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Payment Holiday

Presenter:     John Waite

TRANSMISSION: 11TH FEBRUARY 2010 1230-1300                           BBC RADIO 4

Over the past two years four UK airlines have gone bust. Two months ago there was
a fifth casualty to report.

News clip
It's 8 o'clock, this is Good Morning Scotland with Gary Robertson and Aasmah Mir.
And coming up in the next hour.

A Scottish airline - Flyglobespan - goes bust. We're live at Glasgow airport.

Gary, good morning, yes, this of course one of three airports in Scotland that
Globespan used to fly from - Glasgow, Edinburgh and Aberdeen. If you log on to the
website this morning instead of the glossy brightly coloured offers there's a simple
black and white statement telling you that all flights have been cancelled and all
planes grounded.

Eight days before Christmas listeners to BBC Radio Scotland woke up to news of the
loss of Scotland's biggest airline. Flyglobespan had gone into administration, taking
with it the travel agency business Globespan. Six hundred and fifty jobs had been lost,
4,500 UK holidaymakers were left stranded abroad and thousands more were not
going to get the holidays they'd booked with a company that had been very popular
according to the Scottish Finance Secretary John Swinney.

Flyglobespan were a strong Scottish company and I'd used Globespan, my family and
I had a great experience with them, they were a first class company, great operation
and I know many people who've used Flyglobespan.

So what had happened to what Mr Swinney calls "a strong, first class company"? It
had survived spiralling fuel prices, the worst of the recession, the terrorist attack on
Glasgow Airport which grounded half its fleet, to post a modest profit last year of just
over a million pounds. Well enter E-Clear, a little known firm, performing a behind
the scenes but vital role at the heart of the banking system. An unregulated company
processing millions of pounds in card payments from Globespans's customers but
instead of passing that money on to the very company providing flights and holidays,
E-Clear was keeping back vast sums. Meanwhile, we've discovered that E-Clear's sole
director, Elias Elia, was managing to find millions of pounds to prop up another travel
firm in which he had a majority stake. And it's believed at least some of that money
came from E-Clear itself.

I loved it, I really, really did love my job and I'm really going to miss the company
and that job.

Tom Maguire is 27 and from Prestwick in Ayrshire. He'd worked for Flyglobespan
for five years, latterly as manager of a cabin crew.

When I started with Globespan they had 34 cabin crew, so things were in the very
early stages. The company had came from being a travel agent to having its own
aircraft. And just everybody working together, I think, everybody was really keen to
see Globespan succeed. And that passion really made the company grow I believe.
My life was Globespan, it revolved round that, it revolved round the fact I was on
standby so couldn't do much when I was in standby to being away for weeks,
sometimes months at a time, you ended up socialising with the people you worked
with, flying shifts were about minimum 13-14 hours, so you spent a lot of time there.
Globespan really - it was predominantly my life.

Globespan advert
We're Flyglobespan - Scotland's low cost airline to the sun.

Flyglobespan's history, however, was not totally without blemish. In October 2007,
for example, it had its licence to fly directly across the Atlantic suspended after
concerns from the Civil Aviation Authority. That year Globespan made a loss of £19
million pounds, and, early last year, it stopped operating services from Durham Tees
Valley airport.

Indeed, occasional newspaper reports questioned its financial health, including a
flurry, in mid-December suggesting that Flyglobespan was…. quote…"on the cusp of
collapse". Denied by the company, which wrote to employees with reassuring news.

       Flyglobespan letter
       We have successfully secured a financial investment package that will see us
       continue to prosper and grow

We had had an e-mail from the company director at the beginning of December just to
say they'd secured investment and that the company was hoping to expand in the next
year and it was going to be a really exciting year for the company. So that allayed
any fears that we may have had that Globespan was going through a troubled time and
to find out on the news and then have people on Facebook telling you that the
company just went into administration just completely and utterly stunned me.

My name is Bruce Cartwright, I'm a partner at Price Waterhouse Coopers and I'm
joint administrator of Globespan Plc Group.

