Why the City bankster is so frightened of prison!

No-one wants to be convicted of committing a crime.

As a basic rule of thumb, I don't think this is a remarkable statement, although there are a group of criminogenic personalities inside the underclass milieu who probably don't give a great deal of thought to the question, and to whom, the receipt of a criminal conviction is little more than a social rite of passage!

No, I am talking about most normal people, to whom the receipt of a criminal conviction carries a real social stigma.

I have been very engaged recently in trying to understand why Government and the regulatory agencies, have been so concerned to ensure that they do not criminalise the actions of City practitioners, even when there are very real transgressions of both the financial market law, and the ordinary criminal statutes!

We are a very strange society in so many ways. We examine all social activity for signs of behaviour which we deem unacceptable, and where such conduct transgresses the moral law which means that other people have been put at risk, we tend to treat it more severely than if the conduct complained of was merely anti-social.

So, where a financier treats a client in such a way that the clients' monies are put at greater possibility of loss or the client is exposed to greater risk of suffering financially because of the conduct of the adviser, we examine that conduct to establish whether he or she has behaved in anything other than in a proper manner, and the loss sustained is due to unforeseen market circumstances, or whether the conduct of the adviser was so egregious that it directly contributed to the losses concerned!

Where the actions of the adviser or intermediary are shown to have directly contributed to the client's loss or damage, society, rightly, takes a much more severe view, and examines the actions of the adviser to establish whether the criminal law has been broken.

Take, as an example, the actions of those in the Quality Care Commission, against whom it is alleged that their actions, by suppressing an important critical report into conditions inside a particular institution, have caused such public distress and loss of confidence in the NHS, that there is now talk of criminal investigations.

I suspect that the reason for this assertion of criminality is more to do with the embarrassment that this episode has caused to politicians as opposed to the damage to the Common Weal, but the end result is that there will now be a criminal investigation of the conduct of the persons involved.

Another example which I believe throws light on our attitudes towards criminality is the treatment of Boat Race protester Trenton Oldfield who has been refused leave to remain in the UK after the Home Office decided his presence was not "conducive to the public good".

The Australian, who disrupted last year's University Boat Race by swimming into the path of the crews, was jailed for six months for his actions when he was found guilty  of causing a public nuisance.

The Judge said he had ruined the race for everyone: "You caused delay and disruption to it and to the members of the public who had gone to watch it and to enjoy the spectacle of top athletes competing."

Adding that Oldfield's actions had endangered his life and those of others, the judge said: "Your offence was planned. It was deliberate. It was disproportionate. It was dangerous."

These elements may well be true, but was the offence so egregious as to deserve a custodial sentence? I suspect that Oldfield was treated so severely because he had transgressed the social rules of one of Britain's most important class-focused sporting events, as opposed to anything else. The man was clearly a bounder, and a foreign bounder at that and had to be taught a big lesson, but was his behaviour so much more damaging and dangerous than some financial adviser who cheats his clients of thousands of pounds of their money, or who deliberately manipulates an important market benchmark in order to enhance his profits, at the expense of many others?

I comment regularly on our national benchmark behaviour in criminalising single mothers on benefits who fail to report the fact that they allow a lover to stay the night, actions of such dishonesty  which enables the State to convict them of welfare benefit fraud, and I also comment on the paucity of criminal convictions for those who work in the financial services industry, even when they commit offences running into hundreds of thousands of pounds.

I have been wondering why this state of affairs is allowed to continue to exist, and I have been amused beyond measure by the observations of ministers following the recommendations of the Banking Commission.

The talk is all of imposing prison sentences for reckless bankers, but as I have already said elsewhere, when we deconstruct the conditions precedent for any such prosecution to be brought, we discover that the new proposed law is even more complex than the perfectly good existing law on reckless conduct which could have been imposed normally, and will mean that it is even more difficult to convict dishonest bankers.

So why is it that imprisonment for criminal offences is so routinely abjured when it comes to dealing with financial practitioners? What makes the crimes of the suites and the dishonest actions of the powerful so different that they deserve to be treated in a different manner from the crimes committed by the underclass in the streets?

