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Friday, 28 February 2014

Dutch companies must be cautious not to lose their “spotless reputation”… in The Netherlands and abroad Pt II: SBM, the large Dutch banks and the large accountancy organizations

The Netherlands is renowned for being a relatively uncorrupt country, with its eighth position on the Transparency International list of least corrupt countries. 

Nevertheless, there have been some serious cracks in this reputation lately, due to the fact that a number of Dutch companies have been involved in some serious kinds of fraud, embezzlement and bribery. 

Last week, I started this short series about the 'moral downfall' of some Dutch companies with a few companies that could be called 'serial offenders', as they have been involved in illegal acts on more than one occasion. 

This week, I continue this series with a number of other companies that have been involved in serious wrongdoings: some in the role of actors and some in the role of neglecting controllers.

SBM Offshore

This Dutch company is a large supplier for the (offshore) oil and gas industry when it comes to oil and gas exploration rigs, as well as professional services.

SBM is currently under investigation from Dutch and US prosecutors for, what allegedly is, 'a massive case of bribery' to the tune of $250 million. 

The following (translated) snippets come from the Dutch business magazine Quote:

A former employee of SBM put a massive amount of documentation on the internet, concerning possible fraud cases by employees of SBM Offshore. This documentation disclosed information about bribery of officials in Angola, the West-African country Equatorial Guinea, Brazil, Malaysia, Iraq, Kazakhstan and Italy. Also fragments from transcripts of 'recordings' have been published, which allegedly disclosed that members of the two-tier Board of Directors had known for years that these kinds of wrongdoings took place. The executives of SBM would have purposely tried to cover up these cases. In total, the amount of bribe money paid would be $250 million.

That there has been fraud at SBM is not under dispute. This has been more or less confirmed by SBM itself. At least, one case in a further unspecified country in West-Africa. Earlier today, SBM confirmed - during the presentation of the annual data - that this fraud case has been more extensive than it had been assumed earlier.

The main case, which the former employee encountered, was the bribery of Gabriel Obiang, the second son of the president of Equatorial Guinea. He would have received $7,35 million through a company on the British Virgin Islands. Four other high officials in the West-African country would combinedly have received $1.25 million. SBM's former CEO Tony Mace (in charge from 2008 until 2011) would have been informed about this practice.

In Angola, unknown amounts would have been paid to officals through a Panamese company, during 2005 and 2012. In Brazil, $139 million would have been paid to a Brazilian businessman and his group of companies, of which 2% in bribe money would have been forwarded to employees of Petrobras, the Brazilian oil company. 

Like I already stated in my part upon Ballast Nedam (see the first episode), these payments of bribe money have allegedly been common practice in the construction industry, as well as the offshore industry. According to insiders, it would be virtually impossible to do business with f.i. the Middle-East without paying large sums of bribe money to high and/or influential officials. Also in other countries in Latin America, this is seemingly common practice.

This does not change the fact that corruption, clientelism and bribery are like a cancer that ruins the social structure in such countries: 

  • First, high officials and executives in these countries are getting paid at the expense of their - often much poorer - countrymen, who have to foot the increased bills for all large-scale projects and construction works: bribery money is not 'free' money, but money that must be paid for in the end, as the party responsible for the bribe payments must earn back its extra expenses;
  • Second, not the 'best', the most innovative or the most efficient companies win the tenders for large projects, but the companies that are willing to pay the most bribe money.

    This will often lead to inferior quality for the finalized project as a whole and sometimes even to extended loss of life among the involved workers, as companies try to mitigate their extra expenses at the wrong places. Often officials are then paid again to look the other way.

Therefore it would be a good signal when offending companies, like f.i. the aforementioned construction and offshore companies, would be penalized for their wrong behaviour. This means, however, ALL offending companies and not only a few that are in the picture.

The large Dutch banks Rabobank, SNS Reaal and ABN Amro

Irrespective whether it is coincidential or not, three of the four large, Dutch banks have been involved in cases of - what seems to be - considerable fraud and embezzlement during the last two years:


It was a massive shock for the general public, when the people found out that the distinguished Dutch Rabobank, with its agricultural roots and cooperative, less commercially oriented company structure, had been involved in one of the most infamous fraud cases of the last years: the Libor-gate affair.

Summarized, the core of this affair was that the selective group of Libor banks had abused their involvement in setting the most important interest rate in the world: the London Interbank Offered Rate (Libor). 

These banks didn't set the Libor rate, based upon objective measurements of the interest rates that they had to pay on loans themselves. To the contrary, the Libor rates were altered in order to meet their own interests at that very moment, thus setting a higher or lower interest rate at will. 

Here are a few snippets from one of my articles:

Summarizing, this fraud was possible due to the misplaced faith and confidence of dozens of national authorities, supervisors and banks:

  • in the honesty of a small group of leading banks and employees, who disgracefully abused this trust;
  • in a system, solely based upon subjective and manipulatable data. 

In spite of the warnings by the BIS, it took until June 2012 until ‘Libor-gate’ was discovered, due to a criminal investigation by the US Department of Justice and subsequent confessions made by Barclays bank.

These days, the results of the official investigation into Rabobank’s involvement in Libor-gate would be presented to the press and the outside world by the international supervisors and so it happened.

Last week, the Financial Times had already published rumours about the height of the penalty towards the Dutch Rabobank and yesterday these rumours were officially confirmed: the Rabobank received a massive penalty from the international authorities of €774 million, measured in dollars approximately $1.06 billion.

This mega-penalty was the result of the protracted  and relatively widespread involvement of the Rabobank in this fraud.

