Baht and Sold: Did Mr. Saxena Kill A Bank and Trigger The Asian Contagion?
Thais Seek His Extradition For Fraud; He Blames Others, Keeps on Dealing
Alcohol-Free House Arrest
By Gordon Fairclough
From The Wall Street Journal, May 7, 1999, Page A1
VANCOUVER, British Columbia -- Rakesh Saxena rises before dawn to work the
phones in the cluttered condominium known to his friends as The Bunker. He
trades Asian currencies and keeps tabs on investments in Russia and
Africa.
In the next room, a guard stands at the ready. The doors and windows
bristle with alarms. A surveillance camera sweeps the terrace outside.
Every call is tape-recorded.
All the security isn't to keep competitors out. It is to keep Mr. Saxena
in. The 46-year-old Indian financier is under house arrest as he fights
extradition to his previous place of business: Thailand.
Thai prosecutors say Mr. Saxena is the brains behind an alleged fraud that
drained more than $2 billion from a midsize Thai commercial bank, the
Bangkok Bank of Commerce. They portray Mr. Saxena as the Mrs. O'Leary's
cow of the global financial crisis: His schemes, they allege, knocked down
the bank, leading to the 1997 devaluation of the Thai currency and
ultimately igniting the financial fires that swept through Asia and
beyond.
Thailand wants Mr. Saxena back to stand trial on charges of embezzlement,
fraud and securities-law violations. But he is fighting in the Supreme
Court of British Columbia to avoid extradition. On the witness stand, he
has said he helped bribe a few high Thai officials and "artificially
enhance" the bank's books. "This is how the Thai system operates," he
testified.
He says he fears he will be killed if he is forced to return to Thailand,
where his sister-in-law, the bank's managing director and other top
executives already are facing prosecution. He dismisses the evidence
against him as "a mixture of half-truths and stories."
And what stories they are. Spectators in the cramped Vancouver courtroom
where the battle is being fought have been regaled with tales of dummy
corporations, death threats, heroic partying and assorted big names, such
as Saudi businessman and Iran-Contra figure Adnan Khashoggi.
Apart from the drama, the case presents a lesson in how tough it can be to
police globe-trotting financiers in this era of interconnected world
markets. Though the Asian crisis shows signs of receding, reform-minded
Thai regulators and their counterparts in some other hardhit countries say
they must bring Mr. Saxena and others to justice if they are ever to make
their economies less susceptible to corruption and crashes.
Mr. Saxena (pronounced sak-SEE-na) is the son of an Indian-government
bureaucrat. He attended the University of Delhi's elite St. Stephen's
College and earned a master's degree in English literature before learning
to trade currencies (for "the salary," he says). He worked in Hong Kong,
and in 1985, at the age of 33, went to Thailand.
As an experienced foreign-exchange trader, he was in his element: The Thai
economy was soon growing at an average of 10% a year, the stock market was
soaring, and Mercedes and BMWs were proliferating. Mr. Saxena wanted a
piece of the action, friends recall.
"He was trying to prove something to somebody," says Paul L. Hammond, a
Canadian accountant who worked for Mr. Saxena until the two fell out in
1998. "There was a driving ambition to be perceived as a world-class
wheelerdealer."
Thailand also offered a fresh start. Mr. Saxena moved to Bangkok after a
client filed a civil suit against his thenemployer. The client alleged
that Mr. Saxena had made unauthorized trades. Hong Kong's High Court of
Justice found in favor of the client, but an appeals court overturned the
ruling. Mr. Saxena denies making any unauthorized trades and says his move
to Bangkok was unrelated to the case.
Mr. Saxena had a talent for reading people and divining their desires,
former associates say. In Thailand, one banker he charmed was Kirkkiat
Jalichan, managing director, of Bangkok Bank of Commerce. Mr. Saxena says
the two met on a golf course outside Bangkok in 1989, and eventually Mr.
Saxena became a consultant to the bank, helping with foreign exchange,
derivatives trading and merger-and-acquisition work.
It was an unusual achievement for an outsider in Thailand, and it put Mr.
Saxena close to the highest levels of Thai business and society. The
bank's chairman was a former prime minister, and it had a blue-blood
clientele.
But to some of his old friends, his progress was puzzling. Arup Banerji, a
college classmate of Mr. Saxena's, says the two belonged to a Marxist
student group in the early 1970s. Mr. Saxena "struck a very serious,
militant, Marxist, anticapitalist line," Mr. Banerji says. "He was very
committed."
Mr. Saxena says he still considers himself a Marxist. "Just because you
have to make a living doesn't mean you have to change your ideology," he
says in an interview. But at the bank, prosecutors say, Mr. Saxena, Mr.
