There is honour among thieves, they say; but a mob of Chinese gangsters would surely decry that timeworn adage, having attempted to stage a heist against the formidable Macquarie Bank.
You have to hand it to those MacBankers. They’ve got flair.
Macquarie’s leasing business in China was defrauded for millions of dollars by a gang of Chinese hucksters but when the cunning MacBankers worked out that they had been fleeced, they proceeded to fleece the gangsters back, even harder.
It is understood that Australian Securities & Investments Commission is investigating and that the Australian Prudential Regulation Authority is also aware of the transactions, which ran from around 2011 to 2016, but APRA’s involvement in any investigation is unknown.
Neither APRA nor ASIC are commenting for this story.
While the focus of the Royal Commission into the banks will primarily be on the Big Four, whose sheer market dominance and litany of scandals warrants investigation, it is hard to imagine Westpac, National Australia, ANZ or the Commonwealth Bank a mob of Chinese gangsters.
According to a source familiar with the Macquarie transactions, a Chinese subsidiary of the bank, Macquarie Leasing Co, figured out it was a victim of a fraud sometime after 2011.
The gangsters had somehow obtained possession of the company’s “chop”. The official company chop – sometimes referred to as a seal or stamp – is a necessity for doing business in China. The chop is used to authorise documents, often in place of a signature.
At first, Macquarie did not knowingly engage in a dodgy transaction.
Believing the gangsters to be bona fide company representatives, a multi-million leasing deal was struck between the two parties. The bank provided the finance, which the gangsters are then thought to have on-lent on the blackmarket at far higher rates, and the gangsters, honouring their part of the deal, met their lease payments to Macquarie.
Two of the Chinese lessees, a subsidiary of German group SAP and stockbroking company Qi Securities, were unaware of the fraud. The Chinese criminals set up a fake manufacturer from whom they were to buy the office equipment for SAP and Qi Securities. The fake manufacturer had a credible name, though a name slightly different name to the real legal entity.
And so, deal done with Macquarie, the money for the leasing of the equipment flowed straight to the Chinese criminals who then honoured their periodic lease payments to Macquarie.
When Macquarie twigged to the scam, the police were duly approached but no action was forthcoming by the police and so the leasing transactions continued.
It is not known how documentation such as bills of sale for non-existent equipment were handled by Macquarie when they became aware of the scam. The bank declined to comment for this story.
However, a source said that when Macquarie did become aware, they charged the gangsters a far higher price than the equipment was worth – in the knowledge the gangsters could not return the equipment because it didn’t exist. Macquarie had outgangstered the gangsters.
Macquarie also engaged in less-than-above-board leasing transactions in Korea, said a source with knowledge of the transactions.
In one transaction with Hanjin Shipping, Macquarie leased shipping containers by way of what appeared to be an operating lease. But there was a secret side-letter to the lease, unknown to auditors and others, which meant the deal was really a finance lease.
Unlike an operating lease – where the liability is “off balance sheet” so its leverage cannot be seen – a finance lease is “on balance sheet” and the lessee has an option to repurchase the equipment at the end of the lease.
The beauty of this transaction for Macquarie was that it could drive superior financial terms as the lessee could afford to pay more as its lease leverage could not be seen. And for the lessee, the leverage appeared lower to the company’s auditors and the financial markets.
Hanjin Shipping subsequently went bankrupt (not due to the leasing transactions) and the arrangements are believed to have remained undetected by creditors and regulators in Korea. It is not known whether any of the creditors who lost money in the bankruptcy did so as a result of their reliance on the falsified financial statements.
The source said a similar deal with a secret side-letter was stuck with Hynix, a large manufacturer of semi-conductors, for $US12 million of equipment used in making semi-conductors. The arrangement ran from around 2006 to 2013.
In this instance, there was a change of managers at Hynix and the new guard was unaware of the original transaction. Macquarie was therefore able to charge Hyix $US12 million to repurchase the equipment as Hynix was unaware it had an option for repurchase through the side-letter.
Hynix eventually became aware of the option and a settlement was devised whereby Macquarie Korea returned $US4 million and kept $US8 million.