And to make things worse, only five of the thirty supposed ‘perpetrators’ have been sacked and this event took place WITH payment of a substantial dismissal fee. The other employees, the ones who were neither sacked, nor left voluntarily, are thus still working with the bank.

And none of the supposed perpetrators has received criminal charges yet from the Departments of Justice in the involved countries USA, UK and The Netherlands, or even had to pay back already received bonuses over the years 2009-2012, according to the Volkskrant (see the earlier mentioned link).

At the same time, I wonder why an internal investigation within the Rabobank has to take four years in duration , unless you really DON’T want to find anything at all. This has been a disgraceful, six year long fraud indeed and in my humble opinion, this mega-penalty is justified.

Libor-gate has been a massive blow for the people's trust in the Rabobank: not only the trust of the general public, but also the trust of the independent, local cooperative banks which form the core of the Rabobank. 

Millions in advertising money and prolonged 'blatantly good behaviour' have already been necessary to regain this trust and the bank has still a very long way to go.

ABN Amro

ABN Amro has been involved in the "Vestia case", in which the large Dutch building cooperative Vestia got stuck with billions and billions in worth of interest rate swaps. These were derivatives, which were originally meant to hedge the owner against rising interest rates, but that were used in this case for speculation on an unprecedented scale. 

This massive speculation caused Vestia to lose billions of Euro's when the interest rate remained low for a prolonged amount of time and Vestia had to cover their derivatives portfolio.

The commission fees, which Vestia had paid to ABN Amro for these derivative trades, had allegedly been ten times higher than they would have been under normal circumstances. The majority of these excess commissions had been returned to the insiders in the form of kickbacks.

Here is a snippet from one of my earlier articles in this matter:

“The largest building cooperative in The Netherlands, Vestia, that has a slightly megalomaniac chairman and a ‘masterplan’ for the future, wants to hedge its interest risks by using interest rate swaps.

Instead of just hedging the invested amounts at risk, the cooperative decides to speculate at the interest market, expecting that the official Euribor rates would soon go up again. The cooperative buys interest rate swaps covering an amount of €20 bln, while the intended investment for which the swaps were bought is not higher than €5bln.

Unfortunately, the interest rate in reality drops further, confronting the cooperative with the immediate need to make a deposit of €2.5 bln, while threatening it with exposure to a possible €5+ bln loss on the interest rates”. 

Simple, right?!

So, after a blazing start the Vestia case started to smoulder like a heath fire. Until a few days ago…

The Public Prosecution in The Netherlands orders two arrests: Marcel de Vries (the former treasurer of Vestia) and Arjan Greeven, owner/director at Greeven Holding and Greeven Invest aka Fifa Finance, a brokerage firm. The duo is suspected of fraud, using the unusually high commission fees of the interest swap trade as kickbacks for themselves. And the banks involved with this supposed fraud case? Well, these will have a darn hard time to wash their hands clean of this.

What lends a certain piquancy to this case is the fact that ABN Amro is a stateowned bank and the circumstance that this possible fraud presumably took place during the time that the Dutch state was already a 100% owner of the bank. The circumstances that the bank and its partners offered derivative contracts ‘beyond reasonable amounts’ and supposedly paid commission fees that were ten times higher than usual, make this a very sticky, nasty case for the state-bank.

Partially to my surprise, this Vestia case didn't harm ABN Amro very much eventually, in comparison to the way that Libor-gate hurt the Rabobank. 

Although November and December 2013 showed a small revival for the Vestia case in Het Financieele Dagblad (search for ´Vestia´ on, this has mostly been under the radar of the other large news media. In other words: this Vestia case is now a wrap and life goes on after it. 

In the months after the Vestia case, it seemed that everybody and their sister (i.e. schools and universities, other building cooperatives and other semi-governmental institutions, and even some small and medium businesses) had been involved in small and large derivatives trades. 

Derivative was THE buzzword in The Netherlands for a few months, but then ´the world´ became other priorities again. 

Nevertheless, the Vestia case has brought massive financial damage to this particular building cooperative and first and foremost to the general public, which had to foot the multi-billion Vestia bill any which way.

SNS Reaal

During the last two weeks I have written a series of extensive articles about the adventures of SNS Reaal's subsidiary SNS Property Finance in Spain. 

Instead of printing a few snips, I gladly advice you to read this whole article series, starting with this one

This particular case and the reactions that I received from some people, who had been involved with SNS Property Finance in a different way, cause me to think that this is only the tip of the iceberg and 'the worst has yet to come'. 

The large accountancy firms

In most large Dutch fraud cases of the last decade, there has been a somewhat dubious role for the involved accountancy firms, which did the annual assessments at the companies, suspected of fraud. 

The ´big four´ KPMG, Deloitte, EY (aka Ernst&Young) and PWC all had their share of small and large scandals during the last decade. 

In most cases, it had been 'just' a question of alleged negligence in the annual book assessments at their customers, but in a few cases the accountancy firm even seemed to have played a role in actively covering up the fraudulent acts (see for instance this article).

In contrary to the other companies mentioned in this article series, the big four accountants are multinational firms with only a slight connection to The Netherlands, albeit somewhat stronger in case of KPMG. 

Nevertheless, I mention these firms in this article, as these are involved in the vast majority of the annual book assessments for the top 500 companies in The Netherlands. 

On top of that, their (lack of) activities enabled some of the fraud cases that have been mentioned here or at least didn't do much to stop those. This is a discomforting signal. 

Of course, you could say that there can always be some ´collateral damage´, due to the fact that these companies are involved in so many assessments. 

Nevertheless, in some cases there seems to be an involvement in the actual fraud that goes beyond 'coincidence'.

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