Sep 19 2012
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Credit Europe Bank Dubai Fined $50,000 Over Fake FX Transaction
Wednesday, Sep 19, 2012
DUBAI (Zawya Dow Jones)--The Dubai International Financial Centre regulator has fined Credit Europe Bank Dubai $50,000 and banned its former head of treasury from engaging in financial services there for three years for attempting to cover up losses on a foreign exchange transaction last May.
In addition to the fine, the bank, a subsidiary of the Netherlands-based Credit Europe Bank, agreed to cease proprietary trading activities until internal controls were upgraded to the satisfaction of the regulator, the Dubai Financial Services Authority said in an emailed statement.
The former head of treasury, Ozkan Demirkaya, was also fined $20,000, with $15,000 of it suspended subject to his compliance with the other conditions, the statement said.
"The action taken by the DFSA today highlights the importance of firms having robust systems and controls in place to mitigate the risks associated with their activities," Ian Johnston, the DFSA chief executive, said in the statement.
The case stemmed from a foreign exchange transaction of EUR2.5 million Mr. Demirkaya entered into last May on the bank's behalf. It was a trade on the exchange rate between euros and U.S. dollars, according to an enforceable undertaking posted on the DFSA 's website.
The exchange rate quickly went against the trade, however, and it breached a $100,000 stop-loss limit. But Mr. Demirkaya did not close the position, "and consequently the long position became an unauthorized open position," the document says.
A day before the trade was to settle on May 9, the document says Mr. Demirkaya created a "fake forward position, which was a falsified forward FX transaction of an amount of 2.3 million euros (short) ... with a back-value date of 6 May 2011 and a settlement date of 13 October 2011."
Mr. Demirkaya hoped markets would move in his favor, erasing the losses on the original position. They did not, and he revealed his conduct to the bank a day before the settlement of the fake transaction in October, the document says. He resigned the same day.
The bank incurred a total loss of $361,200 from Mr. Demirkaya's trades, including several made in the days before the October settlement date "in an attempt to recover the losses incurred from the long position," the document says. The bank immediately opened an internal investigation, but did not report it to the DFSA until December.
The DFSA found that the bank "did not have in place appropriate systems and controls" to detect and prevent the fake forward transaction, according to a second enforceable undertaking on the DFSA website.
The regulator also said the bank contravened rules by deciding to wait for the completion of its internal investigation before notifying the DFSA , the document says. The bank acted in good faith, but had sufficient information in October to tell the DFSA about Mr. Demirkaya's conduct, it says.
Write to Asa Fitch at email@example.com
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