Nicola Sharp of Rahman Ravelli details the collapse of the UK company, the fraud convictions that followed and the issues involved.
The CEO of collapsed British steel trading company Balli Steel PLC was sentenced to six and a half years in prison for fraud.
Nasser Alaghband was imprisoned after a Serious Fraud Office (SFO) investigation uncovered how he orchestrated a $500 million fraud in a desperate attempt to keep his failing company afloat. Two senior Balli executives, Melis Erda and Louise Worsell, received sentences of over three years each.
Alaghband had pleaded guilty to one count of fraudulent trading, ahead of a 20-week trial at Southwark Crown Court which saw Erda and Worsell convicted on multiple counts of conspiracy to defraud. Another defendant, David Spriddell, the former finance director of Balli Steel’s parent company, was acquitted over his alleged role in the scheme.
The scheme operated by deceiving lenders into entering into loan agreements for the purchase of steel that was not actually bought. Alaghband, described by the sentencing judge as "principal orchestrator" of the fraud, had directed Erda and Worsell to secure bank loans, which they did by providing misleading information and creating false documents (including contracts, bills of lading and invoices) for non-existent steel shipments. These shipping documents bore forged signatures and were certified by a Cayman-registered shipping company, Trans Ocean Navigation (TON), which purported to be an independent shipping company. But it was, in fact, operated solely by fax machine out of Balli’s own offices in Marylebone, London.
After defrauding 20 banks over two years, Balli collapsed in 2013 with debts of $500 million. The SFO began investigating in 2014, gathering information from law enforcement agencies in 36 jurisdictions to expose the global fraud.
Lisa Osofsky, Director of the Serious Fraud Office, said:
“Using a Cayman Islands address, a fax machine, and a stream of blatant lies, these three individuals plied their criminal trade to defraud banks out of half a billion dollars. The information we gathered from 36 different countries means the law has finally caught up with them.”
Issues
It is notable that despite having been deemed to be the orchestrator of the fraud, Alaghband avoided the same conspiracy convictions as his former colleagues by entering an early plea for one offence of fraudulent trading contrary to section 993(1) of the Companies Act 2006. Although this offence attracts the same maximum penalty as conspiracy to defraud (ten years imprisonment), there appears to be a discrepancy between this situation and the factual backdrop presented by the prosecution.
Over a decade of high-profile fraud prosecutions has revealed that foreign corporate entities - most often those registered in the Cayman Islands, British Virgin Islands or other tax havens - are a hallmark of international fraud cases. The role of TON in the Balli Steel fraud is not, therefore, an unusual feature of this case. But it does underline the increasing concerns of law enforcement agencies that perpetrators of fraud rely on foreign corporate entities to facilitate their misdeeds as their location conveniently provides both a layer of secrecy as to their ownership/operation, and a barrier to legal and regulatory scrutiny.
The UK government endeavoured to address this concern in the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). One of the purposes of SAMLA was to curb money laundering in British Overseas Territories such as the British Virgin Islands, the Cayman Islands and the Crown dependencies by establishing publicly available registers of corporate beneficial ownership.
While there has been momentum towards establishing these registries, initial resistance from some overseas British territories resulted in the UK government publishing an Order in Council requiring (as opposed to encouraging) all overseas territories to establish public registers. Notably, the Cayman Islands reacted positively to the directive and published its company ownership register in early 2022.
The Balli case is, however, an example of how effectively foreign entities can be deployed in the furtherance of fraud. It highlights the value of enhanced visibility of foreign corporate ownership in the fight against financial crime.
