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Note:Beneficiary, Malaysian International Trading Corp. Sdn Bhd, entered into 137 contracts to sell palm olein to Applicant, Inter-America's Group LLC. Applicant was engaged in a massive fraud scheme devised primarily by three individuals: William Lindsay Cannon, Shunichi Nonaka, and Tsai Cheng Wen. The buy high-sell low scheme consisted of 1) buying palm olein at high prices from Beneficiary and Applicant with no intention of ever paying the Beneficiary the contracted for price 2) selling the palm olein at low prices to third parties in China and India. The scheme cost Beneficiary US$ 75.1 million plus financing and other charges and losses. In addition to the primary fraudsters, two other groups were implicated in the scheme, the Huangpu Industrial Holdings Pte Ltd. and the Interamerica Asia Pte Ltd., who were ultimate purchasers of the palm olein.

To obtain palm olein to sell to a customer, Nonaka first contacted Mohammed Amin Najib, who was senior trader and the covering manager of Beneficiary and held what the court described as a "key post". Najib told Nonaka he could sell palm olein at US$ 715 per metric ton. Nonaka "readily agreed to buy at that price without any negotiation whatsoever." Remarkably, the price agreed to was "US$ 89 per metric ton above the price at which Nonaka had agreed to sell to [a customer]". The agreed method of payment was by letter of credit.

However, Nonaka could not obtain an LC directly from a bank. Instead, he approached Tsai Cheng Wen whose company he found on the Internet. Nonaka agreed that Tsai's company would open an LC in favor of Beneficiary in return for a "commission", which eventually amounted to US$ 29 million from the sale proceeds. Tsai "purportedly opened" 84 LCs for contracts between Applicant and Beneficiary. Sixty-four of these 84 LCs contained "inoperable terms and provided no security for payment by the opening bank." The remaining 19 LCs were described as "fraudulent".

The LCs were inoperable because the Beneficiary was unable to tender the proper documents and negotiate them. For example, the first three LCs were issued by FIBI Bank Ltd., Switzerland, Issuer, in favor of Beneficiary. The conditions for the LC required a survey certificate stipulating the name of the surveyor to be nominated to the Beneficiary by Applicant via a SWIFT message. Because of this condition, the court noted that payment was "not assured credits unless the accountee of those LCs gave instructions to the opening bank and the opening bank was willing to make the confirmation." No surveyor was ever named. When an attempt was made by the Beneficiary to negotiate the LC, Issuer refused, noting among other discrepancies that the surveyor was not confirmed by the Issuing Bank and the cable telex reconfirmation of surveyor's name was not presented"

When the LCs were dishonored, Najib was notified, who informed Applicant which asked for Beneficiary's account number so that it could make payment by telegraphic transfer. Beneficiary received payment for the first spot sale contract by telegraphic transfer. Thereafter, it was agreed that settlement of spot sales was to take place by this means rather than by LC although the president of Najib's company thought that the sales to Applicant were all secured by LCS. The court noted that "[p]ayments, if and when made, were only made to ensure that Mitco would as they did enter into more contracts of sale."

The court stated that Najib's colleagues raised "their concerns on a number of occasions about the inoperable terms stipulated in the LCs. However, Najib told them that Applicant would pay by telegraphic transfer. He had no authority to allow for this change in payment method. Bribed by Nonaka, Applicant was able to obtain shipments of palm olein "without having to open valid letters of credit to pay for them and, astonishingly, [Applicant] were also permitted without any regard for [Beneficiary's] interest, to take deliveries of many shipments ... without having to pay or securing payment to [Beneficiary] for the original bills of lading." The court observed that "millions of drums of palm olein were delivered on credit to a first time customer, instead of parting with documents of title against confirmed negotiable letters of credit to ensure that payment would be assured and made by a reputable bank. This mode of payment is basic to any seller of goods in international trade who wants to ensure payment." The court pointed out that "[i]f the simple decision had been taken that the bills of lading would not be delivered to the buyer's agent except against payment or assurances of payment by a reputable bank, the fraud would have been exposed and shipments would have stopped as soon as it was found that the first letter of credit purportedly opened was not good for negotiation and, certainly, when later letters of credit were found to be suspicious."

