Wednesday, January 23, 2013

Why we have all been so badly let down by the Financial Services Authority!

It is now official, the Financial Services Authority has been recognised as a complete failure in helping to protect the interests of the British financial services consumer.

This not-too-surprising finding has been made by none other than the H.M Treasury Select Committee in a report you can read in its entirety here;

When a committee of M.Ps decides to admit that the lead financial regulator is about as much use to the consumer as the FSA has proved to be, I think we are entitled to sit up and take notice.

When talking about the appointment of John Griffith-Jones as head of the new Financial Conduct Authority, this is what the Committee has to say;

"...He must restore the credibility of the conduct regulator..."

This is about as basic a requirement for a regulator as one might realistically conceive, and the fact that the Treasury Select Committee felt it necessary to spell out this requirement in such a degree of granularity, identifies just how far down the value chain the work of the FSA had sunk. This statement proves that the FSA had managed to lose all its credibility, and in so doing, exposed the consumer to every depredation that the financial sector was capable of foisting on them. It means that the sector it was supposed to regulate merely despised them, ignored them, went round them, and generally held them to be of no account, the truth is, they were not frightened of them, and that is the trouble. 

The Select Committee's findings are scathing in their denunciation. Remember, this is a Government committee and it is talking about an agency over which it held a supervisory role. Normally, such committees tend to pull their punches and water-down their criticisms, but not this time! The Summary of the report continues;

"...The FCA is the successor to a body which failed consumers. Although it devoted a great deal of time and effort to conduct matters, it left consumers exposed to some of the worst scandals in UK financial history..."

Well, there you have it, the FSA  failed consumers. How - was it negligence, recklessness, or was it what I have long suspected, that it was so far up itself, with its coterie of economic theoreticians and academics and Big 4 consultants? I once conducted an interview with a former FSA staffer who described the stultifying atmosphere inside the organisation, being run on the worst examples of civil service lines. She talked about the employee attrition rate and the enormous turn-over in staff, many of whom left after a short time in post because of the sheer pettiness and inter-departmental squabbling. She told me about new employees who came into the organisation with absolutely no experience of financial matters, but who were put out to conduct financial reviews at major banks within a matter of a few weeks of arrival.

I have observed with my own eyes, and I have blogged on the sheer mind-boggling incompetence of so many of the financial crime investigations which have been undertaken by the financial crime staff. I have written on the lunacy of leaving such complex cases to staff who have no previous knowledge or experience or obvious skill in dealing with professional criminals, and I include in this group, those who possess highly-attuned criminogenic characteristics.

I have previously commented upon the dangers of employing people who possess civil or commercial legal qualifications in positions where they will be required to deal with criminals, and I have lamented the absence of anyone in the senior decision-making process with former financial detective skills or experience. They may employ some former police officers for all I know, but I never seem to see their identifications in the investigative process. All too often, the people who do get employed come from the same, predictable kind of background, safe pairs of hands, 'one of us', never going to rock the boat!

As an aside, it amuses me no end to read all the articles that are now being published about the need to employ skilled compliance officers who can 'pro-actively' police the financial market, having the ability to predict the areas of wrong-doing that are most likely to be the preferred area of operation for the financial criminals, spivs and wideboys.

Regular readers of this blog will know that I have been calling for this facility for a very long time, but my views and my advice have been repeatedly derided, and attacked. Suddenly, all these ideas are now flavour of the month. Will anyone be willing to finally employ me, do you think?

Turning back to the Select Committee's criticisms, it states unequivocally, "... it left consumers exposed to some of the worst scandals in UK financial history..."

I am still finding it hard to get used to this uncompromising language! It is so unusual for a Select Committee to speak in these terms, it must have been deeply angered by the failures which it saw.

We have lived through an era of financial criminality almost without precedent.

It is not as if financial crime in the City was hitherto unknown, far from it. The con-man and the crooked banker have been associated with the City from time immemorial. The South Sea Bubble of 1720 was only a dot on the criminal timeline. I often show my students a slide which reads;

"...Go where you will, in business parts, or meet who you like of businessmen, it is - and has been for the last three years - the same story and the same lament. Dishonesty, untruth, and what may, in plain English, be termed mercantile swindling within the limits of the law, exists on all sides and on every quarter…"

It is a wonderful quotation and it comes from a publication called "...Temple Bar Magazine...", of 1866, although it could so easily have been used today!

However, what we have experienced in the last few years on the watch of the Fantastically Supine Apologists, dwarfs other financial criminality beyond peradventure.

The level of downright criminal fraud associated with the PPI scandals alone is deeply shocking, yet the FSA did nothing about bringing anyone to book for this orgy of criminal dishonesty and deception. How they can have sat back and allowed this exercise in criminal cheating (now said to probably reach in excess of £30 billion) to continue unpunished is simply beyond my comprehension, When questioned about it in front of the Commission on Banking, Hector Sants, that paragon of investigative zeal said words to the effect that; "...well we asked them to stop, but they just ignored us. They used their lawyers to fight us, and they wouldn't listen to us..."

Of course they did, you damn fool, they were making too much money out of PPI to stop the gravy train, just because you said so! They weren't frightened of you, and they knew you wouldn't do anything, and they just carried on laughing at you.

The scandal with the LIBOR manipulations is simply breathtaking. It was an open season for the spivs and wideboys in the banks, to manipulate and fiddle the system for their own benefit. It went on for some years, but when the chips were down, no-one in the top jobs in the banks, UBS is a classic example, knew anything about it. In front of the Banking Commission, UBS executives said, with a straight face, that the first time they heard about the LIBOR excesses was when they read it in the newspapers.

