Explain how Barings could have caught Leeson earlier if it had reconciled its customers' accounts with the margin transfers sent by Barings London to BFS

Question

What will be an ideal response?

Answer 1

• If Leeson's managers and supervisors had studied the one-page margin statement sent by SIMEX to Barings every working day, it would have understood instantly that the bank's margin payments were due to its own proprietary positions and not the positions of customers. Barings' massive margin payments could not have been matched against specific customer positions.

• Barings London also could have exposed Leeson's financial charade by:
— Asking Leeson to prepare a report that showed cash balances with banks, loan positions, and margin balances for its agency and proprietary businesses.
— Asking SIMEX for its daily position statement and then comparing it with Barings' internal position statement. The SIMEX statement would have included the 88888 Account.
— Comparing its positions on SIMEX and OSE to see that Leeson's trades were not offsetting.
— Reading carefully any one of the three letters that SIMEX sent to Barings' senior management about Leeson's activities and the 88888 account.
• Auditors (internal and external) could have exposed Leeson's financial charade by:
— Asking for a list of all BFS accounts. The 88888 Account was in BFS' computer system.
— Examining the yearly activity the 88888 Account instead of focusing exclusively on the ending balance.