One thing is certain, the City practitioner group believes it deserves to be treated differently, and it has been often said to me, 'we never once thought that we would be treated like common criminals.'

So where does that presumption come from?

The British have always adopted a schizophrenic attitude towards the way they view criminal activity. There is the crime of the streets, burglary, theft, mugging, joy-riding, rioting, committed by identifiable criminal types, and dealt with by the police. Then there is the kind of wrong-doing that takes place within the financial sector, but when it happens, it gets called something else (mis-selling), and is dealt with by regulatory agencies.

For some reason there is a complete distinction between the two courses of conduct. They are, and have always been dealt with differently; penalised differently; administered differently, and for some strange reason which I only finally understood after I had studied the work of Edwin Sutherland, considered differently by politicians, regulators and in many cases, even by the general public.

Edwin Sutherland, who first coined the phrase 'White Collar Crime' separated and defined the differences in blue-collar street crimes, which are often blamed on psychological, associational, and structural factors. Instead, he defined white-collar criminals as opportunists, who learn to take advantage of their circumstances to accumulate financial gain. They are educated, intelligent, affluent, confident individuals whose jobs involve unmonitored access to large sums of money. Precisely because these criminals were held in such high esteem, Sutherland claimed that society tended to turn a blind eye to the crimes they committed.

In order to test this assertion, I once conducted an academic research project where I asked a group of financial services compliance officers to place in order of seriousness a series of criminal offences. In the general list I included six typical identifiable criminal offences such as theft, fraud, joy riding, robbery, while for the other six I used recognisable terms such as ‘insider trading’, ‘churning’, ‘misselling a financial product for the purposes of generating more commission, ‘misselling a financial product which meant that the client was no better off, but which generated more profit for the company’, ‘front running’, etc.

Without exception, in excess of 60 respondents put the identifiable ordinary crimes first in the list, while putting the financial issues last. It was as if activities which could be described in conventional criminal terms assumed a far greater degree of social opprobrium than did financial crimes, even though in pure legal definitions, all the offences alleged were equally criminal and all should be investigated and punished equally seriously.

Financial practitioners do not fear regulatory fines, mostly because they are not individually called upon to pay them. The burden always falls on the shoulders of the shareholders, many of whom, if the Standard Chartered Bank case is anything to go by, will not even blame the Executives of the bank for landing them in this mess in the first place. Regulatory findings will always find fellow practitioners who are willing to sympathise with them. Public scandal can be difficult to handle, but rarely does an executive get forced from office. He may quietly resign at a later stage, but he does so with a well-padded pension fund and other generous benefits to cushion his existence.

This whole issue of the suitability of punishment for serious wrong-doing has been a critical element of the longer-term failures of the former FSA to bring a robust approach to the regulation of the UK financial market. Ultimately, it is prosecution for crime which the financial practitioner truly fears, but if the market knows that the regulator is deliberately avoiding adopting its prosecutorial role, then this will lead to a realisation that the regulator has no real teeth!

It has always been one of the greatest ironies of the whole regulatory conundrum that criminalisation for simple offences of ordinary 'crime' is one of the greatest fears of the Executives of the financial sector.

Ironically, it is not necessarily the sentence which is passed which is of the most importance, the true fear of the financial practitioner is of the verdict of 'guilty' being publicly pronounced in open court. Such a verdict immediately takes away the sense of being a 'protected species' which too many banksters have believed they possessed for too long.

A criminal conviction places them on a par with other ordinary criminals, people who under any other circumstances they would go out of their way to avoid like the plague. The fact of conviction now puts them in the same 'criminal class' category and it spells social and commercial death for any city practitioner who has been so convicted. It is the ultimate exclusionary weapon of social and reputational mass destruction.

So powerful is the impact of criminalisation that even those who had once called the convicted man a friend find it very difficult to continue to see him, even in a private social context. As for any further dealings with him on a commercial context, such a thought would never enter their heads. He is now entirely beyond the pale, and he can never be received again inside the magic circle.

This is the fundamental point, a criminal conviction marks the end of the bankster's career. He is out on his ear, in the street, and no-one can do business with him ever again!

