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UK High Court wades into Dubai trade finance fraud case

The UK High Court has sided with the Dubai Islamic Bank in the latest episode of a long-running trade finance fraud saga, ruling against a British man who had been seeking an immediate release from prison.

Charles Ridley, imprisoned in Dubai more than a decade ago for his part in a US$500mn fraud scheme involving CCH Europe, a German-based company he helped incorporate, had been seeking an injunction at a commercial court trial held earlier this year.

Had he won, the judgement would have required the Dubai-based lender to take steps to procure his release.

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A Dubai court initially handed Ridley and five alleged co-conspirators decade-long jail terms in 2011, finding them guilty of swindling the bank’s trade finance department through the use of fictitious documents and invoices.

Ridley and three others were later handed further prison sentences by a Dubai court in 2018, when the financial institution put in a request – under a piece of anti-corruption legislation known as ‘Law 37’ –  for an additional 20 years and an obligation for repayment of an amount equivalent to US$430mn.

Ridley’s lawyers argued in the latest UK court appeal that this sentence should be cut short as it was based on an “impermissible request” that breached an earlier restructuring agreement (RSA) made in 2007.

That RSA had set out a repayment plan for the embezzled money and included a clause – clause 12.4 – relied on by Ridley’s lawyers in their arguments in the UK High Court.

It stipulated that the Dubai Islamic Bank agreed to “waive and compromise” any claims arising from the agency agreements and related transactions.

But in a judgement published this month, sitting judge Lionel Persey QC ultimately agreed with the interpretation put forward by Dubai Islamic Bank, noting in his judgement that a separate part of the agreement – under clause 12.7 – meant that any waiver was not applicable to “any obligations created by or arising under or in connection with the RSA”.

As the bank was seeking to secure the amount that it was contractually owed under the commercial RSA contract, the request was permissible, the judge ruled.

 

Murabaha fraud

The fraud itself hinged on an elaborate scheme involving a German-based corporation, two Dubai Islamic Bank executives and a web of fake documents and invoices related to trades that did not exist.

As shown in a court judgement from a 2013 UK High Court case, a subsidiary running Dubai Islamic Bank’s structured finance department entered into a series of agency agreements with CCH Europe and an associated company, CCH, in the early 2000s.

CCH was to act as an agent for the lender in providing short-term trade finance to exporters, using a murabaha agreement model to cater for the need for the transactions to comply with Islamic financing principles.

In its role, CCH would purchase the goods from the exporter on behalf of the bank and then help on-sell the financed products to the buyer. Dubai Islamic Bank sent money through an account controlled by CCH as part of a set-up which, according to the UK court judgement, “enabled the fraud to be perpetrated”.

As shown in the high court judgement from Justice Flaux, Ridley admitted to two solicitors at Hogan Lovells (known as Lovells at the time) that the fraud on the bank started in about 2003 and was “very simple”.

The solicitors told the court that Ridley had arranged a scheme with another British co-defendant, Ryan Cornelius, who owned or controlled various companies and had longstanding business interests in the Gulf region.

One of the businesses would create fictitious financing requests and submit these to CCH on the basis of supply contracts that, in reality, did not exist. The CCH office in Germany would draw up false documentation and submit these to the bank.

Much of the money was pumped into long-term projects, including US$180mn into a plan to dismantle an oil refinery in the west and rebuild it in Pakistan, which the second defendant, Cornelius, was involved in.

Problems began to emerge when the costs of the refinery project started to escalate, with Ridley allegedly telling the Lovell lawyers that they “attempted to trade out” of these difficulties by investing more illicitly begot funds into shorter-tenor projects.

This included a plan to develop an area of desert land into a polo and equestrian centre, known as the Plantation Project. Court documents show around US$18mn was pumped into this development.

The fraud was discovered in 2007 when the structured finance department was brought under direct management of the Dubai Islamic Bank, and a new lead on the CCH account moved to halt further draw downs.

“The almost immediate result of which was a default on an invoice on the CCH account which should not have occurred if these were independent, genuine, transactions,” court documents show.

Both Ridley and Cornelius formally denied participation in the fraud in front of the UK High Court in 2013, but the judge wrote that that “position is untenable”. The pair face at least another 15 years in prison.

The post UK High Court wades into Dubai trade finance fraud case appeared first on Global Trade Review (GTR).

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