bank of the South Pacific.

He is the brother of Cecil Cocker, then Tonga’s Minister of Finance.

Another Tongan associated with the bank was Sione Latu. McLaughlin said that the State of Oregon did not know whether he received any com pensation from the bank. Laifone Tuita, according to McLaughlin, was the bank’s manager in Tonga. (Most of the issuance of certificates of deposit, however, took place in Oregon.) An American named Larry Dotson was associated with the Tonga branch of the bank; his trail was later traced to Australia, after he sent Christmas cards to defrauded deposi tors in America saying that he was not involved in the scheme, and that Dennis Walker had disappeared.

When the Attorney General’s office in Oregon sought information about the International Bank of the South Pacific letters were sent to Selwyn Jones, Tonga’s Secretary of Finance, who reports to Cecil Cocker. Jones’s response, according to McLaughlin, was that the Government of Tonga was prevented, by the 1984 legisla tion, from disclosing anything about the activities of banks chartered under its provisions.

Among the other off-shore banks that McLaughlin has tangled with are the Merchants International Bank, Ltd., of the Marshalls, which he said defrauded investors of some $2.5 million to $3 million in a Ponzi-type scheme, and the First Colonial Bank Ltd. of the Marianas. The latter operation was put together by David Hunt and Robert Cottier, both US citizens. Hunt had previously been

convicted of embezzlement.

David

S. North.