Lily: Hi and welcome to the first podcast from the ORX News team. My name is Lily Richardson, I'm the ORX News Manager and I'm joined today by Fern
Fern: Hi, my name is Fern, I'm the ORX News Assistant Manager for editorial content.
Lily: And Tom
Tom: Good morning. I'm Tom and I'm the Senior News Researcher.
Lily: In case you haven't heard of ORX News, we're subscription service from ORX. ORX News covers publicly reported operational risk losses in the financial sector from across the globe. As it's the end of the year, in this edition will be looking at the largest operational risk losses of 2021 up until 8 December. All the losses are reported in U.S. Dollars. Now, over to Fern and Tom to talk us through the biggest operational risk losses we saw in 2021.
Tom: So Fern, please get us started by talking about the fifth largest loss.
Fern: Absolutely, thanks Tom. The fifth largest loss of 2021 was in April when the Dutch prosecution service reached a settlement of $575 million with ABN AMRO over quite serious shortcomings in their AML processes from 2014 to 2020. In short, what happened was investigators found that client data and documents were missing from clients files, ABN assigned the wrong risk classification to a considerable amount of their clients. Several retail clients use their payment accounts for business purposes, including trading real estate and cryptocurrencies. How about the fourth largest loss Tom? Can you please talk us through that?
Tom: The fourth largest loss occurred in Germany in September this year when the EAA, which is Erste Abwicklungsanstalt, who was formed out of the breakup of WestLB Bank, they were found liable for $1.1 billion tax debt. In short, the case involved buying a share just before the dividend rights expired and then reselling it, allowing both the buyer and the seller to claim a capital gains tax refund. The transactions took advantage of a loophole in German tax law, which was later closed in 2012. Experts estimated that the overall loss to tax authorities because of this loophole was more than €5 billion.
Fern: The third largest loss was in March in Singapore. When Envy Group investors were defrauded of $1.23 billion by the company director in a fraud scheme trading nickel from October 2017 to February 2021. The police said that investors were promised varying returns depending on the scheme they joined. But investigations came about when there were suspicions that investors funds were misused. Only one more loss to go before the largest loss of 2021.
Tom: The second largest loss, which actually involves a cryptocurrency company called BitConnect, basically what happened in September the SEC filed a class action against the online lending platform. The company founder and lead US promoter, as well as his other company Future Money, allegedly defrauded investors of 320,000 Bitcoins, which, if you're very quick at maths and on top of these things, came to about $2 billion equivalent value. Allegedly, they ran an unregistered offering of investment. So basically a fraudulent investment scheme involving an array of digital assets or cryptocurrencies from January 2017 to January 2018. Which brings us to the largest loss of 2021.
Fern: Great thanks Tom. For the finale, we head to Turkey for another cryptocurrency loss. In April, Turkish officials started an investigation into the crypto exchange platform, Thodex. Thodex suddenly stopped trading and the CEO, called Fatih Öuzer, allegedly fled the country with $2 billion in digital assets of over 391,000 users. Basically, Thodex said that it would stop trading for six hours for maintenance of their website. But in fact users couldn't access their funds. Öuzer allegedly fled Turkey, flew to either Albania or Thailand and he's still on the run. So watch this space for updates.
Lily: That's quite a cliffhanger. Thank you very much Fern and Tom. Since two of the top five losses are cyber-related and specifically crypto-related, we would like to know what our listeners think about the rise in cryptocurrency-related losses. Please let us know. I hope you enjoyed listening to the podcast. If you'd like to know more about the losses discussed in this episode, then please visit the ORX website where you can find the top five losses for each month, as well as a range of op risk reports and resources. You can also find out more about the ORX News service on the ORX website - just search ORX News.
