Attached hereto is a Background Note containing further information; in order to access the Report of the Joint Disciplinary Tribunal, please click onto "Tribunal Report" and click on the Tribunal Report button at the bottom of the page; in order to access the Report of the Appeal Tribunal, please click onto "Tribunal Report" and click onto the "Appeal Tribunal Report" button at the bottom of the page.

Christopher Dickson - + 44 (0)20 7247 1511

The JDT found a large number of Complaints relating to the audits of Barings in 1993 and 1994 proved against both Coopers & Lybrand ("C&L") London and Mr Davies (the C&L engagement partner). The Appeal Tribunal has now affirmed these findings

The JDT dismissed Complaints relating to the 1994 audit against Mr Andrew Charles Turner FCA. Mr Turner was the joint engagement partner on the audit that year, having first become involved in about October 1994. As the JDT put it: "Mr Turner was put in place to gain the familiarity with the business and as to its auditing, such as would have enabled him to take over as engagement partner in 1995. He was on a learning curve. In the result we have determined that his personal conduct and quality of work should not attract adverse findings."

The detailed Complaints, marked up to show the finding on each, are annexed to the JDT Report.

There follow some questions and answers which, it is hoped, will be of help to you.

The activities of Mr Nick Leeson in Singapore are already well known.

Barings, whose headquarters were in London, had a number of subsidiary companies in the Far East, including Baring Futures (Singapore) Pte Ltd ("BFS").

Mr Leeson was the General Manager of BFS. BFS's original function was to conduct agency business (i.e. to execute deals on behalf of clients). The risks to Barings from agency business were small, but the profits were also likely to be modest. This was because most of the risks were taken by the clients, who consequently enjoyed most of the profits (and the losses!).

From 1992 onwards, BFS became involved in a technique known as arbitraging, in which it acted with discretionary authority for other Barings companies. Arbitraging involves the exploitation of price differentials or other anomalies between different exchanges. Because of Mr Leeson's direct involvement with the futures exchanges in Singapore and Japan, he was able to identify and buy at a lower price on one exchange and sell immediately at a higher price on the other (known as matched trading). Like agency business, arbitraging was low risk for Barings (because the two deals were virtually simultaneous). Arbitraging also has inherent limits on the likely level of profits: the speed of modern communications enables information to be exchanged so quickly that price differences are small and are soon eliminated.

Notwithstanding this, Mr Leeson reported enormous profits. These could not have come from agency business or arbitraging. In fact his "profits" came from unauthorised trading in futures and options conducted on a massive scale through an account in BFS's books designated "Account 88888". Mr Leeson did not tell London what he was doing, enhancing his "profitability" by hiding his losses in Account 88888. The losses had to be paid for, and Mr Leeson simply kept asking London for more money.

By February 1995, he had run up losses of £827 million. Astonishingly no less than £619 million of this sum was lost in the period between 1 January and 24 February 1995.

On Sunday 26 February 1995, the High Court appointed Joint Administrators to manage the affairs of Barings in the UK. The next day, BFS was put into interim judicial management in Singapore. Due to the gross negligence of Barings management, Mr Leeson had been allowed to wager the bank on the markets - and he had lost.

C&L London were responsible for auditing the group accounts of Barings. The firm audited the London subsidiaries itself. BFS, however, was audited in 1993 by Deloitte & Touche ("D&T") Singapore, and in 1994 by C&L Singapore.

Mr Davies was the London partner responsible for the audits in 1993 and 1994 (in 1994 jointly with Mr Turner).

The 1994 audit was not completed.

The overriding criticism of C&L London and of Mr Davies is that they missed a crucial part of the broader picture.

As the Appeal Tribunal said of them, the belief that Mr Leeson's trading activities "posed little (or no) risk to the Barings Group, but yielded very good returns, is implausible and in our view, demonstrates a degree of ignorance of market reality that totally lacks credibility".