So what went wrong with it?

Well the company had had a difficult time two years earlier when it had run up some
losses, so the balance sheet was weakened as a result. But fundamentally this was a
business that had returned to profitability. However, having said that during the
course of 2009 cash flow became more of a problem because for whatever reason at
the time money was being withheld by the agent processing the bookings.

So in your view was its failure principally down to E-Clear holding on to that money?

I think ultimately the failure was down to the money being withheld because the
company had made changes, it was returning to profitability, it did need to rebuild its
balance sheet and raise some capital but it didn't get the opportunity because it ran out
of cash.

So what is E-Clear? And why was this company so central to the fortunes of a travel
firm that had been trusted by millions of passengers. E-Clear UK plc operated under
the slogan "it pays to be clear.." and offered:

        Promotional blurb, reliable credit and debit card payment services and risk management
        solutions to give your business all the advantages it needs when it comes to
        payment processing.

For any business these days, credit and debit cards are crucial as most of us pay by
plastic, to the tune of nearly £390 billion pounds last year, according to the UK Cards
Association. And every time we use our cards it sets off a behind-the-scenes sequence
involving banks and computer systems and that's where companies like E-Clear come
in. They manage that process on behalf of retailers but they are not the only ones who
do. Many transactions involve something called a 'merchant acquirer'. One I think for
Sandra Quinn from the UK Cards Association to explain.

Merchant acquirers act as a backstop and without them the whole system would really
go to pot I think it's fair to say. They make sure that all the transactions that a retailer
accepts are processed correctly and go to the right destinations so that they're paid.
And also they stand behind the merchant and provide an assurance to your card
company when you're buying something that they can get the money back - there's
cover there, there's a level of insurance being provided - so that they can get the back
for every transaction they've made if something goes wrong.

As the card schemes currently work you couldn't have an operating system without
that model, that's why it's there, it works extremely well and it provides a level of
security so that we all know that the piece of plastic we've got in our hand can be
accepted anyway and it gets back to our own statement and our account later.

And how do they make their money?

Well a merchant acquirer is providing a service so they will charge the retailer for the
service they're providing. They're generally worked on a percentage per credit card
transaction and debit cards are a flat fee and they're negotiated commercially between
the merchant acquirer and the retailer who they're providing a service to.

That insurance - that backstop as Sandra calls it - is important because of the strength
of consumer legislation. Pay by credit card for something costing more than a £100
but less than £30,000 and if you don't get what you pay for, your credit card issuer has
to pay you back. Obviously your credit card issuer then seeks a refund of its own. If
the retailer has gone bust, it'll turn to the retailer's bank - or merchant acquirer - to get
its money. But because of that risk, merchant acquirers - the biggest in the UK being
arms of our major banks - can be wary of small retailers which are viewed as more
likely to fail. So those small retailers might have to turn to a middle man to get a
better deal. E-Clear was such a middle man - or as Sandra Quinn calls it - more
properly known in financial terms as an aggregator.

There are a range of aggregators, they're - some of them are very small, some of them
are quite large but they provide a range of services. And the most common types of
businesses that would approach them are perhaps very small businesses who don't do
a lot of card payments but need some service, so therefore don't want to have a big
complicated arrangement perhaps with the banking merchant acquirer, an aggregator
can perhaps provide them with a better commercial deal.

As an aggregator, E-Clear needed someone else - a bank - to help it get payments
cleared. So it worked with another company - Pago eTransactions Services based in
Cologne - which has connections with Deutsche Bank. So whenever a Flyglobespan
customer bought a ticket online, it was E-Clear and its partners in Germany which
processed that payment. That money - minus E-Clear's commission - should then have
been passed on to Globespan within a matter of days. But it wasn't. And by the time
the Scottish travel firm went under, it was owed a staggering £35 million pounds,
tipping it over the edge and into the arms of the administrator, Bruce Cartwright. Who
trying to find out where the money was, was frankly baffled by E-Clear's response.

