Recent SFO Confiscations Linked To Decade-Old Crime
On 24 November, the Serious Fraud Office (SFO) successfully confiscated £250,000 from Achilleas Kallakis, which was held as a debenture by The Queen’s Club, home of the annual Queen’s Club Championship men’s grass-court lawn tennis tournament.1
In 2013, after an SFO investigation, Achilleas Kallakis, and his co-conspirator, Alexander Williams, were convicted of masterminding the UK’s biggest mortgage fraud (valued at £740 million). Since then, the SFO has continued to investigate the proceeds of crime related to the scheme.
Earlier in the year, and a decade after Kallakis’ conviction, the regulator recovered £92,500 which had been concealed as a donation, paid through a complex family trust fund, to the private school attended by one of Kallakis’ children.2 The school named a theatre after the family as a gesture of gratitude, but following Achilleas’ conviction and imprisonment, removed their name. When the family took legal action against the school, the funds were revealed to the SFO.
According to their press release, the SFO was able to link the quarter-million pound Queen’s Club debenture to the mortgage fraud by tracing the funds through a series of offshore accounts, and a purported family trust. Kallakis’ name was also displayed at the reception of the club, alongside other notable members.3
Outline of the UK’s Largest Mortgage Fraud
Over five years, from 2003 to 2008, Kallakis and Williams, allegedly alongside Michael Becker (a Swiss national who was not charged due to him being based in Switzerland at the time of the crime, putting him outside of jurisdiction), conspired to defraud Allied Irish Banks (AIB) and the Bank of Scotland.4
The fraudsters obtained bank loans by providing fake rental guarantees from a well-established, legitimate company with a high credit rating (who had no knowledge of Kallakis and Williams or the guarantees being created in their name). In return for the guarantees, the fraudsters claimed to the banks that they would pay “reverse premiums” to a subsidiary of the legitimate company and would also be sharing profits on any property sales. The cost of the reverse premiums (circa £60 million) was factored into the loan amounts approved by the banks and the fraudsters were therefore able to obtain funding over and above the cost of the properties they were looking to purchase. Instead of making payments to (non-existent) subsidiaries, the money was pocketed.
Moreover, Kallakis and Williams provided falsified financial statements and other letters regarding fictional assets (using information copied from the internet) to corroborate representations they made about a prosperous ship-owning company, which, in reality, had no assets – only liabilities of millions of pounds.
The fraudsters used the funds loaned to them by the banks to purchase a high-profile property portfolio which included the headquarters (HQ) of The Telegraph (£225 million), the Home Office’s asylum processing centre in Croydon (£100 million), and a 23-storey tower in Vauxhall (£75 million).5 Additionally, they agreed to a loan of €29 million secured on a passenger ferry which Kallakis claimed was to be converted into a super yacht for his personal use. According to court documentation, the vessel was later found to have no value - both as a result of asbestos contamination - and it being “underwater.”6
Unravelling of the Scheme
During the global financial crisis of 2008, Allied Irish Banks (AIB) looked to diversify its risk by selling on some of its loans – including those made to Kallakis. One of the banks approached, reportedly conducted background checks into the property tycoon using a private investigator,7 and uncovered that both Kallakis and Williams had a previous fraud conviction under different names. Williams (then named Martin Lewis) and Kallakis (then named Stefanos Michalis Kollakis) had been convicted together in 1995 in relation to the production and selling of bogus honorary titles to Americans.8
AIB contacted the company reported to have provided guarantees for the properties, only to discover they knew nothing about the transactions.
During the trial, AIB staff members admitted that Kallakis had paid for them to go to the World Cup final in Germany in 2006 and to the Monaco Grand Prix. Some also told the court they had accepted a holiday to Mauritius, in gratitude for their work on a particular property deal.
Assessing Donations and Investment for Proceeds of Crime Red-Flags
As part of the court hearing, the jury was told that Kallakis used funds from the fraud to finance his millionaire lifestyle, in which he maintained a fleet of chauffer-driven Bentleys, a private plane, a private helicopter, a luxury yacht moored in Monaco harbour, a collection of high-value artworks and a luxury property in Mykonos, Greece.
Affluent individuals are becoming a more prevalent risk to sports organisations, as well as to museums, galleries, and schools because as public funding is reduced, they are becoming increasingly reliant on donations, sponsorships, and/or other arrangements with said persons.
Organisations that accept high-value donations and other financial support must implement effective controls around the identification of the source of the funds to protect themselves from reputational harm and in certain circumstances, potential prosecution. ‘Money laundering,’ per the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2017, is the act of disguising the origins of proceeds of criminal conduct, which can be committed by anyone encountering funds derived from a crime such as fraud.
It is imperative for organisations of all sizes, that a robust risk assessment is undertaken and well documented to evidence oversight and decision-making in relation to anti-money laundering policies and processes, which should be effective but proportionate. Differing levels of financial and reputational due diligence can be conducted according to the level of risk the funds pose. Further, training and development of awareness of relevant employees and personnel are also key with regard to identifying and reporting potential red flags that may leave an organisation susceptible to legal action.
As was the case with Kallakis and his contemporaneous donations, organisations are not expected to invariably recognise any and all proceeds of crime, however, they should be able to justify their position and decision-making with a documented risk-based approach and judgement.11 At the time of Kallakis’ original conviction in 2013, the judge presiding over the case declared “it almost beggars belief senior management chose to disregard… and rushed to complete the deal at all costs” 12 and equally, organisations of all sizes and from any sector should be mindful not to rush in that same way to accept funding from undisclosed or uncertain sources.
[1] https://www.sfo.gov.uk/2023/11/24/sfo-recovers-250000-tennis-club-debenture-from-convicted-fraudster/#:~:text=The%20SFO%20has%20secured%20over,was%20removed%20from%20its%20theatre
[2] https://www.sfo.gov.uk/2023/03/17/sfo-recovers-criminal-assets-from-740m-property-fraud-concealed-through-school-donation/
[3] https://www.lawgazette.co.uk/news/fraudster-convicted-in-2013-ordered-to-pay-further-250000/5118024.article
[4] https://www.sfo.gov.uk/2013/01/16/achilleas-kallakis-alexander-williams-guilty-defrauding-banks-property-financing-deals/
[5] SFO Seizes £250K Tennis Membership From Tycoon Fraudster - Law360
[6] https://www.casemine.com/judgement/uk/5a8ff7a160d03e7f57eb07db
[7] https://www.theguardian.com/uk/2013/jan/16/guilty-verdict-biggest-ever-mortgage-fraud
[8] https://www.sfo.gov.uk/2013/01/16/achilleas-kallakis-alexander-williams-guilty-defrauding-banks-property-financing-deals/
[9] https://www.crash.net/f1/news/64658/1/property-magnate-in-serious-honda-f1-bid
[10] https://news.bloomberglaw.com/banking-law/convicted-poker-players-son-sues-aib-over-fraudulent-conspiracy
[11] “Relevant persons” [as per https://www.legislation.gov.uk/uksi/2017/692/made] must conduct a documented money laundering risk assessment as per section 18 of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. Businesses or organisations which are not defined as a “relevant person” should still consider implementing risk-based controls, in order to limit reputational and legal risk.
[12] https://www.bbc.co.uk/news/business-21057288
© Copyright 2023. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
