An exchange of lawsuits escalated late last month between Saudi Arabia’s Algosaibi family companies and the Saad group’s Maan al-Sanea.
Misappropriations rising to $10 billion are claimed, based on an alleged series of foreign exchange transactions in a workers’ remittance unit, by which riyal-for-dollars deals were rolled over and diverted through the use of forged documents and phony confirmations (here).
At the end of last week, a court in the Cayman Islands even presumed to order a worldwide asset freeze against al-Sanea (here) – an exercise of jurisprudential hubris worthy of the Grand Duchy of Fenwick in Peter Seller’s 1959 “Mouse That Roared.”
So another prediction promptly comes good: my call on June 8 – here – that “accounting scams pose risks to Sharia finance.”
From allegations in a New York court filing, the basics of my predictions are confirmed:
• With lawsuits proliferating in the US and the UK, by bankers exposed on the debt securities of both sides of the Saudi feud, another multi-national financial scandal spreads across a borderless world of disputes.
• The securities of both the Saad group and the Algosaibis – “sukuk” in the Sharia-compliant terminology – are trading at default levels, despite the demand for compliance with Islamic law, that repayment be assured by way of especially-designated collateral.
• And so, as the spiritual basis for Islamic finance is overcome by the victims’ drive for secular accountability, the illusory pretense that “we’re different” and “it’s not done that way here” give way again, in the Gulf as it has elsewhere throughout history, when the veils of naïveté and denial are torn away.
One aspect yet to emerge from the Islamic dust-up is the finger-pointing at the gatekeepers. With aggressive advocates now driving claims that the string of unfulfilled financial commitments extended over four years, it is to be expected that the questions will be pursued: “Where were the lawyers?” and “Where were the auditors?”
Which will make for ominous times among the professionals.
The July 11 criminal conviction of Chicago lawyer Joseph Collins, for his role in the transactions by which now-jailed Refco chief Philip Bennett fleeced his shareholders and investors, puts a darkened color to the on-going civil litigation exposure of both lawyers Mayer Brown and accountants Grant Thornton.
And it appears that David Friehling, held out as Bernie Madoff’s long-time auditor, is in negotiations for a criminal plea deal – although in context of the 150-year sentence dealt out to Madoff himself, a deal would seem unlikely unless it spares Friehling the greater part of the maximum 105 years he faces.
For an informative if unsurprisingly defensive apologia for Mr. Collins, from a fellow lawyer, see here.
The Collins conviction may signal a new era of exposure for the bar, considering that their brethren among the accountants have been unsuccessful for years in selling the “pure heart – empty head” defense. The lawyers have long relied on their client privilege and a jealousy-guarded “duty of advocacy” behind which to manufacture and supply the tools of felonious monkey business. But if the duties and accountability of the two professions are seeming to converge, as the Friehling negotiations and the Collins verdict would suggest, the lawyers’ pain will be palpable.
Meanwhile -- from Refco to Madoff to Saad/Algosaibi, commodities options to Ponzi-style fictions to Sharia-based forex -- the repetitive pattern of window-dressed accounts that serve to conceal the predations of the principals -- facilitated or over-looked by those chargeable with detection and prevention oversight – continues to roll around the globe.
And only one thing is knowable for certain: the latest Saudi mis-adventure – immediate proof that Islamic finance is no more virtuous or scandal-proof than its Western equivalents – will not be the last.
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