Well it was a rather unusual position because in the normal position we would contact
them and say we've got records that say £35 million, what do your records say. We
just really didn't get a response on this because they didn't think it was important to
tell us what they held. When we asked the question why, we were told because the
money's going back to the customers so it doesn't belong to Globespan so it's not
relevant for the discussion.

What did you make of that?

I think it was an unusual conversation that I've never had with someone before, to be
told that we may or may not be holding your money but it's not relevant to you.

It's none of your business almost.

Yes it's - I suppose it would be the equivalent of going into the bank with your
passbook, asking for your balance and being told that actually it's not relevant to tell
you what's in your passbook and actually, by the way, there's likely to be some
charges coming through, we're not going to tell you what they are but you might as
well hand back your passbook now because - because it's of no relevance to you. Not
been in that situation before.

And what baffled Bruce Cartwright even more was how much money E-Clear was
holding back just in case customers who'd paid wanted a refund. Twenty million
pounds of that £35 five million was from flights or holidays that had been and gone,
so very few refunds if any were likely. What's more the man brokering the extra
investment in Flyglobespan which you'll remember was supposed to help the
company "prosper and grow" was none other than Elias Elia - the man in charge of E-
Clear. In the end, that money didn't come through either.

The millions of pounds missing from Globespan's accounts and the job losses which
followed have outraged members of the Scottish Parliament here in Edinburgh. John
Swinney is the Parliament's finance secretary.

E-Clear has certainly contributed significantly to the collapse of Flyglobespan. When
you strip out the risk possibilities of difficulties with flights and other issues, which
will affect the airline industry, £20 million of that £35 million should have, without
dispute, have been in the bank account of Flyglobespan and it wasn't. And in this
time when cash flow is almost the king for many businesses having £20 million out of
your cash flow at this very, very sensitive economic time is enough, as I think it was
in this circumstance, to tip a company into administration.

But I mean it would be sensible, would it not though, for a company in E-Clear's
position to withhold a quantity of money to protect itself against any future liabilities
and that's what it says it was doing?

I think that's a fair point and I think that's what E-Clear were clearly doing. What
they were doing however, was holding on to the money for far too long. The point
that I make about £20 million of the £35 million having been - should have
indisputably been in the bank account of Flyglobespan - what I mean by that is there
was no recurring risk attached to that £20 million - the flights had gone, the people
had come back, everything was done and dusted. So the issue was the fact that E-
Clear were holding on to resources that were rightfully Flyglobespan's for far too
long. And in this financial environment, where there is such pressure on cash flow, to
be without that size of resource is an enormous problem and that's undoubtedly
affected Flyglobespan.

The thing is, E-Clear was not always in the habit of holding money back. So let me
introduce you to Hugh Boyle. He was chair of an airline called, Zoom, which also
used E-Clear UK Plc. In August 2008, Zoom went under, blaming high fuel prices for
its demise. But back then, Mr Boyle only had praise for the prompt way E-Clear had
processed his customers' payments.

We didn't have any problems getting any payments, they came seven days after the
transactions were made, which is more or less to the contract that we had. So we
didn't have any problem in that - there at that time.

And the reason why payments were following swiftly with nothing held back? Well
Mr Boyle says E-Clear did have credit insurance on his business, meant to offer
protection in the face of massive refunds. When Zoom did actually go under, Mr
Boyle reckons refunds would have totalled £25 million. But what he doesn't know is
whether E-Clear's insurance policy would have covered all of that.

They could well have only had £10 million cover and then had to fork out £15 million
themselves, that I don't know - what percentage, if at all any, they had to pay

Two weeks after Zoom's collapse, another major E-Clear client and Britain's third
largest tour operator, XL, also failed. Did E-Clear take a hit again or did its insurance
pay out? All we can say for sure is that in the months which followed, several other E-
Clear customers began complaining that they weren't getting their money. In October
2008 SkyEurope - a Slovak airline - switched to a different payment processor. It's not
known when its problems with E-Clear began, but around 14 million euros of its
money had been retained by E-Clear and it started legal action to get it back. By the
time SkyEurope filed for bankruptcy last year it was still owed 6.3 million euros.
And it's not the only one with a claim.
        Sunwing - a Canadian tour operator based in Toronto....

