Generate cash by selling US$ cheques to the OTB, taking advantage of a time lag of between six to eight days for the international banking system to clear a foreign currency cheque.
Prior to the clearing day for the first US$ cheque, a second cheque was issued to raise fund to honour the earlier one. By repeating the process, the businessman was able to obtain funds.
At its peak, the businessman was able to raise as much as US$8 million from OTB on a single day.
2
Why did the bank accommodate the scheme?
The businessman was well acquainted with the top management of the bank and was able to command their trust.
The bank could earn a fat handling fee and profit from the difference in the US$ exchange rate.
The enormous foreign exchange volume could boost the bank’s negotiation power over exchange rate.
Business turnover stated in the accounting records would also be significantly increased.
3
How did the businessman make money from the scheme?
Cheque kiting itself did not generate profits as the businessman had to sell the cheques at a discount to the bank.
He mainly used the cash raised from cheque kiting for speculation in gold and investment in casino business in Central America. The profits and proceeds so generated were used to sustain the kiting exercise.
4
Why did the scheme collapse?
Repeated losses in gold speculations and business investments had resulted in the businessman suffering serious cash-flow problem, hence failing to pay.
More and more cheques were issued but not honoured.
When the scheme collapsed, the uncleared cheques held by OTB amounted to US$66.8 million (about HK$520 million).
STAGE TWO Fabricated Loans
1
Why did the bank conspire with the businessman to fabricate the loans?
In view of the huge losses arising from kiting, top management feared that the bank would be left in a dire financial strait if they followed the normal banking practice in dealing with the debts.
2
How did the cover-up scheme work?
Lending, a normal business of a bank, can generate future earnings. In this case paper profits from bogus loans were recorded on the books, hence covering up the losses suffered by the bank due to cheque kiting.
The bogus loans were booked by different overseas branches of OTB, thus making it difficult for anybody to trace it.
3
How was the scam exposed?
The scam was in fact a numbers game. After three years, OTB ran into a liquidity crisis when the actual losses suffered by the bank could never be made good.
When OTB was declared bankrupt, the bad debts it held stood at US$89.5 million (about HK$700 million).
You are using an old browser (e.g., IE 11) not compatible to this webpage! It is recommended to use a newer browser software (e.g., Microsoft Edge, Firefox, Google Chrome, Safari).
