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Special Report: A prince, a sultan, diamonds and a lawsuit
November 4, 2010 / 3:57 PM / 7 years ago

Special Report: A prince, a sultan, diamonds and a lawsuit

<p>Brunei's Sultan Hassanal Bolkiah (L), his brothers Prince Mohamed (C) and Prince Jefri, lead a parade to commemorate Prophet Muhammad's birthday in Bandar Seri Begawan, February 27, 2010. REUTERS/Ahim Rani</p>

WASHINGTON (Reuters) - Prince Jefri Bolkiah and his brother, the Sultan of Brunei, have at long last reconciled, but their epic feud involving diamonds, fast cars, luxurious homes and billions of dollars generated a treasure trove of legal documents.

Whether evidence from the earlier cases can be used by defense lawyers is a key issue in a lawsuit filed by Jefri against two of his former advisers, Reuters has learned.

One of the world’s richest men, Jefri is expected to face vigorous grilling when he gives rare public testimony later this month in New York. His lawsuit charges that two of his personal lawyers enriched themselves through “fraud,” “breach of contract” and “criminal enterprise.”

But the prince’s protracted legal wrangling with his brother may come back to haunt him. On behalf of the sultan, the state of Brunei had accused Jefri of misappropriating some $40 billion.

In a court filing this week, which was reviewed by Reuters, defense attorneys said Brunei authorities spent nearly a decade raising questions about “Prince Jefri’s integrity and credibility in court proceedings around the world.” The lawyers argue that they should be able to use material from previous court cases related to Jefri’s diamond-encrusted lifestyle and prodigious spending to question him under oath.

In response, lawyers for Jefri and Brunei authorities, who once sued the prince for allegedly misappropriating official assets but are backing him in the New York case, have asked the judge to exclude evidence from earlier litigation.

Whatever latitude the judge allows, lawyers on both sides acknowledge that when he testifies, Jefri is likely to face tough questioning. His credibility will be the “central issue” in the trial, said Mark Cymrot, a lawyer for the prince’s former advisers.

Jefri’s answers could also shed light on one of history’s most spectacular fraternal squabbles, whose reverberations extended far beyond tiny Brunei, the secretive oil-rich state located on the island of Borneo in Southeast Asia.

HIDDEN DIAMOND CACHE?

Defense lawyers say they hope to cross-examine Jefri, brother of Brunei’s ultra-rich ruler, Sultan Hassanal Bolkiah, about an especially delicate subject: an alleged secret hoard of diamonds worth more than $1 billion.

In June this year, lawyers for the Brunei Investment Authority (BIA), official custodian of the Sultanate’s vast oil wealth, told a British judge that Jefri had a “history of concealment and dissipation of assets.” The BIA said that despite his denials, it believed Jefri “may still be in possession of some valuable diamonds.”

The BIA lawyers sent the letter to the judge a few weeks after acquiring a sworn statement from a retired diamond dealer who claimed to have eavesdropped on -- and to have secretly recorded -- conversations among alleged acquaintances of Jefri who are in the diamond trade. According to the affidavit, the Prince’s acquaintances allegedly talked about how Jefri might want to raise some quick cash by selling off some of his secret diamond stash -- or even sending them to Israel to be cut up.

One alleged acquaintance of the prince who the retired dealer’s affidavit says was involved in such discussions was Edward Asprey, a former executive of Asprey‘s, an exclusive London jeweler that Jefri once owned. In an e-mail to Reuters, Asprey insisted that the affidavit, on the one hand, contained information which had been “obtained illegally,” but on the other, was “full of inaccuracies, conjecture and assumptions.” He declined to point out any specific flaws in the document’s account.

Over the years, Prince Jefri has issued repeated denials that he misappropriated any Brunei funds or secreted assets. People close to Jefri insist that whatever diamonds the prince once had were surrendered to Brunei authorities two or three years ago.

Geoffrey S. Stewart, a U.S. lawyer who represents Jefri, said neither the prince nor his legal team would have any comment on the latest twists in the story or the forthcoming civil trial in New York. Legal sources directly involved in the case said that BIA believed the allegations in the diamond dealer’s affidavit were not substantiated.

A legal source close to the BIA said that even though Jefri had indeed surrendered some diamonds to Brunei authorities, the investment agency’s lawyers had not withdrawn their letter to the Judge suggesting Jefri might still have a secret diamond cache. If Jefri does have such a secret hoard, the source said, it likely is well-hidden.

A spokesman for the BIA declined comment beyond asserting that they were confident about winning the lawsuit.

TEN YEARS OF LITIGATION

In court rulings and filings over more than a decade, judges in Britain and lawyers for the BIA repeatedly accused Jefri, who was long estranged from his brother the Sultan, of misusing Brunei’s official funds and then offering explanations or excuses for his behavior which were not credible.

<p>Brunei's Prince Jefri salutes during his brother Sultan Hassanal Bolkiah's 64th birthday celebrations in Bandar Seri Begawan July 15, 2010. REUTERS/Ahim Rani</p>

Over the last year, Jefri and the Sultan have made up, according to several people familiar with the brothers’ affairs. One source said that Jefri is presently living in a luxury hotel in Brunei; another source said that the Sultan had recently made a large, vacant palace available for Jefri to move into.

Despite the purported reconciliation, many loose ends in the case remain unresolved. In particular, legal proceedings related to the recovery of assets held by Jefri and associates -- including members of his family -- are still underway.

