NatWest Three
Encyclopedia
The NatWest Three, also known as the Enron Three, are three British
businessmen - Giles Darby, David Bermingham and Gary Mulgrew. In 2002 they were indicted
in Houston, Texas
on seven counts of wire fraud
against their former employer Greenwich NatWest, at the time a division of National Westminster Bank
. After a high-profile battle in the British courts they were extradited
from the United Kingdom to the United States in 2006. On 28 November 2007, they each plead guilty to one count of wire fraud in exchange for the other charges being dropped. On 22 February 2008 they were each sentenced to 37 months in prison. Initially they were jailed in the US, but were later moved to UK prisons. They were released in August 2010.
(RBS). All three were involved in Greenwich NatWest's dealings with Enron Corporation. As a result of these dealings NatWest owned a stake in a Cayman Islands
-registered partnership called Swap Sub.
Swap Sub was a special purpose entity
created by Andrew Fastow
, Enron's CFO
, ostensibly for the purpose of hedging
Enron's investment in Rhythms NetConnections, an internet service provider
. Swap Sub's assets consisted of cash and Enron stock. Its liability was an option giving Enron the ability to require it to buy Enron's entire investment in Rhythms NetConnections at a predetermined price in 2004. In addition to NatWest, Credit Suisse First Boston
held an equal stake in Swap Sub. The remainder was owned by a partnership managed by Fastow.
In March 2000, Enron decided to terminate the hedging arrangement with Swap Sub. Fastow managed to persuade Enron to pay Swap Sub a $30 million fee to terminate the option and recover the Enron stock it owned, even though, because of a decline in the price of the Rhythms stock, "Swap Sub owed Enron a ton of money". $10 million of the payment went to Credit Suisse First Boston; Fastow falsely claimed that the other $20 million was going to NatWest, but in fact only $1 million did so. The payment, which was formally agreed on 22 March 2000, resulted in large profits for Swap Sub, enriching several Enron employees who had acquired ownership interests in the partnership.
, the Three realized in early 2000 that, because of rises in the stock prices of Enron and Rhythms, NatWest's interest in Swap Sub "had quite some value". On 22 February of that year, the three bankers made a presentation to Enron CFO Andrew Fastow suggesting ways in which this value could be captured; however, Fastow ultimately rejected this proposal.
Shortly afterwards, Fastow contacted Gary Mulgrew in late February or early March 2000 and offered to purchase NatWest's interest in Swap Sub. He also offered Mulgrew what is described in the Statement of Facts as "an unspecified financial opportunity" if he were to leave NatWest. Mulgrew discussed this conversation with Darby and Bermingham. On 6 March 2000, Fastow's assistant Michael Kopper contacted Darby with a formal proposal that a company Kopper controlled should purchase NatWest's stake in Swap Sub for $1 million. Mulgrew and Darby subsequently recommended to their superiors that NatWest should accept this offer.
Later that month, the three bankers learned that the "unspecified financial opportunity" which had been mentioned to Mulgrew involved their personally acquiring a portion of NatWest's stake in Swap Sub. In furtherance of this, Kopper set up a deal for the Three to acquire a put option
on half of NatWest's former stake in the company. On 17 March, Darby collected the signatures needed to finalize the NatWest sale. On 20 March the Three executed the option agreement with Kopper. The Three concealed both their dealings with Fastow and Kopper, and the fact that they now had a financial interest in the company that bought Swap Sub, from their superiors at NatWest.
According to the Statement of Facts, the Three were unaware of the 22 March agreement to pay $30 million to Swap Sub. On 21 April 2000 Bermingham, who had resigned from NatWest in the meantime, exercised the options, resulting in a profit of more than $7 million. He subsequently split the proceeds with Darby and Mulgrew.
(FSA) to discuss the deal. According to their own account, the Three initiated this meeting in order to "ensure transparency". Bermingham later claimed that "[w]e gave [the FSA] everything because we thought we had nothing to hide."
In February 2002 the FSA completed its inquiries without taking any action. It later emerged that the FSA had passed the results of its investigation to the SEC, which had in turn passed them on to the prosecutors in the US Department of Justice. According to a report in The Times
the FSA report was so detailed that it told the SEC whom to interview and what evidence would be needed to secure a conviction, and concluded that “there appears to be evidence that the three individuals were subject to a major conflict of interest”.
by a grand jury
in Houston, Texas
in September of the same year on seven counts of wire fraud
. The warrants were among the first issued by Enron prosecutors and media reports speculated that their main purpose was to induce the Three into a plea bargain
whereby they would testify against Kopper and Fastow (seen as more important prosecution targets) in exchange for reduced sentences. However, during the long delay caused by the decision of the Three to fight extradition Kopper and Fastow both pled guilty and entered into plea bargains themselves. Thus, in an ironic turn of events, Kopper and Fastow were likely to have been the key prosecution witnesses against the Three if the case had gone to trial.
The indictment set out seven counts of wire fraud, each one corresponding to a document (fax, email or wire transfer) that was transmitted electronically in the United States in furtherance of the alleged fraudulent scheme. In addition to the facts agreed to as part of the eventual plea bargain, the indictment alleged that the Three knew, at the time they recommended the sale of Swap Sub to NatWest, that its value was significantly greater than $1 million, and that the 22 February presentation to Fastow was part of the fraudulent scheme. Although Enron officials were involved, the indictment did not allege that Enron Corporation itself was a victim of the scheme, or that the Three's activities had any connection to Enron's collapse.
