Baring Bros. and Co. was warned seven months before Nick Leeson brought it down that the trader held too much power with too little supervision, investigators said Saturday.
They also made public a letter showing Barings was told of the potential problem as far back as 1992.
A British newspaper, meanwhile, reported Sunday that Leeson threatened to name senior British Conservative party figures involved in the collapse.
The disclosures raised questions about whether Leeson, a 28-year-old Briton, bears sole responsibility for ruining the 232-year-old bank by losing $1 billion in futures trading.
Barings has said it first learned of the problem on Feb. 23, the day Leeson left Singapore for Malaysia. He resurfaced in Germany on Thursday and was detained at the Frankfurt airport.
Singapore is seeking his extradition, which Leeson says he will fight.
Leeson was the chief futures trader for Barings at the Singapore International Monetary Exchange, or SIMEX. He also was in charge of squaring his books - meaning he policed himself.
This arrangement was viewed with concern by an internal audit of Baring Futures Singapore in August 1994.
“There is a significant general risk that controls could be overridden by (Leeson). The front and the back office operations are managed and controlled by … Leeson. This represents an excessive concentration of powers,” said K. Shanmugan, a SIMEX lawyer.
Companies commonly divide responsibilities for initiating, settling and recording transactions to reduce the possibility of error and fraud, he said.
The audit advised restructuring the operations, but Barings ignored the recommendation, said Michael Lim, managing partner of Price Waterhouse, the international accountant appointed to administer Barings’ Singapore office.
A blunt SIMEX statement said a failure of internal controls allowed Leeson “to commit the Barings Group to substantial positions which now account for the loss sustained.”
Barings PLC, the bank’s parent company, refused to comment Saturday.
In Britain, The People newspaper’s Sunday editions quoted publicist Max Clifford, who has spoken on Leeson’s behalf.
“It is a political scandal in the making,” The People quoted Leeson as telling Clifford. “There are some wonderful names involved. Top Tories and supporters of the government were fully aware of what was being done.
“They were people desperate to make more and more money, and now they’re desperate to let me take the blame,” the People quoted him as telling Clifford.
A Singapore arrest warrant, based on a complaint from the bank, charges Leeson with “forgery for the purpose of fraud.”
That carries a maximum sentence of seven years in prison. Leeson does not, however, face the prospect of flogging, a punishment reserved for those convicted of violent crimes, drug trafficking or vandalism.
The investigators said SIMEX, where Leeson bet on the direction the Tokyo stock market would take, conveyed to Barings in January its concerns about the growing size of Leeson’s gambles.
On Feb. 8, Barings treasurer Anthony Hawes flew to Singapore and assured the Singaporeans that things were under control, said Shanmugan, the exchange lawyer.
Asked if this meant Leeson was not the only one to blame, Shanmugan said: “There are various assumptions, but it is not fair to say that we are focusing our attention only on Leeson.”
One of the major surprises at the news conference was the revelation that Leeson was trading for his own company and not for its customers.
The SIMEX statement noted there was only one outside customer, Banque Nationale de Paris. That suggested Barings must have known that millions of dollars of its own money was being gambled away.