In 1981, the Commodity Broking firm of M.L.Doxford Ltd went into liquidation. Nothing very unusual about that, you might think,, and indeed, to me it was just another small story in the financial press. Little did I know at the time, but this case would be my introduction to City White Collar Crime at the highest level.
One of the first actions undertaken by the incoming Conservative Government under Margaret Thatcher in 1979 was the repeal of Exchange Control regulations. As a result, this put pressure on the company of Michael Doxford Ltd, which was a futures-trading company and which, as a result was collapsing in 1980,and finally went down early in 1981. M.L.Doxford Ltd was the brainchild of a minor ‘aristo’, Michael Doxford, who together with two friends, traded soft commodities in the 1960’s and 1970’s, when it was fashionable for such men to have a job in the racier circles of the financial milieu.
The case was something of a minor embarrassment to the newly elected Tory Government, because Michael Doxford was a well-known socialite and minor playboy, and his downfall from his well-heeled lifestyle was seen by the Labour benches in Parliament as typical of the kind of spiv element being increasingly seen in the City. Margaret Thatcher immediately called in the Metropolitan Police to bring an end to further embarrassing questions in the House of Commons, because the matter could now be defined as being sub-judice as the police were investigating.
I was called on a Friday evening in my detective's room in a busy South East London Police Station, and told by my Divisional Commander that I was being posted to the Fraud Squad the following Monday to work on this case. The Commander said '...It's all about Tin, Lead, Zinc, Copper, Wheat, Sugar and Coffee as far as I can make out. Doesn't really sound like real police work to me, lad, but you've got the whole week-end to mug up on it...'
The following Monday, I was helping to search Doxford's deserted offices in St James Street. The place was in a shambles with papers everywhere. The first job was simply to tidy up the papers and put them in some kind of semblance of good order.
What became clear to us was that first we had to learn the arcane language of the commodities markets before we could even begin to understand the contents of the account statements, contract notes, monthly reconciliation statements et al that we were finding in every nook and cranny. I was lucky because I knew a few old contacts from University (I was the sole graduate in the office in those days), who had gone into the City and they were able to 'educate' me in this new language.
The first thing that became clear to me was that I had got my sense of policing priorities completely about-face. Here I had been, chasing young men armed with sawn-off shotguns who robbed Post Offices and Security Vans around South-East London, but whose criminal take rarely amounted to more than a few thousand pounds if they were lucky. I was now investigating the affairs of men who thought nothing of spending thousands of pounds just entertaining their clients at the race track or a day's power-boat racing.
I was experiencing the same absence of recognition that the City regulators , Courts, Judges, Civil Servants and Parliamentarians suffered from. At first, I couldn't believe that these well-brought up gentlemen would have possiby committed bare-faced crimes, so I didn't start off by treating the crime possibility too seriously. Perhaps my Commander had been right after all, maybe this wasn't real police work! It took me some time before it dawned on me that this was where the real crime was going on, not in Peckham or Brixton!
Because there was a real crime being evidenced here, it just took us some time to spot it, and it wasn't where we expected it to be.
What we did not and could not know at first was that Doxford had quickly obtained something of a reputation for being able to launder the contents of the deposit accounts of his wealthy socialite contacts. Doxford and his friends had been operating at a time when the Labour Government had been imposing punitive wealth taxes on the rich, in an attempt to 'squeeze them until the pips squeaked'. Many wealthy individuals were desperate to get their wealth out of the reach of Dennis Healy, but at that time the UK had Exchange Control Regulations which prohibited the export of UK capital of more than about £50 at any one time.
Doxford was able to show them a way to get round this irritating law and this was largely Doxford's day-to-day business and he was making a great deal of money from it.
Using the existence of a contact ( a failed gambler who had been drummed out of the UK for not being able to pay his gambling debts) living in Bahrain, Doxford would create false discretionary trading accounts for non-existent Arab sheiks, who would apparently deposit large sums of money with him, ostensibly to trade futures. The money would in fact come from the wealthy British tax evader, but as there was no means of showing the provenance of the entry of the money except by its appearance in the bank account of the trading company, no-one was any the wiser. The relevant paperwork would be telexed to Doxford’s
London office from Bahrain, giving the
impression of being the instructions from a genuinely wealthy Arab.
At the same time, the real UK client would also have a discretionary trading account opened. All the relevant paperwork would be available for inspection if needed.
Doxford would then create a false paper flow of purported trades being conducted on the respective
futures’ markets, all of which would result in the real UK ‘client’ suffering a
trading loss. The profits from trades would then be booked to the Arab client's
account. When the UK client's money had been satisfactorily passed to the
Arab's account, this in turn would be the signal for the fictitious Arab client
to send another telex, requesting that the trading account be closed, and the
balance remitted to his bank account in Zug, Zurich, Geneva or wherever! London
Doxford would then engineer the relevant paperwork to close the account, and would place all the trading statements and account documentation into a file, together with the respective telexes, and he would then make an appointment with an official in charge of the Exchange Control department within the Bank of England, and having shown him the evidence of the file, (usually over a lengthy and alcoholic lunch) would request permission to remit the balance of the trading account to the relevant bank account in Switzerland.