Can you imagine the impact that such an action would have had on the careers of Fred the Shred, or Bob Diamond or any of the other monsters of finance who have presided over the downfall of the British banking reputation, if they had been, at some stage in their career, told that the criminal activities being carried on in their banks would mean that they were going to be prosecuted for permitting such activities to carry on? Do you not think that it might have caused them to make enquiry and put a stop to whatever was going on?

This may be what makes it so difficult for regulators to bring such a powerful weapon to bear on those whom they perceive may come from the same class and socio-economic background as themselves! They won't admit this of course, and they tend instead to use the excuse that financial crime cases are too difficult to get convicted, that juries do not understand them, although that has never been my experience.

One of the reasons for the lack of public confidence that permeates the body politic of this country is because the ordinary man and woman in the street simply does not believe that their interests have any champion, whether in politics, or government, and that they are merely expected to carry on being the pawns in the game played by the rich and powerful.

I have spoken to literally hundreds of such people who protest that they feel completely disenfranchised from any system which exists to protect their interests, whether it be in the form of a fair hearing when they have been cheated of their hard-earned money, or a forum from which they can get equal treatment when they wish to challenge the arbitrary decision-making of the financial institutions.

Civil servants, regulators and government departments seem to exist to protect the interests of politicians and regulated members, not to provide the citizen with any right of redress or fair hearing when they have been defrauded.

One way to start reclaiming the balance of fairness would be for the powers that be to treat financial practitioners with equal rigour when they commit obvious criminal offences. Once the public got the impression that there was only one law for all, and that it was applied with equal fairness, it would go a long way to begin restoring confidence in the way this country is run!

The new FCA is proving itself every bit as bad as the old FSA!

On 19 June, 2013, the Financial Conduct Authority (FCA) announced that they have fined financial arranger Gurpreet Singh Chadda £945,277 and banned him from working in the financial services industry, for 'significant failings' when conducting sale and rent back agreements.

This outcome proves that the FCA have not learned the lessons of failure which so marked out the actions of their failed predecessor, the FSA. This kind of pathetic refusal to prosecute wholesale financial criminal behaviour is a sad return to the bad old days of the feeble Fantastically Supine Authority . These weren't 'significant failings' these were straightforward criminal offences of fraud, and this man should have been prosecuted in the criminal courts, and a serious message sent to the financial community that criminal behaviour in financial services will be treated as such, and people who steal and defraud clients and other financial providers will go to prison!

When single mothers on benefits routinely get prison sentences simply for failing to tell the authorities that they have a lover and that he stays the night, why should a man who just because he works in financial services, receive an entirely different treatment when he steal hundreds of thousands of pounds? It is the same grotesque differential that means that the poor get prison while the white collar criminals get to walk away from the consequences of their crimes.

Yet again, the FCA have proved that their Financial Crime Team is simply not up to the job of investigating and prosecuting these fraudsters, and instead, they have  shamelessly gone for what they would call a 'quick regulatory win', a scalp on the tent post, any scalp will do, just so they can show their political masters that they are doing something, anything, thus justifying their significant salaries and their copper-bottomed pension benefits, oh yes, and their bonuses!

The FCA investigated Chadda's involvement in seven sale and rent back transactions between June 2009 and January 2010 and found serious failings in all of them.

A sale and rent back transaction is an agreement where a home owner sells their home and then rents it back from the arranger so as to be able to carry on living there.

Often people who sell their homes in this way are vulnerable as they are in financial difficulties and need to raise money to pay mortgage arrears and avoid imminent repossession.

Chadda’s widespread failings included misleading the sellers of the properties, who were his customers, by telling them he would be buying their homes when in fact the purchasers were other people.

He also failed to notify the sellers that these purchasers were not authorised or regulated by the FCA, which meant they were not covered by the regulatory protections.

Chadda also helped purchasers to obtain mortgages in the knowledge that he was giving misleading information to mortgage lenders. In the seven sale and rent back transactions the FCA investigated, there was no independent valuation and Chadda assigned values to the properties based on the purchaser’s mortgage valuations or his own opinion.