Hello, excuse me, reality interlude time, please! When questioned by the Banking Commission, super sleuth Tracy MacDermott opined that the investigative trail had petered out before it reached the Executive level, so they didn't ever question the UBS Executives about what they might have known about the LIBOR activities.

It wasn't that she didn't have the powers to do so, it wasn't because she already knew the answers, but, as she explained, they only interviewed those who were directly involved. Ms McDermott, with her little trademark giggle, maintained that there was ' value in talking to people who can't help you...' that the people being interviewed hadn't, as expected, sought to turn the responsibility on to those above them...' so the trail of evidence petered out. Adopting a very pious tone, Ms MacDermott lectured the Commission saying that they '...have to go where the line of enquiry takes them...'

God help us! Here she and her team were, with the opportunity to go and screw down three of the world's major bankers about the activities of their bank in one of the biggest financial scandals in history, and they just couldn't be bothered to find a reason so to do. They could have given these bastards the biggest grilling of their collective protected lives, they could have terrified the living daylights out of them and probably got some serious information from them.

Instead, they just couldn't be bothered. Was this negligence, or possibly even a reckless degree of connivance? No, sadly it was neither of these, it was just basic ignorance, of the powers that the Courts will permit to an investigator when serious criminal wrong-doing is suspected. It was ignorance of their functions as investigators, and ignorance of the methods and techniques that any experienced detective would have used to achieve his ends. And that is the biggest sadness of all!

What other gems did the Select Committee choose to lay at the feet of the FSA?

 The Committee accuses it of "...creating a 'box-ticking' culture whose benefits were far from evident and which still failed to pick up major failures in the making..."

This supine box-ticking mentality was widely known in the banking industry, and their entire compliance programme was aimed at meeting the needs of the FSA box tickers, while ignoring the wider responsibilities of their role.

Box ticking is easy, it is a cowardly way of operating because it avoids confrontation, and it is the bully's way of operating. I have spoken to many compliance officers who said that they knew it was no use seeking to discuss matters with their FSA inspectors, because they were not interested in any answer, other than that which ticked the box. You didn't tick the box, you were guilty. So, they stopped engaging and just provided the box tickers with boxes to tick.

This isn't how to regulate, but it's how you do it when too many of your staff are unskilled or inexperienced, or have no knowledge of how to deal with the wiseguys!

Finally, and I think, most crucially of all, the Select Committee is highly critical of the FSA Board, of whom it states;

"...The board of the FSA also appeared to fail in its oversight of the work of the Authority. (John Griffith-Jones) and his new board colleagues will need to demonstrate stronger strategic leadership than their FSA predecessors..."

The FSA Board is made up, as you would expect, of the usual collection of the Great and the Good. Nothing wrong in that you may well say, typical British tradition of staffing Boards with good chaps (of both sexes), safe pairs of hands, people who you only just have to look at their cv's and know "...yes, these people are 'one of us' ..."

That's fine, and under most normal circumstances, it wouldn't really matter very much. These people will give you the value of their academic experience, and there can be no doubt that you need their financial expertise, no doubt there will be plenty of it.

But that's the problem. These kind of people are fine when it comes to running an organisation that is providing leadership for the kind of people who are pre-ordained to be good, honest and upright citizens; who will not play fast and loose with the rules, and can be guaranteed to comply with the regulations they operate under.

Such a Board exists to lend tone and gravitas to the Authority's deliberations, to provide the odd White Paper or Thought Leadership publication; perhaps stimulate a little debate at a nice evening cocktail party to which a few tame MP's and a visiting Euro bureaucrat are invited; possibly be a lead speaker at some grand conference, or give a learned paper at one of our leading universities.

But ask them, just once, to come up with some practical experience and advice and a cohesive action plan on how to deal with a financial institution like Barclays Wealth, where, as we were told only this week-end; 

 "...The current leadership team have pursued a course of “revenue at all costs”, taken a conscious decision to ignore support functions, reinforced a culture that is high risk and actively hostile to compliance, and ruled with an iron fist to remove any intervention from those who speak up in opposition..."

Ask them to suggest a strategy for dealing with the people who created this atmosphere of anomie; ask them to suggest an action plan for taking down the architects of this dysfunctional organisation, but in a manner whereby any evidence you might want to retain to show a judge later, can be collated and retained in an uncontaminated manner so as not to render it inadmissible;   how to undertake these actions in such a way that the individuals concerned don't go shrieking off to lawyers, demanding injunctions; and how to find the evidence to demonstrate that they are not fit and proper persons to be having the control of a regulated public company, and you will be barking up a blind alley!

The Board failed in its oversight of the FSA's conduct because they had no-one on the Board who had the first clue how to deal with the bunch of slick, amoral, greedy, dysfunctional, criminogenic, Masters of the Universe/Big Swinging Dicks who control the power functions inside our banking sector. I cannot help but wonder whether the Board members have already tendered their collective resignations in the light of these words.

We cannot be criticised now for saying these things because they, and much worse are out in the public domain. Senior executives have been forced to resign because of their dishonourable actions, and the truth is out, the genie is out of the bottle.

That is why the Select Committee has chosen its words carefully, the new Board must provide 'strategic leadership', they need someone to be able to demonstrate strategy thinking, to be able to figure pro-actively, to have an action-plan in the event that another of these financial dinosaurs decides to run off at the groin in the future.

I cannot impress just how serious these criticisms are of a public body, which up until last week apparently enjoyed the full confidence of Government. They are scathing in their scope, and they are reputationally damaging in the extreme.

