A German bank's unknown Jersey structure made transactions with no legitimate contractual basis.

For those who wish to provide their employees' AML [SAR] case studies, the following offers some obvious red flags in commercial structuring and transactions.

An "EX TEMPORE" judgment [copied below] published on the Jersey legal information website highlights some questionable behaviour and payments.

The key facts are:-

• HCOB Structured Situations Limited ["the Company"] was incorporated in Jersey on 13 February 2006
• The beneficial owner of all the shares in the Company is and always has been a commercial bank incorporated in Germany, now known as Hamburg Commercial Bank AG [the Bank].
• The Bank claims it first became aware of the Company's existence in approximately April 2009, three years after incorporation.
• The Bank began to investigate the matter at that time as its internal policies and procedures appeared not to have been complied with in connection with the establishment of the Company, purportedly on its behalf.
• The Company made several payments with NO APPARENT commercial and or legitimate rationale.

That investigation revealed that:-

• In October 2006, Mr Luis Marti-Sanchez, then Deputy General Manager of the London Branch of the Bank, instructed Ogier to incorporate the Company.
  • Mr Luis Marti-Sanchez's superior was Martin Halblaub, General Manager of the London Branch.
    • Mr Halblaub left the Bank in March 2007 and
  • Mr Marti-Sanchez as General Manager replaced [Halblaub] and
    • Mr Marti-Sanchez left the Bank in 2009.
  • The original Directors of the Company were
    • Mr Halblaub, Mr Marti-Sanchez and
    • Peter Gatehouse and Christopher Byrne [two persons then connected with Ogier] both resigned as Directors in March 2007.
  • An Administration Agreement was entered into between
    • the Bank,
    • the Company and
    • Ogier SPV Services Limited,
  • The agreement appears to have been signed on behalf of the Bank and the Company by Mr Marti-Sanchez,
    • even though it is said that at the time, he was not authorised to execute such documents on behalf of the Bank.
    • It is said by the Bank that ordinarily, incorporation of an entity such as this for use by the Bank to facilitate investments and the like would have been handled by the Bank's Subsidiaries Management Division, and that did not happen in this case.
  • Shortly after the establishment of the Company, it issued an invoice on 6 October 2006 to Inscap Management LLC, a US business consulting firm, in the sum of US$ 1 million.
    • Mr Marti-Sanchez signed the invoice and referred to a securities transaction in 2004 in which Inscap was involved, and the Bank subscribed for securities issued by a Maryland business trust.
    • The invoice said that payment should be made to the Ogier US$ account, and
    • in the course of the Bank's investigations, Inscap has confirmed that THE US$ 1 MILLION PAYMENT WAS MADE at the request of Mr Halblaub as a "side payment", which Mr Halblaub requested to improve the "economics" of the transaction.
  • There appears to be NO LEGITIMATE CONTRACTUAL BASIS for this payment which, on the face of it, was a wholly improper payment to have been requested, which should never have been paid.
    • This US$ 1 million was paid to the Ogier client account and
    • then paid to the Company's bank account with RBS in Jersey.
  • The Company then purported to enter into a "consultancy agreement" with
    • Rossini Limited, a Cayman Island company.
  • At the same time, the London branch of the Bank purportedly entered into a "consultancy agreement" with
    • an Italian company called Rossini SRL and
    • an English company called AV Advisory Limited,
  • these consultancy agreements we are told have NO OBVIOUS COMMERCIAL RATIONALE.
  • Two payments were made out of the bank account of the Company in February 2007 and November 2008, respectively, each purportedly under the terms of the consultancy agreements with Rossini Limited and each for US$ 325,000 - the inference being that these sums were, in fact to the benefit of Mr Halblaub and Mr Marti-Sanchez, a matter upon which in due course the liquidators may wish to express their own opinions.

The above [full text below] highlights several suspicious transactions routed through Jersey bank accounts connected to one or more Jersey-regulated firms.

The full judgement is here https://www.jerseylaw.je/judgments/unreported/Pages/%5B2023%5DJRC103.aspx

EX TEMPORE JUDGMENT

• Hamburg Commercial Bank AG = First Representor [the Bank]
• Intertrust Nominees (Jersey) Limited = Second Representor
• Intertrust Nominees 2 (Jersey) Limited = Third Representor

THE DEPUTY BAILIFF:

1. This is an application under Article 155 of the Companies (Jersey) Law 1991 ("the Law") for the winding up of HCOB Structured Situations Limited, which we will call "the Company", on the grounds that it is just and equitable for it to be wound up.
2. The Company was incorporated on 13 February 2006 and the beneficial owner of all the shares in the Company is and always has been a commercial bank incorporated in Germany now known as Hamburg Commercial Bank AG.  We will refer to this entity as "the Bank".

The Second and Third Representors, entities connected to Intertrust, are nominee vehicles of a professional corporate services provider which held and holds the shares for the Bank.

3. We were assisted by an affidavit sworn by Mr Carsten Schrader who is based in Hamburg and is the Chief Information and Technology Officer of the Bank and we are also grateful to Mr Schrader for attending from Hamburg as it was quite possible that we would have required him to give evidence in relation to these matters and to answer questions of the Court, but in the event that was not required, but nonetheless it is important in a case such as this that the relevant deponent attends court if at all possible.
4. The Bank claims it first became aware of the existence of the Company in approximately April 2009 - some three years after incorporation.
5. The Bank began to investigate the matter at that time as its internal policies and procedures appeared not to have been complied with in connection with the establishment of the Company, purportedly on its behalf.

That investigation revealed that, in October 2006,

• Ogier was instructed by a Mr Luis Marti-Sanchez, then Deputy General Manager of the London Branch of the Bank, to incorporate the Company.
• At the time, his superior was Martin Halblaub, General Manager of the London Branch.