Kirkkiat and other top executives were playing capitalist with abandon.
The bank was doling out loans to prominent politicians and others to be
used to acquire stakes in companies listed on the Thai stock market. As
collateral, some borrowers used overvalued land and other questionable
assets, regulators say. The bank sometimes would bring in a second round
of customers and lend them money to purchase shares from the first set,
bank-examination reports say.
Some of the loans went to companies controlled by Mr. Saxena and bank
officers, prosecutors allege. It isn't clear how much was borrowed, but at
one point, documents filed in the Canadian court say, Mr. Saxena had 62
dummy companies registered at the same Bangkok address. Mr. Saxena
contends that the bank, not he, controlled these companies.
In 1994, Mr. Saxena introduced Adnan Khashoggi to the bank, according to
Mr. Saxena. Soon, regulatory records show, the bank made a loan then worth
$132 million to a group led by Mr. Khashoggi. That money was used to buy
stakes in companies whose share prices have plunged. The loans haven't
been repaid, according to the records.
Mr. Khashoggi couldn't be reached to comment. The team assigned by the
government to clean up after the bank's collapse has sued Mr. Khashoggi in
Thailand, seeking to recover the funds.
For Mr. Saxena and his associates, those were intense times. He was
ferried around town by armed guards in a bluegray Volkswagen van. Decked
out in clip-on suspenders, polo shirts and tinted glasses, he worked
practically around the clock, barking orders into one of his many cellular
phones, chain-smoking Dunhill cigarettes and, former associates say,
drinking heavily.
Late in the evening, Mr. Saxena would sometimes dine and drink with
colleagues until the early morning hours. Then, Mr. Saxena would trade
currencies using terminals installed in his house.
During that period, he sometimes made late-night phone calls to
colleagues. Several say Mr. Saxena threatened to harm or even kill them,
often because of perceived business slights. Mr. Saxena denies that. More
recently, Michael D. Donoghue, one of Mr. Saxena's former bodyguards,
testified in the British Columbia court that he had heard Mr. Saxena
threaten to kill a former bank colleague on several occasions after Mr.
Saxena's 1996 arrest in Canada.
The colleague, Praoprayoon Isarasakdi, had given Thai authorities
information about Mr. Saxena. Mr. Donoghue testified that Mr. Saxena told
Mr. Praoprayoon that if he didn't recant, Mr. Saxena would have his "wife
killed. He would have his children killed. He would have their heads cut
off."
Mr. Saxena and Mr. Praoprayoon testified in Canada last year that there
were no death threats, but that they had argued fiercely and had been
drinking. Asked by his own lawyer how much he typically drank in a day,
Mr. Saxena testified that he drank "six or eight pints" of beer, "a couple
of glasses" of wine and "half a bottle or three quarters of a bottle" of
scotch. (He is no longer allowed to drink alcohol, under the terms of his
house arrest.)
An early 1994 audit report by Thai regulators revealed that the bank's bad
loans had ballooned to $1.54 billion, or nearly 40% of the bank's total
assets. Vijit Supinit, then the central-bank governor, ordered the bank to
raise capital. Mr. Saxena worked to arrange a 100 million-deutsche-mark
bond issue in late 1994. In court testimony in Canada, Mr. Saxena said
that he was the only one at the bank savvy enough to put together such a
deal. The bank "couldn't have done it without me," he testified.
But, like much else at the bank, the transaction wasn't quite what it
seemed, says Aswin Kongsiri, a veteran banker sent in by the government to
clean up the bank and recoup as much money as he can. In an interview, Mr.
Aswin says the bank in effect bought the bonds itself, using money
funneled through offshore shell companies.
"That's a total, outright lie," Mr. Saxena says in an interview.
By early 1995, the cracks in the bank's facade were widening. The Thai
stock market's stratospheric rise had slowed, and the bank and some
customers were unable to sell the shares they had acquired at anywhere
near the purchase price. One of the bank's borrowers, for instance, bought
shares of Thai Agri Foods at the equivalent of $4.12 a share. By February
1996, the shares were trading at 94 cents each.
The bank's treasury operations were also reeling. Bank examiners say that
at the end of 1995, the bank was showing a loss of about $120 million from
bets on Latin American bonds and exotic derivatives around the world.
As the losses mounted, Thai authorities say, more and more money was moved
offshore, much of it through a now-defunct Russian bank run by one of Mr.
Saxena's business partners. Mr. Saxena's activities, says Mr. Aswin, "came
to look like straight siphoning."
Mr. Saxena has testified in Canada that he never stole any of the bank's
money.