Finally, The worst thing is that virtually all of the disgraced employees of the FSA will be re-housed and re-employed in the new Financial Conduct Authority. Tracy MacDermott is already the putative Director of Enforcement in the new Agency, and no doubt many of her team will go with her!

Monday, January 21, 2013

Barclays Bank will never change their ways - Latest exposure proves their profoundly and irredeemably corrupt culture!

In my last blog, I pondered whether Andrew Jenkins could possible reform Barclays Bank. I suggested some new principles by which he might operate in future.  Unhappily, I now realise I was wrong  A major report published on Sunday 20th January proves the depth of moral corruption and compliance-averse conduct exercised by the Barclays Bank Wealth Division.

It describes the regime of fear which was deliberately inculcated inside Barclays Wealth. It reports how the boss, Andrew Tinney, lied and shredded evidence of a damning report in March 2011 which would expose the real state of affairs inside the Bank of bullying, and how Intimidated staff were forced to deliberately ignore and flout regulatory and compliance rules in pursuit of 'revenue at all costs'.

Such a report has issued a final death blow to what little was left of Barclays otherwise appalling feral reputation, and it means that Andrew Jennings' attempts to re-launch the  bank, demonstrating a new 'ethical' profile, adhering to all the public compliance norms, is not only doomed to fail, but should be pre-empted, and the Barclays Wealth Division should be closed down as being in the public interest.

Andrew Tinney resigned after it was revealed that he covered up a report into Barclays Wealth's failings. He secretly shredded a bombshell report that described a key part of the bank as ‘out of control’.

Andrew Tinney, who was chief operating officer of the bank’s high-end private investment division, Barclays Wealth, destroyed the explosive dossier after reading its shocking contents. He then misled banking regulators and Barclays chief executive Antony Jenkins – the man brought in to clean up the bank after the Libor rate-fixing scandal and the resignation of Bob Diamond – by pretending that the report had never existed. Tinney contributed to that state of affairs by shredding the only hard copy and ensuring that its contents were not entered into the Barclays computer system.

Apart from anything else, such actions, on the part of a senior executive of the Bank are in direct contravention of Section 172 of the Companies Act 2006, and even now, I cannot understand why shareholders are not organising a litigation group action to sue this man back to the Stone Age for breach of his fiduciary duties towards them. I shall certainly watch the FSA's actions to see how they penalise Barclays for these outrageous breaches of corporate governance and their responsibilities towards their regulator.

This is what always infuriates me about our financial regulatory approach. We have perfectly good laws in the UK to regulate this kind of behaviour, but when they are breached, and it is the banks who are involved, no-one in authority does anything about invoking the legal powers to take action, instead they lie about their powers to act! We were lied to by the FSA over PPI fraud, we were lied to by the FSA over money laundering issues, we were lied to by the FSA about the relevant powers to deal with LIBOR manipulation, all of which examples  of FSA mala fides have been identified in this blog! S.172 requires, inter alia, the duty of a company officer to promote the success of the company.

Section 172 of the Companies Act replaced a director’s duty to act “in good faith in the best interests of the company” with a requirement that the director must act, in  the  way he considers in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. In doing so, the director must have regard to the following factors:

• The likely consequences of any decision in the long term.

• The interests of the company's employees.

• The need to foster the company's business relationships with suppliers, customers
and others.

• The impact of the company's operations on the community and the environment.

• The desirability of the company  maintaining  a  reputation  for  high  standards  of business conduct.

• The need to act fairly as between the members of the company.

How Tinney could possibly have thought that any of these objects would have been promoted by suppressing this report is entirely beyond my comprehension, but it demonstrates the depth to which his own personal standards of honesty, integrity, and moral commitment had sunk, and further demonstrates beyond peradventure why he and his entire coterie of managers and directors are not fit to have the control of a whelk stall, never mind a public company.

I include his contemporaries in this, because they would all have been aware that the report was being compiled, and it is human nature that they would all have been aware of its potential contents. In fact Tinney (who received a package worth around £5 million a year in salary, bonus, share options and incentive payments) probably took the fall to protect others, which is why I am saying that the combination of a culture of dishonesty, moral bankruptcy and an integrity-free environment make it clear that the company is too infected with the morality of the back-alley thug, that place it well past redemption.

Tinney's announcement that he was responsible for suppressing the report enabled Barclays to make an internal announcement that he had resigned from his job last week. An internal announcement, you notice, not a public one. So much for the new transparency at Barclays that Jenkins was trumpeting!.

The report has exposed a culture of fear, intimidation, bullying and mismanagement at the bank’s stockbroking and investment arm, which is responsible for managing client assets worth £184 billion.

This report has come at an acutely embarrassing time for Barclays, as Anthony Jenkins now tries to regain public trust after a series of deeply damaging scandals.

The suppressed report paints a devastating picture of incompetence and arrogance at the bank, showing that executives, among other wrongdoing;

Pursued a ‘revenue at all costs’ strategy.

Fostered a culture of fear and intimidation.

Were ‘actively hostile’ to the idea of compliance with banking rules.

Presided over a ‘broken culture’ where problems were ignored or buried.

Allowed the business to spin ‘out of control’.

I have written and blogged repeatedly of the criminogenic culture which exists within the investment banking arms of global banks. These observations were not unique to Barclays.
I have advised the Regulators that such a state of dysfunction existed, for many years. They have either derided my observations or ignored my warnings.

This is why I have repeatedly said that this banking culture is a clone of an organised criminal enterprise and needs to be dealt with accordingly.

Part of the problem is that the Barclays own Godfather, Roberto 'the Diamond Geezer' Diamante, brought other Americans into the operation, men who believed that they knew how to manage better than anyone else, (the 'What can the Brits teach us that we don't already know' mentality), and who inculcated an atmosphere of  fear and intimidation, refusing to countenance any opposition to their style of managerial control.