Given the enormous wealth involved, it was probably inevitable that the feud would spark a tsunami of litigation that, over the years, has ensnared attorneys, solicitors, barristers and judges from the isles of Borneo, to Britain to Manhattan.

According to a November 2007 ruling by Britain’s Privy Council, Jefri served as chairman of the BIA between July 1983 and July 1998. An investigation by the accounting firm Arthur Anderson subsequently found that over that period, “special transfers” totaling around $40 billion were made from BIA accounts. The auditors said that around $14.8 billion of that sum had been paid to or used on behalf of Prince Jefri, about $8 billion had been transferred to the Sultan’s accounts, about $3.8 billion had been used by the Brunei government, and the remaining $13.8 billion couldn’t be traced.

The Privy Council, a committee of British law lords acting as Brunei’s Supreme Court, noted that Jefri did not deny that he had received “very substantial” sums from the BIA and that some of this money was used to buy properties, artworks, cars, airplanes and jewelry. But the judges noted that Jefri rejected charges that his use of the money amounted to misappropriation. He told them that he was running the BIA on the authority of his brother, the Sultan, and “at all times had the authority to make the respective transactions.”

“SIMPLY INCREDIBLE” CLAIMS

In the wake of the discovery of the $40 billion hole in the BIA’s wallet, lawyers for the authority and the Sultan launched a worldwide treasure hunt to recover Jefri’s assets. In 2000, Jefri signed a settlement with the BIA, in which he agreed to turn over at least 40 properties in England, two properties in Paris and 11 properties in the United States, including two well-known luxury hotels, the Bel Air of Los Angeles and the Palace Hotel on New York’s Madison Ave.

Slideshow (2 Images)

But according to the 2007 Privy Council ruling, instead of surrendering his ownership in the American hotels and a handful of other expensive properties, including a building in Paris’ historic Place Vendome, Jefri procrastinated. He said that under an oral agreement he struck with his brother allowing him to maintain a “suitable lifestyle,” he was allowed to hold onto the properties.

The Privy Council judges caustically rejected Jefri’s story about the oral agreement, declaring in their ruling that the Prince’s claims were “factually implausible,” “simply incredible,” “had no substance whatsoever,” were “devoid of weight” and were “hopeless.”

In a January 2008 affidavit submitted to Britain’s high court, Lindsay Marr, a lawyer for the BIA, alleged that Jefri had continued to withhold information about the location of all his assets, calling this the “result of a cynical, persistent and deliberate design.”

With a touch of sarcasm, Delaware Judge Leo Strine noted in a May 2008 ruling that despite the BIA’s allegations that Jefri had misappropriated nearly $15 billion, the prince never faced criminal prosecution. “This could have been because his brother, the Sultan, still cared for him. It could have also been ... that Jefri had authority for everything he did from his brother, and had misappropriated funds for the Sultan’s use as well. But for whatever the reason, Jefri escaped a long term in the jailhouse.”

A footnote in the judge’s ruling said that while Jefri had surrendered “over 600 properties, over 2000 cars, over 100 paintings, 5 boats and 9 aircraft to the BIA, he still retained billions of dollars in assets in other holdings.”

In June 2008, Britain’s high-court scheduled a hearing on whether Jefri was in contempt of court for his alleged failure to disclose the existence of secret bank accounts from which money continued to have been drained. But shortly before the hearing, Jefri, who had lived for years in a luxurious London mansion, left the country. The judge in the case issued a bench warrant for the Prince’s arrest, which according to a person involved in the legal proceedings, remains in force today. “These proceedings are criminal in nature ... If he were to set foot in Britain, he would be arrested,” the legal source told Reuters.

Lawyers close to the dispute say that despite Jefri’s flight from Britain before the contempt of court hearing, by 2008 the BIA had begun to recover many, though not all, of the assets which Brunei authorities believed the Prince had acquired with misappropriated oil wealth -- including the New York and Los Angeles luxury hotels.

BROTHERLY RECONCILIATION

This apparently helped to pave the way for a reconciliation between Jefri and his brother the Sultan. After five years in exile, the Prince went back to his homeland just over a year ago; the local Borneo Bulletin marked his return by publishing a picture of Jefri attending prayers at a local mosque with the Sultan and other members of their family.

Given his turbulent recent legal history and the warrant outstanding against him in Britain, Jefri’s appearance as a witness in any Western legal proceeding, such as his current lawsuit against his former personal lawyers, might seem risky. But the reconciliation between Jefri and the Sultan appears to have tempered Jefri’s reluctance to appear personally in court.

In 2007 and then again a year ago, Jefri traveled to New York to give depositions in the lawsuit. The trial is scheduled to begin November 8 before a state judge in Manhattan.

In the New York case, Jefri and some of the same lawyers who once pursued him and his assets around the world have teamed up to sue Thomas Derbyshire and Faith Zaman, two British barristers who Jefri hired in 2004 to supervise his ownership of the Palace Hotel in New York and the Hotel Bel Air in California. The Brunei government claims that the two former advisers illegally diverted $6 million from the Palace hotel and other properties. Derbyshire and Zaman, who deny any wrongdoing, have counter-sued Jefri and his brother, claiming they are being framed by the Prince and the Sultan.

Central to the case against the two lawyers is an allegation by Prince Jefri that he never gave Derbyshire and Zaman authorization to use the funds they allegedly diverted. New York state Judge Ira Gammerman, who is presiding in the case, will have to decide how much to allow Jefri’s reputation to be put on trial along with that of the people he is suing.

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