He assigned to two properties a market value which was significantly less than actual market value.

In one case, he or his representatives fabricated a mortgage valuation to make it look as though the seller’s property was worth substantially less than its real value.

Chadda deceived the purchasers of six of the seven properties by obtaining mortgages when he knew that the mortgage lenders would not knowingly lend money on a sale and rent back transaction.

In one case he drafted a letter that falsely confirmed that the seller would not be remaining in the property after the sale.

Although the sellers expected to get a discounted price for their properties, they did not know that Chadda was receiving the full price for the properties from the purchasers.

In two cases he reduced the seller’s share of the sale money by misleading them about the value of their property, and in one case he exaggerated the legal costs that the seller had to pay, to further reduce the amount the seller received.

In three cases the sellers got less than half of the value of their property and in two of these three cases the seller only received 38% of the sale price of their homes.

The FCA believes that Chadda received £695,277 from the seven transactions as a result of his misconduct, and that these charges were unfair and excessive.

In her usual way, Tracy McDermott, director of enforcement and financial crime, made one of her usual pontifical statements about Chadda's misconduct. She said;

“...Chadda’s misconduct is the most shocking we have seen from a home finance arranger.

“He is a disgrace to financial services. He deliberately misled his clients for his own personal gain and then repeatedly and cynically lied to the FCA.

“Chadda is not fit to work in regulated financial services and he presents a serious risk to customers and lenders alike with his dishonest and unscrupulous actions.

“The unprecedented level of the fine for a sole trader reflects our determination to deprive him of the gains he made as a result of his misconduct.”

Chadda seriously aggravated his original misconduct by making false and misleading statements to the FCA, failing to disclose relevant documents and information and creating misleading documents. He also arranged for people to impersonate his customers in order to mislead the FCA.

If ever there was a case whereby a person should have been investigated and prosecuted for criminal offences, this was surely such a case!

But what happens? The Regulatory Agency treats him as if he has just failed to comply with some nit-picking regulatory niceties, and fines him the equivalent of the illegal profits he made.

In other words, he has just disgorged his illicit gains, but he himself has paid no additional penalty. Banning him from the industry will be a pyrrhic victory as he will surely find other areas of business to operate in where he does not need the same kind of supervision.

This man has clearly proven himself to be a danger to the financial market, but he has been allowed to walk away from his criminal actions, virtually unpunished. What kind of message does this send to the rest of the industry, many of whom may be tempted to try on similar activities themselves, as it is clearly so very easy!

The whole point of the Commission on Banking Culture was to establish a new approach to regulating the financial market, so the crooks and the wideboys did not get away with criminal actions.

Of course, Ms McDermott will continue to maintain that her agency does not have the power to prosecute simple offences such as fraud. The hearings during the Banking Commission scotched that interpretation, and Ms McDermott knows very well that she can engage with such actions, if she has the will so to do.

It's not difficult, any detective officer should be able to instruct her in how to do it, and it should now become a routine matter for the FCA, to prosecute all financial criminals, where the evidence exists to demonstrate that there is a prima facie case to answer.

If this doesn't happen, and we continue to see similar cases of manifest criminality and dishonesty being dealt with in a regulatory manner, then we will know that despite all their protestations, the FCA is going the same feeble way as the FSA.

So if this is going to be the case, then the question I want to pose in this blog, before things get any worse, is whether we should be able to expect better from our financial regulators?

The recent Commission on Banking Culture castigated the FSA for its many failings, indeed, I can rarely think of an similar example where a leading regulator was on the receiving end of such a series of vituperative comments, and we were told that the new Financial Conduct Authority was going to be a very different animal!

I think that the first question we are entitled to ask ourselves is how it is that so many of the people who were in post under the previously failed regulatory regime, are still in post under the new management regime? If the last staff members couldn't do the job properly, why should we expect them to be any more successful just because the organisation's initials have been changed?

I raise this point because I feel very strongly that the tradition of the 'safe pair of hands' or the 'one of us' mentality which permeates the British Civil Service and Government Service, causes a sclerotic obstruction in the body politic, and simply continues a culture of failure!