I have worked for two major American corporations and in my experience, bullying and intimidation is the sine qua non of some managers' style. Many American managers try hard to achieve consensus and to encourage their teams to think strategically, but some, particularly those who have worked in Wall Street and the City of London, are little more than a bunch of over-bearing braggarts and bullies. It grows out of the US lack of any employment-protection legislation, and means that these managers can get away with their dysfunctional behaviour and their rule of terror because no-one dare challenge them for fear of being sacked on the spot. This does not mean that many British managers are any better!

Again, this culture has become endemic at Barclays Wealth, and it will not be easily eradicated. It generates an environment where no-one is encouraged to make decisions or to feel empowered to think laterally, because of the all-embracing 'blame culture' that exists within the organisation. Again, for this reason, reform of the entity is now beyond hope, and a complete dismantling of the organisation must now be the preferred option.

Consider these quotations from the Report, and question whether this institution is fit to be allowed to continue in operation.

 "...The current leadership team have pursued a course of “revenue at all costs”, taken a conscious decision to ignore support functions, reinforced a culture that is high risk and actively hostile to compliance, and ruled with an iron fist to remove any intervention from those who speak up in opposition..."

"...Management consciously failed to invest in necessary technology,  people and safeguards that it  knew it needed, leaving these areas understaffed, under-skilled, under-supported and in disarray..."

"...A conscious choice was made to ignore compliance until an issue was raised by the regulators – actively inviting intervention. There has been a total lack of accountability by the senior team..."

"...Management have created a culture of dominance and fear that has removed escalation of issues [the reporting of concerns up the management chain] and created a siloed organisation with serious flaws. Issues do not flow up but are buried, stopping any solution ever coming to light..."

"...This culture immediately removes anyone who opposes the managing director Mitch Cox and his team or who expresses dissent in any way… and prevents any counterbalance to the “revenue at all costs” strategy..."

One banker stated; ‘When I reported a compliance issue to a member of the management committee, I was told, “I don’t have time for this bullshit.’ Another said: ‘When we presented the risk report, an executive said “This is a piece of shit” – and threw it across the room.”’

One senior manager is accused in the report of being ‘incredibly defensive’ and of failing to take regulatory issues seriously. Another executive is said to have been determined to stop the inquiry team from gathering information. This individual, the report says, was regarded by colleagues as a ‘key contributor to the current culture of fear’.

"...The senior team portray themselves as all-powerful and all-knowing… and people chose to disagree with them at their own peril. It is a mentality of superiority which, when combined with other deficiencies, stops the team from tackling their blind spots. When those deficiencies are in compliance, this results in serious issues that no one else has the power to address.."

"...Stories circulate of individuals who have been fired because they brought issues to the management’s attention. It is culturally acceptable at BWA, from the top of the organisation down, to ignore, put off, and even deride risk and compliance issues..."

So, when taken as a whole, it becomes clear that Barclays Wealth is a financial entity long since past it's sell-by date. There is no excuse for the kind of behaviour and overbearing conduct which was sanctioned and condoned inside the operation, and it must now be closed down in the public interest.

When you come to review the findings in the report, you quickly realise that the authors were talking about an institution which had sunk into a state of profound anomie, a dysfunctional, normless state of regulatory limbo, a kind of suspended ethical animation, where normal conduct, regulatory compliance, honest behaviour, moral insightfulness, all had been turned on their head, to satisfy the over-inflated egos and over-paid men who ran the operation.

Institutions like this have not achieved this status overnight. The rot was allowed to set in many years ago, and it was encouraged to flourish and grow by an ad-mixture, of obscene over-payments, the advancement of psychotic personalities, the promotion of rule-breaking and other improper behaviour, the wholesale disregard for the rule of law and contempt for the regulatory regime. Anyone still working in this environment is compromised, their compliance officers tainted beyond hope of redemption, and their systems damaged beyond repair. You don't reform entities such as this, you recognise that like the rabid animal they have become, they need to be humanely destroyed, in order to cleanse the wider industry and to expunge their infected influence.

It must be observed that their continued existence owes as much of its provenance to the failings of the FSA as the lead regulator to identify severe failings in the structure, management and overall conduct of business by the Barclays Wealth personnel. Rogue institutions can only continue to conduct their illegal business when those supposed to regulate their activities, are either wilfully blind to their activities, or are too incompetent to see what is going on under their noses.

It may become necessary to re-visit the motives and decisions taken by Andrew Jenkins to employ Hector Sants as his new 'Head of Ethical Compliance' . Sants was in charge at the FSA throughout this era of dysfunction. He should be called to account for his failures to identify this criminogenic environment. The Parliamentary Commission on Banking Standards should consider calling him back as a matter of some urgency, if they want to retain a semblance of being thought to be a serious attempt to review banking practice.

More and more examples of appalling conduct and juvenile behaviour among Barclays' staff are being published., 
is a great example.

These stories will continue to circulate, and they all add ammunition to the arguments of those who now say, 'enough is enough', shut this monster down!

We have reached the stage where we have to realise that by allowing these disgusting entities to continue in business, that we are being failed by a Government which wants to feather-bed the banks at all possible opportunities. If we want to see a climate of ethical conduct, fair dealings and the highest possible level of regulatory 'best practice' being identified in our banking sector, it would be in everyone's best interests if Barclays Wealth were to be placed into compulsory liquidation, "...pour discourager les autres..!"

Friday, January 18, 2013

An open letter to Anthony Jenkins at Barclays Bank.

