Search This Blog

Monday, 19 August 2013

The Vestia case enters the blame and claim zone: where the legal battle begins, the learning process ends

It was the shocker of February 2012 and many months afterwards: the Vestia case in The Netherlands.

A very large, Rotterdam-based building cooperative is used to buying credit interest rate swaps, as a hedge for the interest risks that the organization runs on their vast housing and land investment projects with (partially) borrowed money. By itself, the usage of these credit interest rate swaps is an acceptable and quite normal way of doing business in this very capital-intensive, non-profit industry. However, here it didn’t stop for Vestia.

One or more executive officers of this organization, blinded as they were by their own success, boldness and intelligence and without being challenged by their supervisors or their subordinates, decide to gamble upon an upward direction of the interest rate. They thought ‘that the official interest rates could not stay so low for such a long time and would definitely go up again’. They took a gamble.

The executives eventually decide to invest no less than €23 billion in naked credit interest rate swaps: swaps that were not used as a hedge for a risk-bearing investment, like money borrowed from the bank for housing and land investment projects, but stand alone as an speculation vehicle. At that moment, the ING Groep NV (INGA) already had decided that it didn’t want to burn its fingers on Vestia, due to the increasingly erratic investment behaviour of the building cooperative.

However, four other banks – Deutsche Bank AG (DB), ABN Amro, BNP Paribas SA (BNPQY) and Barclays (BCS) – were less scrupulous and sold the credit interest rate swaps with an understanding, service-oriented smile.

Vestia’s investment goes terribly awry: instead of rising, the official interest rate drops further and further. This interest movement makes that the swaps eventually need to be covered with more than €2.5 billion in deposit money, with the risk of even higher financial damage; enough to almost bring Vestia with its 89,000 houses and buildings to its knees.

Suddenly, the Ministry of the Interior and all kinds of supervising organizations, like De Nederlandsche Bank (DNB; Dutch national bank) and the Authority Financial Markets stepped in, where they first neglected their duties concerning Vestia. Finally, a national scandal is born.

When the case is thoroughly investigated, a cesspit of corruption, bribery, money-laundering and fraud is opened (the aforementioned links lead to two of the (at least) ten articles that I wrote about Vestia; please use Google and the links enclosed in the articles for my other articles).

Bank operatives of Deutsche Bank and other banks have at least bribed Vestia CFO Marcel de Vries and probably other executives of Vestia too. They did so with fancy London dinners, hosted by dozens of luxury call-girls, and enormous kickbacks of millions of euro’s for De Vries.  

Their profits? Commission fees on the credit interest rate swap deals that were ten times higher than normal. For the banks, Vestia was a juicy cash-cow of which Deutsche Bank, ABN Amro, BNP Paribas and Barclays profited scandalously.

Today, there were two separate news items upon Vestia:

  • De Nederlandsche Bank (DNB; Dutch national bank) penalized ABN Amro for the way it handled business with Vestia;
  • A justice of the (disciplinary) Accountancy Chamber officially blamed accountancy firm KPMG for neglecting their legal auditing duties at Vestia, thus clearing the road for legal claims from complainers.

Both articles were printed in Het Financieele Dagblad (

State bank should have earlier discovered irregularities surrounding the building cooperative.

De Nederlandsche Bank (DNB) penalized ABN Amro for tresspassing the anti money-laundering laws, concerning building cooperative Vestia. This was stated by sources in the financial world. DNB neither acknowledged nor denied the sanction. ABN Amro states that it ‘never comments upon penalties’.

The penalty is for breaking the ‘Law for the Prevention of Money-laundering and Financing Terrorism’ (i.e. Wwft). This law was introduced after the 9-11 attacks upon the Twin Towers. According to DNB, the bank made mistakes, while accepting Vestia treasurer Marcel de Vries as a private customer. When the bank had properly applied this anti money-laundering law, it had discovered that this corporation employee was remarkably wealthy. Maybe, in this case the supervisors would have intervened earlier and the Vestia affair would not have become its eventual magnitude.

The State Prosecution suspects De Vries of corruption, since last year. As buyer-in-chief of the €23 bln in credit interest rate swaps for the country’s largest building cooperative, De Vries received €10 mln in briberies and kickbacks from the derivative trade, according to the prosecution. Financial aid from the other building cooperatives prevented Vestia from defaulting, as a consequence of its derivative speculation.

