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Ex-Balli Steel treasurer denies knowledge of trade finance fraud

The former treasury chief of a collapsed UK steel trader has told a jury in London that she did not know that the company allegedly created fake shipping and sales documents and deceived banks in order to secure trade finance as the company battled a liquidity crunch.

Melis Erda, who was employed by London-headquartered Balli Steel from 1997 until it entered administration in early 2013, has pleaded not guilty to one count of fraudulent trading and six counts of conspiring to defraud trade finance lenders Bank ABC, DBS Bank, KBC, Rabobank and The Economy Bank (TEB), which was later acquired by BNP Paribas.

Balli Steel collapsed owing more than £328m to creditors and following a years-long investigation, the Serious Fraud Office alleges that the company’s directors were engaged in “widespread and systematic fraud and financial misconduct”.

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Alongside Erda, former executives Louise Worsell, David Spriddell and Vahid Alaghband are also on trial for various counts of conspiracy to defraud and fraudulent trading.

Erda is the first defendant to give evidence in the trial, which began at Southwark Crown Court in September and is expected to conclude later this month or in early February. Nasser Alaghband, Balli’s former CEO, pled guilty last year to one count of fraudulent trading.

The SFO alleges the four individuals enticed trade finance banks to lend by using fake documents or other means to fabricate transactions where no steel was actually being traded, or lied to banks about payments that had not been received when in fact they had been.

Giving evidence this week, Erda said that in addition to managing relationships with the banks, her role primarily involved receiving information from Nasser Alaghband, Balli traders and the company’s shipping department about deals and passing that information on to lenders, without knowing that in 2011 and 2012 some of the information provided was false.

Erda told the court that during 2012 she was undergoing several tests and procedures attempting to diagnose and treat a serious illness, which distracted her from her job.

The jury was read dozens of emails sent to or forwarded to Erda discussing what the company should say to banks that were seeking updates on deals or chasing repayments, but she said it was unlikely she read them or opened attachments as they were commercial matters that did not concern the treasury, and she was often either on holiday or preoccupied by her health.

Barrister Tom Payne, for the SFO, on January 5 asked Erda about several deals financed by Singapore’s DBS Bank where steel was actually being traded, but when DBS sought updates on the trades, Balli told the bank that payments hadn’t been received, in order to extend its loans and use the funds to repay other debts.

“By the end of 2012 you were sending messages to the bank saying [the customers are] asking for more time, or this hasn’t liquidated yet, or [payment will be made] after this holiday or it’s being renegotiated… you sent hundreds of those emails,” Payne said.

Erda responded: “I was ill. I wasn’t in the office most of the time. My mind was busy with something else.… I was forwarding emails [from banks] to traders including Nasser and he was sending me updates on each deal and I was sending them back to the banks. There was no reason for me to believe they were doing any false, fake documents.”

The details of deals and relevant documents were solely the domain of traders and Alaghband  – who himself handled many important trades – according to Erda, who described the CEO as having highly detailed knowledge of the company’s cash flow at all times.

Today, January 6, Payne asked Erda about so-called turnaround or circular transactions, in which Balli allegedly secured letters of credit (LCs) for the benefit of steel companies such as the UAE’s Conares, the UK’s Metalloyd and China’s Tewoo but where no steel was actually being traded and the companies simply paid the proceeds of the LC back to Balli minus a small cut.

“You knew that in this context these deals with Conares, deals with Tewoo, the money was just going out, turning around and coming back because Balli needed to raise finance out of thin air – because it was bust,” Payne said.

Erda responded: “That is not correct, I didn’t know the company was bust… I wasn’t aware of the severeness of the liquidity issues.”

Payne also read to the jury an email from former Balli executive Louise Worsell – who has not yet given evidence in the trial – noting that a sales contract being supplied to DBS for an LC application was not signed by the end customer and that copies of signatures could be found on the electronic filing system.

“This was a suggestion that you understood to mean if you want to get a copy of a signature from a previous contract with either of these two customers you can take it from an old document and copy and paste it,” Payne said.

“Now reading it, it says so but at the time I didn’t read it like that,” Erda responded. “I think I forwarded it without any comments and I think that day I was on the way to Rome. I would never ask [two junior treasury employees] to create signatures by cutting and pasting.”

“DBS never required a signed sales contract, they never even required a proper sales contract,” she continued. “Even [telling] them on the day it was sold was more than enough, so why would I ask them to cut and paste a signature on this document?”

 

‘Dirty’ email

Payne also asked Erda about another email from Worsell regarding an application to Bank ABC to finance a deal whereby Balli purchased steel from Conares and onsold it to Al Amara, a Qatar-based trader. The SFO alleges there was no actual steel involved and the funds were transferred by Conares back to Balli.

A junior treasury employee passed onto Worsell a request from Bank ABC for a signed sales contract from Al Amara.

Worsell responded to Erda and Nasser Alaghband, but not the junior employee, that she had “no possibility to get” a signed sales contract and attached a screenshot from the website of Al Amara’s Saudi Arabian entity.

“I have the logo (see attached) and can of course arrange something but not without you both giving your go ahead,” the email read. Erda did not reply to the email and told the court she probably did not read it.

“You couldn’t reply to this email because its contents are so obviously dirty,” Payne said.

Erda replied: “Well if the contents were so obviously dirty I probably would have replied back saying I don’t agree with it… I am an honest person. I knew very well [Bank] ABC had contacts with all these customers in the region so it would be a stupid thing to set up a fake contract with a fake signature on to a bank who knows all these signatures quite well.”

Payne said that when the documents were forwarded to the bank by another employee Erda “knew it was a fake document”. Erda said she “didn’t know it was a fake document, I don’t agree with you”.

Payne continued: “By this stage you had seen so many fake documents come and go this was just one more?” Erda responded: “No this is not correct, I don’t agree [with] any of it… I never thought this was a fake document.”

In cross-examination on January 5, Payne also quizzed Erda on her knowledge of Trans Ocean Navigation (TON), an entity registered in the Cayman Islands and which Balli purported to be an independent shipping company.

The SFO alleges it was in fact run from the second floor of Balli’s office in London by the trader’s own shipping department and issued documents, such as bills of lading and invoices, for fake trades in order to secure advances from the banks.

Erda denied having any knowledge at the time about the company’s true ownership and its role in the alleged fraud, saying that the treasury never dealt with shipping and when banks asked for information about TON she simply asked the shipping department and sent their replies back to the banks.

“The reality is it was an open secret TON was run from the second floor,” Payne said. “Now it looks like [it], but at the time I didn’t know that,” Erda responded.

Payne also emphasised that following Balli’s collapse in 2013, Erda worked alongside the Alaghband brothers in a business seeking to attract western companies to Iran following the lifting of sanctions on the country in 2015.

Erda said that at the time she believed Balli had only failed due to a liquidity crisis and had no knowledge of the fraud which would later be alleged by the SFO. She ceased working with the brothers following the SFO’s arrests.

Payne concluded his cross-examination on January 6 with the allegation that Erda “conspired with Nasser Alaghband and others to defraud the banks… and you were playing a central role in deceiving each of those banks”.

“I didn’t play any role in deceiving each of these banks – nothing,” Erda responded.

Erda will be re-examined by her own counsel on January 9. The trial continues.

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