Which we understand claims it's owed even more money than Globespan - almost £50

        Reading - a holiday company based in London...

Which says it's owed around £150,000.

        Bridge Group International - an online investment club....

It told us it's missing a "six figure sum".

        Swimming Nature Licensing Limited - which provides children's swimming
        lessons mainly in London and Scotland....

And is now seeking the return of over £230,000. Then there's Hugh Boyle - as we've
heard - when chair of Zoom he was happy with E-Clear. But as the man in charge of
another holiday company, Go Travel Direct, based in Canada, Mr Boyle was far from

Go Travel Direct was owed at the end £300,000. But what we have to understand is
that £300,000 is of clients who have travelled, returned over six months, nine months,
they're back from their holiday, so it's not like - in the situation with Globespan -
where they were for advanced bookings of people who hadn't travelled, they had
actually travelled, they'd been on vacation and there was still £300,000 outstanding.

And how much of a headache was this for you?

It was a major headache because it went on and they made a lot of excuses - they said
that people could have charge backs. They went to six months and then we had to
start taking legal proceedings against them. They said they had paid the money, the
money mysteriously got lost in the system. We chased it up from the banks only to
find that it had never been paid in the first place. So we did get a lot of false
information from them.

Bruce Cartwright knows how Mr Boyle feels. As the joint administrator of the
Scottish travel firm, Globespan, he has to sort out the company's tangled state of
affairs. It's his understanding that by January 2009, Globespan was owed £6 million
by E-Clear. The credit crunch meant credit insurance was harder to get and at that
point there was no such cover on Globespan's business. E-Clear justified withholding
all those millions until holidays had taken place and any risk of refunds had gone.
Fine in principle but in practice it held on to money for far, far longer than agreed.

It's normal for the money to be transferred after say five days, so there is inevitably
always a slight backlog of cash, normally five to seven days. What happened at that
stage is the five day delay became more like three or four weeks.

And what effect did that have on Globespan?

Well clearly if you're dependent - and this is common in the travel industry - you're
actually dependent on the customer's cash coming to you before you incur some of the
costs flying the planes etc. and as you build up to the summer months, particularly in
Globespan's position, you are taking more and more bookings. So E-Clear would, I
suspect, have said we need to hold back some more money because you've clearly got
a lot of bookings for the summer. Now that works for so long, then over the course of
the summer these flights are delivered and it seems to me at that point the monies
should certainly have been released.

But far from being released, E-Clear held on to even more money from Globespan's
customers and for even longer. An agreed delay of 30 days became an unauthorised
delay of more than 70 days and by August 2009, Globespan was missing £32 million.
In fact, today the amount owed by E-Clear to all those companies we've mentioned is
thought to total around £100 million.

So where has all that money gone? Well sadly the sole director of E-Clear, Elias Elia,
has not responded to our various requests for an interview. A pity as he and his
company had been a bit more talkative with the hiring of the former editor of the
News Of the World, Phil Hall, as their spokesperson.

That deal has now come to an end, as has E-Clear itself - forced out of business by a
High Court action brought by Globespan's administrators seeking to get some of its
missing thirty odd millions back. Bruce Cartwright of Price Waterhouse Cooper's has
been trying to find out what's in E-Clear's coffers.

When we went back to court we had statements from E-Clear showing their bank
statements and I have to say it didn't take a lot of adding up.

There was no £35 million?

There was no £35 million, there was a series of bank accounts - some overdrawn,
some with different currencies in but it was quite clearly less than £100,000.

Yet less than a fortnight before E-Clear was forced out of business and revealing so
few funds, Phil Hall, came on to You and Yours maintaining that the company was
holding £35 million of Globespan's customers' money. In the light of subsequent
events, we asked Mr Hall why he felt able to make such a statement.