There were several ways in which C&L London and Mr Davies might have discovered Mr Leeson's fraud:

1. Mr Leeson called for more and more money to be sent out from London to Singapore so as to cover his losses. The Appeal Tribunal said, in relation to these sums: "Nobody ever seems to have checked to what they related." A check at the end of 1994, for example, would have shown that some £120 million could not be reconciled.
2. Instead of obtaining independent verification of the business which Mr Leeson was doing in Singapore for the London subsidiaries, C&L London and Mr Davies relied on a reconciliation which used internal Barings documents. As the JDT put it: "The reconciliation was in truth circular and not between data obtained from independent sources."
3. When, in January 1995, an issue arose about a sum of £50 million apparently due to Barings from a Wall Street broker ("the SLK Receivable"), C&L London failed to investigate two contradictory explanations given by Barings for what would in any event have been an unauthorised deal. That £50 million of Barings money could apparently go missing for two months, without any controls identifying that this had happened, did not put C&L London on their guard.

The JDT ordered C&L London to pay costs of £500,000. The Appeal Tribunal affirmed this, and ordered them to pay a further £135,000 towards the costs of the Appeal.

The JDT ordered Mr Davies to pay costs of £35,000. The Appeal Tribunal affirmed this, and ordered him to pay a further £5,000 towards the costs of the Appeal.

Yes. On 9 December 2000, the JDT excluded Mr Andrew Marmaduke Lane Tuckey FCA, the former deputy chairman of Barings, from membership of the Institute of Chartered Accountants in England and Wales ("ICAEW"), with a recommendation that no application for readmission be considered for four years.

On 26 November 2001, the JDT severely reprimanded Mr Simon Dominic Jones FCA, the former finance director of BFS, and ordered him to pay £5,000 costs.

In addition to this, the Securities and Futures Association brought disciplinary proceedings against a number of former members of Barings senior management; and the Secretary of State for Trade and Industry brought proceedings in the High Court to disqualify a number of former Barings directors.

The Liquidators (formerly Joint Administrators) of Barings have engaged in litigation to recover damages from a variety of parties, including C&L London, C&L Singapore and D&T Singapore. The cases against C&L London and C&L Singapore have been settled. Litigation against D&T Singapore continues.

Yes. Apart from the legal and disciplinary proceedings referred to above, and criminal proceedings brought against Mr Leeson in Singapore, two other investigations have led to:

1. a Report by the Board of Banking Supervision being published in July 1995; and
2. a Report by Inspectors appointed by the Minister of Finance in Singapore being published in September 1995.

What is the JDS?

The rôle of the JDS is to ensure that the highest standards are maintained by chartered accountants.

The JDS conducts independent investigations into the work and conduct of chartered accountants where this has given rise to public concern. The sponsors of the Scheme are the ICAEW and the Institute of Chartered Accountants of Scotland ("ICAS").

Cases are investigated by the Executive Counsel, Christopher Dickson, a barrister employed by the Scheme. Where he finds that work or conduct appears to have fallen below acceptable standards, he lays complaints before a Joint Disciplinary Tribunal headed by a QC or a retired judge. It is for the Tribunal to decide, on the basis of the evidence presented, whether the complaints have been substantiated; and if so, what penalty should be imposed. Appointments to Tribunals are made by the Executive Committee, the governing body of the JDS, acting independently of the Executive Counsel.

The Executive Counsel laid his Complaints in October 1998. The JDT sat in November 1999 and reported on 13 June 2000. C&L London and Mr Davies gave notice of appeal on 10 July 2000. Thereafter, C&L London and Mr Davies engaged two QCs in succession, each of whom was subsequently appointed to high office: the first became a High Court Judge, and the second became the Attorney General. A third QC was thereafter appointed, and the Appeal Tribunal finally sat in September 2001.

Appeal Tribunal

Sir Oliver Popplewell, the Chairman, is a retired High Court Judge. Mr Philip Haynes FCA is a partner in HLB Kidsons (now Baker Tilly), and was a member of his firm's National Professional Practices Committee. Mr Bruce Picking MSc FCA, a former Teaching Fellow at the LSE, was a partner at Arthur Andersen. He was Technical Director of the ICAEW 1994 - 96.

Mr Adrian Brunner, the Chairman, is a Queen's Counsel and a member of the Bar of England and Wales in independent practice. Mr Ian McNeill FCA is a retired partner in Moores Rowland and a past President of the ICAEW. Mr Anthony Richmond-Watson CA is a former Deputy Chairman of Morgan Grenfell Group plc, a director of Yule Catto & Co plc and of Melrose Resources plc, and a member of ICAS.