Fifteen years and many jurisdictional meanderings after Robb Evans and Associates Evans fired the first legal salvos in the Vanuatu Supreme Court at European Bank and Benford Limited, the case has finally been concluded.
In a reserved judgment dated May 6, 2014 Justice Spear, has granted the Orders Evans sought back in 1999, that, save for certain outgoings and costs, the funds of US fraudster Ken Taves and his wife and associates which were deposited with Vanuatu’s European Bank and in 1999 amounted to over US$7.5 million, are to be released to Evans as receiver appointed by the US Federal Trade Commission (FTC) of all Taves’ assets and companies.
Evans is then at permanent liberty to transmit the funds out of the jurisdiction of Vanuatu’s Courts to be returned to the victims of the Taves’ fraud.
In his decision Justice Spear also determined that because the way in which Taves had operated the fraud was at the higher end of the scale of seriousness, and to deter others who might consider Vanuatu to be a safe place to deposit the proceeds of crime, Benford Limited should also be fined Vt25m.
The decision of May 6 was actually the result of three Vanuatu Supreme Court cases being heard together:
- Evans v European Bank Ltd & Benford Ltd & Attorney General & Public Prosecutor (Civil case 85 of 1999) in which Evans sought to have the monies illegally obtained returned;
- Public Prosecutor v Benford Ltd (Criminal Case 5 of 2011) in which a company, Benford Ltd incorporated in Vanuatu, was accused of bringing money which was the proceeds of crime to Vanuatu for deposit with European Bank and
- Public Prosecutor v Benford Ltd (Proceeds of Crime Case 1 of 2011) in which Vanuatu’s Attorney General sought Orders that Benford’s funds should be either forfeited to the State or confiscated by it as proceeds of crime.
The background to the cases is that during the 1990’s Taves, a US citizen, obtained an Internet database that contained details of over 900,000 credit card accounts. He and his associates then dishonestly charged these accounts with small amounts of around US$20 per month. They then moved the funds so obtained, estimated to be approximately
US$ 47.5 million in total, through different corporate vehicles. In 1998 most of the funds were transferred out of US bank accounts and offshore including to a small bank in the Cayman Islands called Eurobank (not to be confused with European Bank incorporated in Vanuatu and holder of a Vanuatu Banking Licence).
US authorities first detected the Taves fraud in late 1998. On January 6, 1999 the FTC appointed Robb Evans of Robb Evans and Associates as the temporary receiver of all of Taves’ assets and all the companies under his control.
Taves then decided to move the proceeds of his fraudulent activities out of the Eurobank account at the rate of US$500,000 per week and further away from the reach of the USA authorities.
Ivan Purchase, one of Eurobank’s managers, suggested Vanuatu and Uruguay as places where money might be sent and held undetected in secret bank accounts.
After Purchase had faxed Vanuatu’s European Trust Company Ltd (ETCL) enquiring about opening an account in Vanuatu for a client of Eurobank, Susan Phelps, who was a director of both ETCL and European Bank arranged for Benford Limited to be incorporated in Vanuatu on February 18, 1999 and for an interest bearing deposit (IBD) account to be opened in Benford’s name with European Bank.
During the following months a total of $US 7,527,900 was paid into this IBD.
“It is clear”, Justice Spear say, “that Susan Phelps made these arrangements without taking appropriate steps to establish and verify the identity of the person/s controlling Benford or to ascertain the ultimate source of the substantial funds which were deposited.
“Benford was incorporated for one purpose only and that was to hide funds dishonestly obtained by Taves. No search of public records in Vanuatu would have revealed any reference to Taves or any of the various entities or associates that he used to perpetuate and support the fraud.”
Mr Evans, a dogged and diligent investigator who throughout the long and convoluted history of this case refused to give up, eventually traced the movements of funds from the USA to Eurobank which was then in financial difficulties and had had Cayman Island ‘controllers’ appointed to manage its affairs.
On May 28, 1999 European Bank received notice from the ‘controllers’ of Eurobank that Mr Evans had been appointed receiver and asserted a claim over Benford’s funds.
On May 31, 1999 European Bank froze the Benford IBD and transferred all of the funds into a current account in Benford’s name.
