Conned in bank scam

By David North

NAURU’S representatives in London apparently were duped by flim-flam artists for a loss of As2l million. It could have been worse, as As9o million was at stake in the bank-related scheme, but most of it was recovered.

The bank scam reads like an over written international thriller. The cast and plot included an Australian lawyer said to be an addicted gambler, who has spent some time recently in a mental hospital; investigations by the City (of London) Fraud Squad, the Bank of England, and Hong Kong police; the mysterious Dr Gopal and his Vanuatu connection; and the use of highly unusual financial instruments that the London Sunday Times described in quotation marks as “prime bank notes”.

The story though known to US bank regulators as early as December, 1992 surfaced in June when one of Nauru’s British law firms, Waltons & Morse, sued the big Australian firm of Allen Allen & Hemsley. The London firm said Nauru had entrusted some AS9O million with A A & H, that much had been recovered, but it wanted the balance returned. Managing the action for Nauru was one of its London financial advisers, Martin Weston, who appar ently had not been involved in the original investment.

The investment was more than a little unusual. The very careful Sunday Times identified it this way “The inter-bank market for prime bank notes is little known. The people who promoted trad ng to the Nauruans said it was highly secretive and it was important to keep it Tat way so that outsiders would not indermine the spectacular returns. The promoters said bankers who used the market for off-sheet balance sheet bor owing would deny its existence.”

The more outspoken Private Eye maga :ine wrote of “the mythical markets in )rime bank notes and standby letters of redit... which... form part of a sophisti ated franchised fraud which has been leveloped and orchestrated by a syndi cate of international conmen... Down Jnder questions are being asked about vhy those in charge of administering the funds there could be taken in so asily...”

John Shockey, a US Treasury official

in charge of breaking up phoney “brass plate banks” told PIM banking officials world-wide had known for years that prime bank notes were worthless.

“Had Nauru come to us, or the FBI, or Scotland Yard, or any of the big banks in Australia they would have learned that this is a fraudulent activity but they did not.” While Shockey wants Nauru to get all of its money back, he noted Nauru has not cooperated regard ing the brass plate banks that defraud other people. He read a list of 18 institutions, such as the Jefferson Bank and Trust and the Pioneer Development Bank; each has been called to the Treasury’s attention regarding suspicious activities, and each is said to be licensed by Nauru.

Nauru not only will not respond to inquiries about these banks, it has not accepted US offers to help set up a bank regulation scheme. Further, classified ads run regularly in both the Economist and the Wall Street Journal placed by a consultant who says he has Nauru banking licences for sale.

If the description of the financial instrument offered to Nauru suggests a scam, so did many other elements of the story. First, there was the promised rate of return —as much as a stunning 10 per cent a month.

Then there is the Australian lawyer, R A Powles, who had been, until Novem ber, the London resident manager of Allens.

His law firm now says of him, “Allen Allen & Hemsley has recently discovered certain transactions in which its former London resident partner, Mr R A Powles

has been involved. At the request of the firm Mr Powles resigned on November 18, 1992 and has been receiving treat ment for a medical condition in the psychiatric unit at the Royal North Shore Hospital.” Powles is also said to have had a gambling problem, and may have tried to commit suicide.

Dr Gopal (no other name given) was identified as the leader of the promoters, and in the process he used what was described as a Vanuatu-registered financial entity, Linpar. (Linpar also operates in Switzerland.) While Dr Gopal apparently played a role in the disposal of the money, Nauru’s lawyers had the impression the sums had been entrusted to the big Australian law firm, and this was reassuring to Nauru.

The story began in late 1991 when the perpetrators convinced someone in Nauru’s London operation to invest AS 12.7 million in the “prime bank notes”. It brought the promised return quickly, and Nauru’s representative put in another A 577.2 million some time in the first half of 1992. By July, 1992 the Nauruans were asking questions, and by October it became clear that something might be amiss. But it was not until June that legal action was taken.

The controversy is now headed to wards a judicial decision, perhaps in British courts, or perhaps in Australian ones. Wherever it lands it will be the Nauru Phosphate Royalties Trust vs.

Allen Allen & Hemsley. Nauru’s leaders were angry at Allens for not settling immediately. Nauru has apparently also hired a firm of investigators, headquartered in New York, to help get its money back. □