No-one who has any experience of the British banking structure in recent years, possesses any illusions as to the organised criminal nature of the edifice which has been routinely allowed to get away with the worst kind of financial crimes and fiscal excesses, without anyone of stature or importance being sent to prison for crimes which would make Al Capone blush for shame!

The persons responsible for allowing that state of affairs to proliferate were a bunch of spineless individuals who found it easier to turn a blind eye to the wrong-doing that was routinely being carried on, simply because their political masters wanted a 'light touch' regulatory environment.

Not one of these responsible people ever appears to have gone to the relevant committee at H.M.Treasury, and said 'Have you any idea what's going on - Do you know what some of these gangsters are doing?' No-one wanted to rock the boat, no-one wanted to put their heads above the parapet. Just keep your head down and push the paper and make the right soundings, and pick up your salaries and bonuses!

I do not apologise for saying that this is a pathetic state of affairs, and is a compounded admixture of incompetence and professional cowardice, coupled with a complete moral vacuum, and we, the investing public were being let down again and again and again.

And if the FCA continues to operate in this way in the future, we shall continue to be let down again, and again, and again!

New Lamps for Old! - Why the threat of imprisoning bankers is a hollow one!

Reading the City headlines, one could be forgiven for thinking that the Government had been handed an important new power with which to confront rogue bankers.

"...Greedy bankers to face prison as Chancellor prepares new law to target reckless bosses who take risks with the economy..."

screams the headline in the Daily Mail, as if the Banking Commission had suddenly identified some rare and wonderful new power that had never been used before.

It is of course, all complete and utter bollocks!

These headlines are a deliberate opportunity for David Cameron and George Osborne to present what appears to look like a new and positive response to the cataclysmic failure of banking regulation which has predicated the financial crisis, and the resultant recognition of the way in which the ordinary British bank clients have been systematically defrauded by an organised criminal cabal of bankers and brokers.

The Commission has recommended the following proposal;

"...There is a strong case in principle for a new criminal offence of reckless misconduct in the management of a bank. While all concerned should be under no illusions about the difficulties of securing a conviction for such a new offence, the fact that recklessness in carrying out professional responsibilities carries a risk of a criminal conviction and a prison sentence would give pause for thought to the senior officers of UK banks. The Commission recommends that the offence be limited to individuals covered by the new Senior Persons Regime, so that those concerned could have no doubts about their potential criminal liability.

"...The Commission would expect this offence to be pursued in cases involving only the most serious of failings, such as where a bank failed with substantial costs to the taxpayer, lasting consequences for the financial system, or serious harm to customers. The credibility of such an offence would also depend on it being used only in the most serious cases, and not predominantly against smaller operators where proving responsibility is easier, but the harm is much lower. Little purpose would be served by the creation of a criminal offence if the only punishment available to the courts were the imposition of a fine, because substantial fines can already be levied as a civil sanction with a lower burden of proof. We would expect the determination of the available sentences to have regard to relevant comparable offences..."

This proposal is so bound around with caveats and pre-conditions as to make it virtually impossible to convict anyone for its commission.

Even Fred Goodwin, the reckless and arrogant former boss of RBS wouldn't grip the bars under these charges, because it would be too difficult to prove.

First of all, the offence would only apply to a very small group of individuals identified under the new and as yet untried 'Senior Persons Regime'.

Secondly, the bank failure would have had to have failed with 'serious costs to the tax-payer', i.e, there had to have been a huge financial rescue package involved, where the failure had what are described as 'lasting consequences for the financial system', however that would have to be defined; or, 'serious harm to customers'!

Well, if everyone has lost their money, and the Bank of England customer protection plans are not warrantable, then no doubt this condition might apply.

I am not trying to be deliberately awkward, but as someone very skilled in the application of the criminal law, I can easily imagine the smoke and mirrors that an experienced QC could draw around these flabby definitions.

This is why I say that the likelihood of such a charge ever being levied against a banker in the future for this kind of activity is so unlikely as to be risible.

