Lost in fraud translation

What caused Jacques de Groote, the former CEO of the World Bank and director of the International Monetary Fund, now 90 years old, to spend the last 10 years in court? In large part, it’s allegations of fraud over his involvement with a group of Czech entrepreneurs who took an ailing coal mine, turned it around and sold it for a substantial profit. But also, because a Swiss court hired a Pole to translate Czech documents and then failed to call for the translation of more than 90 percent of the documents associated with the transaction.

To understand how this happened, it’s necessary to go back to the beginning. In 1989, the newly independent Czech Republic was trying to reboot its economy and, over the next few years, privatised most of its state-owned business, including a key asset: MUS. MUS was a huge and hugely unprofitable coal mine. Shortly afterwards, a group of entrepreneurs bought up a large number of MUS shares from a large number of individual shareholders. Eventually, the entrepreneurs ended up with a controlling stake. Their wish was to sell these on as a large block of shares, but this was not possible so they, using the Appian Group of which M. de Groote was chairman at the time, retained control and turned the coal mine around. There were some 25,000-30,000 families supported by the mine and the changes made by the entrepreneurs saved the livelihoods of these families, cemented very good relationships with the trade unions and made the Czech Republic the largest per-capita exporter of electricity in Europe.

“Astonishingly, nearly 120,000 pages of that evidence, in Czech and English, were not translated into French—the language of the court—and so were not available to judges when they were hearing the case.”

David Clarke, Group Head, Anti-Corruption and Multilingual Due Diligence Services, Today Advisory Service



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The entrepreneurs then tried to sell MUS back to the Czech government, which was still a minority shareholder, but it rejected the offer. So they then offered to buy the rest of the shares off the government, eventually for 24 percent over the market price. Finally, MUS was sold to another group of investors. The deal was brokered by the Appian Group, which at that time had a number of extremely well-known advisers and board members, including George H. W. Bush, Lawrence Eagleburger (Bush’s one-time Secretary of State), and one of the cofounders of the hedge fund the Carlyle Group. This sale made a profit of $700 million dollars for the entrepreneurs. But the Swiss government—where Appian was headquartered—decided that Appian was a just a front company for the real buyer and that the sale was for money laundering purposes. At the time, Switzerland was under pressure from the United States, France, and Germany to clean up its act regarding the use of its banks for tax evasion and money laundering by terrorist and organised crime groups. Despite the fact that the events occurred in a different country and in a totally different context, Swiss prosecutors found the entrepreneurs and M. de Groote guilty of fraud in 2013, saying that they acquired their stake in the company fraudulently. This was after the sale and acquisition had been investigated by the Czech authorities on three separate occasions without finding any misconduct; the Czech authorities also did not cooperate with the Swiss prosecutors because they saw no reason for the prosecution.

At issue here, says David Clarke, group head, anti-corruption and multilingual due diligence Services for translation service Today Advisory Services, is lack of due process in the investigation. Indeed, he adds, one of the Swiss judges resigned from the case citing the lack of due process as the reason he did not believe that the investigation would reach a proper conclusion. Much of this lack of process was due to the treatment of 140,000 pages of evidence in the case file. “Astonishingly,” he says, “nearly 120,000 pages of that evidence, in Czech and English, were not translated into French—the language of the court—and so were not available to judges when they were hearing the case.” In addition, a Polish speaker was assigned to what little translation was done on the grounds that Czech is similar to Polish. “There are similarities but also some big differences,” said Clarke.

DOWN THE RABBIT HOLE

“It was not a structured investigation,” said Clarke. “To ensure a fair trial, prosecutors should consider all the facts and constantly check materials. Otherwise, you have the ability to accidentally fall foul of regulations. It’s a different situation but it is like KYC (know your customer) type work, if you don’t follow the due process, then mistakes will be made.” Clarke also said that even after speaking with de Groote, it was unclear what the process should have been. There are two issues at stake, he noted, Article 6 of the Human Rights Convention, the right to a fair trial and the right to see all the evidence. Can it have been true that 90 percent of the evidence was non-admissible? The defendants tried to present it to the court, but the judges refused to let them. De Groote and the other investors have appealed the decision—none are under arrest but all have had millions of euros of assets frozen—but there had been no progress since the decision in 2013. The appeal is based on the non-admitted evidence and the fact that other documents were translated by someone not competent to do so.

“For a translation to be certified, it needs be accurate and faithful to the original,” said Clarke. “You wouldn’t have a policeman who was prosecuting a case translate evidence just because he was fluent in the language. It would have to be done by someone outside the force. In the U.K., the approach is that the prosecution must present evidence to the court even if it undermines its own case. That doesn’t seem to have happened here.”

Clarke stressed that in this part of the world, at that time in history, investors should have exercised extreme caution in doing deals, but they failed to see the risk. They were accused of hiding behind Appian and did not understand how to mitigate that risk by making all offers public record. “It’s no good claiming it was all public record later, it needs to have been made so at the time,” said Clarke. “Was the offer to sell the mine back to the Czech government documented? They appear to have made themselves a sitting target for prosecution because they did not do enough due diligence.” Clarke notes that even now, when doing deals in areas of eastern Europe and Russia where there is still a large amount of corruption, investors need to exercise even more due diligence. What is needed within an Adequate Procedures regime is multilingual compliance officers who can translate documents into many different languages. This avoids confusion and potential fraud before the consummation of the deal is even reached. “There will be a lot of call for independent, certified translators in the EU and the far east for the forseeable future.”

“They appear to have made themselves a sitting target for prosecution because they did not do enough due diligence.”
David Clarke, Group Head, Anti-Corruption and Multilingual Due Diligence Services, Today Advisory Service

Clarke worked with the City of London police on the infamous horsemeat scandal, where several large retailers found that they were unknowingly selling horse flesh. The Blackfriars court, where the case was held, had all documents associated with the case—they were in Polish—either fully translated or ‘extracted,’ a process where the document is read by someone fluent in the language and key words and phrases are pulled from it for review.

“This is the next place that could develop into a compliance problem area,” said Clarke. He describes a situation where a contractor, when a problem arises, refers to a contract that was drawn up which is in Chinese. He’s never read it but indicates that the local agent told him what it said, or refers to a colleague, who has now left the firm, who had read it. “That’s not due diligence,” he said, “and if the document turns out to be fraudulent, there is little that can be done. It’s a potential time bomb.”

Andrew Massey, former head of the City of London’s Overseas Anti-Corruption Unit, agrees. “Due diligence, particularly within overseas legal and financial operations,” he warned, “must extend to what can be evaded through language. We know that misinformation and miscommunication often sows the seeds for cross-border criminal activity.” Clarke points out that if documents are not properly translated in the first place, compliance issues can be passed down the line. “Say someone has conducted a profitable property deal, that is then invested in by a pension fund. If all the contracts are in Turkish and have never been translated and the properties turn out to have been misrepresented, then it’s not only the original dealer but the pension fund as well who are on the hook for fraud.”

As for de Groote and the other MUS investors, Clarke is still uncertain as to why the case was brought in the first place, noting that compared to other deals it was “small fry” and that it should have been prosecuted, if at all, as a civil case not a criminal one. As for now, they are all still under a cloud with no access to their considerable assets.