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May 24, 2005

Update on Enron's "NatWest Three"

Natwest three.jpgOne of the more interesting sidelights to the criminal investigations into Enron Corp. has been the saga of the "NatWest Three" -- David Bermingham, Gary Mulgrew and Giles Darby, the three former National Westminster Bank PLC bankers based in London who are charged in Houston with bilking their former employer of $7.3 million in a scheme allegedly engineered by former Enron CFO Andrew Fastow. Here are the previous posts on the NatWest Three.

Earlier this morning, English Home Secretary Charles Clarke approved the extradition of the NatWest Three to Houston to face the seven counts of wire fraud that each of them face under the U.S. indictment. The NatWest Three have two weeks to appeal Mr. Clarke's decision, and an appeal would likely tie the matter up further in U.K. courts.

The case of the NatWest Three is gaining increased public interest in England because the three bankers have contended that, if a fraud case should be prosecuted against them at all, then the case should go forward in England because the men are all British and the alleged offenses were committed against a United Kingdom company. If a British prosecution against the three were to proceed, then the U.S. prosecution would be delayed because the British charges would take precedence over foreign ones. A British prosecution would also raise all sorts of double jeopardy and collateral estoppel issues that could at least complicate any subsequent U.S. prosecution.

The U.K.'s Serious Fraud office decided not to prosecute the three former bankers, but the three bankers last month won a judicial review of that decision. Although Mr. Clarke was not required to consider the judicial review issue in deciding whether to approve the men's extradition, British legal commentators are now openly questioning why the British government is giving in so easily to a U.S. government extradition request relating to reputable U.K. businessmen, particularly in regard to an extradition that would result in a prosecution of those U.K. citizens in Houston's anti-Enron environment for alleged crimes that the U.K. government has declined to prosecute?

That's a pretty darn good question.

Posted by Tom at May 24, 2005 11:06 AM |


Tom: From what I have read about Enron, the case against the NatWest Three would seem to be open and shut. Do you think that the UK Serious Fraud office's decision is based on a perception that perhaps the case against the three is not as strong as it has been made to appear, or based on reasoning that the Americans would prosecute it, so the British need not bother?

Posted by: Steve Casburn at May 24, 2005 7:10 PM

Steve, there is no telling. On the surface, the case against the NatWest three looks strong. However, it was NatWest, a British bank, that was allegedly looted, and the three men conducted most of the transactions through their London office. The UK Serious Fraud decision not to prosecute the case cannot be construed as a decision that no criminal case exists. However, it appears rather odd to me that the U.K. authorities are not taking a more aggressive stance toward an alleged fraud perpetrated by British businessmen on a U.K. institution.

Remember, too, that it was the NatWest three who went to the U.K. authorities and disclosed the nature of the transaction when they became aware that Fastow was being investigated over the transaction in the U.S. That may have had an effect on the U.K. authorities' evaluation of the transaction.

Posted by: Tom K. at May 24, 2005 8:58 PM

I've heard that the NatWest three went to the U.K. authorities shortly after they became aware of representations made in Enron's November 8, 2001 8-K, specifically that Glisan and Mordaunt had been involved in Southampton. The three were supposedly given the all's clear sign by those authorities in early 2002, only to learn in the summer -- on their local news -- about the Task Force's criminal complaint against them.

I think the Brits play a game called snooker, a game Weissmann seems to have learned a bit about as well.

Posted by: Preston at May 25, 2005 9:05 AM

I am English. My father has been an entrepreneur most of his life and has worked in Britain and the USA. I can explain why the UK authorities showed no interest in prosecuting the NatWest Three. To do so, I'd like to draw your attention to a big difference between Britain and the US. Britain developed over hundreds of years with a ruling, aristocratic class. As mercantilism and the service sectors (such as banking) developed in the eighteenth and nineteenth centuries, it became acceptable for aristocrats to invest in these sectors because they came to be considered gentlemanly. However other business, such as industry, was never regarded gentlemanly and therefore was of little concern to the ruling class. Britain over the centuries has escaped the dramatic upheaval that many other nations have undergone. We have not been invaded since 1066 and our monarchy still exist. Relationships and interconnections have been allowed to build up amongst those that rule, undisturbed. Close relationships were given more chance to foster because the government and the service sectors were, and are, based in the South East of England. Members of the government and bankers could often be members of the same Gentlemans Club.

