FORENSIC REPORT ON A SPECIAL INVESTIGATION INTO A

CLIENT ACCOUNT ACTIVITY

1. INTRODUCTION

Mr. Ron Charles (RC) has a relationship with ABX Bank, Qatar. RC is a British national with
Civil ID no. 540216516. During the period between November 2005 to September 2008, RC
managed to open a total of 26 accounts for 14 Corporates, related to him. As at March 2010,
10 accounts were closed while 16 remain Open.

RC was arrested in Dubai in June 2008 facing a fraud investigation. Following an enquiry
from the Central Bank, a forensic investigation into the accounts related to Mr. RC was
carried out.

An interim investigation report covering transactions review and analysis from January 2007
till 22 March 2010 was issued by the Compliance on 23 March 2010 to the Management.
Further investigation has now been carried out by Internal Audit in coordination with the
Compliance Department additionally covering transactions across the RC group accounts
since January 2006.

2. SCOPE AND OBJECTIVES OF REVIEW

The Scope and objectives of our review was to cover the following:

 Identify all RC related party accounts within the client corporate structure to build up
an understanding of the inter relationship within the Group companies.

 Review the customer KYC information for all related accounts to determine the
adequacy and completeness of the client information.

 Interview the respective Personal Banker and Relationship Manager (RM) to assess
their overall client KYC understanding, and the details of their interaction, if any with
this specific client/ Group.

 Review incoming and outgoing SWIFT messages relating to RC’s corporate accounts
to identify the related counterparties and their relationships.

 Review large value clearing cheques issued / received from third parties to identify
the counterparties and their relationship.

 Review by discussion and enquiry existing processes of SWIFT message processing

and propose appropriate recommendations, if required.

 Assess whether ABX’s AML systems and procedures were adequate and operated
satisfactorily as per Qatar Central Bank’s (QCB) AML regulations over the period
January 2006 to March 2010.

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3. KEY OBSERVATIONS

Based on the above scope and objectives, Audit and Compliance jointly carried out an
investigation of the transactions carried out by RC group and the results of our findings are as
below:

3.1 RC’s Corporate Structure

From our review of the account opening documents and world wide web search, an
Organisation structure has been prepared. The chart showing the Corporate relationship
structure of various companies formed by RC is attached as Appendix-I. There are six
companies where RC is a majority share holder of 50% and above. In three companies, RC is
a minority shareholder (less than 3%). For seven other companies cross shareholdings exist.

Based on the total account turnover over the past 4 years, the major companies within the
Group are KH Co.; PSEH ltd; PSIME, (Earlier PSI Energy) and LS (Middle East).

3.2 KYC review

Our review of KYC documentation of 13 accounts of RC group highlighted the following:

Article of Association (AoA) was not available in case of six accounts.

3.3 Review of Incoming and Outgoing Transfers

Between the period January 2006 to 23 March 2010, we noted that there were approximately
266 individual payment transactions across RC Companies accounts held with AUB for
values exceeding BD 50,000 (or equivalent) to counterparties (hereinafter called ‘External
Parties’) with accounts held with other banks. The total inward and outward remittances for
these transactions are amounts to USD 66.887 Million and USD 68.780 Millions respectively.

A detailed listing of the total values by counterparty and the top 10 inward and outward
remittances are available, and can be produced on request. Our review highlighted that
outward remittances (USD 47.516 Million) from top 10 counterparties to RC group
constituted 69.08 % of total outward remittances and inward remittance (USD 58.628
Million) to RC group companies from top 10 counterparties constituted 87.52% of total
inward remittances. One single largest counterparty was ‘CCH’ where the transactions worth
USD 40.634 Million (USD 24.434 Million- outward and USD 16.200 Million- inward) were
observed which constituted almost 30% of total transactions above BD 50,000.

Of the above mentioned 266 transactions, 118 (113 Swift messages & 5 clearing cheques)
representing 45.88 % inward remittances and 62.51 % of outward remittances in values were
selected for our review to identify the banks and the location of the counterparty from where
the funds were received / paid to and any unusual / suspicious transactions. The sample
selection covered all the counterparty relationships, and the top 10 inward and outward
remittances. The details of messages reviewed are attached in Appendix-IV of this report.
From our review we noted that the transactions do not appear to be suspicious in nature and
appeared to be business related.

