Russian Money Laundering in London - A Modern Morality Tale

Last night, the BBC's Panorama programme showed a programme outlining a modern morality tale. The case involves a number of Russian businessmen who have fallen out with each other and are busily trying to play 'catch-up' over who owes what to whom and who is going to pay. It is a modern version of 'last man standing'. and it is being fought out with the bodies left lying on the leafy roads of St George's Hills and in London streets.

This blog is not the place to dissect the rights and wrongs of this convoluted case which involves the usual detritus of Russian billionaires, former State assets, stolen companies, allegedly fraudulent tax rebates, money laundering, investment companies, Swiss bank accounts, etc, etc.

However, what this case does offer is a very useful case study and cautionary tale as to the present state of money laundering compliance in the UK today, and who is pulling the strings of State!

We are caught on the horns of a dilemma. 

On the one hand, the Coalition Government and its toadying ministers and opportunist fellow-travellers, are all busily making London the home of choice for every foreign crook, wiseguy, mafiosi, and biznizmenii! 

Our political masters are desperate to encourage any wealthy foreign sleazebag who wants to relocate to London to do so. The red carpet will be rolled out for them, HM.R&C will fall over backwards to carve out a sweetheart deal for them, (a £4.5 billion sweetheart deal announced today - how much should it really have been? ), potless football clubs will queue up to offer their near-bankrupt stock for investment and money laundering purposes, and every conceivable opportunity will be made to make them feel welcome.

If they want to sue each other, why not come to London and do it here! That at least is Boris Johnson's call to arms.

Bo-Jo, never one to miss a cheap trick has urged Russia's oligarchs to sue each other in the London courts, in direct contradiction of the government's policy of discouraging "libel tourism".

"If one oligarch feels defamed by another oligarch, it is London's lawyers who apply the necessary balm to the ego," Johnson told a conference in London.

"I have no shame in saying to the injured spouses of the world's billionaires: if you want to take him to the cleaners, take him to the cleaners in London, because London cleaners will be grateful for your business."

Johnson, who clearly still believes in the value of the now-denounced 'trickle-down' economics, has argued that such cases, with the associated legal fees, are welcome. As usual, he has said the money would go "into the pockets of chefs and waiters and doormen and janitors and nannies and tutors and actors and aromatherapists - and keep the wheels of the economy turning, and put bread on the tables of some of the poorest and hardest-working families".

This is to ignore the army of greasy fat-cat lawyers whose trousers will bulge even more agape at the fees their putative Russian litigators will stuff into their pockets!

On the other hand, inviting the wealthy Russians to come and live here in the UK is to hold out a hostage to fortune. 

Russia is a quasi-criminal state, a semi-licensed kleptocracy, in which the rich, who have grown very wealthy indeed from the looting of the State, maintain their position by paying tribute in the form of modern Danegeld to whomsoever is designated as the recipient of such payments, prior to finding their way into the accounts of the politicians and other organised criminals who control them.

It has been like this since Brezhnev first did his dubious deals with the 'Vory v zhakony' the 'thieves in law', back in the bad old days when the underground black market was really the only remaining means of exchange alive in Russia. In return for a percentage of the take, made payable to selected KGB front operations, the Government permitted the crooks to operate the black market without interference. Without it, huge numbers of people would have faced slow starvation. The men, and their descendents, who ran these fronts, those that survived the constant internecine struggles, are now beyond the reach of the ordinary law and semi-respectable, insofar as it is ever possible to achieve that status in Russia.

The Russian Government is willing to play along with these Oligarchs, just so long as they do not seek to involve themselves with the political process. However, if they do interfere, they can quickly find themselves on the wrong end of the strong arm of the Russian State.

Much safer then to get out, while you can, and seek a safer haven elsewhere, somewhere with all the facilities a recently wealthy Russian might enjoy, with good schools, and all the business facilities that the modern kleptocrat needs, in fact somewhere very much like London.

Now, this is where the dilemma begins to become more acute.

In the UK we have stringent laws to prevent the proceeds of criminality from being laundered through our financial institutions. Last night's Panorama programme demonstrated vast sums of fraudulent tax evasion being laundered through the international banking process, and at one important stage, being moved through the bank accounts of an English company.

The programme presenter entertained a degree of purported shock and concern that a UK company might have been involved in helping to launder the criminal proceeds of what is, by any standards, a significant fraud allegation!

The truth is much more prosaic. UK companies have been routinely used to launder criminal money out of Russia and the former old Com-bloc countries for many years.

The architects of these schemes make use of a little-known phenomenon which is that where a UK company is not carrying on any business or if the Registrar of Companies has reason to believe that a company is not carrying on business or is not in operation, its name may be struck off the register and dissolved without going through liquidation or any other kind of investigation.

This is a fantastic facility of which much use is made by professional launderers, and it works like this.

