LONDON/GEORGE TOWN, (Reuters) – Mohammed Algosaibi often turns the palms of his hands up as he talks, as if asking for understanding.
He is trying to explain one of the biggest but least reported failures of the financial crisis. This has split his family, one of Saudi Arabia’s richest, cost some of the world’s biggest banks billions of dollars and is now being slugged out in courts from London to the Cayman Islands.
Some family members face travel bans linked to the case so it has fallen to the 32-year old to defend the Algosaibi empire since the 2009 collapse of two Bahraini banks left more than 100 banks including Deutsche Bank, HSBC and Societe Generale owed an estimated $22 billion.
Small wonder he appears uncomfortable. During an interview with Reuters, five advisers — two accountants, two PR advisers and a lawyer — dominate, interrupting when he tries answering a question. The missing money, he says, was taken by his uncle Maan al-Sanea, who married into the Algosaibi family 30 years ago and was put in charge of its financial businesses. Al-Sanea used his insider’s access, Algosaibi and his advisers say, to siphon off billions of dollars through a money-laundering maze.
As a result the Algosaibis, who say they have been left some $9.2 billion worse off through unauthorised borrowing, are suing al-Sanea in the Cayman Islands for fraud, forgery, and masterminding a massive Ponzi scheme following the collapse of the Bahraini lenders, one of which was owned by the family and the other by al-Sanea.
Accounts of the case so far have focused on the Algosaibi version of events. Al-Sanea has always categorically denied these allegations, and declined to comment for this story.
But new evidence presented by five banks suing the Algosaibi family company in a separate case at the High Court in London — published here for the first time — raises doubts about the family’s claim that it did not know what al-Sanea was doing.
Banks have compiled a mountain of emails, resolutions and what look like transcripts of telephone conversations for their suit, which centres around deals they struck with units in the family partnership Ahmad Hamad Algosaibi & Brothers (AHAB). The documents show that the Algosaibi’s own accountant had been sounding alarm bells about al-Sanea and his business methods for years.
“I am really disturbed from your careless and unprofessional position in dealing with this situation,” accountant Salah Ayouti told patriarch Abdulaziz Algosaibi, the second of the partnership’s three founding brothers, in a letter about al-Sanea sent in May 1994.
I am “hoping that it will not turn a disaster if you will keep behaving in careless way rather than dealing with it strongly and seriously.”
The documents show that al-Sanea built his empire with the full knowledge of his wife’s family and is now being made a scapegoat for schemes his in-laws knew existed — and realised were flawed — all along, the banks say.
This new evidence and the countless legal cases shine a rare light on the practice of “name lending” in the Gulf Arab region, in which a person’s name is sufficient collateral to win a loan or a business deal.
“It’s something that happened in a lot of emerging market countries. It tends to be because of government relations or ties with powerful, rich figures,” said Andrew Andrijanovs at investment banking boutique Exotix.
“One person’s connections or their status in society did lead to large sums being lent, sometimes without the proper risk management. That has been a big lesson for western banks — although investors do have short memories.”
Family and business have been intertwined in the Gulf for generations, a situation epitomised by the Algosaibis. The roots of their wealth lie in a conglomerate of export and import and trading businesses, as well as in land.
Based in the east of the country, the family built construction firms and later won the concession to run the Pepsi-Cola bottling plant.
Some 60 years ago they also started financial businesses, though on a modest scale. The Money Exchange served expatriate workers in the nascent oil industry around oil company Aramco with cash remittance and currency exchange services.
When al-Sanea married Sana Algosaibi, one of patriarch Abdulaziz’s five daughters, in 1980, he was made a partner in the Money Exchange and took control of the Algosaibi financial businesses.
Saud Algosaibi, Abdulaziz’s only son, resented the fact Sana’s husband rose to power. In a sign of how deep the rift has since become, Saud’s sister refers to him in her affidavit for the Cayman court as somebody with a “general tendency to avoid any responsibility”.
His brother-in-law wasn’t the only one unhappy about al-Sanea. Ayouti, the accountant, expressed worries about him on various occasions and was concerned that his debts could hurt AHAB, whose financial business was centered around the Money Exchange. “To date, no decision has been reached as to who will settle that indebtedness,” he said in a 2000 auditors’ report.
As early as 1997, the accountant wrote that the Money Exchange suffered a “permanent” liquidity shortage — so much so that it needed to borrow not just to meet the needs of “the partners and their affiliated companies”, but also to service existing debt.
Three years later, Abdulaziz stepped in to reassure the accountant — and creditors who may have been worried about the Exchange. “In his capacity as Chairman and a partner of AHAB”, Abdulaziz backed “the entire debts of Maan Al Sanea and his companies”, says a March 2000 document described as a “pledge”.
The court documents in the London case also show that Abdulaziz’s only son Saud played an active role, and seemed to keep tabs on al-Sanea and his plans. Saud met bankers, dealt with the family’s financial businesses, and was in frequent conversation with al-Sanea.
Saud could be demanding. “Tried to reach you several times last month and this month,” he wrote to Al-Sanea in 2005, according to a court submission. “I understand where you come from, however think the analysis missed several points … would like to suggest meeting with someone from Money Exchange to discuss a workable plan and come up with a scenario.”
Page after page of such exchanges is proof, the banks argue, that the Algosaibis knew what was going on and are therefore responsible for setting things right.
AHAB said it would not comment on statements made in the London court so far, repeating that “the notion that they knew or cooperated in the looting of their business has no logical or legal basis”.
THE GOOD LIFE
Despite the family concerns, Al-Sanea clearly enjoyed the fruits of running an important part of the business, basing many of his companies in the Cayman Islands, where he held much of his wealth.
Al-Sanea had a private plane fitted with plush white carpet, a master bedroom hung with expensive artwork, and a bathroom with gold fixtures, says Ninfa Arellano-Smith, a Cayman Islands banker working for HSBC. She met al-Sanea in 2006 through her husband — the director for the Civil Aviation Authority — and started working for him.
Al-Sanea, an elegant dresser, has a down-to-earth and easy sense of humour, while his wife Sana dressed like a typical western woman on a beach holiday in the Caymans, Arellano-Smith recalls.
“Sana is a very caring lady and soft spoken, but you know she still runs things. It’s how they interact between them: she will pat him on the arm in a joking manner or something. They are a very caring, strong couple.”
The al-Saneas took up an entire floor at the luxurious Ritz-Carlton resort on their 2008 vacation, Arellano-Smith said, flying into Grand Cayman with an entourage that included friends, butlers, caretakers and pilots.
Al-Sanea also inspected the resort’s 20,000 sq foot penthouse with panoramic views of the world famous Seven Mile Beach and an asking price of $44 million. “He liked it, but it was too small,” Arellano-Smith said.