       My position is I am an advocate for clients. I take instructions and pass those
       on. If you feel I should check the accounts and do a due diligence on the
       company before representing them, I am sorry that is simply not practical any
       more than a lawyer can do in court when advocating his client's position.

Well Mr Hall may not have been checking the accounts of E-Clear but now others
definitely are. The High Court appointed Malcolm Cohen from the accountants BDO
as joint administrator of E-Clear.

We went straight from the court to the company's premises and we found ourselves
locked out by the landlords and it required some lateral thinking on our behalf to
worm our way in, which we subsequently did and we spent a large part of the first two
weeks of this assignment trying to get books and records of the company - some of
which have gone missing, some of which are not available - into some semblance of

Mr Cohen has told us that by the time E-Clear ended up in the High Court it had lost
all of its clients. Every single company which had used it had either gone out of
business themselves or started using a different payment firm.

Promotional music from Elian Developers

Elias Elia - E-Clear's sole director - has been involved with a number of other
businesses. This music is from the website of Elian Developers, a firm which has
described itself as "one of the biggest construction companies in Cyprus". And who
was named as boss of its parent company, the Elian Group no less? Why Elias Elia -
the boss of E-Clear.

Then there's Allbury Travel Group Limited which was based in Hertfordshire and
used E-Clear to process its customers' card payments. Its accounts name its parent
company as Allbury Limited based in the British Virgin Islands. And who is its boss?
Why, Mr Elia again.

In fact Allbury Limited loaned Allbury Travel Group almost £12 million during 2008
and 2009. Loans which enabled the company to continue trading. But Allbury Travel
still went into administration in December - the very same month remember that
Globespan went under. And the reason? Well according to a report by Allbury
Travel's administrators, the company's major shareholder Allbury Limited could no
longer provide any more money and:

       As a result of the sudden loss of financial support which was previously
       provided by the shareholder, the company had no alternative but to cease

The administrator's report also states in relation to those loans:

       It is believed that some of these funds were provided by E-Clear (UK) Ltd

Indeed it lists a loan of over £1,700,000 as coming jointly from E-Clear and Allbury

Back in Scotland, where we began, Finance Secretary, John Swinney, says he's
particularly troubled by the fact that E-Clear, which was registered in the UK and
handled hundreds of millions of pounds every year, went unregulated by the Financial
Services Authority.

The performance of E-Clear has been wholly unacceptable, it's been very, very
damaging to the prospects of Flyglobespan, it's affected people's jobs and livelihoods
and this has been able to be undertaken without any impediment whatsoever from the
authorities in this country and that is wholly unacceptable. And from this there must
be clear lessons learnt about how behaviour has to change and intervention has to
change to make sure that companies are properly protected in this circumstance.

Well in a statement, the Treasury told us:

       The UK government recognises that certain payment services need to be
       regulated and alongside other member states in the EU has passed legislation
       to ensure that all providers of electronic payment services will be subject to a
       prudential authorisation regime…..These new rules came into effect in
       November 2009 and will cover all such businesses by April 2011

With E-Clear not part of its remit, the FSA was not looking into its affairs. But
German regulators did when, in early 2008, E-Clear bought a majority stake in a bank
there. We understand that regulators there felt E-Clear was not transparent enough to
be involved in a German bank. Surprising, perhaps, for a firm with that marketing
slogan - "it pays to be clear". Mr Elia's voting rights were removed and another
investor is being sought to buy the shares. It's a potential asset likely to be of interest
to Malcolm Cohen - E-Clear's joint administrator - who is left looking now for all
those missing millions.

We are following up many leads in respect of assets, some which may rest within the
UK, some which we think may reside in different countries.

Like Cyprus?
Like Cyprus and Germany and other countries. I've put together a team of top people
who have spent many hours busily imaging the computers, looking at the software
and the hardware trying to understand where the black hole is, where the money has
gone and it’s a challenging assignment.