The person creating the laundering chain, does not want to leave behind any unnecessary avenues for further investigation. So, he will create a UK limited company as part of the process, the aim being to obtain a UK bank account.

It is widely recognised and believed among foreign investigatory agencies that the UK has an enviable anti-money laundering investigative process, so it is a widely-held fiction that if there is a UK company involved in a financial transaction, little additional work needs to be done because the very existence of a UK company, gives the whole scheme credibility. 

Once the bank account has been acquired, the dubious transaction is carried out, the money paid through the account of the UK company and then moved on again as part of the laundering process. It is highly unlikely that the UK bank will have done anything about the payment, indeed, it is unlikely that they will have picked it up as there is usually only one transaction, and most banks' compliance monitoring software is not calibrated to understand this feature.

Then, all the launderer needs to do is to wait, because if the UK company submits no annual returns to the Registrar of Companies, the Registrar will later assume that the company is not trading or carrying out any business, and conveniently wind it up, and remove its name from the Register of Companies. This trick has been used countless times by criminals to create structures to commit fraud and money laundering, indeed HMRC have in the past uncovered evidence of literally thousands of such companies lying idly around waiting to be struck off.

This is what has happened in the case that Panorama were reporting, and it comes as no surprise to learn that yet again, London had become the focal point for the laundering of this allegedly fraudulent money, paid into the account of the UK company from somewhere in Latvia. The Latvian connection should have been more than enough to set the laundering alarm bells ringing, the Russians have used the services of the many Latvian enterprises for many years to move their klepto-funds around the world! But London remains the true focal point for every Russian wise-guy!

This is because we are offering these services to all these foreign crooks and we do so openly. Our banks offer secure money laundering facilities, and even, as HSBC have so amply demonstrated, will act as principals in the laundering process themselves!

We have all the professional service firms any foreign tax fugitive could need. I would not be at all surprised if the corporate structure set up to meet the needs of these alleged criminals was created by an American law firm, either here in London or in Moscow.

That is because for many years US law firms operating in foreign jurisdictions were not subject to suspicion-reporting requirements under US law, and conveniently ignored their legal obligations under the laws of the host country. One US-based law firm I once had dealings with organised a significant level of fugitive tax-structures for their Russian clients, and by being present in London, were able to make significant use of the availability of the global offshore facilities available here.

This is the final key to the conundrum and one which is now in danger of taking the solutions out of the hands of those who would seek to use them for legitimate means!

In a superb article entitled;

 "...Austerity exposes the global threat from tax havens..." by Jeffrey Sachs, the contemporary criminogenic status of the world's tax havens is defined!

"...Week after week, Americans and Europeans worn down by budget austerity have learnt about the secret accounts of their politicians, tax evasion by leading companies and hot money destabilising the world economy. The darker truth is that these havens are not gaps in the world’s financial system; they are the system...

"...There are thousands more like them working with the tax authorities to keep their money out of reach. Banks such as HSBC and UBS have been caught in the money laundering that facilitates this process...

"...How much tax revenue is lost to the global havens? Here, too, we can only guess but the numbers are likely to be vast. Recent estimates by the Tax Justice Network suggest that deposits are in the range of $21tn...

"...The havens serve countless purposes, yet not one is for the social good. They support massive tax evasion. They underpin a global system of bribery to corrupt officials. They service the accounts of drug runners, arms traders and terrorist groups. The prime movers of the world’s tax-havens are the US, Switzerland and the UK. Indeed, many of the leading havens, including the British Virgin Islands, Cayman and Bermuda, are British Overseas Territories. 

"...The public’s animus was greatly accelerated by the Cyprus crisis. The island has for many years been a notorious secrecy-and-tax haven, especially for Russian money. Yet this was winked at rather than controlled. Then Cyprus blew up – a reminder of how an unregulated financial centre can quickly turn into a mortal threat to the world economy..."

The bottom line for us in the UK is that the Coalition Government, together with the shadow army of semi-official specialist advisers, apparatchiks, private sector modernisers, security consultants, former special forces close-protection providers, ex-chief constables, superannuated and paid-off spooks, Foreign Office clowns and Security Service groupies, have become an alternative Executive Control mechanism, ready and willing to provide whatever services the Russian kleptocrats, and indeed, any other wealthy foreign wise-guy demands, because for them and their 'pragmatic' friends, the Offshore sector now is where the real money operates and resides, and they want to maintain their hegemony in these regions and its control, so if doing deals with dirty rotten foreign scoundrels is part of that price, then so be it! 

Just as in the 19th Century when Palmerston would send a gun-boat if any part of the British Empire was threatened by Johnny Foreigner, today, the need is to protect the autonomy and the independence of the Secret Offshore Sector, owing allegiance, as four-fifths of it still does to the old country back in Blighty!  

