The International Banking Corporation - Arrest of CEO

Rupert Bumfrey had a post today that AlBilad Newspaper in Bahrain reported that the former CEO of The International Banking Corporation had been arrested after being charged with fraudulent transactions in excess of US$ 2 billion.

That really caught my eye so I decided to take a look at AlBilad's account, figuring it might have additional interesting details.  It does.  As well, it suggests some potential answers to the question as to why the recovery rate on TIBC debt is expected to be so low.

First, a look at the article and then the usual comments.

Here's a quick translation of AlBilad's article.

Nawaz Hamza, Head of Public Prosecution Department, ordered the detention of the (former) Chief Executive of TIBC for a period of six days or the payment of a bond of BD10,000 (US$26,500).  The charge is breach of trust and misappropriation of funds/embezzlement.

Reportedly, the accused chose prison and after a two day investigation, was charged with fraud  involving in excess of US$2 billion. 

Earlier the Prosecutor had determined that the signature of Sulyaman Ahmad AlGosaibi on numerous documents connected with loans and money transfers had been forged through computer imaging of Sulayman's signature.  Once scanned, the signature's appearance had been enhanced by using blue color to make it appear to be an original signature.  And presumably the discovery of forgery prompted the investigation of the CEO.

(An earlier AlBilad article here from 17 January has a bit more detail on the forsensic investigation that determined that Sulayman's signature had been forged on various agreements - presumably loan and similar agreements - as well as certificates of board decisions.  Interestingly, this article asserts that TIBC was under the administration of Mr. Al Sanea.  In fact it makes that statement twice.  It's unclear what the basis for this statement is,  that is, how Al Bilad knows this to be the case.  As you'll recall if you've been following this case,  this is AlGosaibi's complaint: that Mr. AlSanea not they are responsible for the financial distress in their companies).

The article notes that in a meeting  last year in August with regional, Arab and international creditors AlGosaibi had presented a number of documents which it asserted were forged and which established that there had been a widespread forgery of documents and certificates used to obtain loans, bank guarantees, and to make transfers of funds in the name of TIBC and AlGosaibi entities.  As the article notes, this was an attempt by AlGosaibi to prove its innocence from involvement in these transactions.  As well, it  requested creditors to submit documents for transactions with TIBC and the money exchange firm in Saudi so that it could reply on them - presumably whether they were genuine or forged.

Now to the analysis.

1. First a bit of context, TIBC's 31 December 2008 financials (the last issued) showed total assets of roughly US$3.8 billion.  So in excess of US$2 billion is quite a large sum even when considering that some of the transactions also involved AlGosaibi entities in Saudi Arabia, such as the money exchange firm.
   
2. The assertion of widespread fraud suggests some possible reasons for the very low anticipated recovery rates on TIBC.  On that topic, the Governor of the Central Bank of the UAE is on record as telling his banks to provision 100%.   Earlier I had analyzed TIBC's financials and was left scratching my head about the decline in asset values that would be required to cause the apparent loss.  I was focused on duff investments and loans resulting from poor business judgment not fraud. Two potential explanations surface from this assertion of fraud. First, that not all liabilities are recorded.  Thus, assets may be roughly close to the US$3.8 billion in TIBC's financials but real liabilities may be US$2 billion  or so more.   Second, if one is going to forge documents to secure funds, then one is probably not going to have  any scruples about forging documents for assets, though this involves a bit more than scanning one person's signature and changing its color. Just to be clear:  the article does not explicitly state that there are unrecorded liabilities or fraudulent assets.  But that seems a logical conclusion.
   
3. It's important to note that the former CEO has not been convicted. And all we have is a press report that he has been accused.  It's important to note that under Bahrain's Law #47 of 2002 ("Press Law") disclosure of the identity of those accused and press reports on trials are limited so this is at present an uncomfirmed press report.
   
4. It's hard to understand how BD10,000 in bail is adequate security in a case allegedly involving over US$2 billion.  But then again the courts of Bahrain move in the most mysterious of ways.  One can be fined BD1,000 for hitting someone with a fish.  And BD50 for sexual assault.