Britains evolution therefore has favoured the service sectors to the expense of industry. This is made evident, not only by the governments gradual sacrifice of Britains industries in favour of the service sector, but also by a bias within the legal system.

There are many instances in Britain, of a Bank placing a business into receivership and selling that business very cheaply. The ex-owner is ruined, and the wealth shifts elsewhere in suspicious circumstances. Accountants benefit by receiving substantial fees. There is no shortage of cases that would seem to be blatant fraud. But in these cases, the bank appears party to the fraud.

As a British person aware of, and with some experience of these issues, I will suggest a possible reason why there has been no interest in prosecuting the NatWest Three in Britain. The NatWest bank is the victim, but its three ex-bankers could have been involved with, or knowledge of, similar crimes where the bank was a perpetrator. If the NatWest charged the three, all manner of things may come up in court. Likewise, the British authorities have little inclination to charge the three because it could serve to damage established relationships. The expression "Old ties bind" comes to mind.

Posted by: ChristopherLees Author Profile Page at July 11, 2006 8:56 AM

The concerns in England are not specifically for the Natwest three but for the principles and implications of this extradition:-
1. The extradition treaty has been with the Senate Committee on Foreign Relations since April 2004 and still awaits ratification. This is therefore a one sided treaty that favours the US.
2. In the UK bail is normally granted in such cases. Even if granted by the US court, the Natwest three are likely to be obliged to remain in the US pending trial, with the associated expense and disruption to their personal lives.
3. This action is widely perceived as a method pressurising the three into testifying against bigger fish rather than a genuine wish to bring them to justice for their own actions.
4. The continued use of the Guantanamo Bay facility causes distrust of the American justice system. The disparity in treatment between US and foreign nationals causes concern and even fear amount the people of the UK. There is a perception that in the US references to Justice and Civil Rights are applicable solely to US citizens.
5. The removal of the requirement to place evidence before a British Court in order to substantiate an extradition request could easily be used by the US to legally kidnap UK subjects who could then (the principal case having failed for absence of evidence) be tried for offences that would not even be crimes in the UK.
6. This is yet another example of our Prime Minister dancing to the Bush tune. Clinton had Monica; GW has Tony. Perhaps it would be in the interest of the UK to become part of the US. If we are to be subjected to your laws, we could then enjoy the benefits of your constitution

Posted by: Graham Author Profile Page at July 12, 2006 3:06 AM

There are two debates to be had regarding "The NatWest Three". One regards the unequal nature of British/US extradition arrangements. This has dominated the British publicity around this case. It is considered problematic that while the NatWest Three can be extradited to the US to face charges, IRA terrorist suspects cannot be extradited to the UK.

However, the more important debate should regard the competence of the British justice system compared with that of the US. The NatWest Three are charged with having having colluded with Enron, to establish an off-shore company in the Cayman Islands, to advise their then employer NatWest to sell a business at an artificially deflated price to the off-shore company. They immediately left NatWest and bought into the off-shore company. The company was then sold to Enron for a massive profit. US authorities say they have solid "wire" evidence.

The NatWest Three seem to have no defence and consequently have employed an aggressive PR machine to, instead, stoke discontent and anti-US feelings by concentrating on the disparity with British/US extradition arrangements. Remember, the UK authorities and the NatWest have shown no interest in charging the NatWest Three. There is little inclination in Britain to make these three face justice.

The United States should be held in high regard for having a justice system that will pursue crime committed by bankers and accountants (think Arthur Anderson) whereas Britain should be ashamed of the worrying level of corruption that prejudices the entrepreneur but turns a blind eye to bank and accountant fraud.

Recently I wrote that I believed the NatWest would not be inclined to charge the NatWest Three because of the further revelations of corruption that the case would bring. Since then, another NatWest empolyee - who had been pressed to stand as a witness against the NatWest Three - has committed suicide. I wonder why!

Posted by: ChristopherLees Author Profile Page at July 13, 2006 5:10 AM

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