This is why the UK Government will never truly impose proper anti-money laundering controls, because to do so would be to undermine the system which keeps foreigners' dirty and criminal money from travelling through the City of London, and enables Cameron and Osborne's school and University chums to wax fat on the proceeds, whether from legal fees, accounting services, banking advice, or just plain old-fashioned relocation services!

They will never really force the banks to get their laundering compliance into sensible shape, because to do so would be to impose intolerable pressure on the offshore sector which would mean that the UK miss out on vast sources of interesting money which the chaps in Threadneedle Street would rather like to have a sniff at!

The financial regulators will never pay anything more than lip-service to dealing with the criminality of the UK banking sector, because we want to be able to offer these financial services to foreign rotters, and we cannot give them the full service provision in return if we are complying in full with some EU regulation!

The shadowy men and women in the big banks, law firms and consulting companies who service the needs of the global crooks and wideboys, realise that these are now the players with access to the real money. That money is tucked away in the offshore sector and protected day and night by secrecy facilities. So if their Corporate Partners harbour any ambitions of maintaining their million pound drawings, then they way forward is to make sure that the offshore sector continues to be protected and cushioned. 

These are the same men and women who provide the Coalition Government with their services free to reconstruct the tax-treatment of the corporate sector, on the understanding that they can take their valuable knowledge and sell it to their dodgy foreign clients to keep their money coming in to the UK place!

The on-shore banking sector is finished, the banks saw to that, siphoning the money they stole, off balance sheet, and into the secrecy sector! The real money is now in the hands of international organised criminals, and they are willing to pay to keep it that way. And that is why Russians and the other crooks will always be welcome in London, let us not have any illusions!

Why we must rediscover our capacity to be shocked!

A friend writes to me and chides me gently for my idealism.

He means it kindly, he thinks I am far too remote in my criticism of the banking/political galère, he thinks I need to get out more, and get in line with the real world.

He seeks to make a comparison between the recent Suarez incident and the banking mess we find ourselves in. He says;

"...I think that banking is just one manifestation of the natural order of life with football being another...The disgusting behaviour of Suarez being a very plain example of “being above prosecution”. He is a barbaric thug and should have been banned for life from playing in the English league, which is probably the limit of the FA’s jurisdiction. If this correct justice had been handed down then no doubt his agent would have engaged a stack of lawyers to show loss of income and therefore require compensation. His team have said there are no grounds for the normal 3 match suspension being extended to 10..." 

He continues; "...I’m reminded of “Society adopts the morals it can afford”. Society has to decide what we can afford. If we cannot make examples in sport that impacts the income of one person there is no hope for “affording” decisions that will impact thousands. I don’t see banking as being any more morally bankrupt that most of society. Sad, but to my mind true. Therefore to change banking we have to change society which after all is the fulcrum..."

In many ways, I am almost forced to agree with him. He is a good man, a brilliant businessman, who has worked very hard to provide for his family and taken huge risks to make a great success of his business career. He is a winner by anyone's standard, and he is worthy of respect.

Yet he and I have always differed on our ideologies towards what determines the fundamental truths in life. It doesn't alter our friendship, but it does alter our outlook, and I find that I am still uncomfortable in the recognition that he believes that "Society adopts the morals it can afford", because that comes too close, for me, to Oscar Wilde's definition of the cynic, "...the man who knows the price of everything, but the value of nothing..."

The last few years have opened up for me a startling insight into the condition of our lives, and I have watched while all the norms with which I was brought up and which I used to take for granted, basic honesty, truthfulness, loyalty to one's word, integrity, moral conduct, common decency, dignity, and fairness, were traduced, discarded and turned on their head by the actions of so-called professional men and women whose job it was to put wholly new and proto-acceptable meanings into what was, by any ordinary standards, behaviour which should have shocked normal people beyond measure.  

It is this growing incapacity to be shocked by straightforward wrong-doing which I believe is rendering us increasingly desensitised to improper conduct in public life, whether in sport, politics, banking or any other area of social interaction.

Indeed, I believe there is a deliberate policy on the part of certain professional attitude or opinion formers, P.R agencies, lobbyists and some journalists, to deliberately inculcate a sense of confusion and inconsistency in the way in which improper conduct is viewed. 

We have lost the moral compass as far as I am concerned, and we now have real difficulty in determining what is right and what is wrong, and how those two conditions should be dealt with.

In the latter years, we have seen the High Street banking industry turned into a vast organised criminal enterprise, where, in the pursuit of ever bigger profits and shareholder value, the institutions we once trusted to look after our money and to provide fair advice which we could rely on, have turned into a savage crime gang whose entire efforts seem to be aimed at parting us from our savings in the most shameless ways possible. 