Dear Mr Jenkins,

I have heard it reported that you have told the bank's 140,000 employees to sign up to a new code of conduct, or leave.
This is a very brave act on your part, albeit far too little and far too late, but better than nothing. For far too long, you all laboured under the malign influence of Don Roberto, who focused you all on short-term gains to the greater detriment of your longer term ambitions, you clients, your values, and ultimately, your reputation. For 20 years Barclays manifested an increasingly aggressive work culture, which, I am now told, you recognise as focusing too much on making a quick buck instead of upholding the values and long-term reputation of the bank.
Why didn't you say all this when the Godfather was at the helm? Was it politically not expedient? Why didn't you stand up in front of the Board and put it to them that they were behaving like a second-rate loan sharking enterprise? You could have done so, although I wouldn't have given a brass razoo for your chances of keeping your job very long. How much money did you earn in bonuses for staying shtum all those years, you can probably begin to see why I am not all that impressed by your Damascene conversion to the straight and narrow all of a sudden!
Your Private Banking arm was so bent that a friend of mine who was briefly head of anti-money laundering, left, because as he put it, he wanted to get back to knowing how it felt to sleep at night.
Between you all, and you were part of the management structure at the time, let us not forget that, you took a once-proud and major bank, and you trashed it. Bob, 'The Capo' Diamond had to quit over Barclays' role in rigging the Libor rate used in trillions of pounds of financial contracts. You were just the first of several international banks to be implicated in this particular scandal, and you were fined a total £290m by US and UK regulators. You got off cheap!
Worse still, you, along with most of the other major UK High Street lenders, has also been found culpable in recent years of defrauding large numbers of your customers by cheating them with unnecessary payment protection insurance to mortgage borrowers, and overly complex, over-priced interest rate and currency hedges to small businesses.
You have now got some very hard miles to cover to bring your institution back to where the public will trust it once again.
I am told that your requirements are that staff now sign up to five key values - respect, integrity, service, excellence and stewardship.
These are fine-sounding ambitions, Mr Jenkins, but what do they mean in an institution such as yours which has rejected all respect it may have held for its customers; lost any integrity it might once have possessed; failed repeatedly to give good service to its clients; forgotten the meaning of what it means to provide excellence; and failed to demonstrate anything remotely like stewardship for years.
I have bitter experience of the way you treated your customers, I used to be a client of yours, and I would never, repeat never, willingly renew that relationship.
I am told that these demands of yours come at the same time as staff prepare to learn what bonuses they will receive for their services in 2012, and that bonuses in future will be assessed against the new "Purpose and Values" criteria.
In my judgement you have already failed my first test of true sincerity. What bonuses are you intending to pay this year? What have any of you done to deserve any bonus payments. Bonuses are supposed to reflect good work, added value, integrity, going the extra mile.
What has 2012 signalled for Barclays? Fines for LIBOR rigging, Fines in the US for electricity market pricing fiddling, I mean how much more criminality are you willing to condone before you decide not to reward it with bonuses. There are hundreds of thousands of hard working men and women in this country, many of them your customers, God help them, whose salaries have been pegged, cut back, frozen and who have not seen an increase for some time. Their costs of living are going up, their children are facing massive debts for university education, something you would have got for free, their elderly parents are wondering whether this Government of your friends are going to remove their winter fuel allowances, and their bus passes, and you are talking about paying bonuses to your organised criminal employees! Have you lost your entire sense of proportion, man!
I know you have been talking tough to some of your crooks and spivs, telling them "There might be some of you who don't feel they can fully buy in to an approach which so squarely links performance to the upholding of our values."
I guess you thought it sounded messianic when you said, "My message to those people is simple: Barclays is not the place for you. The rules have changed. You won't feel comfortable at Barclays and, to be frank, we won't feel comfortable with you as colleagues."
Well, you are going to have to prove that you can walk the walk as well as just talking the talk. You failed another test of integrity when you appointed Hector Sants, former boss of the Fantastically Supine Apologists, to head the new Barclays' compliance department.
I don't quite know what you think that ' great big soppy old Hector' is going to do for your new image, he was asleep on his watch at the FSA, or so the Parliamentary Select Committee found, and you then went and rewarded him with some massive pay deal. No doubt he will be part of the new package which you are reported as saying  would "excite" the workforce.
So, as part of my message to you, I thought I might send you some good ideas with which to underwrite your new squeaky-clean image.
First, get together with your Department Heads, and your HR department, and demand to be given a list of all the highest earning staff members in terms of bonuses and commissions, and then get rid of them, fast.
These are the people who will have been causing you most of your problems in terms of cutting corners, cheating the rule book, ignoring the regulations, rigging LIBOR, etc, etc. By sacking them, you will send a very loud message to the rest of the teams that you really mean what you say about starting the way you mean to go on, and it will have a salutary effect. Most of these really high-earners are routinely loathed by their peers who see them as cheats and liars who are being allowed to prosper.
Remember, most people like working in an ethical environment. I know I know, after all these years of working for the most crooked bank in the High Street, to suddenly learn that the vast majority of staff like working in an ethical workplace must come as something of a shock, but it is true!
Next; buy in some top-notch training in ethics, integrity, honesty and commercial morality and insist that every employee from yourself, down to the office cat attends. Don't give this project to one of the BIG Four consultancies, bring in someone from outside who really specialises in proper ethics consulting.
While on the topic of the Big 4, radically curtail the amount of money you spend on them, because in most cases they are not part of your solution, they are part of your problem. You should be capable of employing good staff who have the necessary experience to be able to deal with most of these issues without  having to spend the amount of money you do on the Big 4. They are a waste of time and space and they cost you a fortune. They are in the business of consolidating so many of your bad practices and bad habits, and you can get by without them. If you doubt this wisdom, read an incredible book entitled, 'Dangerous Company' by James O'Shea and Charles Madigan and realise why you don't need to spend the money these people cost you.
When it comes to recruiting staff, stop spending money on recruitment agencies, they are another parasite industry who are draining you of revenue. They employ young people straight out of university to engage in a box-ticking exercise when it comes to recruiting staff. Do it yourself, that's what your HR division is for.
Pay particular attention to the quality of your compliance and Anti-Money Laundering  teams, and make sure you hire the very best people you can. Pay them well, and understand the value of age and experience. Don't rely on loads of wet-behind-the-ears kids who are paid peanuts, but who become another box to be ticked by the regulator. Hire quality and experience, and stop being so ageist! Just because someone is over 55 doesn't mean they have forgotten all they ever knew. Pay a premium for skills and experience, and look for grey haired people who can offer proper mentoring for young people, helping keep them off the crooked path.
Remember, managing people is like herding cats. Every single person is different, so make sure you reward common traits. Reward honesty, integrity, and adherence to best practice, and watch very carefully for signs of the 'star performer'.
Rigidly demonstrate a commitment to an anti-bullying program in the workplace. Bullying is one of the most commonly corrosive and damaging influences in the workplace these days. Instigate a programme of in-house training to encourage staff members to identify bullying, and help stamp it out internally. The same goes for sexism, racism and any other kind of exclusionary behaviour.
In your trading rooms, make sure you discourage any signs of sexist conduct against staff. Do not be willing to condone 'laddish' behaviour which all too often is aimed at ambitious women, seeking to destroy and undermine their effectiveness and efficiency. Stamp out any such behaviour ruthlessly.
Encourage regular medical examinations for signs of excessive drink or drug abuse. Too much money has been lost because the trader or broker bolstered his pathetic ego with a snort of Colombian marching powder or a drink too many. Make drink and drug testing in the dealing rooms the same as if these staff were Olympic athletes. They are supposed to be the best in the market, or so you repeatedly tell us, so treat them as such and make sure they are not short-changing you.
Encourage staff to obtain additional educational qualifications through part-time study, day-release, night school, etc, and reward it. You are allowing them to add value to their personal work-life balance, you are encouraging them to educate themselves to acquire higher skills and knowledge and they will reward you for this commitment. In addition, encourage staff to undertake meaningful voluntary work in the local community, whether working with children who have reading difficulties, or helping old people who need extra assistance. Whatever the model, make sure it is recognised as being part of the firm's ethic and ensure it is suitably rewarded.
Make bonuses mean something. Instead of dishing out hundreds of thousands of pounds, all of which merely encourage staff to adopt the shortest of short-term policies, pay fair, but small bonuses, no more than a couple of thousand pounds at the most, and only then for real evidence of integrity, ethical or honest conduct. In this way, staff will not need to behave in unethical or illegal ways, just to guarantee getting their bonuses.
Finally, make sure that the legal compliance requirements of the lead regulator are implemented properly and in their entirety. Encourage a dialogue with both the regulator and the criminal intelligence services who rely on suspicious financial disclosures, and enter into gateway agreements with them to ensure that the rules on compliance and money laundering are being adhered to. Share your experiences with them, and stop the present atmosphere of distrust and contempt from growing.
If you can do these things Mr Jenkins, you might just have half a chance of succeeding. For my money, I remain to be convinced. Leopards and spots comes to mind all too easily.