Strains were appearing in Mr. Saxena's personal life as well. Early in
1995, he moved out of the Bangkok house he shared with his wife and three
children. (They have not joined him in Canada.) The bank was scrambling to
mask the extent of its troubles from the prying eyes of regulators and the
public. One method, Mr. Saxena says, was to lend money to bank-controlled
shell companies, so they could repay debts owed by other borrowers. The
ruse, he says, was designed to hide the extent of nonperforming loans.
"The rationale was simple," Mr. Saxena says in an interview. "Hide the
problem for a while. Tomorrow will be another day. The stock market will
go up." (Mr. Saxena says the bank, not he, orchestrated these maneuvers.)
Bank of Thailand examiners spotted some dubious dealings in their 1995
audit. Mr. Vijit, the central-bank governor at the time, says he summoned
the bank's managing director, Mr. Kirkkiat, to a meeting in January 1996.
"I told Mr. Kirkkiat the only way he would survive would be to let us in,"
Mr. Vijit says. He also ordered Mr. Kirkkiat to end Mr. Saxena's
consulting contract; the contract expired within months. Mr. Kirkkiat
declined to comment for this article.
Mr. Vijit says he thought the mess could be cleaned up quietly. But in May
1996, an opposition politician leaked to the press a central-bank report
detailing the true condition of the bank. Early one morning, the head of
the bank's investment-banking division arrived at Mr. Saxena's home and
woke him up to tell him the news. "I knew there'd be a run on the bank
straight away," Mr. Saxena says.
He was right. In the days that followed, depositors withdrew hundreds of
millions of dollars from the bank. Still, Mr. Saxena kept his cool. Even
close associates say they had no idea anything was seriously wrong, nor
were they surprised when Mr. Saxena left the country in May 1996 for
Switzerland, where he traveled frequently on business. He hasn't been back
to Thailand since.
Within days of his departure, the government seized control of the bank in
an effort to stem the panic. "It was the starting point of the economic
crisis in Thailand," contends Chulasingh Vasantasingh, the Thai prosecutor
in charge of getting Mr. Saxena back.
He and others say the bank's collapse undermined investor confidence in
the central bank and its ability to regulate the country's financial
institutions. And the massive costs of the bailout -- about $3.5 billion
so far -- further weakened the banking system. That, prosecutors say,
fueled speculative attacks on the Thai currency; Thailand finally devalued
the baht July 2, 1997, sparking a financial crisis that spread across Asia
to Russia and parts of Latin America.
Bangkok Bank of Commerce is probably more accurately viewed as patient
zero of the Asian contagion: The first bank to be brought low by the
widespread problems of corruption, mismanagement and a bubble economy.
In any event, authorities caught up with Mr. Saxena in July 1996 at the
Whistler ski resort outside Vancouver. When he was arrested, he was
carrying a suitcase containing the equivalent of about $69,000, mostly in
Swiss francs. He testified that the money was to be a "good-faith payment"
to Thai police, with whom he had arranged a meeting to negotiate his
possible return. But the Thai officers led Canadian Mounties to Mr.
Saxena. The Mounties got their man.
To date, prosecutors have tracked bank money to the U.S., France, Canada,
China and Israel. Little has been recovered. Swiss authorities have frozen
two of Mr. Saxena's bank accounts, containing assets he says are worth
between $50 million and $75 million. He says the money is his, and not
ill-gotten.
The British Columbia Supreme Court judge hearing the extradition case says
he could rule as soon as September on whether to extradite Mr. Saxena.
Both sides can appeal; the case could drag on for years.
In the meantime, Mr. Saxena plays the world's developing markets and works
the phones. A former bodyguard testified in Canada in 1998 that Mr. Saxena
pretended to call Gerry Adams, leader of the Irish Republican Army's
political wing, on his cell phone. The guard said he could hear a
telephone-company recording saying "please hang up, make your call
again"but Mr. Saxena carried on a conversation anyway. It began "Yes,
Gerry. It's Rakesh," the guard testified. (In an interview, Mr. Saxena
denies the incident took place.)
His highest-profile activities these days are in Africa. According to a
British parliamentary investigation, the leader of a British mercenary
group says Mr. Saxena provided $1.5 million to ousted Sierra Leone
President Tejan Kabbah to help fund a countercoup in 1998. The money was
used to purchase 35 tons of assault rifles, rocket launchers and
ammunition that were delivered in violation of a United Nations arms
embargo, the mercenary told Parliament. Mr. Saxena's Africa Resources
Corp. now has four diamond concessions in the war-torn country.
Mr. Saxena says he had been negotiating to lend money to President Kabbah,
but says the deal fell through and he had no role in the countercoup. He
says he bought the diamond concessions after President Kabbah was restored
to power.
"It's easy to make allegations," Mr. Saxena says. "They haven't proven a
thing."
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