The evidence against the Three included preparations for the 22 February presentation, which contained the phrase
Prosecutors alleged that the use of the word "robbery" in the presentation showed that the Three knew that they were planning to commit a crime, Prosecutors also pointed to the discrepancy between the $1 million accepted by NatWest, and the $10 million accepted by Credit Suisse First Boston for their equal stakes in Swap Sub.
commenced in June of that year amid widespread controversy. In September 2004 a judge at Bow Street Magistrates' Court
ruled that the extradition could proceed. The Three responded by suing Britain's Serious Fraud Office (SFO) in the High Court of Justice
, seeking judicial review
in order to force a prosecution in the UK which would have taken precedence over the US investigation. Bermingham commented to the press that "I cannot imagine anyone has taken the SFO to court for not prosecuting them before". In response the SFO issued a statement defending their decision to defer to prosecutors in the US:
After a significant delay, the extradition was endorsed by Home Secretary Charles Clarke
in May 2005. The Three appealed this decision also in the High Court. On 20 February 2006 both the appeal against extradition and the suit to force the SFO to prosecute (which were consolidated into one case) were rejected by the High Court. The bankers appealed further to the House of Lords
, but this appeal failed on 21 June 2006. On 27 June 2006 the three lost an appeal to the European Court of Human Rights
. There were then rumours in the UK press that the British government would support their case but this was rejected by Attorney General
Lord Goldsmith
on 7 July 2006.
s served on them in an Enron-related civil suit against Royal Bank of Canada
. On 12 August 2006 all three informed the judge that they had retained attorneys.
On 6 September 2006, the trial date was set for February 2007 if witnesses could be obtained in time, failing that for 4 September 2007. Until that time the Three were required to wear monitoring devices and were forbidden from leaving the Houston area. On 1 August 2007, the trial date was moved back yet again to January 2008. This was following another earlier postponement to 22 October. This further delay was a significant blow to the three, and their supporters stressed again the problems they were facing with the scale of legal fees and further separation from their families in the UK.
The Three's filing also claimed that Royal Bank of Scotland was obstructing attempts to contact a larger group of thirty-six employees who were also potential witnesses, claiming that "[t]he Royal Bank of Scotland and the Royal Bank of Canada have… taken steps to prevent Defendants from securing the testimony of former colleagues", and that "counsel for the purported victim in this case [RBS] has interfered with the ability of defence counsel to obtain relevant testimony". They concluded that the Three's ability "to mount a vigorous defence has thereby been severely compromised, if not eviscerated". The Three went so far as to publicly name the prospective witnesses in the hope that that would encourage some of them to speak out.
, pleading guilty to one count of wire fraud. In exchange, prosecutors agreed to drop the other six counts, and to support the application by the Three to serve part of their sentences in the United Kingdom. In the plea agreement, the Three pleaded guilty to count four of the indictment, relating to the email from London to Houston of the final Swap Sub sale documents. A "statement of facts" was appended to the plea agreement as Exhibit A and was signed by all three defendants.
Prosecutor Alice Fisher claimed that "[t]hese three defendants admitted today that they defrauded Nat West by entering into a secret and illegal deal with officers from Enron – a deal that yielded millions in profits for them personally at the expense of their employer". However, an article in The Daily Telegraph claimed that the guilty pleas were motivated not by actual guilt, but rather by the prospect of further delays before the trial and possible 35-year sentences if convicted. Other British commentators agreed that this was a possibility. The Telegraph piece went on to claim that the statement of facts did not state that the Three knowingly defrauded NatWest. The original indictment alleged that the Three knew that NatWest's stake was worth far more than the $1 million it was being sold for; the statement of facts claimed only that bankers believed it was likely that they would make significant amounts of money as a result of the transaction, based on information that they concealed from their employer.
In August 2010 Bermingham and Mulgrew appeared in a video on ungagged.net, a site devoted to attacking the US Department of Justice's handling of the Enron collapse. In the video David Bermingham recanted his guilty plea, and both he and Gary Mulgrew claimed that they had been pressurised into accepting plea bargains, attacking the US judicial system and characterising their treatment as "torture". Giles Darby said that he "fundamentally" disagreed with the claims made by Bermingham and Mulgrew in the video.
, the successor bank to Greenwich NatWest, of which $1.25 million would be due when the men surrendered themselves to prison authorities. During sentencing, the three each made brief statements to the judge. Mulgrew said that he had shown a "lack of integrity" and "exercised poor judgement", concluding that "I have no one to blame but myself". Darby admitted that he was "wrong", and said "I deeply regret my involvement in this whole affair." Darby's lawyer stated that "Andy Fastow and the culture of greed at Enron corrupted everybody and everything it came in contact with", and added that the Three "are as much victims as anybody else." The Three requested to be assigned to the low-security federal prison
in Allenwood, Pennsylvania. In April 2008, each was assigned to a different prison: Mulgrew was ordered to surrender to the facility in Big Spring
, Texas, on 30 April; Giles Darby to the Allenwood facility on 7 May; and David Bermingham to the prison in Lompoc, California, on 9 May.