Sunday, January 13, 2013

The major Banks are the organised criminal enemy within!

It is somewhat ironic that on the day when the latest findings of the criminal excesses of RBS are announced, H.M.Treasury should have just published its latest volume of collected wisdom in a document entitled "...Anti-Money Laundering and Counter Terrorist Finance Report 2011-12..."

Reading this document, you would be forgiven for thinking that H.M.Government actually means to do something serious about dealing with money laundering. The language of the Executive Summary contains all the portentous warnings you might expect from a properly concerned agency of control, but when you begin to deconstruct the messages, you begin to realise what a complete bunch of mendacious clowns we now have in Government, because these provisions really mean that even less notice is going to be taken of the Money Laundering Regulations and laws than heretofore.

I say this because the British Government habitually demonstrates that it is not in the least concerned about the realities of this problem. They will talk about it, but If you were to ask the Prime Minister or members of his cabinet what the banks will do about the new money laundering proposals, they would airily observe that the banks will of course do everything in their power to comply with the law. They would say this because I suspect they believe it, and they believe it because they really are that stupid.

They are happy to go along with the fiction that the banks generally, will obey these laws, because to think anything else leaves them in a very vulnerable position indeed. If they were to suspect that the banks had no intention of complying with them, they would have to do something about it, so better to fall in line with the convenient fiction, and state that all is for the best in the best of all possible worlds! So, as a result, we get these pompous proposals being issued by Government, but living as they do in a fantasy la-la world of their own making, they do not understand that the banks have absolutely no intention of implementing these regulations, just as they have not properly implemented the AML regulations in the past.

This is part of the problem we face in the aftermath of the financial scandals of recent times. We have a Government that believes largely what the banks tell it, because too many of the friends of those in positions of power, are in banking and financial services. It is a natural Tory stamping ground, indeed many Tory M.Ps have dabbled in investment banking prior to entering Parliament. We are being very badly served by this present administration because too many of them are too willing to give a lot of support and credence to these criminal banking organisations. 

They are only too willing to protect their vested interests and those of their friends, because they find it impossible to perceive that the banks are a major criminal enterprise. To do so would undermine all their preconceptions about themselves, their class and their place in society, so bank reform doesn’t figure very highly on their list of priorities.

