2. February 6, 2002
• AIB revealed an apparent currency fraud.
• Have to be commited by John Rusnak.
• Ireland’s largest and World’s fourth largest banking scandal.
• Losses around $691 million.
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Introduction
3. • Failure of the back office to obtain transactions confirmations
consistently.
• To recoup money which Rusnak had lost, sometime in 1997
• Weak control environment at Allfirst’s treasury.
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Reasons of the scandal
4. • AIB rogue trader had accrued losses by writing non existent
options.
• Started to sell Deep-in-the-money options for high
premiums.
• Racked up huge unrecorded liabilities for the bank.
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Events Occured
5. • Rusnak's technique was to enter two bogus options trades
into Allfirst's trading system.
• Resulted in the creation of fake assets, offsetting certain real
losing position in forex market.
• Upto Sep 1998, fictitious deals were validated by the help of
bogus broker confirmations.
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6. • Rusnak persuade the Allfirst back office option pairs do not
need to be confirmed.
• Loss-making trading was carried out under prime brokerage
accounts with Bank of America (BofA) and Citibank.
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7. • Settled with the broker and rolled into a forward transaction
• Swapped each day into a forward forex trade between Allfirst
and its prime broker.
• Accounts enabled Rusnak to increase significantly the size
and scope of his real trading.
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8. • Made the prime brokers the back office for those trades.
• Rusnak's trading grew, as did his losses - and so did his bogus
options positions.
• In 2000, it became clear that Rusnak's trading was using an
inordinately large proportion of the balance sheet.
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9. • In January 2001, head of treasury funds management Robert
Ray ordered him to scale back his use of the balance sheet.
• This left Rusnak in need of an alternative source of funds
• From February 2001, he turned to selling year-long, deep-in-
the-money options - real ones
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10. • Allfirst's true trading position was finally uncovered
• A back-office supervisor discovered that the supposedly
offsetting options deals were not being properly confirmed.
• The supervisor directed the back-office employee involved to
confirm all future similar trades.
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11. • Allfirst's back-office staff were unable to confirm his trades
with his supposed counterparties in Asia.
• Rusnak failed to appear for work on Monday, February 4
• Cronin reported the problems to Allfirst's senior
management.
• They, in turn, informed AIB in Dublin.
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