London court told Al Gosaibis knew The Money Exchange was bust

Saudi family conglomerate and al Sanea targeted by lawyers in $250m repayment bid.

The Royal Courts of Justice in London. AP Photo

A foreign exchange business owned by a Saudi conglomerate that collapsed owing US$9 billion (Dh33.05bn) to more than 100 banks may have been bust for 20 years, the High Court in London heard yesterday.

Ahmad Hamad Al Gosaibi and Brothers deliberately concealed this "secret" until it defaulted on its liabilities in 2009, it was alleged.

Al Gosaibi is facing a legal battle over the repayment of $250 million in loans and interest.

The trial involves claims by HSBC, the British Arab Commercial Bank (BACB), the French banking giant Calyon, now Credit Agricole, the Arab Banking Corporation of Bahrain and its Sharia-compliant business ABC Islamic.

Al Gosaibi argues it is not liable for the debts of The Money Exchange or other operations because they were the result of alleged fraud, theft and forgery by Maan al Sanea, a Kuwaiti-born entrepreneur who married into the al Gosaibi family.

Introducing the case before Mr Justice Flaux, Greg Mitchell, the QC for BACB, said: "We think it is likely there are a large number of other banks awaiting your judgment before taking their own steps to recover their unpaid loans. We say that not only is [Al Gosaibi] liable but its individual partners are liable severally and jointly for its debt."

Mr Mitchell said the documents so far disclosed were "only the tip of the iceberg" but suggested Al Gosaibi or the exchange had been in trouble for 20 years.

"At that stage things went wrong because nobody ever challenged the story being told by [Al Gosaibi] and its partners and carried out a proper investigation into what the partners actually knew about the borrowing.

"Our speculation about this is that actually [Al Gosaibi] or [The] Money Exchange was bust for at least 20 years and it was a guilty secret tucked away," the court heard.

Mr Mitchell said the auditors had been "fobbed off" when they looked into the accounts. Their documents and other communications between the partners have not been released, the court was told.

"It was operating as a bank and had been at least for 20 years. It took deposits from customers, made investments and loaned very substantial sums to Al Gosaibi partners and Mr al Sanea," he said.

"How that borrowing was incurred and what happened in relation to it, all of that is likely to be very important. We are going to say … documents must exist and the failure to produce such documents is a reason why your lordship should treat the evidence of the [Al Gosaibi] witnesses very carefully indeed."

Mr Mitchell said Al Gosaibi's evidential case was "nonsense" and added: "At the very heart of this case is a fact that was carefully and deliberately concealed from the world for at least 20 years by the particular people in charge of [Al Gosaibi] at the time and Mr al Sanea.

"The dark secret is The Money Exchange may have been bust for most if not all of the last 20 years. They had no choice but to carry on a facade of creditworthiness throughout Saudi Arabia and internationally.

"As long as they could carry on the illusion of wealth they could borrow and maintain their cycle of credit and their lifestyle. It allowed the partners to borrow large sums from The Money Exchange and draw enormous dividends through drawings of at least $146m.

"It also allowed the [Al Gosaibi] partners to carry on with their business in Saudi Arabia and to preserve their reputation and keep the chairmanship of Samba [the Saudi American Bank]."

Mr Mitchell said there had been reports that the collapse of Al Gosaibi and its different entities involved defaulting on loans in excess of $22bn. The default has given rise to legal proceedings in New York, Geneva, Dubai, Bahrain and the Cayman Islands as well as London.

Mr Mitchell said Mr al Sanea's conduct would be a "central issue" in the proceedings.

“It is common ground Mr Al Sanea ran The Money Exchange as a separate division of [Al Gosaibi] … The Money Exchange is one and the same legal person as [Al Gosaibi] under Saudi Arabia law.”

The court heard an agreement made on 27 July 1981 meant The Money Exchange’s profits would be shared; 65 per cent to Al Gosaibi, 25 per cent to Mr al Sanea and 10 per cent to Yusuf al Gosaibi, the Al Gosaibi chairman since February 2009.

“ … We say  [Al Gosaibi] is liable for the debts of The Money Exchange and members of the al Gosaibi family would always have realised [Al Gosaibi] was liable.”

Mr al Sanea used his control of The Money Exchange to borrow $9bn from Saudi and international banks. Many banks did not take security over assets because of the name of the apparently wealthy al Gosaibi family, the court heard. The court was told many loan documents were not signed by Sulaiman al Gosaibi, the chairman between 2003 and 2009, but by Mr al Sanea.

Mr Mitchell alleged the signatures were applied “with actual or ostensible authority” of the partners.

He claimed one reason for the “unconventional” signatures was that the partners were content for that to happen because of the mounting debt problems.

“[Al Gosaibi] and The Money Exchange were insolvent throughout this period and …  one can well see why someone might say to Mr al Sanea ‘you created this problem, get on with it, I don’t want to sign a bank authority’,” Mr Mitchell told the court.

He said BACB was also relying on guarantees given in 1999 and signed by Abdulaziz al Gosaibi, the chairman until his death in 2003. Initially, Al Gosaibi claimed the signatures were forgeries but they have since abandoned that defence, the court heard.

“It shows[Al Gosaibi], whenever there is inconvenient evidence, makes allegations of fraud and forgery when there is no basis for that at all,” Mr Mitchell said.

He also argued that as Mr al Sanea was the directing will and mind of The Money Exchange he was also the directing will and mind of Al Gosaibi. If that was not the case then Al Gosaibi is liable under the 1981 partnership agreement or alternatively on a restitutional basis.

Mr Mitchell said the case presented by Al Gosaibi was “wrong, opportunistic and misleading”.

“In May 2009 there must have been enormous embarrassment and fear at the financial collapse which had begun to occur and its very serious implications for the partners who knew what had been happening. They may well have believed at the time in May 2009 that Mr al Sanea had considerable wealth in the Cayman Islands and he ought to bring that money back to rescue The Money Exchange.

“They believed he may well have hidden away $5bn or more. In that belief they employed Deloittes to trace what was believed to be this missing money,” he said, adding if there was any money, most of it had been lost in bad investments.

The trial continues.