So, I thought I would review the Executive Summary of the new Treasury report to see what we can glean from its contents, comparing what the Mandarins want us to believe, and what the words really mean so we can evaluate its effective value. Try this for size!

"...The effectiveness of supervision to prevent money laundering and terrorist financing has never been so important. The range of threats the UK and other countries face continues to grow...”

Well so far so good, so why is it that the existing money laundering rules are so poorly regulated and banking failures to maintain a good compliance profile, prosecuted so rarely? What standard of effective supervision has the FSA applied in the last ten years, bearing in mind its importance as a Supervisor? It’s all very well the Treasury going on about the need for good supervision, but when the lead regulator is so poor at ensuring that its responsibilities are met, what is the point?

These are driven by the use of new technologies designed for illicit purposes and a range of actors who engage in illicit activity, including money laundering, terrorist financing, circumvention of sanctions and tax evasion.

This paragraph starts with the usual piece of bullshit padding to make it sound like HMT are on top of the job, but it's all pure puffery, because they never specify what they think they mean. They never specify because they don’t know, but they think it is enough to spell out scare stories! What new banking technologies designed for illicit purposes? Spell it out if you have such information, but don't make up stuff like this as if you were some tabloid scandal rag, it demeans you! The latter part is correct, but hang on, isn't Mr Cameron and his little sidekick, Mr Osborne keen on other people's foreign tax evasion? Don't they do everything they can to make foreign funny money feel as much at home, as possible in the UK? How else do you explain the number of non-domiciled ex-pats, Russian oligarchs, East European ‘biznizmenii’, many of whom are wanted in their home countries for fraud, crime and state looting, as well as a host of other wealthy tax exiles who want to make London their home? They are not coming to the UK to start businesses and create jobs, they are coming here to shelter their tax evasion and to hide their criminally-acquired wealth.

As for terrorist financing, well, Afghan terrorist money leaks in and out of the UK at will, thanks to Pakistani corporate exchange control failures, and the willingness of British banks based in the Gulf States, as well as in London, to ignore international laws on money laundering and openly launder as much as much funny money as they can lay their dirty criminous hands on. We have already seen how little HSBC were concerned when laundering drug money from Mexico, or how much notice Standard Chartered Bank took of US sanctions. They took a long hard look at the risks and went for the ‘business as usual’ route!

All the banks who have recently been fined for money laundering, whether foreign drug money, the proceeds of foreign sanctions busting, or moving the proceeds of their own criminality such as LIBOR fixing or PPI fraud, were acting openly and with full knowledge of their criminal actions. It is an unacceptable piece  of pretty piety to say that these were mistaken activities which were not intended, when they were clearly fully intended, and executed quite deliberately.

Many countries, including the UK, now have a high level of technical compliance with the global standards, set by the Financial Action Task Force (FATF). The focus now needs to shift to ensuring the investment made by governments, supervisors and businesses is used effectively to prevent, detect and disrupt these threats.

Can this be really true, or is this just another piece of spin blurb? What on earth is meant by ‘technical compliance?’ The UK banking sector doesn't give a fig about international money laundering compliance. It may have implemented systems and controls which give the impression of a semblance of ‘best practice’ compliance, but the reality of the compliance level is that it fits where it touches at best.

My experiences of banks and their compliance personnel is that they are only going through the most superficial of motions. We saw the paucity of compliance professionalism in the court hearings of the HSBC –v- Shah case, The banks’ attitude towards AML compliance is exemplified in the findings of the FSA in their high-level report of June 2011.  Such Suspicious Transaction Reports that are made are little more than a lottery, too many disclosures being made on the basis of a defensive posture, but without any real thought or scientific approach being given to the contents.

The banks have absolutely no desire to work in partnership with police or other law enforcement agencies. At a recent City dinner at which I spoke on the issues of AML rules, the overwhelming response from the delegates, all of whom were senior AML Executives from the major banks, was one of total contempt for the actions and workings of law enforcement.
One banker commented, “...we keep asking them to help us regarding those people whom we suspect of defrauding us, but they can’t seem to do anything. Why should we bother to send them any information about our clients...”

It did not seem to be clear to this Jerk that the police are not a free adjunct and a tax-payer funded part of his bank's fraud prevention mechanism, and that his risks were for him to manage, but his words enjoyed a lot of support. When I pointed out that these requirements were part of a legal process which they were legally compelled to comply with, the same banker’s answer was;

“...Fuck ‘em, who is going to enforce the law in these cases. How do they know whether what we send them is any use to them, I am not going to spend money employing a lot of staff to get engaged in all this disclosure analysis, it’s a complete waste of time and money...”

These attitudes were widely shared, as far as most of the major banks present were concerned, money laundering compliance is a total waste of scarce resources and is therefore simply ignored, in the wider scheme of things.

They rest content that the likelihood of the FSA doing anything about this paucity of compliance is negligible! The FSA proposals for closer regulation by the FCA are still awaiting implementation, but in the absence of any meaningful prosecutions for wilful failure to comply with the rules, they will fall into abeyance like all the rest. Themed reviews don't prevent money laundering!

Supervisors and businesses must work together to ensure resources are focused on the small percentage of transactions that present the highest risk and not on the majority of transactions, which are likely to be quite legitimate. This risk-based approach has now been further embedded by the FATF into the revised and strengthened global standards.