I have received so many reported case studies from ordinary men and women which purport to deal with the way they have been allegedly financially manipulated by HBOS,  among other institutions, that I have to believe that some if not the vast majority of these allegations are true. There are so many of them, and all of them revolve around a fairly common theme, a re-evaluation of an underlying asset for the purpose of acquiring or securing a loan or further advance of funds; a purpoorted investment opportunity; a subsequent re-consideration of the value of the security, quickly followed by a demand for re-payment of the entire capital, and subsequent foreclosure. The stories all follow the same predictable course, huge legal fees, little or no legal redress, inconsistent court decisions, lengthy delays, little or no help from any of the formal agencies of support, the Financial Ombudsman Service, the FSA Complaints procedure, et al! Weasel-worded lawyer's letters, denials of basic assistance and even more protection for the banks themselves.

 It is all fairly nauseating stuff.

This is to say nothing of the institutionalised level of downright fraud perpetrated by the PPI scandals. The PPI episode was a deliberate and concerted series of actions by banks and financial services providers to cheat and defraud their clients out of billions of pounds worth of their money. The sums involved become an integral part of the problem, because they begin to distort our sense of values. Ordinary men and women do not talk in terms of billions of pounds, nor indeed, millions. Very few of us talk in terms of hundreds of thousands, we all of us have financial horizons, which in most cases revolve around a few thousand pounds, and usually involve our taking out a mortgage.

When an industry engages in a level of criminal fraud running into billions of pounds, we should be genuinely shocked and concerned. There should have been a vast public outcry and the perpetrators should have gone to prison. Can you imagine the scenario if a gang of Romanian immigrants had carried out a crime spree netting them £2,000,000? It would have been headline news and police agencies around the country would have been mobilised to deal with the scandal. But these frauds were committed by the banks, so no headlines! We had lost the capacity to be shocked by such conduct, and it was allowed to become part of the UK's continued enslavement to the High Street banking Industry.

HSBC engaged in a deliberate campaign of international drug trafficking. They deliberately and wilfully decided to launder the proceeds of Mexican drug barons' profits, and set up a string of banking structures to achieve their ends. The Mexican institution was a 99.99% wholly-owned subsidiary of another HSBC entity called HSBC (Latin America), which was in turn a 99.99% wholly-owned subsidiary of HSBC in Canary Wharf.

We are not told whether any one in HSBC had been advised that laundering drug proceeds was against the law, but it didn't seem to matter to HSBC, they just did it anyway. And when the news broke into the public domain, no-one appeared to be in the least shocked or surprised! 

Indeed, some went so far as to seek to defend the failure of the so-called regulators, the Fantastically Supine Authority, who had studiously failed to do anything about this widespread criminality. One Government Minister, who presumably now knows better, went so far as to opine that the FSA had no jurisdiction over the Mexican bank, despite the fact that it was wholly owned by a British bank in London!

Barclays bank, RBS and others, went on a market manipulation spree, totally distorting the LIBOR market. Was anyone shocked? Apparently not! 

One of the investigators employed to listen to the taped recordings of the dealings of the traders who were engaged in the worst of the manipulation allegations, has described their outraged shock and concern when hearing what was on these tapes. Employed to undertake a review of the recordings to establish what evidence could be gleaned from them, the investigator was primarily concerned to establish whether their own technical competence would be sufficient to understand what they believed would be the highly complex and arcane language used by professional bankers when talking to each other in dealings.

'...I have never heard such vile filth and outrageous conversations...' was the investigator's report. '...The language these men used was just couched in the vilest and most obscene swearwords, everything they say is portrayed in the most violent sexual terms, when they succeed in a deal, they have 'really fucked someone over'! When they are cheated, they have been 'regally fucked'! All they can talk about is the amount of drinking they do, the drugs they snort and put up their noses, and the women they habitually screw. They are all constantly cheating on their wives and laughing between each other about the tricks and excuses they use to deceive their wives and partners. These were the worst kind of conversations I have ever had to listen to, these men are worse than the most brutalised animals...'

This young person had not lost the capacity to be shocked, and the sense of outrage was clear as they described the experience. So why were the managers and compliance personnel in these banks not shocked, why were they not willing to make a stand and set down markers for the kind of professional behaviour they required to be adopted?

They had lost the capacity to be shocked by the antics of these gonzoids, and that has rapidly become the lietmotif of our times.

The new Archbishop of Canterbury Justin Welby has been an important member of the Banking Commission. On Saturday 27th April, he talked about :

 "...In banking, in particular, and in the City of London a culture of entitlement has affected a number of areas - in which it seemed to disconnect from what people saw as reasonable in the rest of the world..."

The Archbishop has identified the zeitgeist, the underlying sense of superiority which identifies the City of London, the 'culture of entitlement', or as I have reported it before, the 'anomie of affluence', the sense of normlessness that comes with the receipt of untold wealth which is not truly earned!

This is what has been allowed to flourish and has been well-nurtured by successive governments and their pathetic attempts to regulate the Square Mile and its denizens. This is what makes bankers believe that they are a 'protected species'! This is what makes them demand salaries and bonuses which offend the sensibilities of ordinary people, because they are addicted to the right to get their own way, they have traditionally been allowed to get away with this crap!