As Exchange Controls did not apply to foreign citizens, and in particular, wealthy Arabs, there was no bar to their funds being remitted anywhere in the world, with the permission of the Bank of England. As there was no way in which the bank official could say whether or not the trading accounts were genuine, and because the paperwork would always provide an accurate and recognisable audit trail, permission was inevitably granted for the export of the relevant sums of money, which would then be paid out of Doxford’s trading accounts and remitted to the Swiss bank.
As the Bank official would not ever suspect Doxford of behaving in a dishonest fashion, no suspicions were ever raised as to the legitimacy of these trading accounts. Doxford was well known to act for lots of wealthy Arab clients, so any such request was not surprising to the Bank officer.
In this example, the documents were entirely false, no trading was ever undertaken on behalf of the client at all. However, because all trades on futures exchanges are undertaken on a ‘market to principal’ basis, all brokers being principal to their own contracts, there was no way of showing whether the documents provided for each client were false or true. It would only need Doxford to have to undertake a small number of legitimate trades for the purposes of his own trading accounts, which could be attested to and which could be identified by the clearing broker, for him to be able to allocate such trades to any client he wished.
In many such cases, our investigations uncovered examples of trades being allocated, on paper, to discretionary clients, but in circumstances where the legitimate trades were being re-allocated, many times over. In other words, the broker was buying five lots of September sugar, for which he would receive a genuine contract note, but he would be re-allocating that single contract of five lots, to as many customers as he cared. As long as the customer lost at the end of the day, so that he did not ask for any money, the broker was unlikely to be discovered. At the same time, as long as two clients of the same broker did not compare trading notes, this thoroughly dishonest method of trading would remain undetected.
It was only after we had spent some considerable time unravelling and analysing the trade documentation that the similarity and the 'symmetry' of the profits and losses became obvious, and we began to focus on these apparent anomalies.
Our life was made easier when the wife of the failed gambler in Bahrain, was thwarted in a divorce application for additional maintenance from her former husband, and she came to the Fraud Squad to confess her husband's role in this scam. Truly is it said, 'hell hath no fury like a woman scorned!'
The Bahrain police were then able to confirm that no real Bahraini citizens existed with the names and at the addresses claimed, and after that we were able to quickly wind up the investigation.
In the course of so doing, we then focused on the actions of the wealthy UK citizens, who were now all deeply implicated in a massive conspiracy to cheat and defraud the Inland Revenue. Many of our interviews were conducted in some of the leading drawing rooms in Mayfair and Belgravia, or in ancient country seats deep in the heart of the Cotswolds or the Mendips. If we had difficulty finding addresses or telephone numbers we only had to look in Debretts Peerage or the Almanach de Gotha to find our witnesses.
A long list of shame-faced aristos and debs delights were interviewed and their statements taken. All of them admitted that they knew that their actions were criminal because they were defrauding the Inland Revenue. The company directors who had been engaged in fraudulent trading, coupled with a range of conspiracies to defraud the Revenue, declined to answer any questions on the advice of their lawyers.
The papers were then all passed to the Director of Public Prosecutions to determine what charges should be brought against the company, the directors, and the UK tax fraudsters. Eventually, there was a lengthy conference with the DPP's officers, where the police were informed that the decision had been taken at the highest levels that it was not in the public interest to prosecute anyone involved in the case!
No-one stood in the dock as a result of this lengthy investigation, and the company's affairs were wound up leaving a welter of bad debts.
My colleagues and I were astonished and incredibly angry. It was obvious that Doxford and his co-directors could not be prosecuted without the evidence of the well-connected UK tax evaders, and it was clear that the Establishment did not want to drag these eminent and socially-elevated people through the Courts. So the whole thing was dropped and covered up.
I was incoherent with rage and fury. Coming from a Welsh mining and small farming background, and aware of the near-poverty that my mining grandparents had been forced to endure during times of great hardship, I felt that what was being allowed to happen was completely unacceptable. The rich and powerful were being allowed to get away with their crimes because of their power and their associations, and it seemed to me to be utterly wrong. It seemed wrong then and I still think it was wrong today.
I had started my education in the understanding of the role of white collar crime in the financial sector. I had learned that even if a man comes from an elevated social status, he will behave like an any ordinary criminal when the opportunity arises. Such men are capable of committing the most basic of crimes, regardless of background or class. I learned that he will lie, try to cover up evidence, and use every dirty tactic at his disposal to avoid being prosecuted. I had learned that the crimes of the powerful are the same to investigate, but are much harder to achieve prosecutions for, because they will always reach out and use their influence to avoid being charged with crimes. I learned that the white collar criminal fears the thought of being charged with a criminal offence, because it means social oblivion and commercial ostracism, and that is why they will use every privilege at their disposal to achieve their ends of being excused the need to stand in the dock. Above all, it taught me that such people are a 'protected species' which is why, many years later when a main board Barclays director used those very words to me to explain why he and his ilk would never be prosecuted, I knew he was telling the truth!
I also learned that public officials and regulators will not necessarily look beyond the face value of documents provided to them, they will not seek to look behind the purported story. I learned that regulators did not want to do anything that might be seen to be rocking the boat, and that in many cases, their inaction is really incompetence and laziness.
I later challenged the DPP's officer that his office had been subjected to significant political interference in the Doxford case. He laughed and said to me;
'...We don't get political interference in this office, we get guidance as to the pubic interest...'