NAB exposed in Forum Finance saga

National Australia Bank is entangled in the Forum Finance saga. Picture: NCA NewsWire/Bianca De Marchi

The intricate web of alleged fraud by Forum Finance and its founder Bill Papas is starting to come to light, and National Australia Bank is set to be part of any fallout.

While NAB was Forum Finance’s transactional banker, this column understands it is also the holder of the bulk of the mortgages held against Mr Papas’s vast property portfolio.

Mr Papas is said to have an extensive property portfolio held via a number of entities, and some jointly owned with fellow Forum Finance director and a respondent in the Westpac legal action, Vincenzo Tesoriero.

That means NAB is caught up in the Forum Finance mess, albeit on a smaller scale than its big bank rival Westpac.

Documents filed with the corporate regulator by Mr Papas and mentioned in the Federal Court on Thursday include corporate entities Palante, 14 James Street and 5 Bulkara Street.

The three civil, and separate, Federal Court actions against Forum Finance and Papas involve allegations of fraudulent activity and invoices and leasing arrangements, often for equipment that was never purchased.

Challenger business bank Judo was also mentioned in court proceedings on Thursday as a financier and mortgage holder of several properties owned by Tesoriero.

Westpac scoured Forum Finance’s NAB bank account records and has provided the court with what it says is evidence of multiple entities being used to shift funds around, including several that were non-operating businesses.

Westpac hired private investigators at one stage to follow Papas and Tesoriero, including to a destination where they were racing Audis.

In Thursday’s hearing Westpac’s barrister Jeremy Giles, SC, cited a payment from a Forum entity to Tesoriero of $55,000 and said: “He told your honour that he has no involvement in these corporations.”

Westpac Australia’s exposure to the alleged fraud is pegged at $254.5m, while the bank’s New Zealand arm is exposed to the tune of $39.8m. The NZ claim is not part of the Federal Court case, but has been outlined by the bank.

SMBC on Wednesday became the latest bank to separately pursue Forum and Papas in the Federal Court, with its claim amounting to $98.9m, plus GST and interest.

Societe Generale has an exposure of $9m to Forum Finance.

On Westpac’s NZ exposure, the bank has commenced proceedings in the High Court across the Tasman and has freezing and tracing orders in place too.

There is a possibility that the Australian and NZ Westpac actions against Forum Finance may be linked at a later stage, but they are separate actions as it stands.

At least one other large financial institution is understood to be tied up in the Forum Finance controversy, but depending on the amounts involved it is unclear whether further legal action will emerge.

Westpac and the other banks entangled in the Forum Finance fraud matter should have conducted more thorough due diligence of their counterparty, and even spot checks when large sums were involved.

This is the particularly the case for Westpac, which was last year in the spotlight for millions of breaches of anti-money laundering and counter-terrorism financing laws. That culminated in a record $1.3bn penalty being paid by the bank to financial crimes regulator Austrac.

Banks are, however, often the subject of fraud attempts and sometimes sophisticated and criminal schemes slip through the net.

In 2003, NAB was the subject of a $44m fraud by King Brothers and bus entrepreneur Anthony King.

The case centred around an agreement by the company to sell more than 100 second-hand buses to the bank, knowing that they didn’t exist.

NAB provided the finance for the acquisition of the buses, with the intention of the bank leasing them back to the company.

If the allegations against Forum Finance and its related entities are proven, there will be ripples through the financial system and risk officers will pay close attention to what happened.

There’s certainly a long way for this to play out as assets in Greece, the United Arab Emirates and Britain were drawn into sweeping asset freezing orders.

–

Inside running

NAB’s pursuit of an acquisition of Citigroup’s local retail bank includes an interesting twist.

NAB’s chief operating officer Les Matheson, who was appointed in January after holding executive roles at Royal Bank of Scotland, knows the Citigroup operations very well.

Matheson was Citigroup’s Australian country head for five years until 2008, after six years running the local retail banking aim.

While that was some time ago, Matheson has an insider’s knowledge of the inner workings of the operations, which does provide a small edge in a due diligence process.

Citigroup in April said it was pursuing an exit from consumer banking businesses in 13 markets, including Australia, following a strategic review. As potential acquirers run the numbers on the home loan, credit card and deposit book of Citigroup domestically, they will also have to decide what to do with the small wealth unit.

Bendigo and Adelaide Bank was earlier linked to Citigroup’s local auction, while ING’s Australian operations took a look but are believed to have fallen away from the process.

The banking regulator’s data as at April 30 showed Citigroup was the fifth largest player in the credit card market with a portfolio of almost $3.55bn.

Citigroup has about $4.2bn in owner-occupied mortgages and $2.5bn in housing investment loans, with total loans and leases printing at $11.61bn in April.