They have never been confronted by a strong man or woman for that matter (Thatcher didn't take them on), and told, 'It's time to cut you boys down to size'! Blair couldn't do it, he needed the City too much to help finance his geo-political ambitions! Attacking Iraq was soup and nuts to the Square Mile, a lot of people stood to make a great deal of money from the invasion, why does anyone think that Blair had to tell so many lies to get Parliamentary agreement to back the Americans? Blair had already promised Bush that he would support him, but he had to get the House of Commons on side. 

Brown wouldn't do it, because he was too busy counting the money that the City was allegedly bringing in through its fantasy financing initiatives, and Brown was willing to be seduced into believing what he wanted to believe! This is why the City players have habitually been able to talk down to Governments and threaten them with plans to take their business elsewhere, if they don't get their way.

This is why they have always been able to preside over a series of purported regulatory reforms which have never worked, and have never been intended to work for that matter! Only a completely demented fool would observe the history of the SIB and the FSA and try and persuade themselves that this was a regime of regulation that was anything other than one entirely run in the interests of the practitioners. Wholesale crimes have been committed, billions of pounds worth of value has been siphoned out of the pockets of investors, but no-one has gone to jail, and if that isn't an insider's market, then I don't know what is!

All the time, the City has quietly got on with the job it does best, looking after the criminal proceeds of others who are willing to pay for a discreet laundry service. Now, we are beginning to get some insights into the offshore banking crimes, and in particular the way that major charities are used to provide convenient cover to money laundering schemes being run through the offshore entities. 

For those of us who have had to deal with the offshore sector for many years, this is nothing new, neither is the phenomenon of setting up clever charities and trusts for wealthy individuals, and families to shelter behind in any way novel. When you see how it works, it is truly shocking, but we have lost our capacity to be shocked any more!

David Cameron talks about the need for transparency in tax matters and he calls for the end to aggressive tax avoidance, but he has to come to terms with the fact that the world's leading tax advisers, both lawyers and accountants, live and work in the Square Mile, and they have access to the world's most disparate selection of tax and corporate secrecy jurisdictions. That is why so many of the world's dodgy dealers come to do business in London, because they know that Perfidious Albion will offer them a safe haven and ask no questions!

Cameron is kidding himself, the rest of the financial world knows that the UK is the world's leading offshore financial secrecy centre, this is what we have become by selling all our principles and allowing our moral compass to become completely distorted.

Daily, I receive letters and e-mails from ordinary men and women who ask me to find the time to help them in their campaigns against the wrong-doing they have suffered, and I am forced to reply saying that I simply do not have enough time to take on every case which I am invited to review. It is incredibly sad, because these all appear to be decent people who have been the victims of crooks and spivs and who are entitled to better treatment than they get at the hands of our so-called regulators.

We used to have independent agencies, until they proved to be too effective, and were shut down. The Ombudsman or the Parliamentary Commissioner for Administration proved to be a wonderful recourse for help, but his findings against civil servants' incompetence and negligence proved to be too embarrassing for them, and they shut down his effectiveness by creating the Financial Service Ombudsman instead. From what I hear of this agency, they seem to be very circumscribed in just how effective they might otherwise be!

So, we must hope that the new regime of control will re-discover its ability to be shocked by criminal and dishonest behaviour. The insouciant shrugging of the shoulders that characterised the last regime of regulatory oversight, coupled with the elevated diatribes of gobbledegook and wabble-speak uttered by its Chairman, are a thing of the past, and that we can now start of look again it criminality, and see it for what it is, and deal with it accordingly. 

If we cannot do this honestly, we truly will get the morality we can afford!

How the legacy of Thatcher and Reagan made the 2008 financial crisis inevitable.

All sort of explanations have been put forward to try and explain the 2008 financial crisis. Some of them have been almost unbelievably simplistic (most bankers are crooks - closer to the truth than most people care to imagine), while some of them have been irredeemably complex and opaque (anything written by Adair Turner)!

What no-one can deny is that the impact of the 2008 financial disaster has left most of us very much worse off, with very little sign of being able to enjoy a more benign financial stability for many years to come.

Some men and women have made significant fortunes out of the demise of the financial sector, many of them through schemes and designs which were purely criminal and which were designed to benefit them individually, at the expense of their clients, and shareholders. Investigations continue into the activities of HBOS, RBS and others. If you doubt the truth of this statement, recall Balzac; "...Behind every great fortune, there is a great crime..."

I have identified the year 1986 as the moment which saw a series of important, indeed, some would say, seminal moments, in the history of the development of fantasy financing, and opened a number of doors to providing opportunities for financial change. What was not realised at the time, except by a very small few, was that these changes, would in time, bring about the very destruction of the markets on which they depended.

