In 2011 the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) found LCB to be a ‘financial institution of primary money laundering concern.’ Now the minority shareholders claim impropriety against LCB’s auditors – Deloitte and Touche (Middle East), which they allege failed to adhere to Deloitte’s global standards of integrity, professionalism and objectivity.
Dubai, 25rd August 2016 – Nest Investments Holding SAL, one of the Nest Investments group companies founded by leading Gulf entrepreneur Ghazi Abu Nahl, is suing Deloitte and Touche (Middle East) (DTME) and its Managing Partner Joseph El Fadl for negligence and deceit in their financial and anti-money laundering (AML) audit of Lebanese Canadian Bank (LCB), the bank accused by US authorities of laundering millions for drug cartels and terrorist financiers.
The claim was filed in the Dubai International Financial Centre (DIFC) Courts on 19 July 2016. This is the first claim of its kind to be considered by the DIFC Courts – targeting a leading audit brand for negligence and deceit in their audit of a client bank that was allegedly acting as the financial arm for drug traffickers and terrorist organizations.
Nest Investments Holding SAL is a minority shareholder in the now-defunct LCB and is bringing the action with ten other minority shareholders, including Mr Ghazi Abu Nahl.
DTME acted as LCB’s auditors from 1995 until the Bank’s liquidation. It remains the auditor in liquidation and its tenure is currently being renewed by the majority shareholders. The Claimants say that DTME failed in their duty as auditors because Mr El Fadl’s team allowed their relationship with LCB senior management and majority shareholders to become compromised. They say that DTME failed to adhere to Deloitte’s high global standards on integrity, professionalism and objectivity.
Rampant criminality at LCB was uncovered in the course of an investigation by the US FBI and the Drug Enforcement Administration (DEA), which found that LCB and its management played a key role in facilitating money laundering for Hezbollah-controlled organizations across the globe.
As a result of the FBI / DEA’s investigations the US Treasury identified LCB as a ‘financial institution of primary money laundering concern’ – the US Treasury designation is regarded as the ‘death penalty’ for a bank, as it immediately results in banning the sanctioned bank from the USD clearing system globally.
In a report published in February 2011, the US Treasury said that LCB bank accounts were used “extensively by persons associated with international drug trafficking and money laundering” as a result of “management complicity.”
FinCEN found that nearly US$230-million of illicit funds had passed through LCB’s accounts while the DTME and El Fadl were auditors of LCB.
The Claimants add that they used all their considerable expertise in good corporate governance to attempt to strengthen compliance at LCB, including setting up an Internal Audit Committee. They were determined to install a compliance process at LCB that met with the highest global regulatory standards but were obstructed by senior management and majority shareholders at LCB; and concerns and recommendations raised by the committee were ignored. The Claimants add that, at the time, they believed this stemmed from incompetence, not a cover up of rampant criminality.
The Claim alleges that it is inconceivable that criminality of this degree could have gone unnoticed by DTME, as LCB’s auditors since 1995. DTME chose to turn a blind eye and gave deceitful audit and anti-money laundering audit opinions that allowed the spread of criminality within LCB, completely hidden from minority shareholders and the wider market.
A source close to proceedings said:
“DTME audited LCB for more than a decade. This claim alleges that they ignored clear red flags and international audit standards. They failed to acknowledge allegations of serious wrongdoing from a number of independent sources and turned a blind eye to the facts. Their professional audit opinions, which acquitted the bank of any misconduct, were at complete odds with the US Treasury’s designation of LCB as a banker for drug cartels and terrorists.
“This claim is another disturbing example of a trusted global name like Deloitte being damaged by its Middle East regional member firm and comes after the same outfit was censured by the Saudi Regulator for serious audit failures; however, this time – and for the first time – the facts will be laid out before the DIFC Courts, an international litigation venue with the right framework for this kind of serious and complex claim.”