The fraud was ultimately discovered by Beneficiary's Chairman. The Chairman learned of the invalid LCs and shipments of significant amounts of palm olein. The president was summoned and a full investigation revealed the fraud scheme and the money trail. Shortly thereafter, it became clear to Beneficiary's board of directors that Applicant was "not able to fulfill [its] contractual commitments"on 44 outstanding contracts. Beneficiary attempted to collect directly from "end-buyers by bypassing [Applicant]". In this way, Beneficiary collected payment for 62,931,201 metric tons of palm olein. It was also able to collect for 9,582,068 metric tons of palm olein on a "'Cash Against Documents' basis."

An investigation revealed that between November 1998 and June 1999 Beneficiary had entered into 123 spot sale contracts with Applicant under a "back-toback" arrangement. Applicant sold 69,032,316 metric tons of the palm olein to Huangpu for US$ 34,009,294.16. Applicant also sold to Intramerica Asia 165,529,981 metric tons of palm olein for US$73,448,680. By the near end of 1999, Beneficiary had sold Applicant a total of 307,023,648 metric tons of palm olein with an invoice value of US$ 162,297,004.20 according to forensic accountants hired by the Beneficiary. Applicant had made a series of payments to fictitious entities while retaining millions of dollars for themselves. Beneficiary's president was fired.

Beneficiary sued more than 25 persons including Nonaka, Cannon, and Applicant Company, its own president and its own employee, Najib for conspiracy to defraud, dishonest assistance of breach of trust, inducement of breach of contract, and knowing receipt of property in breach of trust. The defense was that all 137 contracts were bona fide.

The High Court of Singapore, Lai, J., concluded that Beneficiary had proven fraud with a high degree of probability and dishonest assistance and receipt of the proceeds. Apart from the three major perpetrators, the court had to determine who gained through the fraud at the expense of Beneficiary. The court reached judgment by applying the following test: "[a] man who consciously assists others by making arrangements which he knows are calculated to conceal what is happening from a third party, takes the risk that they are part of a fraud practised on that part... [the defendants] never made any inquiries of the plaintiffs or took any steps to satisfy themselves that the arrangements had the plaintiffs' knowledge and approval..."

Surveying the evidence, the court noted that the evidence relied on by Beneficiary was "overwhelming circumstantial evidence. Fraud cases of this type rarely leave behind a documentary trail, unless the conspirators whilst hatching the conspiracy were electronically recorded. But evidence of overt acts and omissions together are available to prove the fact of a conspiratorial combination or agreement. In this case, the relevant question to ask is whether any of the defendants had joined in to line his pockets at the expense of [Beneficiary]."

Applying this test, the court concluded that "I am led to the conclusion that [some of the defendants] were at best indifferent to the possibility of fraud. They made no inquiries of the plaintiff's because they thought it was none of their business. That is not honest behaviour..." On this basis, the court found Najib, Nonaka, Cannon and the Applicant company guilty in combining to defraud the Beneficiary.

Of Najib's guilt, the court noted that he broke internal procedures. The court "could not accept that [Najib] did not know that the FIBI Bank LC was defective and inoperable. Yes, he made a song and dance about this LC, kissing it flamboyantly as if to lull everybody into a false sense of security." Najib "deceived his colleagues and betrayed the trust and confidence which his CEO... has reposed in him." But as it turned out the court stated that "Najib... had betrayed him and some of his colleagues." The court found Najib's actions incriminating in the fraud scheme for the action he took in allowing the delivery of palm olein without any security. The court found on the evidence "Najib did receive bribes from Nonaka and Cannon. They were made from the proceeds of sale by [Applicant] on their instruction. Between April 1998 and April 2000, he received at least US$ 1.2 m, most of which was deposited into his Kuala Lumpur ban account in cash."