Mulgrew, Darby and Bermingham were assigned consecutive federal inmate numbers (66096-179, 66097-179 and 66098-179 respectively). They were later allowed to serve the remainder of their sentence in England. Bermingham was moved from Spring Hill Open Prison to a closed prison in Grendon Underwood in August 2009. The three were released in August 2010.
firm which specialised in "public reputation management during times of corporate crisis or dispute", headed by Melanie Riley
. Adrian Flook of the firm M: Communications was also involved. Both firms claimed to be working pro bono
. Riley said that "I have been working pro bono for the last six months because I believe in the case. We have worked hard to ensure that people understood the inequity of the Extradition Act."
Guardian journalist Nick Davies, in his book Flat Earth News, described the strategy adopted by Bell Yard:
Davies later recounted the reaction of the press:
Riley summed up her strategy as follows: "Originally we focused on a political and civil liberties audience. ... But we moved the issue on to focus on the impact it would have on the business community in particular." M: Communications co-founder Nick Miles added that "It is not a matter of whether or not they are guilty – although they have always expressed their innocence... Our role was to convince editors of the validity of our argument: that Britain's new extradition laws have anomalies."
An article in the Financial Times
also highlighted the achievements of the public relations team:
The Three feature as victims of British justice in the £500,000 documentary Taking Liberties (film)
made by Bermingham's film finance acquaintance.
. In particular, a high profile campaign against the extradition was led by The Daily Telegraph
newspaper. Several arguments were raised against the extradition.
citizens living in Britain against a British company based in London
, the nation's capital city and that, therefore, any resulting criminal case fell under British legal and territorial jurisdiction and should be tried by a British court. However, British authorities decided not to prosecute because of lack of evidence.
In addition, it was claimed that the defendants would be handicapped in preparing a defense because most of the evidence and witnesses were overseas in the UK. They argued that witnesses would be reluctant to come to Texas.
were highly unequal. The Act's terms made it easier to extradite British citizens to America than vice versa. There has been much criticism of the fact that the Americans do not have to produce a prima facie
case - or even any "reasonable case" to extradite UK citizens, whereas there was no comparable facility to extradite US citizens to the UK. Despite this, the head of Britain's Serious Fraud Office, Robert Wardle, has claimed that there would have been enough evidence to extradite the Three to the US even under the old extradition arrangements. He expressed astonishment that the men had become a "cause celebre
", and expressed confidence that the Three would get a fair trial in the US. Supporters of the Three claim that when the extradition law was passed in the wake of 11 September the UK government stated that it was only to be used in the so-called war against terror
and if the treaty was ratified by the US. However, neither of these conditions was written into the text of the extradition law, and neither had been fulfilled in the case of the Three at the time of their extradition. (The treaty was subsequently ratified by the US in September 2006.)
, Michael Martin
, allowed an emergency debate, on 12 July 2006, on both the treaty and the 'Natwest Three' after a request by Liberal Democrat MP Nick Clegg
. During the debate, news shocked the House that a former Royal Bank of Scotland executive and FBI prosecution witness Neil Coulbeck
had been found dead, after committing suicide
by slitting his wrists. It had been suggested by friends and family that the FBI 'hounded' him. At the inquest into his death, Mr Coulbeck's wife stated that he had been deeply disturbed by the extradition of the Three, and it was known that he had provided a crucial statement which in part led to their extradition. On the day of his death he tried to contact NatWest's lawyers and shortly after left his home and was found dead a few days later. The FBI denied this, saying that it had interviewed Coulbeck only once, four years earlier.
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
businessmen - Giles Darby, David Bermingham and Gary Mulgrew. In 2002 they were indicted
Indictment
An indictment , in the common-law legal system, is a formal accusation that a person has committed a crime. In jurisdictions that maintain the concept of felonies, the serious criminal offence is a felony; jurisdictions that lack the concept of felonies often use that of an indictable offence—an...
in Houston, Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
on seven counts of wire fraud
Wire fraud
Mail and wire fraud is a federal crime in the United States. Together, 18 U.S.C. §§ 1341, 1343, and 1346 reach any fraudulent scheme or artifice to intentionally deprive another of property or honest services with a nexus to mail or wire communication....
against their former employer Greenwich NatWest, at the time a division of National Westminster Bank
National Westminster Bank
National Westminster Bank Plc, commonly known as NatWest, is the largest retail and commercial bank in the United Kingdom and has been part of The Royal Bank of Scotland Group Plc since 2000. The Royal Bank of Scotland Group is ranked as the second largest bank in the world by assets...
. After a high-profile battle in the British courts they were extradited
Extradition
Extradition is the official process whereby one nation or state surrenders a suspected or convicted criminal to another nation or state. Between nation states, extradition is regulated by treaties...
from the United Kingdom to the United States in 2006. On 28 November 2007, they each plead guilty to one count of wire fraud in exchange for the other charges being dropped. On 22 February 2008 they were each sentenced to 37 months in prison. Initially they were jailed in the US, but were later moved to UK prisons. They were released in August 2010.
Background
In the year 2000 the three had been working for Greenwich NatWest, then a unit of NatWest bank, later acquired by Royal Bank of ScotlandRoyal Bank of Scotland
The Royal Bank of Scotland Group is a British banking and insurance holding company in which the UK Government holds an 84% stake. This stake is held and managed through UK Financial Investments Limited, whose voting rights are limited to 75% in order for the bank to retain its listing on the...
