Fraud Triangle Case Study: Barings Bank & Nick Leeson
Fraud TriangleCase Study: Barings Bank & Nick LeesonPressure:In 1995, Barings Bank was bankrupt due to Nick Leeson, a 28-year-old staff,whowas a general manager of a new operation in futures markets on the SingaporeInternational Monetary Exchange (SIME). The fuse of collapse was Nick Leeson gambled future trading ashe needed solve the losses relating to the bad trades. Actually, Baring Bank required Nick to report all error tradings to London head through 99905 account. But there was an error account called 88888 Leeson used by himself to hide errors.In the beginning, Leeson just uesed this error account to hide a mistake made by a staff who wrongly sold the contracts costing £20,000 not bought in as customer ordered but he still can earn the commission. Later, he used this account to hide further errors higher to $208m, which he cannot cover by his own commission. At that time he put himself in a dangerous position and he cannot share this financial pressure to others and need to solve secretly.
OpportunityNick Leeson made this fraud as he had two opportunities.The first one was poor management oversight. Baring Bank did not segregate the duties for Nick Leeson. It hired him not only as a trading manager but also the unit’s head of settlement operation, which means that he oversaw trading and internal auditing function, which eliminating internal check and increasing the risk of fraud. Usually, this two occupations should be done by two persons. Thus Nick had right to hide all errors he put in error account 88888 to make sure it would not be detected and he succeed due to the second one, weak internal control.