"Having compromised him, they were able to obtain deliveries of many shipments of palm olein without having to open valid letters of credit to pay for them and, astonishingly, they were also permitted, without any regard for [Beneficiary's] interest, to take deliveries of many shipments of palm olein without having to pay or securing payment to [Beneficiary] for the original bills of lading. In effect, millions of drums of palm olein were delivered on credit to a first time customer, instead of parting with documents of title against confirmed negotiable letters of credit to ensure that payment would be assured and made by a reputable bank. This mode of payment is basic to any seller of goods in international trade who wants to ensure payment." The court also observed that "at the material times the system of controls within [Beneficiary] was lamentally wanting at nearly all critical points." It stated that "[i]f the simple decision had been taken that the bills of lading would not be delivered to the buyer's agents except against payment or assurance of payment by a reputable bank, the fraud would have been exposed and shipments would have been stopped as soon as it was found out that the first letter of credit purportedly opened was not good for negotiation and, certainly, when later letters of credit were found to be suspicious. They were in terms obviously inoperable and were no guarantee for payment against any tender of valid negotiating documents. [Beneficiary's] risk management unit was in its embryonic stage and that unit also failed to carry out its duties to detect the serious failures and weaknesses in the General Merchandise Department ('GMD') of [Beneficiary]. On the other hand, it has to be noted that very often a dishonest and compromised insider can help outside fraudsters to by-pass internal checks and balances and such scams with insider assistance are more difficult to detect or prevent."

As to Beneficiary's CEO, the court was "utterly convinced that he was innocent and was lamentably misled by Najib and let down by the other personnel in both GMD and FAD. He found out the fraud too late. Tried as he did to salvage the situation, the international fraudsters with inside suborned help cynically led him down the garden path." commenting on Najib, the court noted that he had "ruined the life and prospects of an innocent but too trusting a man, Azalan, who was far too overworked, if somewhat ambitious which is not altogether bad."

As to the ultimate purchasers of the goods, the court noted that there were also "two downstream groups of companies" who had dealt with Applicant. The court considered whether or not they were innocent, dealing at arm's length, or whether they were conspirators.

One group consisted to two defendants who had left Huangpu to joined with Nonaka, Choo Siew Lohk and Wu Mun Wai. The court stated that "[t]hey were not so naive as to believe that by the so-called High Returns Programs, the [Main Fraudsters] could in the end make a profit. That Nonaka was offering them as individuals the high discount of US$ 17 PMT should have alerted them that something dishonest was practised against [Beneficiary] [the two defendants] were in the thick of arranging the loadings. They knew the LCs were not used. Yet they could get their hands on the original shipping documents, including the bills of lading. On top of that, they followed Nonaka's and Cannon's instructions to distribute the proceeds of sale in a manner that any honest businessman would ask the question: 'with all these payments to unknown parties for undisclosed purposes, how will [Beneficiary] be paid?' When the quantities escalated from April 1999 until the bubble burst, they should have known better. They chose to see nothing, hear nothing and say nothing and they assisted because they stood to gain. That was dishonest."

The other group of third party defendants was the Huangpu parties. They were found not to be part of the conspiracy. Huangpu entered into 21 contracts with Applicant for the purchase of 69,032,316 metric tons of palm olein with a value of US$ 34,009,294.16. Huangpu sold-on the entire quantity to end buyers in China for a total price of $35,434,598.19. The court considered whether they had "acted dishonestly by the ordinary standards of reasonable and honest people and have been himself aware that by those standards he was acting dishonestly.".Applying this test, the court concluded that the two were not placed on notice that anything was amiss. The court stated "The margin was good. If the profit margins were on the high side, every businessman is entitled to seize the opportunity so long as they have no reason to believe that they may be dealing with anything suspiciously dishonest. All the more reason why questions or enquiries, which were out of turn and which could be regarded as 'opening the channels' in the string of sellers and sub-sellers in breach of business ethics, had to be avoided."

The court then established a number of constructive trusts for Beneficiary to compensate it for the fraud.

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