(RBS). All three were involved in Greenwich NatWest's dealings with Enron Corporation. As a result of these dealings NatWest owned a stake in a Cayman Islands
Cayman Islands
The Cayman Islands is a British Overseas Territory and overseas territory of the European Union located in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac, and Little Cayman, located south of Cuba and northwest of Jamaica...
-registered partnership called Swap Sub.
Swap Sub was a special purpose entity
Special purpose entity
A special purpose entity is a legal entity created to fulfill narrow, specific or temporary objectives...
created by Andrew Fastow
Andrew Fastow
Andrew Stuart Fastow was the chief financial officer of Enron Corporation that was based in Houston, Texas until the U.S. Securities and Exchange Commission opened an investigation into his and the company's conduct in 2001...
, Enron's CFO
Chief financial officer
The chief financial officer or Chief financial and operating officer is a corporate officer primarily responsible for managing the financial risks of the corporation. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management...
, ostensibly for the purpose of hedging
Hedge (finance)
A hedge is an investment position intended to offset potential losses that may be incurred by a companion investment.A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of...
Enron's investment in Rhythms NetConnections, an internet service provider
Internet service provider
An Internet service provider is a company that provides access to the Internet. Access ISPs directly connect customers to the Internet using copper wires, wireless or fiber-optic connections. Hosting ISPs lease server space for smaller businesses and host other people servers...
. Swap Sub's assets consisted of cash and Enron stock. Its liability was an option giving Enron the ability to require it to buy Enron's entire investment in Rhythms NetConnections at a predetermined price in 2004. In addition to NatWest, Credit Suisse First Boston
Credit Suisse First Boston
Credit Suisse First Boston was the former name of the banking firm Credit Suisse.-History:In 1978, Credit Suisse and First Boston Corporation formed a London-based 50-50 investment banking joint venture called the Financière Crédit Suisse-First Boston...
held an equal stake in Swap Sub. The remainder was owned by a partnership managed by Fastow.
In March 2000, Enron decided to terminate the hedging arrangement with Swap Sub. Fastow managed to persuade Enron to pay Swap Sub a $30 million fee to terminate the option and recover the Enron stock it owned, even though, because of a decline in the price of the Rhythms stock, "Swap Sub owed Enron a ton of money". $10 million of the payment went to Credit Suisse First Boston; Fastow falsely claimed that the other $20 million was going to NatWest, but in fact only $1 million did so. The payment, which was formally agreed on 22 March 2000, resulted in large profits for Swap Sub, enriching several Enron employees who had acquired ownership interests in the partnership.
The crime
According to the Statement of Facts which was signed by all three defendants as part of their eventual plea bargainPlea bargain
A plea bargain is an agreement in a criminal case whereby the prosecutor offers the defendant the opportunity to plead guilty, usually to a lesser charge or to the original criminal charge with a recommendation of a lighter than the maximum sentence.A plea bargain allows criminal defendants to...
, the Three realized in early 2000 that, because of rises in the stock prices of Enron and Rhythms, NatWest's interest in Swap Sub "had quite some value". On 22 February of that year, the three bankers made a presentation to Enron CFO Andrew Fastow suggesting ways in which this value could be captured; however, Fastow ultimately rejected this proposal.
Shortly afterwards, Fastow contacted Gary Mulgrew in late February or early March 2000 and offered to purchase NatWest's interest in Swap Sub. He also offered Mulgrew what is described in the Statement of Facts as "an unspecified financial opportunity" if he were to leave NatWest. Mulgrew discussed this conversation with Darby and Bermingham. On 6 March 2000, Fastow's assistant Michael Kopper contacted Darby with a formal proposal that a company Kopper controlled should purchase NatWest's stake in Swap Sub for $1 million. Mulgrew and Darby subsequently recommended to their superiors that NatWest should accept this offer.
Later that month, the three bankers learned that the "unspecified financial opportunity" which had been mentioned to Mulgrew involved their personally acquiring a portion of NatWest's stake in Swap Sub. In furtherance of this, Kopper set up a deal for the Three to acquire a put option
Put option
A put or put option is a contract between two parties to exchange an asset, the underlying, at a specified price, the strike, by a predetermined date, the expiry or maturity...
on half of NatWest's former stake in the company. On 17 March, Darby collected the signatures needed to finalize the NatWest sale. On 20 March the Three executed the option agreement with Kopper. The Three concealed both their dealings with Fastow and Kopper, and the fact that they now had a financial interest in the company that bought Swap Sub, from their superiors at NatWest.
According to the Statement of Facts, the Three were unaware of the 22 March agreement to pay $30 million to Swap Sub. On 21 April 2000 Bermingham, who had resigned from NatWest in the meantime, exercised the options, resulting in a profit of more than $7 million. He subsequently split the proceeds with Darby and Mulgrew.
FSA investigation
In November 2001 the three bankers, having learned that the US Securities and Exchange Commission (SEC) was investigating Fastow, voluntarily met with the British Financial Services AuthorityFinancial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
(FSA) to discuss the deal. According to their own account, the Three initiated this meeting in order to "ensure transparency". Bermingham later claimed that "[w]e gave [the FSA] everything because we thought we had nothing to hide."
