UPDATE 2-UK judge slams banks defrauded by fake tycoon

By Estelle Shirbon

LONDON, Jan 17 (Reuters) - A British judge sentenced a fakeproperty tycoon to seven years in jail on Thursday fordefrauding two banks out of over 700 million pounds ($1.1billion), but said the banks deserved some blame for poor riskcontrols.

"The two banks, Allied Irish Banks and Bank of Scotland,have undoubtedly acted carelessly and imprudently by failing tomake full enquiries before advancing the money," said judgeAndrew Goymer as he sentenced Achilleas Kallakis, 44.

Kallakis was convicted by a jury at London's Southwark CrownCourt on Wednesday of two counts of conspiracy to defraud, inone of Britain's biggest-ever property scams.

Co-defendant Alexander Williams, 44, was convicted of thesame counts for his role in producing forged documents to backup Kallakis's applications for loans. Judge Goymer sentenced himto five years in jail.

"Both defendants took full advantage of the prevailingbanking culture in which corners were cut and checks onapplications were superficial and cursory," the judge said.

The case stems from a series of loans worth a total of 740 million pounds secured by the fraudsters from AlliedIrish Banks Plc between 2003 and 2008.

Lax paperwork and weak background checks were hallmarks ofIrish banking before the country's property bubble burst in2008. Banks competed with each other to attract real-estatedevelopers and often relied on personal guarantees to lend themindividual loans running to hundreds of millions of euros.

The property binge precipitated Ireland's financial crisisand eventual EU-IMF bailout.

The conviction of Kallakis and Williams is a success forBritain's cash-strapped Serious Fraud Office (SFO), which waswidely criticised last year for a botched investigation into thedealings of property barons Vincent and Robert Tchenguiz.

In another SFO victory on Thursday that had echoes of theKallakis case, the director of a sub-prime loan company wassentenced in his absence to 7-1/2 years in jail for defraudingcreditors including Barclays Plc to the tune of 100million pounds.

The SFO said in a statement that Waheed Luqman, who fledBritain in 2011 after he was charged and is believed to be inPakistan, was a director of Lexi Holdings, a property financecompany that went into administration in 2006 with debts of over100 million pounds.

He conspired with other members of his family to defraudcreditors of the company, including Barclays which was its mainlender, between 2000 and 2006, the SFO said.

"The Lexi accounts were doctored to create a false pictureof the company's profitability and creditworthiness. Money wasdrained out of the company to family members in Pakistan," theSFO said.

"DEAL AT ALL COSTS"

A spokesman for Bank of Scotland, now part of Lloyds BankingGroup Plc described the crime as "a sophisticated fraudcommitted by determined individuals" and said the bank haduncovered the fraud itself and had assisted the SFO.

At Allied Irish, a spokeswoman declined to comment on thejudge's remarks.

During a four-month trial, the jury heard that Kallakis hadused the funds he obtained to build up a portfolio of 16properties and to pay for his fleet of chauffeur-drivenBentleys, a private plane and helicopter and luxury yacht mooredin Monaco.

The second count was related to a separate loan worth 29million euros obtained between 2007 and 2008 from Bank ofScotland to convert a ferry into a super-yacht.

The loan was approved but only 5.7 million euros had beenpaid out when suspicions were raised.

The judge said the defendants had gambled and lost on theLondon property market, hoping that the fake guarantees theyoffered the banks would never be called in because the market"would go on expanding towards infinity".

"While I do not equate the position of the banks with thatof a householder or car owner who forgets to secure his house orcar and becomes the victim of burglary or theft, they do bearsome responsibility for what happened," said Goymer.

The judge noted that Bank of Scotland had been warned by itslawyers about the risks of accepting a particular letter ofassurance from a Swiss lawyer backing up Kallakis's applicationfor a loan.

"It almost beggars belief that senior management chose todisregard that warning in its rush to complete the deal at allcosts," he said.