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 Société Générale, owed an estimated $22-billion U.S.
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 Mr. Algosaibi family 30 years ago and was put in charge of its financial businesses. Mr. al-Sanea used his insider’s access, Mr. 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 unauthorized borrowing, are suing Mr. 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 Mr. al-Sanea.
Accounts of the case so far have focused on the Algosaibi version of events. Mr. 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 Mr. al-Sanea was doing.
Banks have compiled a mountain of e-mails, 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 Mr. 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 Mr. 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 Mr. 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 realized 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 epitomized 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.