From our review of the 113 swift messages and 5 cheques, we noted the following banks to
whom funds were sent and / or received from:

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Seven Banks in Qatar: Qatar National Bank, Doha Bank, BNP Paribas, HSBC, Standard
Chartered Bank, Commercial Bank of Qatar, & Khaleeji Commercial Bank.

15 Major International Banks outside Qatar: Deutsche Bank, Dusseldorf; Deutsche Bank,
Frankfurt; Bank of Butterfield & Son, Hamilton; Al Falah Bank, Karachi; Faisal Bank,
Karachi; Askari Bank, Karachi; NBAD, Abu Dabhi; HSBC, London; HSBC, Dubai; Citi
Bank, St. Helier, JE; Mashreq, Dubai; Barclays Bank, London; Bank of Nova Scotia, Toronto;
Bank of Monteal, Montreal; Saudi British Bank, Riyadh;

Eight other International banks: where 1 transaction only passed: Credit Europe Bank,
Amsterdam; Lloyds TSB, Dubai; National Bank of Ras Al Khaima; Ras Al-Khaima; SBI,
Mumbai ; Corporation Bank, Mumbai ; Doha Bank, Doha ; QNB, Doha; CFC Bank Ltd.,
Kenya.

From our review we noted that the above banks were mostly international banks supposed to
have good AML/KYC procedures is place and therefore do not cause a suspicious on them.

The SWIFT messages were also reviewed for its completeness as regards the Ordering
Customer / beneficiary details and its appropriate reviews and approval processes and noted
no exceptions.

3.4 Interviews with the Personal Banker and the Relationship Manager

We interviewed the personal banker, Ms. TK, now based at the Main Branch who was the
personal banker during the period till July 2008 when all the RC accounts were opened. TK
confirmed that face to face meetings were held with RC during the account opening process
for all company accounts at different times and stated she found him to be a legitimate
businessman owning a Group of Companies, which was also reflected from his company
transactions. TK confirmed that she never had any AML suspicion on the customer, or his
accounts. TK also informed us that now improved process for account opening have been
adopted in BIC since past one year. TK attended three AML training between November 2006
and June 2009. We found TK’s knowledge and understanding of AML/ KYC responsibilities
adequate.

We also interviewed the RC Group companies’ Relationship manager, Mr. JAT, (Corporate
Banking) who confirmed that he personally met RC twice in 2006 and early 2008, by visiting
the client’s office at Sh. Mohammed Building in Doha once and meeting him at the Branch
the second time. The objective of his first meeting with the client was to understand the
client’s business structure and the source of funds and purpose of the USD 20 Million
transferred to M/s. KH’s account in October 2006. The client at that time confirmed that the
funds received were to increase the share capital of KH Co. and the source of funds was from
his own account with HSBC, London. This statement was subsequently validated with the
documentary support provided by the Client.

JAT further informed that the main business plan of the client was to set up Oil Refinery
plants in Asian countries and KH Company was one of the Group Companies within RC
umbrella. Based on the discussions, the relationship manager appeared satisfied with the
client information and also noted that more funds would flow into the account for business
purposes. JAT confirmed this visit to his then manager Mr. SM at that time. JAT also stated he
had created a separate file for this customer with necessary Client information therein.

Audit however noted that whilst there were adequate communications between JAT,
Operations and Compliance for the above transaction of USD 20.00 Million, neither

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 documented visit reports were made for the visits conducted by JAT nor the Client file (as
referred above) was available for review by Audit.

We further noted that JAT did not have complete information on the RC group accounts as
against 14 accounts identified by the Compliance; JAT stated that he was aware of 5-6
accounts.

