Iceland’s failed Glitnir Bank hf and other lenders claiming they were stung by internal fraud during the financial crisis are winning U.K. court orders freezing the worldwide assets of ousted executives with ties to Britain.
Glitnir in May froze the assets of Jon Asgeir Johannesson, its former principal shareholder, and won a second court victory last week after he violated the order by paying bills. Kazakhstan’s BTA Bank, which defaulted on $12 billion of debt, and Intercontinental Bank Plc, the bailed-out Nigerian lender, won similar orders against former executives in the past year.
The freezes, often used in civil cases to hold assets in place before a trial, follow a financial crisis that exposed scams such as Bernard Madoff’s $65 billion Ponzi scheme and led to U.S. fraud charges against a Goldman Sachs Group Inc. worker over the marketing of investments tied to subprime mortgages.
Britain is a popular venue for seeking asset freezes because the orders can be won rapidly, often with a phone call to a judge and without the defendant’s knowledge, in order to prevent them from moving money, lawyers said.
“Somebody who believes they’re being ripped off can get an order from the court really quickly in England and it’s an order with teeth,” said Christopher Style, a lawyer with Linklaters LLP in London, who isn’t involved in the bank cases. Style said he once obtained a freeze over the phone from a judge who was playing cricket.
Incentive for Claimants
“What we’re seeing is an increase in fraud cases leading to an increase in freezing orders,” said Helen Carty, a lawyer with Clifford Chance LLP in London, who isn’t involved in the cases. “There’s an incentive for claimants to come here, because England’s worldwide freezing orders are clearly very effective.”
Johannesson, the former chairman of Glitnir’s parent company Baugur Group hf, said he was “surprised” by the bank’s decision to use a U.K. court to win the freeze. He also said Glitnir wrongfully claims he has 202 million pounds ($320 million) in Britain.
“Glitnir is using the U.K. court system to obtain an order against me which is not available to them in any other jurisdiction,” Johannesson, who lives in London, said in an e- mail. “I have not hidden any assets, and if Glitnir had made any effort to contact me, I would have been pleased to provide them with the requested information.”
Freezes can be accompanied by orders to seize a defendant’s passport and search their homes for evidence of foreign assets.
‘Powerful and Fearsome’
The freeze is “one of the most powerful and fearsome orders which can be made by the English courts,” Gautam Bhattacharyya, a lawyer at Reed Smith LLP, said.
Glitnir, which collapsed in October 2008, sued Johannesson in New York in May, claiming he led a group that drained Glitnir of $2 billion. Johannesson said the suit is “just politics.”
The bank’s freeze order against him covers two apartments in Manhattan’s Gramercy Park neighborhood, for which he paid $25 million. Johannesson last month lost an appeal to lift the order and new freezes were issued after Glitnir said he violated the freeze by paying 585,648 pounds in bills.
The orders can be easy to obtain if a claimant has their facts straight and defendants who violate them can be found in contempt of court and sent to prison.
“The courts will bend over backward to try to accommodate a claimant who is clearly behaving responsibly,” said Mona Vaswani, a lawyer with Allen & Overy LLP in London, who isn’t involved in the cases. “If you’re going with rather speculative evidence, you can expect to be knocked back.”
While banks outside the U.K. aren’t required to comply with the U.K. orders, they often adopt similar freezes in their own countries because of them.
“Most jurisdictions that have active banking sectors are prepared to entertain applications for orders in support of freezes from English courts,” said Peter Flint, a lawyer with Barlow, Lyde & Gilbert LLP in London.
The need to win parallel orders in other countries also requires extra work from lawyers.
“This can make it an expensive exercise, so there needs to be a significant sum at stake to justify applications in multiple jurisdictions,” Paul Worth, a lawyer with the firm Eversheds LLP in London, said.
Kazakh prosecutors issued international arrest warrants for Ablyazov and some of his associates on suspicion they embezzled money from BTA and laundered it through loans to fake companies.
Louis Flannery, a lawyer for the men at Stephenson Harwood, didn’t return a call for comment.
Intercontinental, one the lenders Nigeria bailed out, in January was able to freeze 83 million pounds of assets held by its former CEO Erastus Akingbola. Akingbola, who is living in the U.K., is accused of using bank funds to buy real estate and enrich entities linked to his family.
The Central Bank of Nigeria, which fired Akingbola after bailing out Intercontinental, said the country has asked the U.K. to extradite the former executive so he can face charges.
Akingbola’s lawyer, Ed Crosse of Osborne Clarke in London, declined to comment.
The freezes don’t always hold up.
Venezuelan Oil Assets
In 2008, Exxon Mobil Corp.’s global freeze on $12 billion of Venezuelan oil assets, as part of a dispute with Petroleos de Venezuela SA and President Hugo Chavez, was overturned by a U.K. court when it couldn’t establish jurisdiction.
Claimants may have to pay damages if they win freezing orders by failing to give all available information, said Irene Dallas of Pillsbury Winthrop Shaw Pittman LLP in London.
“There’s a heavy burden to tell the court everything it needs to know in order to make a decision,” Dallas said in an interview. Otherwise, “you’re at risk of paying damages.”
Kuwait Airways Corp. in April won a U.K. court order to freeze Iraqi Airways’ global assets after claiming 10 of its planes were stolen when Iraq, under the rule of Saddam Hussein, invaded Kuwait in August 1990. The freeze was issued on the same day as an Iraqi Air flight landed in London for the first time in 20 years.
Yukos Capital, a former unit of bankrupt Yukos Oil Co., in March won a 425 million-pound freezing order against the Russian oil company OAO Rosneft. Rosneft was able to lift the order after providing a security.