In February 2002 the FSA completed its inquiries without taking any action. It later emerged that the FSA had passed the results of its investigation to the SEC, which had in turn passed them on to the prosecutors in the US Department of Justice. According to a report in The Times
The Times
The Times is a British daily national newspaper, first published in London in 1785 under the title The Daily Universal Register . The Times and its sister paper The Sunday Times are published by Times Newspapers Limited, a subsidiary since 1981 of News International...
the FSA report was so detailed that it told the SEC whom to interview and what evidence would be needed to secure a conviction, and concluded that “there appears to be evidence that the three individuals were subject to a major conflict of interest”.
Issue of arrest warrants and indictment
US arrest warrants for the Three were issued in June 2002. They were indictedIndictment
An indictment , in the common-law legal system, is a formal accusation that a person has committed a crime. In jurisdictions that maintain the concept of felonies, the serious criminal offence is a felony; jurisdictions that lack the concept of felonies often use that of an indictable offence—an...
by a grand jury
Grand jury
A grand jury is a type of jury that determines whether a criminal indictment will issue. Currently, only the United States retains grand juries, although some other common law jurisdictions formerly employed them, and most other jurisdictions employ some other type of preliminary hearing...
in Houston, Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
in September of the same year on seven counts of wire fraud
Wire fraud
Mail and wire fraud is a federal crime in the United States. Together, 18 U.S.C. §§ 1341, 1343, and 1346 reach any fraudulent scheme or artifice to intentionally deprive another of property or honest services with a nexus to mail or wire communication....
. The warrants were among the first issued by Enron prosecutors and media reports speculated that their main purpose was to induce the Three into a plea bargain
Plea bargain
A plea bargain is an agreement in a criminal case whereby the prosecutor offers the defendant the opportunity to plead guilty, usually to a lesser charge or to the original criminal charge with a recommendation of a lighter than the maximum sentence.A plea bargain allows criminal defendants to...
whereby they would testify against Kopper and Fastow (seen as more important prosecution targets) in exchange for reduced sentences. However, during the long delay caused by the decision of the Three to fight extradition Kopper and Fastow both pled guilty and entered into plea bargains themselves. Thus, in an ironic turn of events, Kopper and Fastow were likely to have been the key prosecution witnesses against the Three if the case had gone to trial.
The indictment set out seven counts of wire fraud, each one corresponding to a document (fax, email or wire transfer) that was transmitted electronically in the United States in furtherance of the alleged fraudulent scheme. In addition to the facts agreed to as part of the eventual plea bargain, the indictment alleged that the Three knew, at the time they recommended the sale of Swap Sub to NatWest, that its value was significantly greater than $1 million, and that the 22 February presentation to Fastow was part of the fraudulent scheme. Although Enron officials were involved, the indictment did not allege that Enron Corporation itself was a victim of the scheme, or that the Three's activities had any connection to Enron's collapse.
The evidence against the Three included preparations for the 22 February presentation, which contained the phrase
- "Problem is that it is too obvious (to both Enron and LPs) what is happening (ie, robbery of LPs), so probably not attractive. Also no certainty of making money ..."
Prosecutors alleged that the use of the word "robbery" in the presentation showed that the Three knew that they were planning to commit a crime, Prosecutors also pointed to the discrepancy between the $1 million accepted by NatWest, and the $10 million accepted by Credit Suisse First Boston for their equal stakes in Swap Sub.
Extradition to the United States
US prosecutors began to pursue proceedings in what they expected to be a "routine" extradition in the summer of 2002. The Three were arrested in Britain on 23 April 2004 and extradition proceedings under the Extradition Act 2003Extradition Act 2003
The Extradition Act 2003 is an Act of the Parliament of the United Kingdom. It came into force on 1 January 2004 and all import and export extradition requests submitted or received from this date are covered by the Act...
commenced in June of that year amid widespread controversy. In September 2004 a judge at Bow Street Magistrates' Court
Bow Street Magistrates' Court
Bow Street Magistrates' Court was the most famous magistrates' court in England for much of its existence, and was located in various buildings on Bow Street in central London close to Covent Garden throughout its history.-History:...
ruled that the extradition could proceed. The Three responded by suing Britain's Serious Fraud Office (SFO) in the High Court of Justice
High Court of Justice
The High Court of Justice is, together with the Court of Appeal and the Crown Court, one of the Senior Courts of England and Wales...
, seeking judicial review
Judicial review
Judicial review is the doctrine under which legislative and executive actions are subject to review by the judiciary. Specific courts with judicial review power must annul the acts of the state when it finds them incompatible with a higher authority...
in order to force a prosecution in the UK which would have taken precedence over the US investigation. Bermingham commented to the press that "I cannot imagine anyone has taken the SFO to court for not prosecuting them before". In response the SFO issued a statement defending their decision to defer to prosecutors in the US:
After a significant delay, the extradition was endorsed by Home Secretary Charles Clarke
Charles Clarke
Charles Rodway Clarke is a British Labour Party politician, who was the Member of Parliament for Norwich South from 1997 until 2010, and served as Home Secretary from December 2004 until May 2006.-Early life:...
in May 2005. The Three appealed this decision also in the High Court. On 20 February 2006 both the appeal against extradition and the suit to force the SFO to prosecute (which were consolidated into one case) were rejected by the High Court. The bankers appealed further to the House of Lords
Judicial functions of the House of Lords
The House of Lords, in addition to having a legislative function, historically also had a judicial function. It functioned as a court of first instance for the trials of peers, for impeachment cases, and as a court of last resort within the United Kingdom. In the latter case the House's...
