Why the British Banking Industry has become identical with an Organised Criminal Enterprise.

This is the first tranche of the evidence I submitted to the Parliamentary Commission on Banking, and which their Government Servants attempted to suppress. The other two tranches will be published in the following days.

Response to the Parliamentary Commission on Banking Standards

Professional standards and culture of the UK banking sector

Rowan Bosworth-Davies M.A

The views and opinions expressed in this paper are entirely those of the author and reflect no other agency, department or company.

Summary

·     This paper makes the assertion that the British Banking Industry has become identical with an Organised Criminal Enterprise.

·      It examines the nature of the criminogenic personality and determines the kind of person who is more likely to break the criminal law and why.

·      It asserts that this state of affairs has been allowed to develop because of the failure of the regulatory process to develop the necessary skills and knowledge of the conduct of criminals to enable them to deal professionally with the misdeeds of the banking sector and the reluctance of the regulators to use their statutory powers effectively.

·      It defines why there needs to be a far greater degree of criminal prosecution brought against financial practitioners and explains why such processes are among the only penalties that such practitioners truly fear.

Definitions of Organised Crime

"...Organised crime is a structure that includes two or more people whose purpose is to commit one or more serious crimes or offences for financial gain or material benefit..." (Australia)

"...It is serious crime planned and carried out by a group of at least three people to benefit one or more members of the group...! (Canada)

"...Organised crime constitutes any enterprise, or group of persons, engaged in continuing illegal activities which has as its primary purpose the generation of profits, irrespective of national boundaries... (UK)

1.     The British banking sector has become an organised criminal enterprise which has been allowed to develop because of the criminogenic environment in which it functions, which has resulted from the absence of any meaningful regulation which those who control and manage the banks would fear.

2.     In this organised criminal category I include the various mis-selling cases, including pensions, PPI Insurance and interest rate swap derivatives; the criminal manipulation by Barclays and other banks of the LIBOR interest rate structures; the institutionalised level of money laundering as identified in the HSBC case; the serial abuse of the US sanctions provisions as indicated in the Standard Chartered Bank case; as well as many other examples of criminal actions such as theft of client funds, teeming and lading, abuse of client instructions, insider dealing, front running, churning, and market manipulation which have become the subject of international regulatory interventions.

3.     If the recent financial devastation in UK financial markets has taught us anything, one qualifier stands out above all the rest of the explanations. The effective ‘regulation’ of the market in financial services in the United Kingdom, particularly in the areas of preventing and forestalling commercial activity which has the capability to undermine the well-being of the financial market, in which I include not only financial criminality and money laundering, but also the pro-active identification and prevention  of financial damage has, to all intents and purposes, totally failed.

4.      It has failed despite the huge bureaucratic organisation which has been created for its control, because those who are employed to provide the regulatory oversight of the market, the Lead Regulator, the Financial Services Authority, and the subordinate compliance officers within the individual regulated member firms, do not and have never understood the true nature of the criminogenic personality of so many of those who profess the trade of financial practitioner, nor do they exhibit any great inclination to wish to deal with the egregious activities of these individuals in a 'policing' manner.

                                       The Anomie of Affluence and the Legitimation of          

                                        Deviancy - Towards a theory of Criminogenisis.

      5.  Much of the trading activity which takes place within the banking environment, particularly in the area of proprietory trading is literally no different from gambling on horse races or games of chance and its practitioners tend, generally, to possess the same commercial mentality as the gambler.

      6.  At the same time, both floor and desk market professionals tend to be  heavily influenced by a trading culture which preaches the virtues of adopting a grossed-out, high profiled, risk-taking personality, which needs to be constantly attested  to..                                              

        7. Psychologically, many of these men and women can be defined as being 'regulatorily resistant'. Theirs is a primarily deviant, norm- evasive, criminogenic culture, not much given to the willing acceptance of regulatory control. Such an uncompromising statement should not be immediately interpreted to mean that these practitioners are committing wholesale overt criminal acts. It simply means that their risk- taking culture, itself the antithesis of the traditional perception of the risk-reduction function of these markets; coupled with the highly competitive environment within which they work, whose new traditions give all the impression of flouting traditional, 'old market' norms;

Which predispose them to break the rules more readily than practitioners in other commercial sectors. These are the traders to whom the  compliance officer is generally seen as 'the business prevention officer' and the traders tend to view each new regulatory notice as an irritating   inconvenience standing in the way of increasingly innovative trading.              

Each new regulatory requirement is looked upon as a challenge to the ingenuity of the traders, and competitions are held by dealers to see who can get round the controls undiscovered, and in the most profitable manner. In his article, 'Mavericks at the Casino: Legal and Ethical   Indeterminancy in the Financial Markets',  Christopher Stanley identified the development of this new phenomenon of regulatory resistance within the previously ordered environment of the City of London.