Further the RM did not get any timely alerts when the following conditions existed together:

 Client arrested in June 2008 by Dubai police

 Multiple accounts opening by the group
 High value transactions in the group company accounts
 High turnover in the newly opened accounts

JAT had last undergone AML training in June 2009.

i. Currently Company under formation accounts are maintained with

branch of the Bank and all accounts are assigned under one single Relationship Manager
(RM) as Account Officer. One RM may not be an expert in all areas / types of business of all
customers of the branch and therefore may not be able to establish clear linkages in the
transactions carried out by the BIC customers due to diversified business activities.

3.5 Review of SWIFT message processing- Discussion with the Operations/ Business
Unit/ compliance-

From our review of the SWIFT message processing (by discussion with the relevant
Management/ staff) we noted as follows:

ii. Currently all outgoing SWIFT messages are subject to automatic AML
check through the AML system which generates Rule Based Alerts (RBA) when there
is a name match with the World check list maintained in AML system which are
required to be separately authorised by the SWIFT staff by providing comments in the
AML system or sometime referred to Compliance for advice / clarification before the
message is actually authorised for SWIFT. However there is no process of escalating
outgoing/ incoming SWIFT messages to the respective RMs for their comments when
high value or suspicious transactions are noted through SWIFT.
iii. Further since all the major transactions are not referred to the RM, the
RM may not be aware about the actual activities happening in the account or related
group companies unless he checks it on the system for some other purposes. This is
more likely in non borrowing relationships where no periodical review is carried out.

3.6 Review of RC group companies and their counterparties on World check database.
Further in order to understand the types/ nature of the business of External Parties with which
these transactions were carried out, we have extracted the information available, wherever
possible, in Public domain including Web search. A list of profiles of counterparties is
available as Appendix-V to this report.

3.7 Assessment of whether ABX’s AML systems and procedures were adequate and
operated satisfactorily as per the QCB’s AML regulations over the period January 2006
to March 2010

In particular, need to consider whether RC’s arrest in June 2008 which was reported in the
Bahrain press and on world check should have been picked up by the RM or our systems

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The AUB AML procedures were generally operated satisfactorily by the Bank and the
exceptions highlighted in this report are based on this investigation specific to RC group
account transactions.

4. RECOMMENDATIONS

Based on our review / investigation we recommend as follows:

i. Compliance to advise all Business Unit heads to instruct their staff

and reemphasize the importance of requirements under AML / KYC regulations, with
particular focus on understanding the source of funds and purpose of the receipts /
payments.
ii. Business Units to ensure that Client visits should be conducted on a
regular basis and visit report be formally documented. Initial visits to new clients
should be required to confirm full KYC information is known and documented with
specific comments of the Business activities / ML aspects especially in the cases of
non borrowing relationships; Further, BU heads to advise their RMs to be more alert
on their clients news in the media (Press/ Electronic) and update the BU head /
Compliance and also KYC documentation, if required appropriately and in a timely
manner.
iii. Corporate Banking Head is recommended to advise the RM for BIC
branch accounts to be more alert and careful in future to avoid such high value
transactions going unnoticed by the Bank.
iv. Operations Department unit to advise relevant staff to be more
vigilant with regard to the high value and high frequency transactions, with particular
focus on customers noted as ‘Individual’ and ‘non-borrowing’ relationships.
v. Corporate Banking management to review the existing practice of
assigning one RM to all BIC branch customers and consider assigning the RMs based
on the Industry /business type of the customers as done for other corporate banking
clients.
vi. BIC branch is advised to complete all required KYC documentation
(as highlighted above) for the RC group company accounts.
vii. Consider monitoring procedures for alerts re media reports of
Bahraini residents arrested on suspicion of fraud.

5. OVERALL CONCLUSION

We noted that although there are high / unusual activities in the accounts associated
with RC group, most of the transactions have been carried out within intra group.

Our review of sample transactions mostly with third parties, their counterparties /
locations revealed that the transactions carried out by RC group do not appear to be
suspicious in nature since most of these transactions appear as business related.
However recommendations are being made on the operational issues identified / noted
as above and Audit in coordination with Compliance will follow the implementation
of recommendations.

It may be noted that a regular audit of AML is currently underway which would
review the AML processes and procedures in detail.

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