, but this appeal failed on 21 June 2006. On 27 June 2006 the three lost an appeal to the European Court of Human Rights
European Court of Human Rights
The European Court of Human Rights in Strasbourg is a supra-national court established by the European Convention on Human Rights and hears complaints that a contracting state has violated the human rights enshrined in the Convention and its protocols. Complaints can be brought by individuals or...
. There were then rumours in the UK press that the British government would support their case but this was rejected by Attorney General
Attorney General for England and Wales
Her Majesty's Attorney General for England and Wales, usually known simply as the Attorney General, is one of the Law Officers of the Crown. Along with the subordinate Solicitor General for England and Wales, the Attorney General serves as the chief legal adviser of the Crown and its government in...
Lord Goldsmith
Peter Goldsmith, Baron Goldsmith
Peter Henry Goldsmith, Baron Goldsmith, PC, QC , is a former Attorney General for England and Wales and Northern Ireland. On 22 June 2007, Goldsmith announced his resignation which took effect on 27 June 2007, the same day that prime minister, Tony Blair, stepped down. Goldsmith was the longest...
on 7 July 2006.
Initial court proceedings in the United States
After all legal avenues of appeal against extradition had been exhausted, the Three arrived in Houston on 13 July 2006 and taken to the Federal Detention Center there. The next day they were released into the custody of their attorney and ordered to wear electronic monitoring devices. On 21 July a judge ruled that the Three could go free on bond but could not leave the Houston area, could not meet with each other without their lawyers present and must raise between $80,000 and $150,000 by the end of the month. US immigration services gave them permission to accept employment in the US for a period of one year: however the judge did not give them permission to travel throughout the US in order to seek work.Trial date postponements
On 2 August 2006 the trial date was delayed indefinitely from 13 September 2006, in order to allow two of the Three to secure legal representation. On 9 August 2006 the legal situation of the Three was complicated by subpoenaSubpoena
A subpoena is a writ by a government agency, most often a court, that has authority to compel testimony by a witness or production of evidence under a penalty for failure. There are two common types of subpoena:...
s served on them in an Enron-related civil suit against Royal Bank of Canada
Royal Bank of Canada
The Royal Bank of Canada or RBC Financial Group is the largest financial institution in Canada, as measured by deposits, revenues, and market capitalization. The bank serves seventeen million clients and has 80,100 employees worldwide. The company corporate headquarters are located in Toronto,...
. On 12 August 2006 all three informed the judge that they had retained attorneys.
On 6 September 2006, the trial date was set for February 2007 if witnesses could be obtained in time, failing that for 4 September 2007. Until that time the Three were required to wear monitoring devices and were forbidden from leaving the Houston area. On 1 August 2007, the trial date was moved back yet again to January 2008. This was following another earlier postponement to 22 October. This further delay was a significant blow to the three, and their supporters stressed again the problems they were facing with the scale of legal fees and further separation from their families in the UK.
Witnesses controversy
On 6 August 2007, the Three asked the judge in the case to order six former colleagues living in Britain to provide video testimony for their defence. In a court filing explaining this request, they alleged that "[s]everal individuals now refuse to travel to the United States to appear on defendants' behalf because they feel, or have been, threatened by the [US] government". Such a request would have required the co-operation of British authorities.The Three's filing also claimed that Royal Bank of Scotland was obstructing attempts to contact a larger group of thirty-six employees who were also potential witnesses, claiming that "[t]he Royal Bank of Scotland and the Royal Bank of Canada have… taken steps to prevent Defendants from securing the testimony of former colleagues", and that "counsel for the purported victim in this case [RBS] has interfered with the ability of defence counsel to obtain relevant testimony". They concluded that the Three's ability "to mount a vigorous defence has thereby been severely compromised, if not eviscerated". The Three went so far as to publicly name the prospective witnesses in the hope that that would encourage some of them to speak out.
Plea bargain
On 28 November 2007, the three accepted a plea bargainPlea bargain
A plea bargain is an agreement in a criminal case whereby the prosecutor offers the defendant the opportunity to plead guilty, usually to a lesser charge or to the original criminal charge with a recommendation of a lighter than the maximum sentence.A plea bargain allows criminal defendants to...
, pleading guilty to one count of wire fraud. In exchange, prosecutors agreed to drop the other six counts, and to support the application by the Three to serve part of their sentences in the United Kingdom. In the plea agreement, the Three pleaded guilty to count four of the indictment, relating to the email from London to Houston of the final Swap Sub sale documents. A "statement of facts" was appended to the plea agreement as Exhibit A and was signed by all three defendants.
Prosecutor Alice Fisher claimed that "[t]hese three defendants admitted today that they defrauded Nat West by entering into a secret and illegal deal with officers from Enron – a deal that yielded millions in profits for them personally at the expense of their employer". However, an article in The Daily Telegraph claimed that the guilty pleas were motivated not by actual guilt, but rather by the prospect of further delays before the trial and possible 35-year sentences if convicted. Other British commentators agreed that this was a possibility. The Telegraph piece went on to claim that the statement of facts did not state that the Three knowingly defrauded NatWest. The original indictment alleged that the Three knew that NatWest's stake was worth far more than the $1 million it was being sold for; the statement of facts claimed only that bankers believed it was likely that they would make significant amounts of money as a result of the transaction, based on information that they concealed from their employer.