      8.  ' The New City reflected the ideological aspirations of a system of  political administrations which disrupted the post-war consensus of  relations between polity and economy. It also reflected the Casino or Disorganisation of Capitalism: 'an international financial system in which gamblers in the casino have got out of hand'. The New City was international, technological and subscribed to the Enterprise Culture  ethos which placed individual success and self-reliance as the primary  indicators of excellence. The structural changes which the Government introduced, in terms of trading practice and regulation, operated with the new financial products and markets to ensure that the particular elite of the Old City, which was perceived as a dangerously destabilising hegemonic counterforce as a result of the tension between  Establishment and Disestablishment, was dislodged in the face of  externally imposed change. Thus settled norms of conduct were open to disruption'.

      

      9.   Pursuing the 'Legitimation of Deviancy' theory, Stanley drew upon the   concepts of the 'Anomie of Affluence' to attempt 'explanations in this formulation of individual conduct within this particular field of moral and economic deregulation.'  He posited a vision of a market in which money no longer possessed any intrinsic value as a benchmark of the underlying value of the commodity traded, but became a 'free-floating signifier   detached from the real processes to which it once referred...there is   therefore a transition in its nature as a commodity to which moral or ethical values can be attached. In addition the artificiality of electronic money enabled the further disappearance of the victim and the possibility of justification through reference to prevailing economic rationality, ie 'Greed is Good'.

10.This specific problem of ‘regulatory resistance’ has been endemic in the regulatory model of the UK’s financial sector since the passing of the    Financial Services Act 1986. In this presentation, one of my areas of focus is to attempt to expand and develop the concept of the ‘criminogenic’ nature of the state of regulatory resistance, or ‘legitimised deviancy’ which so many financial practitioners espouse. By ‘criminogenic’ I mean conduct or behavior which has the potential to  become criminal, or at least, so vitally damaging at some stage in the  process, that any attempts to deal with the problem will almost  inevitably lead to further potential criminal behaviour.

11.By examining the behavior and conduct of persons within the financial sector, we can establish traits which indicate a potential to be more or less willing to engage in conduct or behavior which may result in the commission of criminogenic activity. Alternatively, where, through ignorance of the underlying criminogenic potential of new products or sales practices, those employed to ‘apply compliance procedures’ in the market ignore the likelihood of the new risks being generated. In so doing, they allow the damaging conduct to continue, and in examining this conduct, we can begin to determine where they are exposing the market to far greater systemic risk than it either needs or can cope with.

12.A derivatives trader who habitually spends his evenings spending vast amounts of his firm’s money entertaining clients in lap-dancing clubs, the kind of man who is willing to pay the bill for confirmed criminal offences, ie hiring prostitutes  (supplying prostitution) and supplying recreational narcotics,  is not the kind of man who is going to spend too long worrying about the finer niceties of the Insider Dealing rules or money laundering regulations.

13.‘As long as we got results, as long as we got our commission and good  feedback from the clients, they (the employing bank) didn’t really give a shit…I think the banks know the situation, and so they don’t do the  random drug tests, because they know half their staff would be on it, and     they know that in a high-pressure job, they have to allow their traders to have these excesses. They don’t care about the health of their workforce     as long as they’re making money…’ (Seth Freedman) 

14.‘ …prompted by the beckoning finger from the clearly coked-up Asian  chick nearest the open door, I nervously walked towards the car. I clumsily shuffled into my seat and saw in the gloom my three colleagues all sitting with their respective new lady-friends. They were all snorting yet more lines of cocaine that our ever-so-thoughtful hosts had prepared for us on little mirrors…’ (Geraint Anderson)

15.The basis of the underlying theory is a concept which is well-known to  any experienced street detective who is trained to deal with crime and to recognize the signs of the criminogenic personality,  and briefly put, states that those who act or behave in an anomic fashion in their ordinary, every-day existence, who bend or break minor rules or simple laws for their own self-gratification, or who refuse to conform to ordinary norms of human conduct at times when their surrounding  conditions would require such behaviour, will have a greater propensity to act in a similar, anomic way in many other circumstances, and where a situation arises which gives them a series of choices, they will inevitably take the line of least resistance.

16.James Q Wilson has alluded to this kind of ‘behavioural arbitrage’ when  defining his “broken windows” theory of criminal conduct. Those who    are prepared to commit minor acts of criminal activity as a matter of course, have little difficulty in committing more serious acts of criminality when occasion demands.  The pro-active policing policy  therefore is not to ignore but to focus attention on the immediate minor offences, because in many cases, they will lead on to evidence of more and greater criminality.

To be continued.......................