Blind funding of buried
assets leads to biggest ever fraud. Liz Bury
writes.
Go deeper with GlobalData
UK asset finance has
been abuzz with speculation after details emerged of what is
thought to be the largest ever fraud in value terms to hit the
market.
Belgian lessor KBC Lease, an
active player in vendor finance, set aside €125m to provide against
fake contracts, in its 2010 financial statement. The figure relates
to funds transferred to Total Asset Limited in the UK, used to fund
a variety of contracts including many for high speed broadband
cables laid in sewers, through vendors Fibrecity and H20
Networks.
Irregularities came to light
during the third quarter of 2010 when KBC began preparing the UK
operation for disposal. In October 2010, KBC obtained a freezing
and proprietary injunction for £24m (€28m) against Total and its
sole director Stephen Dartnell; the sum was increased to £58m a
month later.
KBC contacted the Serious
Fraud Office (SFO) which entered Total’s premises on 17 November
2010, securing books and other records.
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By GlobalDataOne staff member from KBC is
believed to be helping the authorities with their
investigation.
A statement from KBC said: “A
respected vendor, with which KBC Lease UK had a good working
relationship, had deceived KBC Lease UK into refinancing fictitious
contracts. So far, the investigation has revealed that the vendor
had clandestinely paid a – now former – employee of KBC Lease UK
which facilitated the acceptation of such files and prevented the
irregularities being detected in time through the normal control
mechanisms.”
“On paper, the credit
proposals appeared normal. Some proposals were approved by head
office, other rejected. However, the investigation show that while
some contracts were real, many others turned out to be
fake.
When KBC Lease UK called a
number of contracting parties, the customers in question were real
enough, but were unaware of some contracts. This confirmed that the
contracts had been fake.”
On 17 January 2011,
accountants Deloitte were appointed as administrator to Total. The
Deloitte forensic team imaged all IT equipment and servers,
searched the premises and logged all documents for court purposes.
Deloitte has also contacted the SFO to gain access to documents
removed by it on 17 November.
The debt owed by Total to KBC as at 17 January was £133m,
which had been advanced back in March 2004. In 2006, Total entered
an agreement with H20 Networks, and took an assignment from H20 of
receivables from third party end users, under which agreements KBC
advanced £65m to H20.