In August 2010 Bermingham and Mulgrew appeared in a video on ungagged.net, a site devoted to attacking the US Department of Justice's handling of the Enron collapse. In the video David Bermingham recanted his guilty plea, and both he and Gary Mulgrew claimed that they had been pressurised into accepting plea bargains, attacking the US judicial system and characterising their treatment as "torture". Giles Darby said that he "fundamentally" disagreed with the claims made by Bermingham and Mulgrew in the video.
Sentencing and prison
The NatWest Three were sentenced on 22 February 2008 to 37 months of imprisonment. They were given no remission for the time they had spent in the United States awaiting trial. They were also required to repay $7.3 million to Royal Bank of ScotlandRoyal Bank of Scotland
The Royal Bank of Scotland Group is a British banking and insurance holding company in which the UK Government holds an 84% stake. This stake is held and managed through UK Financial Investments Limited, whose voting rights are limited to 75% in order for the bank to retain its listing on the...
, the successor bank to Greenwich NatWest, of which $1.25 million would be due when the men surrendered themselves to prison authorities. During sentencing, the three each made brief statements to the judge. Mulgrew said that he had shown a "lack of integrity" and "exercised poor judgement", concluding that "I have no one to blame but myself". Darby admitted that he was "wrong", and said "I deeply regret my involvement in this whole affair." Darby's lawyer stated that "Andy Fastow and the culture of greed at Enron corrupted everybody and everything it came in contact with", and added that the Three "are as much victims as anybody else." The Three requested to be assigned to the low-security federal prison
Federal Correctional Institute, Allenwood
Allenwood Federal Correctional Complex is a United States Federal Bureau of Prisons facility located on U.S. Route 15 in Gregg Township, Union County, Pennsylvania. The prison, at the foothills of the Allegheny Mountains, is on U.S. Route 15, north of Allenwood, south of Williamsport, and north...
in Allenwood, Pennsylvania. In April 2008, each was assigned to a different prison: Mulgrew was ordered to surrender to the facility in Big Spring
Big Spring, Texas
Big Spring is a city in and the county seat of Howard County, Texas, United States, at the crossroads of U.S. Highway 87 and Interstate 20. With a population of 25,233 at the 2000 census, it is the largest city between Midland to the west, Abilene to the east, Lubbock to the north, and San Angelo...
, Texas, on 30 April; Giles Darby to the Allenwood facility on 7 May; and David Bermingham to the prison in Lompoc, California, on 9 May.
Mulgrew, Darby and Bermingham were assigned consecutive federal inmate numbers (66096-179, 66097-179 and 66098-179 respectively). They were later allowed to serve the remainder of their sentence in England. Bermingham was moved from Spring Hill Open Prison to a closed prison in Grendon Underwood in August 2009. The three were released in August 2010.
Public relations campaign in Britain
Press coverage of the Three in Britain was initially mostly negative, focusing on the amount of money the men had gained and their extravagant lifestyles. For example, The Independent wrote that the men saw themselves as "womanising buccanneers who played as hard and as fast as they pursued their deals" and The Sunday Times described Mulgrew as "fiercely competitive" with "a massive ego" and "scars on his arms" from his former career as a nightclub bouncer. The tone of the reporting changed when the Three secured the services of Bell Yard Communications, a public relationsPublic relations
Public relations is the actions of a corporation, store, government, individual, etc., in promoting goodwill between itself and the public, the community, employees, customers, etc....
firm which specialised in "public reputation management during times of corporate crisis or dispute", headed by Melanie Riley
Melanie Riley
Melanie Claire Riley is a corporate and public affairs expert who co-founded Bell Yard, a "litigation PR, crisis communications and reputation management consultancy", with Richard Elsen in 2002...
. Adrian Flook of the firm M: Communications was also involved. Both firms claimed to be working pro bono
Pro bono
Pro bono publico is a Latin phrase generally used to describe professional work undertaken voluntarily and without payment or at a reduced fee as a public service. It is common in the legal profession and is increasingly seen in marketing, technology, and strategy consulting firms...
. Riley said that "I have been working pro bono for the last six months because I believe in the case. We have worked hard to ensure that people understood the inequity of the Extradition Act."
Guardian journalist Nick Davies, in his book Flat Earth News, described the strategy adopted by Bell Yard:
Davies later recounted the reaction of the press:
Riley summed up her strategy as follows: "Originally we focused on a political and civil liberties audience. ... But we moved the issue on to focus on the impact it would have on the business community in particular." M: Communications co-founder Nick Miles added that "It is not a matter of whether or not they are guilty – although they have always expressed their innocence... Our role was to convince editors of the validity of our argument: that Britain's new extradition laws have anomalies."
An article in the Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
also highlighted the achievements of the public relations team:
The Three feature as victims of British justice in the £500,000 documentary Taking Liberties (film)
Taking Liberties (film)
Taking Liberties is a documentary film about the erosion of civil liberties in the United Kingdom and increase of surveillance under the government of Tony Blair...
made by Bermingham's film finance acquaintance.
Extradition controversy
The extensive news coverage of the Three in Britain resulted in a large-scale debate over the merits of their extradition to the United States under the then new Extradition Act 2003Extradition Act 2003
The Extradition Act 2003 is an Act of the Parliament of the United Kingdom. It came into force on 1 January 2004 and all import and export extradition requests submitted or received from this date are covered by the Act...