DNB blames ABN Amro that the bank didn’t investigate the origin of De Vries’ wealth, when his banking affairs were promoted from retail banking to private banking. Only customers with more than €1 mln in money, available for investment, are allowed to bank at ABN Amro’s private banking division.

Although DNB had the authority to penalize the bank for a maximum of €4 million, the penalty was relatively low: €27,000. Within ABN Amro, there is broad dissatisfaction about this penalty. The bank thinks it had followed its standard procedures satisfactorily, but that the procedures themselves were not waterproof.
In 2010, the bank was one of the first to stop selling derivatives to Vestia and it had to accept millions in losses in order to save Vestia.

If I was ABN Amro, I would have paid the €27,000 penalty without a frown and afterwards I would have thrown a big party to celebrate the fact that the bank escaped with virtually no damage done, in spite of the overwhelming set of facts, seemingly pointing in the direction of ABN Amro. However, I really doubt whether this kind of self-knowledge and ‘sense of conscience’ is present at ABN Amro.

Like I wrote before, the Vestia case seemed to be a very smelly case and the involvement of the mentioned banks was not uncontroversial, to say the least.
Although ABN Amro was seemingly one of the first banks to step out of the Vestia derivate syndicate, I seriously doubt if this bank is indeed so innocent, as they hope you would think now.

In my humble opinion, the penalty for ABN Amro for tresspassing the money-laundering law is truly ‘a walk in the park’, Personally, I thought that bank employees would be and should be sent to prison for this Vestia case. A case, which cost the Dutch taxpayers and participants in Vestia and other building cooperatives litterally billions of euro’s.

The accountancy firm KPMG can expect large claims in the Vestia affair. The Accountants’ Chamber (official Disciplinary Chamber concerning the accountancy in The Netherlands) officially blamed the KPMG accountant, who audited the Vestia Annual Account for 2010.

Two of the three complainers in this case, Pieter Lakeman of Sobi and the new executive board of Vestia, have left the possibility for claims deliberately open. The accountant of Deloitte, who checked the annual accounts in the years before 2010, is however dismissed without official blame.

This is the core of the verdict that the Accountants’ Chamber has made today in the Vestia case.

Marco Noorlander of KPMG got chided by the Accountants’ Chamber for the affair. The disciplinary justice accepted and approved of all complaints by the AFM, the third complainer in the Vestia case.

Noorlander had planned and executed his audit with ‘insufficient thoroughness’ and with an insufficient ‘professional-critical attitude’. The result was that he administered a consenting accountant’s declaration, without a reliable basis.

In the famous game Cluedo and in some of Agatha Christie’s murder mysteries, the butler was often the criminal.

Here, in the Vestia case, the guilty ones were Marcel de Vries and the accountant Marco Noorlander. Erik Staal has been blamed for having been an arrogant SOB with too much power and that’s it.

Case closed… We found the guilty ones…

But hey, that is not what the case looked like last year.

Last year, the case looked like it that a syndicate of banks (with Dutch state-owned bank ABN Amro in a prominent role) deliberately scr*wed Vestia (and of course its tens of  thousands of private participants) into buying €23 billion in credit interest rate swaps, which Vestia really couldn’t afford. The banks seemingly used tricks like bribery and fraud to sell this outrageous amount in credit interest rate swaps and earn ten times as much money as they should have done normally in the process.

With the ‘token’ penalty of €27,000 for ABN Amro, administered by the DNB, this case is not even close to supplying a feeling to the Dutch citizens that justice has been done. To the contrary: Vestia blames the accountants and the banks. The banks blame Vestia and the accountants and the accountants blame Vestia and the banks.

A perfect stalemate… Everybody is guilty, so nobody is guilty.

To me it seems that this penalty has been an attempt by DNB to shove everything under the rug, where it concerns the role of ABN Amro and perhaps the other banks in this Vestia case.

The sad side-effect is that this case has seemingly not been properly investigated by the government and the supervising officials yet. As a consequence, nobody has really learned its lesson from this gruesome case, with its enormous financial consequences.

And now, as the ‘blame and claim-game’ starts right now, nobody is interested anymore in learning his lesson from this case. Instead, people try to push as much guilt to the other involved parties as possible, while minimizing their own role.

This makes that such a case could happen again in a few years, when the sky in the financial industry is again the limit. In the end, everybody washes his hands clean of this…

1 comment:

  1. Govt accounting represents comprising a division or device of government at any stage, may it be government, state, or regional. Govt accounting is very similar to traditional accounting techniques. Accountant Rotterdam