Extraordinary Extradition II: Where's the Beef?
Yesterday's post on the extradition of the "NatWest 3" to the US prompted this angry reply from "Stuart" in the UK:
As with almost all US commentators, you miss the point. The alleged loss was suffered by NatWest, a British Bank, who were advised to sell shares allegedly below value. This took place in London. The British authorities have decided not to prosecute on this matter. The US authorities have no business doing so. This is extra territorial reach at its worst. If it was Enron itself, a US corporation, that had lost out from this, I would have no objection to a US prosecution. However, there appears to be no suggestion that Enron itself lost out in this deal, and there seems to be no connection here with the financial wrongdoings within Enron itself.The furore about the extradition is a sideshow, the principle at stake is the seeming ability of the US to prosecute UK citizens under their laws, alleged crimes taking place in the UK which the alleged victim is a UK institution. Our message to you is - butt out of our affairs.
Today I looked a little more deeply into the charges against the NatWest 3. Here's how The Scotsman describes what the men stand accused of:
They face allegations that in 2000 they advised their former employer NatWest to sell part of a company owned by the collapsed US giant Enron for less than it was worth. They then left the bank and bought a stake in the company, which they sold on at a significantly higher price to make a huge profit, it is claimed.
And were that all there was to it, I guess I'd have to agree with Stewart that this is purely a domestic, i.e. soley UK, affair. But then there's this paragraph that follows immediately the one above:
It is alleged that they travelled to Houston in 2000 to meet Enron's chief financial officer, Andrew Fastow, to concoct the scheme. They each face a maximum of 35 years in prison if convicted of all the charges against them.
Well now things are a bit clearer. If they did indeed fly to Houston and conspired with Andrew Fastow -a man who has since been convicted and is now serving time for his part in the Enron collapse - then there is good reason for these men to at least be under suspicion of wrongdoing. We already know Fastow defrauded Enron stockholders and helped to bankrupt the company. That doesn't mean that the NatWest 3 are guilty of anything, per se, but I have to believe that it is not safe to come to America and plan with American executives how to scam companies or individual in other countries. Still, the fact that the UK has not prosecuted does make you wonder if this is, as Stewart suggests, a case of "extra-terroritial reach."
Thus, I decided to read the actual indictment as it appears on the Department of Justice website. So did the BBC. It's summary provides details not mentioned by The Scotsman.
The Charges:
The indictment says they persuaded (Greenwhich NatWest) to sell its stake in an Enron subsidiary, named Swap Sub, for $1m - despite knowing it was worth much more. The three ended up paying just $251,993 for a stake in Swap Sub on which they later made a profit of $7.3m, the indictment claims. Their profit, it alleges, came from Enron's coffers as part of a deception practised by Enron's ex-finance chiefs, Andrew Fastow and Michael Kopper - both of whom have pleaded guilty to fraud charges in connection with the Enron scandal.
The Setup:
According to the indictment, Swap Sub - based in the Cayman Islands - was created by Fastow and Kopper in 1999. Its purpose was to help Enron protect itself from potential falls in the share price of an internet company in which it held a sizable stake. A Caymans-based subsidiary of GNW, Campsie, was an investor in Swap Sub. The indictment also suggests that the three defendants conspired with Fastow and Kopper to "restructure Swap Sub for their own benefit". To do so, it says, the three persuaded GNW to sell its Swap Sub stake for $1m to a company controlled by Kopper. It goes on to allege that Kopper created several layers of ownership - partly to "conceal the true structure of the Swap Sub transaction" - and agreed to sell a stake in one of the companies concerned to the three defendants.
The Payoff:
In March 2000, Fastow got Enron to agree to pay Swap Sub $30m as part of a deal to get the internet firm's shares off its books. Of that, Fastow allegedly told Enron that $20m would go to GNW. But instead, Kopper-controlled firms had already bought GNW's stake in Swap Sub for just $1m, the indictment claims. In April, the three defendants wired Kopper $251,993 for their stake in a firm called Southampton K Co. That payment, the indictment says, gave them a half-share of GNW's Swap Sub stake "that Enron was prepared to purchase for millions of dollars". The indictment goes on to say that the trio's profits then arrived in May - a wire transfer for $7,352,626 paid into an account supposedly controlled by David Bermingham at a Cayman bank. The rest of the $20m Enron thought it was paying GNW - on Fastow's recommendation - is alleged to have gone to Fastow, Kopper "and others".
'Wire communication'
It is the two wire transfers - together with three faxes and two emails between GNW (and its subsidiary Campsie) and Enron - which are at the heart of the US's case for extradition. The US says the "scheme and artifice to defraud" GNW and NatWest was carried "by means of wire communication in interstate and foreign commerce writings, signs, signals, pictures and sounds". That, the Grand Jury indictment says, makes it wire fraud: a Federal offence.
Well now it's really clear. If the NatWest 3 did even half of what they are accused, then IMHO there is no overreach here. In fact, the US Department of Justice would be grossly negligent if it did not pursue these men. This is especially the case if the conspired with Fastow and Kopper to defraud American investors, if as the BBC alleges, the NatWest 3's profits came from Enron's coffers. And while I can definitely see why UK citizens are concerned about the imbalance in the extradition treaty, it is ill-advised, if not downright shameful, to make the NatWest 3 the poster boys for rectifying it.