. In particular, a high profile campaign against the extradition was led by The Daily Telegraph
The Daily Telegraph
The Daily Telegraph is a daily morning broadsheet newspaper distributed throughout the United Kingdom and internationally. The newspaper was founded by Arthur B...
newspaper. Several arguments were raised against the extradition.
Jurisdiction argument
It was argued that the crime was committed by BritishUnited Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
citizens living in Britain against a British company based in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, the nation's capital city and that, therefore, any resulting criminal case fell under British legal and territorial jurisdiction and should be tried by a British court. However, British authorities decided not to prosecute because of lack of evidence.
Fair trial argument
Some argued that it would be very difficult for Three to receive a fair trial in Texas. The case could have taken years to come to trial (the trial was scheduled to begin in September 2006, but was repeatedly postponed to January 2008). The three accused men would be forced to remain in the US, far away from their families in the UK. Additionally, while on bail they would be unable to find gainful employment in order to fund a legal defence against the charges brought against them. (In the event the Three were permitted to seek employment in the US provided they remained in Houston.)In addition, it was claimed that the defendants would be handicapped in preparing a defense because most of the evidence and witnesses were overseas in the UK. They argued that witnesses would be reluctant to come to Texas.
Extradition inequality argument
It was alleged that the extradition arrangements between the US and the UKExtradition Act 2003
The Extradition Act 2003 is an Act of the Parliament of the United Kingdom. It came into force on 1 January 2004 and all import and export extradition requests submitted or received from this date are covered by the Act...
were highly unequal. The Act's terms made it easier to extradite British citizens to America than vice versa. There has been much criticism of the fact that the Americans do not have to produce a prima facie
Prima facie
Prima facie is a Latin expression meaning on its first encounter, first blush, or at first sight. The literal translation would be "at first face", from the feminine form of primus and facies , both in the ablative case. It is used in modern legal English to signify that on first examination, a...
case - or even any "reasonable case" to extradite UK citizens, whereas there was no comparable facility to extradite US citizens to the UK. Despite this, the head of Britain's Serious Fraud Office, Robert Wardle, has claimed that there would have been enough evidence to extradite the Three to the US even under the old extradition arrangements. He expressed astonishment that the men had become a "cause celebre
Cause célèbre
A is an issue or incident arousing widespread controversy, outside campaigning and heated public debate. The term is particularly used in connection with celebrated legal cases. It is a French phrase in common English use...
", and expressed confidence that the Three would get a fair trial in the US. Supporters of the Three claim that when the extradition law was passed in the wake of 11 September the UK government stated that it was only to be used in the so-called war against terror
War on Terrorism
The War on Terror is a term commonly applied to an international military campaign led by the United States and the United Kingdom with the support of other North Atlantic Treaty Organisation as well as non-NATO countries...
and if the treaty was ratified by the US. However, neither of these conditions was written into the text of the extradition law, and neither had been fulfilled in the case of the Three at the time of their extradition. (The treaty was subsequently ratified by the US in September 2006.)
House of Commons debate
In a highly unusual move, the Speaker of the House of CommonsSpeaker of the British House of Commons
The Speaker of the House of Commons is the presiding officer of the House of Commons, the United Kingdom's lower chamber of Parliament. The current Speaker is John Bercow, who was elected on 22 June 2009, following the resignation of Michael Martin...
, Michael Martin
Michael Martin (politician)
Michael John Martin, Baron Martin of Springburn, PC is a British politician, who was the Member of Parliament for Glasgow Springburn from 1979 to 2005, and then for Glasgow North East until 2009...
, allowed an emergency debate, on 12 July 2006, on both the treaty and the 'Natwest Three' after a request by Liberal Democrat MP Nick Clegg
Nick Clegg
Nicholas William Peter "Nick" Clegg is a British Liberal Democrat politician who is currently the Deputy Prime Minister, Lord President of the Council and Minister for Constitutional and Political Reform in the coalition government of which David Cameron is the Prime Minister...
. During the debate, news shocked the House that a former Royal Bank of Scotland executive and FBI prosecution witness Neil Coulbeck
Neil Coulbeck
Neil Coulbeck was a banker with the Royal Bank of Scotland .Coulbeck was Head of Financial Markets for North America with RBS until June 2001, when he returned to London as Head of Group Treasury. He had been questioned by the FBI in relation to the collapse of Enron, which involved the RBS...
had been found dead, after committing suicide
Suicide
Suicide is the act of intentionally causing one's own death. Suicide is often committed out of despair or attributed to some underlying mental disorder, such as depression, bipolar disorder, schizophrenia, alcoholism, or drug abuse...
by slitting his wrists. It had been suggested by friends and family that the FBI 'hounded' him. At the inquest into his death, Mr Coulbeck's wife stated that he had been deeply disturbed by the extradition of the Three, and it was known that he had provided a crucial statement which in part led to their extradition. On the day of his death he tried to contact NatWest's lawyers and shortly after left his home and was found dead a few days later. The FBI denied this, saying that it had interviewed Coulbeck only once, four years earlier.
External links
- Friends Extradited, supporter website
- Report on Telegraph support
- Inmate Tracker - shows Bermingham's term in the Federal Bureau of Prisons system
- Inmate Tracker - shows Mulgrew's term in the Federal Bureau of Prisons system
- Inmate Tracker - shows Darby's term in the Federal Bureau of Prisons system