1986 became the tipping point for the way in which many people came to view the financial sector, and much of the impetus for potential change arose out of a series of important cases and phenomena which had marked out the previous years, both in the USA and in the UK. But the financial sector is nothing if it is not cunning, and any proposed changes soon became muzzled and doomed to failure.

The years before 1986 I have designated as 'the Decade of Greed' an era which became a leitmotif for the worst kind of financial scandals on both sides of the Atlantic. After 1979 and the election of Margaret Thatcher, London suffered from a plethora of scams and frauds perpetrated largely in the Futures and Commodities markets, in many cases, from criminal breaches of the extant and perfectly reasonable legislation designed to prevent ignorant investors being inveigled to part with their money in pooled investment schemes, with the aim of being invested in speculative Futures contracts. 

Following the election of Margaret Thatcher, the London Financial Market had experienced a revolution in the way investor's money was handled and permitted to be invested. Legislation which sought to protect the financially foolhardy from their ignorance was repealed. Committed to some heavily theoretical visions of 'free markets', none of which I believe she truly understood, except that she had been assured that such actions would lead to the ending of the pernicious influence of 'socialism', Thatcher had embarked on a wholesale change of the way in which the City of London was permitted to operate internationally, and centuries of old traditions which separated the functions of competing financial interests were swept away, and in so doing, she had opened the gates both to some extremely dubious financial investment capital, but also to some highly undesirable American and European investment advisors.

I simply do not believe that Thatcher and her advisers, caught up in a political re-structuring of society gave any thought to the implications of these changes, but by aligning the City with the way in which the rest of the world did business in banking, securities and derivatives, and spurred on by the glad-handling of the spivs and wideboys in the Square Mile, who understood a potential financial killing when they saw one; and encouraged by the common cause made by senior civil servants and apparatchiks who saw this as a way of setting the UK free from the yoke of Socialism, the Thatcher Governments turned the way the City was regulated on its head, and in so doing created a monster from which there is little chance of escape!

Thus, US Cosa Nostra Mafiosi who had become a major nuisance in New York in selling dubious third-market securities through unregulated bucket-shops, flooded into the London market to help all those first-time equity owners transfer their BT, British Gas and TSB shares for worthless, restricted stock in US companies which could not be traded on any exchange in the world. The US mafia and their fellow-travellers walked away with millions and millions of pounds worth of British tax-payer's value from wider share ownership, but no-one cared because the whole process was designed to get the shares into the hands of the City institutional slickers as quickly and as cheaply as possible, and if the US Mafia could lend a helping hand, then what the hell? Nothing was going to be allowed to stem the tide of deregulation!

Even when I visited the DTI from the Fraud Squad and showed them evidence acquired from the Manhattan District Attorney's office of the identity of some of the men running investment companies in London, and their criminal Cosa Nostra antecedents in New York, the aloof civil servants just laughed at me, and accused me of '...seeing the Mafia behind every bush..!'  

One junior staffer even went so far as to opine that if things were as bad as I said, "...perhaps we should invite the Mafia to come and regulate the City, as they would do the job so much more efficiently..." Her departmental principals all thought this was very witty and amusing. She later went on to become a senior regulator with one of the alphabet soup regulatory agencies, funny role for a woman who thought so little of the need for regulation.

The civil servants' message was very clear; "...The Government doesn't want anything getting in the way of wider share ownership, so get back to your office and stop meddling in issues of high policy, Mr Plod..!" 

They didn't give a flying fuck if London became, as it did, the fraud capital of Europe. They didn't want to put their possibilities of promotion and their putty medals at risk, and they were content to sit back and do nothing while all the time, the London market was sold to the lowest bidder.

In this era in the USA, a number of very clever men were making a vast fortune out of a practice known as 'arbitraging', which put at its simplest, was identifying shares of companies which were financially undervalued, and then making take-over bids for those companies, stripping out all the value, and then dumping the rest of the business and its staff to fend for themselves, leaving factory premises open to the skies and whole Mid-West towns full of unemployed workers.

Men like Carl Icahn, Dennis Levene, Ivan Boesky, and Michael Milken, complete with a whole list of hangers' on, including from the UK, Sir James Goldsmith. These men had driven a swathe right through US Corporate America, and had asset stripped all the residual value which was intended to support these companies through the hard times.

They had been able to succeed because of the favourable tax treatment of debt instruments that was introduced by Ronald Reagan when he became President in 1981. Among all the other de-regulatory changes he introduced into the management of financial markets, in his free-market rhetoric-driven, Chicago School of Business political theories, this did much to undermine the validity of the US market space.

Ronald Reagan rarely catches any blame these days for the present economic mess that has destabilized markets in the United States and around the world. In fact, ironically, some Americans still praise the former president for taking the country in bold new directions during his years in the White House, in much the same way that people in the UK still praise Margaret Thatcher.