6. Mr Halblaub left the Bank in March 2007 and was replaced by Mr Marti-Sanchez as General Manager.  Mr Marti-Sanchez left the Bank in 2009.
7. The original Directors of the Company were Mr Halblaub, Mr Marti-Sanchez and two persons then connected with Ogier – Peter Gatehouse and Christopher Byrne, both of whom resigned as Directors in March 2007.

An Administration Agreement was entered into between the Bank, the Company and Ogier SPV Services Limited which appears to have been signed on behalf of the Bank and the Company by Mr Marti-Sanchez, even though it is said that at the time he was not authorised to execute such documents on behalf of the Bank.

8. It is said by the Bank that ordinarily incorporation of an entity such as this for use by the Bank to facilitate investments and the like would have been handled by the Bank's Subsidiaries Management Division and that did not happen in this case.

Shortly after the establishment of the Company, it issued an invoice on 6 October 2006 to Inscap Management LLC, a US business consulting firm, in the sum of US$ 1 million.

The invoice was signed by Mr Marti-Sanchez and refers to an apparently legitimate securities transaction in 2004 in which Inscap was involved and in the course of which the Bank subscribed for securities issued by a Maryland business trust.

The invoice said that payment should be made to the Ogier US$ account and in the course of the Bank's investigations, Inscap has confirmed that THE US$ 1 MILLION PAYMENT WAS MADE at the request of Mr Halblaub as a "side payment" which Mr Halblaub requested in order to improve the "economics" of the transaction.

There appears to be no legitimate contractual basis for this payment which, on the face of it, was a wholly improper payment to have been requested which should never have been paid.

9. This US$ 1 million was paid to the Ogier client account and then paid to the Company's bank account with RBS in Jersey.

The Company then purported to enter into a "consultancy agreement" with an entity called Rossini Limited, a Cayman Island company.

At the same time, the London branch of the Bank purportedly entered into a "consultancy agreement" with an Italian company called Rossini SRL and an English company called AV Advisory Limited for which we are told there was no obvious commercial rationale.

Two payments were made out of the bank account of the Company in February 2007 and November 2008 respectively, each purportedly pursuant to the terms of the consultancy agreements with Rossini Limited and each in the sum of US$ 325,000 - the inference being that these sums were in fact to the benefit of Mr Halblaub and Mr Marti-Sanchez, a matter upon which in due course the liquidators may wish to express their own opinions.

10. The remaining sums of US$ 348,626 and £15.17 remain in the bank account of the Company.

The Bank does not know the identity of the beneficial owner of Rossini Limited and since Mr Halblaub and Mr Marti-Sanchez left the Bank no steps have been taken by Rossini Limited to pursue any further payments purportedly due.

11. The Jersey Financial Services Commission and the Attorney General have been convened to this hearing.

The Attorney General has said that he is prepared to await the outcome of the investigation by the joint liquidator.

The Solicitor General has appeared today on behalf of the Attorney General and invited the Court to order that the Attorney be provided with a report of the liquidator's conclusions and proposals in respect of the balance remaining after the completion of the liquidation and therefore to await the conclusions of the Attorney General in respect of the proposed destination of any such payment.

The liquidators have said today that they estimate that over US$200,000 will remain after the end of the process of liquidation.

At the convening hearing the Court ordered that efforts be made to serve these proceedings on Mr Halblaub and Mr Marti-Sanchez.  Such efforts have been made and, unsurprisingly perhaps, no response has been received.

12. Mr Halblaub and Mr Marti-Sanchez remain Directors of the Company and the reason for that, the Bank says, is that it has been unable to procure their removal is because it has been unable to find anyone else prepared to serve as a Director in view of the Company's history, to which we have referred.
13. The Court was concerned about the delay of well over a decade between the Bank discovering this matter and the proceedings that were subsequently issued.

Mr Schrader says this has been a result of a number of factors including the need to satisfy numerous regulatory and other requirements within the Bank and also delays caused by a complex restructuring and privatisation within the Bank.

It is said with some justification that the only party which is prejudiced by the passage of time is the Bank, which has been required to keep the Company in good standing and meet associated costs.

Having said that, the delay is a long one but it is not necessary for us to make a finding for the purpose of today's application as to the reasons for that delay.

14. The Court is today invited to order that the Company be wound up on the just and equitable basis, liquidators appointed, with the joint liquidators being authorised to sign the outstanding accounts in lieu of the Directors, and for various other ancillary relief.
15. It is clear from the authorities that it is appropriate in certain circumstances to order a winding up of a Jersey company on the just and equitable basis where an investigation into the affairs of the Company is warranted by the circumstances – see for example Representation of Belgravia Financial Services Group [2008] JRC 161.
16. The circumstances of this Company's incorporation and the subsequent administration of its affairs do, in our judgment, call for an enquiry.
17. In the circumstances we order that:-

• The Company be wound up on the just and equitable basis.
• Alan Roberts and James Piri of Grant Thornton Limited be appointed as joint liquidators of the Company.
• the joint liquidators be authorised to sign the accounts of the Company in lieu of the Directors.
• Before the liquidator appoints any of the balance of the funds held by HCOB Structured Situations Limited to any claimant thereto, they shall provide a copy of their report to the JFSC and HM Attorney General of their conclusions and proposals in relation to such balance or any part of it, and shall thereafter await the conclusions of HM Attorney General in respect to any such appointment; and
• There be liberty to apply.

Authorities

Companies (Jersey) Law 1991.

Representation of Belgravia Financial Services Group [2008] JRC 161

Source https://www.jerseylaw.je/judgments/unreported/Pages/%5B2023%5DJRC103.aspx