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A Thailand-based manufacturer of high-end Ray-Ban sunglasses is pursuing J.P. Morgan, the world’s largest bank by market cap, in a $272m fraud case.
Essilor International SAS and Essilor Manufacturing (Thailand) Co. (EMTC) have alleged that J.P. Morgan failed to prevent at least 243 fraudulent transfers from a New York-based EMTC account.
In a lawsuit filed this week, Essilor said that J.P. Morgan should have detected, reported and blocked the suspicious transactions, all of which took place between September and December 2019.
In what Essilor describes as a “complex fraud orchestrated by international cybercriminals”, the transfers were made to business accounts throughout Asia-Pacific, in jurisdictions such as Thailand, Malaysia, China, Hong Kong, Dubai and Indonesia.
The transactions were frequent, taking place almost daily over a three-month period, and often left the account in large batches in a single day.
On December 11, for example, 15 transfers worth a combined $18.75m left the account, and headed to beneficiaries such as Dazhan Camping Stove Co Ltd and Ningbo Wanhe Import & Export.
Through a “costly and burdensome process”, Essilor said it has been able to recover some of the fraudulently transferred funds, but at the time of the court filing (April 25) $100m was still unrecovered.
Both plaintiffs are subsidiaries of EssilorLuxottica SA, a €72bn luxury eyewear group that trades on the Euronext Paris stock exchange, and whose proprietary brands include Ray-Ban, Oakley and Kodak Lens.
EMTC operates one of the group’s 14 global manufacturing plants, and its bank account with J.P. Morgan is used to purchase supplies in US dollars.
How did it happen?
EMTC opened its account with J.P. Morgan in March 2017, as part of a wider cash management solution that involved other accounts used by Essilor subsidiaries.
To access the account, Essilor believes that international cybercriminals enlisted the support of a Thai national and EMTC employee named Chamanun Phetporee.
According to her LinkedIn account, Phetporee had served as chief financial officer at EMTC since 2015, but the plaintiffs say she was not authorised to initiate payments from the EMTC account on her own.
“Two separate approvals at EMTC were required to process a payment order. While Phetporee was able to provide the first approval, a separate approval from a specifically designated EMTC employee was required.”
According to the plaintiffs, Phetporee “misappropriated” the credentials of the designated second approver, rendering the transactions fraudulent.
Among the red flags that Essilor claims J.P. Morgan was aware of, the second approval for each transfer occurred immediately after the first.
Such timing was “unusual” and “suspicious”, the plaintiffs claim, but was not investigated by the bank.
Moreover, the plaintiffs say that J.P. Morgan was also aware that one of the fraudsters working with Phetporee had provided false reports to the Bank of Thailand to misrepresent the identity of the beneficiaries.
Phetporee has since been taken into custody by Thai police, and has been charged with multiple crimes.
Contractual obligations
During its communications with the bank, the plaintiffs claim that J.P. Morgan emphasised its commitment to fighting global financial crimes, and described applicable account controls designed to achieve that end.
For example, J.P. Morgan represented that transactions would be monitored for money laundering and other suspicious activity in accordance with regulatory compliance, and warned that such monitoring could delay execution.
Under anti-money laundering (AML) laws and regulations, the plaintiffs say that J.P. Morgan was required to monitor and report suspicious activity in the EMTC account, including any unusually large or frequent transfers.
To do so, J.P. Morgan was tasked with developing an effective training programme and an understanding of the plaintiffs’ business so that it could assess whether its transactions were genuine.
The plaintiffs note that “from time to time” the bank did contact about potentially suspicious transactions, and this gave them the impression that J.P. Morgan was fulfilling its monitoring obligations.
However, when presented with the “highly suspicious” pattern of the 240-plus transactions described above, the plaintiffs allege that J.P. Morgan “inexplicably” failed to notify them.
Multiple red flags
Prior to September 2019, the average monthly volume of dollar transactions in the EMTC account was about $15m, but this quickly climbed to more than $100m, with no enquiry as to why, the plaintiffs allege.
Similarly, the number of payment orders doubled relative to historic averages, and the account’s daily overdraft limit of $10m was repeatedly exceeded — again, allegedly with no word from J.P. Morgan.
The value of the transfers also changed, from figures with cents to large round numbers, as did the beneficiaries.
“Previously, the typical recipients were established EMTC trading partners, or companies obviously operating in the same optical industry as Essilor and EMTC, with accounts at established international banks,” the plaintiffs noted.
“During the period when the fraudulent transfers were made, most of the transfers went to shell companies, or companies that were not involved in the optical industry, with accounts at regional banks, often in high-risk jurisdictions.”
Had J.P. Morgan reported these irregularities, Essilor and EMTC believe the fraud could have been prevented and the losses avoided.
Case continues
Under New York law, Essilor claims that J.P. Morgan is liable for all losses resulting from each fraudulent transfer from the EMTC account. It also says the bank is liable not only for the unauthorised transfers but also for violations of common law duties.
In the latest court filings (a summons dated April 26), J.P. Morgan has been given 21 days to respond to the plaintiffs’ complaint, or to motion under Rule 12 of the Federal Rules of Civil Procedure.
VIXIO reached out to both J.P. Morgan and EMTC for comment, but had not received a reply at the time of publication.