These admirers rarely acknowledge how central Reagan’s ideas, championed by Thatcher in the UK, were to the market difficulties troubling us today. As the country’s greatest champion of deregulation, Ronald Reagan contributed more to today’s unstable business climate than any other American. His long-standing campaign to minimise the role of government in American life, produced the conditions that ultimately proved disastrous for international business. 

The main problem with both free-marketeer's outlook was a failure to recognize that much government regulation can serve business interests very effectively, particularly if you want to serve the interests of the majority, as opposed to the privileged few. Many of the regulatory programs started by Franklin D. Roosevelt’s New Deal in the 1930s aimed to promote fairness in economic competition. That legislation required greater transparency so that investors could more intelligently judge the value of securities in the stock market. The reforms mandated a separation of commercial and investment bank activities, since speculative investments by commercial banks had been one of the principal causes of the financial crash. Roosevelt’s New Deal also created a bank insurance program, the FDIC, which brought stability to a finance industry that had been on the verge of collapse. 

These and other improvements of the New Deal era worked well. For the next half century American markets operated with impressive stability, they spread the wealth of America among a vast new emergent middle class, they sponsored and delivered the 'American Dream', they enabled the USA to win the 2nd World War and help it to re-build a shattered Europe and Japan, and still the country’s financial system did not suffer from the kinds of shocks that have upset the American economy in recent years.

But Regan was fixated by Chicago School 'trickle-down' economic thinking which mandated removing as much regulation as possible because it was perceived as a brake on enterprise, and raising taxes on the low-paid while reducing taxation on the rich. The removal of rules that promoted fair business practices, that prevented conflicts of interest, that limited levels of speculative capital, and which taxed certain profits at premium rates, fostered dangerous risk-taking. When the requirements for managing Savings and Loan institutions (the US equivalent to our Building Societies) became lax in the 1980s, leaders of those organizations, now freed from rules which kept them on the straight and narrow, threw money around and invested money recklessly in ways that had hitherto been denied to them. Many institutions, unsurprisingly, failed or came close to failure, and the cleanup cost more than $150 billion. Yet strangely, no-one thought to blame the de-regulation mania for that crisis, and no blame would stick to the Teflon President. 

At the same time, the arbitrage mania for stripping companies of their assets meant that no Chief Executive could risk keeping any volume of cash or asset value on the books of his company for fear that the 'Arbs' would strip him of it, and his job would go as well. The end result was an orgy of speculative M&A activity which drove a hugely over-valued market in a seemingly endless money-go-round of pointless acquisitions which made money only for the bankers and the lawyers, but most of the newly merged companies, which were forced to pay the costs of the acquisition process made less revenue or profit as a result of the mergers than before.

The reality was that the  securities of these well-capitalised target companies had become the subject of an insane-level of insider-information broking, so that the information of which shares of which companies were about to become merger targets drove an industry of insider dealing. The end result after some serious investigation of the arb industry by the SEC and the US Justice Departments, was a series of major prosecutions for insider dealing and securities fraud. One of the leading promoters, Mr 'Greed is Good' Ivan Boesky, realising that his fraudulent rampage was over, and on learning that some of his co-criminals were facing criminal charges, walked into the offices of the SEC and offered a complete confession of his wrong-doing in return for a plea deal.

One of his scams had been to get involved with massive fraudulent share dealing in the shares of Guinness plc, when they were the subject of an attempt to take over the interests of Distillers plc in the UK. His confessions to the SEC were passed to the UK Department of Trade and Industry. 

The DTI opened an investigation of the Guinness/Distillers Group battle and in so doing they opened up a Pandora's box of criminal activity. They uncovered the very worst examples of criminal British Corporate take-over activities, including illegal share support operations, share price manipulation, market rigging, a complete refusal to acknowledge the rules of the Companies Acts dealing with take-over conduct, a flaccid and gutless Take-Over Panel, and a generation of stockbrokers, broker/dealers, lawyers and consultants dedicated to the wholesale commission of fraud in the pursuit of wealth beyond the dreams of avarice. The Guinness case laid bare the truth of the so-called 'gentleman's club' of the City and exposed it for being a swamp of criminality.

When confronted with the level of City fraud which was now being uncovered as more and more cases began to be investigated by the new Serious Fraud Office, even Margaret Thatcher was shocked sufficiently to instruct Cecil Parkinson that in order to look good about tackling benefit fraud, they would have to 'get the handcuffs on' the City players!

The chief prosecuting counsel at the first trial of Guinness defendants said of them; 

"...The defendants were so carried away by greed and ambition that they were prepared to be dishonest and commit criminal offences. They were so greedy for money and power that they were prepared to cross the line which defines what is legal and what is dishonest..."

This case in 1986 finally made politicians sit up and accept that the City of London was a hot-bed of fraud, financial wrong-doing and general criminality, and that something finally had to be done to deal with the awful recognition that the City was an organised criminal empire. The Blue Arrow trial which swiftly followed, cemented that realisation, particularly as the jury convicted the main protagonists, a series of blue-blooded merchant bankers, of offences of criminal dishonesty.