Vanuatu’s Supreme Court, on July 28, 1999, ordered that European Bank be restrained from releasing or otherwise dealing with any funds standing to the credit of Benford save for the purpose of preserving the capital. Robb Evans obtained a further order of the Court to freeze all Benford’s accounts with European Bank.
On September 23, 1999 the Supreme Court amended the freeze order to require the funds be placed into an interest bearing deposit (IBD) account. They were transferred back to Benford’s European Bank IBD.
Initially, in order to obtain a return on the funds, European Bank invested the Bedford funds locally. However, on October 20, 1999 the bank invested the funds with Citybank Ltd of Sydney, Australia.
Evans discovered this. He immediately gave notice to Citybank that the funds were the proceeds of fraud and that as receiver of Bedford he was required to collect them.
By that time Citybank Australia had reinvested the funds with their associate company in New York, effectively meaning the money had never left the US. The FBI served a warrant on the NY bank seeking seizure of the funds, which by now amounted to over US$ 8 million while Evans also pursued the matter through the Australian judiciary.
Judgments too lengthy to discuss here, as to the relationships between banks and banks and banks and clients ensued.
Meanwhile, in May 2005, European Bank commenced proceedings in the NSW Supreme Court for an assessment of compensation payable to it pursuant to an undertaking given by Evans at the time he sought leave to appeal to the Australian High Court. The NSW Supreme Court assessed compensation at US$800,000. Evans successfully appealed the determination, however, in a final Australian fling to the matter, the High Court overturned the Court of Appeal decision and reinstated the compensation order made in the Australian Supreme Court.
With that the matter returned to Vanuatu’s jurisdiction where the cases as outlined above proceeded.
All parties accepted that the funds received by Benford Ltd and deposited in European Bank are the proceeds of crime perpetuated by Taves and his associates.
Bedford pleaded guilty to the criminal proceedings and was fined accordingly. “While Benford does not have the benefit of any invested funds to meet any fine,” Justice Spear says, “and it is understood otherwise to be completely lacking in substance, its insolvent position raised by a fine might well result in Benford being placed into liquidation by the Registrar whose responsibility it is to recover the fine. The Director or Directors of Benford may then find itself or themselves liable for the debt created by the fine under the relevant provisions of the Companies Act. Be that as it may, it is still necessary to ensure that the fine is a proportionate response to the criminal offending involved here.”]
European Bank took no further part in the proceedings except to require that the compensation due it be fully paid along with its Court costs. In that regard Justice Spear says: “The position is that European Bank rightly considers that it is restrained from making the deduction or payment out from the Bedford monies because of the Vanuatu Supreme Court orders.
“I cannot ignore the history of this matter which essentially came about because European Bank helped to facilitate the fraudster Taves through a “relaxed” approach to the establishment of the account. That was the consistent assessment of the various courts in Australia who have dealt with this matter.
“Be that as it may, it was Evans who commenced the Australian proceedings [in which] he was completely unsuccessful. He is unlikely to have any assets in that jurisdiction and he is, of course, based in California. If the European Bank costs are not met from the Benford funds it would leave European Bank having to navigate the rather tortuous path of seeking recovery on an Australian judgment in California. Furthermore, European Bank can be seen, in its defense of the Australian litigation, effectively to be complying with the various orders of this Court relating to the protection of the funds.
“It is necessary to draw a line across the page in respect of this now very long running matter. To that end, European Bank is entitled to settlement of its costs incidental to the Australian litigation out of the Bedford funds prior to any funds being transferred to Evans as may be agreed with counsel for Evans.”
The only matter then left for Justice Spear to decide was that the funds should not, and could not, be forfeited to or confiscated by the State of Vanuatu. The lengthy legal argument on which this decision is based, and with which it is impossible to disagree, is contained in full in the Judgment.
So this fifteen-year-old case in Vanuatu was brought to a close.
But what, you may wonder, happened to Ken Taves? In 2004 he was sentenced to more than eleven years jail and also ordered to pay full restitution for the scheme that prosecutors call the largest Internet fraud in history to result in a conviction.
A couple of Evan’s reports are also online at: