Lesson from Barings not learned, says Nick Leeson
Rogue trader Nick Leeson yesterday said it was frightening that the China Aviation Oil financial scandal could rock Singapore more than a decade after his trading losses led to the collapse of Barings Bank.
Mr Leeson, speaking at a fraud and security conference in Hong Kong, said he believed when he was arrested in 1995 after losing GBP862 million ($11.7 billion) in derivatives trading that such large-scale fraud could not be repeated in Singapore.
'But then, 2005 started with another derivatives trading scandal in Singapore with China Aviation Oil,' he said. 'The [chief executive] was sentenced [on Tuesday]. For that sort of thing to occur in the same place after a period of 10 years is quite frightening.
'I think people tend to forget these episodes far too readily.'
Chen Jiulin, former chief executive of the Singapore-listed jet fuel trading company, was jailed for four years and three months for helping to hide millions of dollars in losses from betting on oil prices.
Chen earlier admitted he did not understand the risks involved in oil trades, which dealt CAO US$550 million in losses.
Mr Leeson said that such a lack of understanding of how financial products and trades work was fundamental in his own ability to avoid detection for almost three years at Barings, while systematically losing the bank a fortune.
He told delegates of the Fraud, OpRisk and Security World 2006 conference: 'When you look at the operational risks, it is important that the people involved within the organisation, from the top all the way through the organisation, need to have an understanding of how the products work.'
He said his bosses at Barings did not know how futures and options worked and senior management at the bank failed to implement basic internal controls.
'It is this lack of understanding that allows fraud to perpetuate. China Aviation Oil is a case in point,' he said.
The former trader, who served 41/2 years in prison, now lives in Ireland and is the commercial manager of Galway United Football Club, and a regular on the international speaking circuit.
