Comply or explain

The US justice system has jailed many of executives involved in corporate frauds

By Michelle Perry | Published 12:50, 21 August 12

I find it curious that after 17 years in exile Asil Nadir, the former chief executive of collapsed conglomerate Polly Peck International (PPI), returned to the UK in 2010 to face charges of theft.

This week he was found guilty of three counts of theft at the Old Bailey. In one of the biggest trials of its kind in a UK court a jury has to decide whether the 71-year old entrepreneur is guilty of 13 charges of alleged theft totalling £33.1 million and $2.5 million from Polly Peck International between 1987 and 1990.

The case, according to the Serious Fraud Office which is prosecuting it, concerns however the alleged theft of the largest sum of £146 million from PPI in financial transfers.

Over a decade ago as a cub reporter on a financial newspaper I was writing about the aftermath of Nadir’s flight to Turkish Cyprus, which has no extradition treaty with the UK. I was covering an audit regulator’s investigation of PPI’s auditors – Stoy Hayward (now BDO Stoy Hayward) – into why they hadn’t uncovered the financial irregularities.

Chris Dickson, at the time executive counsel to the audit regulator – the Joint Disciplinary Scheme – laid complaints against BDO for the audits of PPI’s accounts for the years ending 31 December 1986, 1988 and 1989. Complaints were also laid against the audit firm for its work as reporting accountants for a rights issue in 1989 when Del Monte was acquired.

For those who don’t remember, Nadir turned a small textiles company in the East End of London into one of the UK’s top companies worth £1.7 billion at its peak. The multinational conglomerate, whose goods and services ranged from electronics to leisure and the Del Monte fruit group, collapsed in October 1990 with borrowings of £522 million.

After PPI went into administration the company was found to have an almost complete lack of internal controls at its London office, allowing Nadir to transfer vast sums from the company’s London bank accounts without question.

For its role as auditor Stoy Hayward was fined £75,000 and ordered to pay £250,000 in costs in January 2002.

As PPI collapsed the Cadbury report — on which the UK’s corporate governance code is founded — was being drafted. Its recommendations focused largely on the control and reporting functions of boards and on the role of auditors.

Naturally Nadir claims he is innocent of all charges and his return to Britain is about fighting “the injustices that I was suffering”. Many observers have noted that the coincidence or not of Nadir’s return to Britain under a Tory government. Perhaps Nadir thought the distractions of a global financial meltdown and an economy in recession would soften the blow on him. What he didn’t reckon on though was a double dip and the public’s mounting anger at overpaid executives and bankers.

The jury of 10 was sent home last night and were due to resume deliberations on the remaining nine counts of theft against Nadir today.

Many argue that Polly Peck and other financial scandals at the time (BCCI) were Britain’s Enron and WorldCom. But while the US justice system has jailed many of the executives involved in those corporate frauds, Polly Peck shareholders would argue that the UK has failed to see justice done in PPI’s case. Many issues remain unresolved. Will the jury at the Old Bailey final put them to rest today?


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