So shocked was the City Establishment and its friends in Government, the Judiciary and the upper reaches of the Great and Good, that the message quickly came down from up above. There would never again be another Blue Arrow-style prosecution, and that has been the same message ever since.

The introduction of the Financial Services Act 1986, ushered in what was supposed to be the answer to a new regime of financial regulation. This was the tipping moment, when the City was supposed to move from an effectively wholly unregulated entity, ruled over by a series of toothless and wholly captured institutions run by the Great and Good, to an effective mode of financial control.

Margaret Thatcher, never a politician at ease with detail, and still besotted by the de-regulatory theories of Reaganomics, permitted the City of London to organise its own financial regulatory structure, within the framework of the Financial Services Act. Like many of the politicians who followed her, Blair, and Brown in particular, she was completely bamboozled by the City's protestations of good intent. The Tower of Babel of regulatory institutions the City fathers created in the following years, was designed specifically not to work in any effective manner whatsoever. The City truly moved to an effectively wholly unregulated entity, ruled over by a series of toothless and wholly captured institutions run by the Great and Good.

The introduction of new agencies of control, including the Serious Fraud Office, the Securities and Investments Board and the plethora of other agencies created a massive impression of structure and control, but was effectively wholly useless at implementing any meaningful regulation, and was always intended to be useless. And so it has all proved to be. 

Certainly, by the end of the 1990's the message in the City of London was that the much discredited Securities and Investments Board, which was about to be superceded by the new Financial Services Authority, had no intention of prosecuting any banking wrong-doing. The coded messages were passed out by ministers that as long as the City continued to bring in the money, ministers and regulators would turn a blind eye to the shenanigans being carried on the chaps in the suits. 

The whole period since the emergence of the FSA has been one long era of regulatory retreat and incompetence, marked out by a whole generation of staffers who have produced little in the way of work product other than hot air! The list of Chairmen and Chief Executives, many coming directly from the discredited banking business itself has provided a self-fulfilling prophecy for an agency that was not capable of doing anything effectively and lacked the leadership or the moral compass to take the lead in regulatory control.

The banks instead became embroiled in an American-led orgy of dubious financial creation and uncontrolled gambling, untroubled by virtually any regulatory controls whatsoever. Recent troubles in the American economy can be attributed directly to a weakening of business regulation in the public interest, which is, in large part, a consequence of Reagan’s anti-government preaching. In the absence of oversight, lending became a wildcat enterprise.

Mortgage brokers easily deceived home buyers by promoting sub-prime loans, and then they passed on bundled securitised documents to unwary investors. Executives at Fannie Mae packaged both conventional and sub-prime loans, and they too, operated almost free of serious oversight. Fannie’s leaders spent lavishly to hire sixty Washington lobbyists who showered congressmen with campaign funds. Executives at Fannie were generous to the politicians because they wanted to ward off any attempts at regulation. 

British banks assisted in defrauding some of their high-net worth clients by encouraging them to invest in long-term investment strategies, with money leveraged on the asset value of their properties through asset-release schemes. The money released had to be placed in what were little more than Ponzi or roll programme schemes, some of them being promoted by crooks who were already under investigation the US. This scandal has been effectively covered up by the FSA and other agencies and many innocent people are still out of pocket, but there is no agency left to speak for their rights.

Meanwhile, on Wall Street, brokerage firms became deeply committed to risky mortgage investments and did not make their customers fully aware of the risks. The nation’s leading credit rating agencies, in turn, were not under much pressure to question claims about mortgage-based instruments that were marketed as Blue Chip quality. Government watchdogs were not active during those times to serve the interests of the public and the investors. 

From the moment in 1986 when Ivan Boesky grassed up his mates in the arbitrage scandals, and rolled over on the Guinness fraud, regulators on both sides of the Atlantic should have realised that the regime of soft-touch regulation was over. The Guinness case and the Blue Arrow sham proved that the Great and Good in the City took no notice of rules and laws designed to make the City a clean place in which to do business, but no-one wanted to have to seize the nettle of cleaning out the Auguean stable.

The policies of de-regulation imposed by Thatcher and Reagan led to an era of wrong-doing and institutional banking and financial institutional fraud from which it will take many years for us to recover. Yet even now, there is not a politician who has the gumption or will to face down the financial sector, and impose a regime of control which will work. No-one has gone to jail for any of these frauds or white-collar crimes, truly the fat cats my believe that they are a protected species.




I am grateful to Robert Brent Toplin, Mr. Toplin, Professor of History at the University of North Carolina, Wilmington,who is the author of a dozen books including Radical Conservatism: The Right’s Political Religion (2006). for his seminal article, "...Blame Ronald Reagan For Our Current Economic Crisis..."