It's all becoming a bit costly

Article published: 5:00 AM  Sunday December 13, 2009 

Westpac botches runaway millionaire hunt

Westpac wanted to freeze the assets of Leo Gao's family through a Hong Kong court. Westpac's runaway millionaires are a step closer to keeping the cash after the bank bungled an attempt to recover its losses through the Hong Kong courts. Leo Gao fled New Zealand in May with partner Kara Hurring and her daughter Leena, after a banking error gave his business a $10 million overdraft.

They transferred about $6.7m before the mistake was discovered and Westpac clawed back less than half. The failed legal action means Westpac's chances of recovering the remaining $3.8m appear to rest on New Zealand police convincing Chinese authorities to extradite the runaways. Even then, Gao would probably have to agree to hand over the money as part of a deal to escape greater punishment, according to one insider.

The revelations emerged during a Herald on Sunday investigation into Westpac's efforts to recover the money. In New Zealand, the bank has seized and sold Gao's property investments for below-market value to help recoup its losses and settled an employment dispute with the worker responsible for the banking error. In Hong Kong, it took a pummelling in the courts after trying to recover money Gao passed through a casino in nearby Macau.

The bank lost the case and had to pay the casino's legal bills before one of its lawyers moved to distance themselves from courtroom manoeuvres. Details of the case are contained in a legal judgment from the Hong Kong Court of First Instance. The ruling, by Deputy High Court Judge Ian Carlson, described how Gao was "quick to take advantage" of the error. Carlson said, according to reports he had read, Gao had transferred "ill-gotten funds" to "various accounts in Mainland China and Hong Kong".

His ruling revealed that Gao had help transferring the money from his brother Lei Gao and mother and business partner Huang Di Zhang. Kara's sister Aroha joined them for the first leg of their exploits, telling friends she was drinking beer and loving the heat of Hong Kong, Macau and mainland China, before returning to New Zealand three weeks after the banking error. Carlson said one of the accounts into which Gao deposited money was with Wynn International Marketing, a casino and resort operator with a casino in Macau.

The ruling reveals that Gao transferred only part of the missing millions to the casino - $658,643 - but is the only other party named in legal action by Westpac in the Hong Kong courts. That suggests the bank has no idea where to look for the rest. Westpac's action against Wynn International Marketing was an attempt to extend High Court orders in New Zealand to freeze the assets of Gao's family.

Carlson initially granted Westpac permission and papers were served on the casino's account with the Dah Sing Bank, one of Asia's largest. But the lack of detail in the order meant the bank froze the casino's entire account, not the $660,000 sought by Westpac. Carlson said the casino claimed the move had caused "considerable losses" and "damaged its reputation". He said the casino intended seeking compensation from Westpac and its lawyers - although the Herald on Sunday understands the matter was dropped after Westpac paid the casino's legal bills.

It also emerged the freezing order made in Hong Kong should not have been granted. Carlson said a legal error had been made - Westpac had come to court with a freezing order from a New Zealand court when only a full court judgment would have been recognised. He cancelled any authority the bank believed it had in Hong Kong, and warned Westpac's lawyers about trying to get the court to rule on matters on which it had no jurisdiction.

That prompted one of Westpac's lawyers to seek a special court memo stating he had nothing to do with the botched application. A Hong Kong legal source said Westpac went after the first, and only, target it could find. "The fraudsters, having got so lucky, decided they would go and have a little flutter in the casinos in Macau," said the insider. "Money was then transferred to ... give them lines of credit with the casino.

"But Wynn had no notice they were doing this with money they had stolen until much later. If you turn up tomorrow at the casino with US$1m, they aren't going to ask you where you got it from. They'll just let you gamble. "When Westpac discovered what had happened they saw these sums of money going into the casino's bank account. They then charged off and got all these injunctions and sought to enforce these orders in Hong Kong without standing back to think 'have I got any claim against the casino'."

The mistake had blunted Westpac's attempts to recover the cash. The source said it was telling there were no details of further attempts to recover the cash on any Hong Kong legal database. Westpac could expect to have even less success using legal suits to recover money in China, the source said. And he said New Zealand police should hold little hope of extraditing Gao and his family.

"The police in China tend to do whatever the person who paid them the most ... wants them to do. Assuming these people got away with a significant sum of money, that will be enough to keep the Public Security Bureau happy for some years to come. "Once you disappear into deepest China, it is very hard to find you." He said the only chance of returning the money was to get Gao or his mother to New Zealand - or to Hong Kong if the debt was registered there.

Westpac had a greater chance of success if it pushed business the way of the Chinese Government. The New Zealand police case has been handled by four officers over seven months. Papers requesting Chinese assistance in arresting and extraditing Gao were filed about six months ago. The latest officer in charge, detective senior sergeant Mark Loper, said police were "still looking for (the fugitives), obviously".
 

Meanwhile, Westpac has settled an employment dispute with the staff member who keyed in the wrong figure.

The woman, who had worked for the bank for 30 years, left out a decimal point when approving a loan application - giving Gao's business $10m instead of $100,000. After being sacked she threatened to take the case to the Employment Relations Authority.
Westpac had no comment to make on the case.

Source: Herald on Sunday David Fisher
http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=10615175