Ah yes, the much-trumpeted ‘risk-based approach’. Allow me to assure you that the RBA is a form of words which roughly translated means ‘doing as little as feasibly possible’! It means that regulated banks and other firms who are subject to global AML standards will now spend even less time on engaging with AML issues, reporting, disclosures, analysis, et all, because they can always argue that they are adopting a RBA, and they have perceived no risks! The RBA is the ‘get out of jail card’ for the lazy and incompetent, and criminous, and means that even less AML compliance will be observed than before. This is borne out by the next paragraph in the Executive Summary which reads;

Businesses should feel confident to use their risk analysis skills to make informed judgments about where risks lie and what action they should take to mitigate them. Supervisors should support businesses in this.

In other words, don’t worry too much about compliance, we are tasking your supervisors not to give you too hard a time! Then however, concerned that the message might have become a little too laissez faire, the next paragraphs of the Summary sounds a warning;

Equally, businesses should expect robust supervision and severe penalties, where appropriate, from law enforcement agencies if found to have failed to consider and act on the risks they face in business. The consequences of such failures have included the significant reputational damage rightly suffered by firms as a result of enforcement action. Not only do such failures impact upon those firms, they reflect badly on the reputation of London as a financial centre.

The impact on the City and the UK from such failures, in addition to other recent scandals, should not be underestimated. It is vital that supervisors and businesses work together to protect the reputation, integrity and competitiveness of the UK.

HM Treasury will maintain a focus on the effectiveness of supervision, in particular, for improving transparency and accountability. We will do this by continuing to work closely with the full range of supervisors, including Government departments and professional bodies.

These latter paragraphs are an intellectually dishonest form of words which meet the needs of the Treasury’s requirements to publicise these new provisions, while using the language of responsibility and legality.

In reality, they mean nothing, nor are they intended to. If the UK Government was really worried about the reputation of the London financial market, they would have taken a lot more trouble over ensuring that the banks in the City could not have behaved in this way.

They did not do so, but now they do not have the integrity or the will to hold the banks to account and make them pay for their crimes. The effect of this failure is to have turned the banks into an enemy within!

On paper, we have a legal regime designed to prevent and forestall money laundering. It is a global standard of legal best practice and it is underwritten by all the signatories to the FAFT concordat, of which the UK is one such. As part of that legal structure, the banks are required to act in partnership with the law enforcement agencies, to report and disclose transactions which they suspect are the proceeds of criminal conduct.

The banks have been given legal protections from civil suit at the hand of their clients for complying with these rules, and as they stand, they are frankly not an unreasonable set of standards, and designed to help, prevent and forestall international organised crime, including drug trafficking.

There is absolutely nothing preventing the banks from complying with these rules to the fullest and most proper extent. The only thing that causes them to draw back from this co-partnership requirement is their conditioning and their criminogenic culture which informs them that to share such information with law enforcement would be to work against their commercial interests and minimise their likelihood of making profits.

Let us be very clear. The banks do not care one iota about the possibility of likelihood that they might be handling the proceeds of criminal money. This, they will say, is not their concern, they are nor detectives or law enforcement agencies, let the police deal with those issues, but let us get on with the business of making money.

Trying to make the banks willing co-partners in the anti money laundering campaign has been an abject failure, one which we should have recognised all along. They are the most two-faced, hypocritical, perfidious group of individuals who will talk the language of best-practice compliance to regulators and government agencies, while in private they will cut the budgets for AML compliance to the bone, and only recruit those people who are going to knuckle their foreheads and do as they are told, which is not to ask any awkward questions. This is why they have to be forced to comply, and forced to undertake remedial exercises, spending money they do not want to spend.

When the banks are openly committing the level of crimes they have been guilty of in the recent past, when they are providing full service bank facilities for the Mexican drug cartels, when they are manipulating the LIBOR market, defrauding their clients in a wholesale manner, laundering sanctioned money in direct confrontation of the laws, then they have become the target for police action and focus. Interpol, Europol, SOCA, and the other agencies of investigation should now be positively targeting these bastards, with a view to using the most powerful legal weapons to prosecute and convict them!

They are no longer just making a few mistakes, they are an organised criminal enterprise in their own right. They are worse than the Mexican Cartels, the Cosa Nostra, the criminal gangs from Asia, the Russian Vory, they are worse because they are state-sponsored criminals, legitimised by their governments and underwritten by their tax-payers.

We must lobby to force Governments to understand that these enterprises are beyond the reach of reason, and that they must be brought down. The demise of a few criminal banks will not cause the collapse of Western capitalism, it will strengthen it in the longer term, and the time has come to see these mafioso locked away behind bars for as long as it takes.

Just in case you might have overlooked some of the offences these criminal gangs have committed recently, and the fines they have paid, refresh your memory with these.

1. $1.9 billion, HSBC, December 2012. Charge: Accused of money laundering activities tied to drug cartels in Mexico, and  terror-linked groups in Saudi Arabia.

2. $667 million, Standard Chartered, August and December 2012. Charge: Violating US Sanctions on transactions with Iran, Burma, Libya and Sudan.

3. $619 million, ING Bank NV, June 2012. Charge: Covering up fund transfers in violation of U.S. sanctions against Cuba, Iran.

4. $536 million, Credit Suisse, December 2009. Charge: Allowing clients in Iran, Libya, Sudan, Myanmar and Cuba to conduct financial transactions in contravention of international sanctions.

5. $470 million, Barclays, November 2012. Charge: Rigging electricity market pricings
6. $450 million, Barclays, June 2012. Charge: Manipulating Bank Libor Rates.

7. $350 million, Lloyds TSB Group. Charge: Allowing Iranian and Sudanese clients access to the U.S. banking system.

8. $298 million, Barclays, August 2010. Charge: Allowing client payments from Cuba,

9. $233 million, Royal Bank of Scotland, June 2012. Charge: Manipulating Bank Libor rates.