The Banking Commission and its attendant satraps went to great lengths to consider how best this new offence should be couched. They pussyfooted around the issue, demonstrating the traditional reluctance of members of the Administrative class to even consider anything so unpleasant as the imposition of a criminal conviction for persons who had failed in business, no matter how spectacularly. They considered these issues to be even more important than public concern!

Tracy McDermott, the Head of Investigations at the failed FSA told the Commission;

"... A criminal offence will have a real deterrent impact and satisfy public concerns only if it can be practicably prosecuted. There are some big issues of fairness and individual rights in relation to criminalising bad business decisions. There are various stages along the spectrum in relation to business decisions, but it is a very big step to say that we should criminalise incompetence or negligence. It is a much wider question than simply whether the public are angry about this..."

See what I mean?

Ms McDermott is apparently far more concerned with the '...issues of fairness and individual rights in relation to criminalising bad business decisions...'  than she is to protecting the rights of clients or investors. She appears to feel that  '...it is a very big step to say that we should criminalise incompetence or negligence...; Indeed, Ms McDermott feels that this is more important, because '...It is a much wider question than simply whether the public are angry about this..." Yes, why worry what the public thinks, there are plenty more of them yet to be fleeced!

It is crap like this that helps to explain why the FSA failed in its function. No-one is talking about criminalising incompetence or negligence, we should be able to hope that the Regulator could be capable of dealing with this level of egregious behaviour, although they consistently prove they are not as good at it as we might like!

No, what we are talking about is behaviour which is so manifestly unpalatable that it falls into the realm of recklessness, and the basic fact for all those crowing about the draconian nature of the new proposals is that we have already had a law of recklessness for many years.

There is no reason why bankers could not have been subject to its provisions already, and in circumstances where it would have been far easier to prosecute, albeit in full recognition that recklessness is a difficult charge to prove.

Nevertheless, we don't need a new piece of legislation, when the one we have is perfectly adequate, and only needs some prosecutor worth his or her salt, and the bottle to get on with it, to prosecute these useless, greedy bastards for all their worth!

Criminal law recognizes recklessness as one of the mental elements to establish criminal liability. It demonstrates less culpability than deliberate intention, but more culpability than criminal negligence. The test of any mental element is always based on an assessment of whether the accused had foresight of the prohibited consequences and desired to cause those consequences to occur. The three types of test are:

Subjective where the Court attempts to establish what the accused was actually thinking at the time the guilty act or series of actions was caused;

Objective where the court imputes a mental element on the basis that a reasonable person with the same general knowledge and abilities as the accused would have had those elements, or

Hybrid, i.e. the test is both subjective and objective.

The most culpable mental elements will have both foresight and desire on a subjective basis. Recklessness usually arises when an accused is actually aware of the potentially adverse consequences to the planned actions, but has gone ahead anyway, exposing a particular individual or unknown victim to the risk of suffering the foreseen harm but not actually desiring that the victim be hurt.

The accused is a social danger because they gamble with the safety of others, and the fact they might have acted to try to avoid the injury from occurring is relevant only to mitigate the sentence. Note that gross criminal negligence represents such a serious failure to foresee that in any other person, it would have been recklessness. Hence, the alternative phrase 'wilful blindness' acknowledges the link representing either that the accused deliberately engineered a situation in which they were ignorant of material facts, or that the failure to foresee represented such a danger to others that it must be treated as though it was reckless.

I am the first to admit that the law of recklessness, when applied in the criminal sphere is a damnably difficult charge to bring home and juries are very often reluctant to convict for its commission.

For this reason, I have always maintained that to ensure that the recognition of responsibility continues to remain alive in the mind of bankers, it is important to prosecute all offences of whatever nature, where a criminal offence is identifiable.

So, virtually all the PPI frauds could have been the subject of criminal charges, the only problem being was that they were so widespread that it would have literally flooded the Courts with work. Nevertheless, there are times when selected prosecutions have to be brought, because the outcome has a distinct ability '...pour discourager les autres...'

The problem lies not in the lack of criminal charges available, as the Commission acknowledges, but in the willingness of the Regulators to do anything about them. We know that the Labour Government had issued strong decrees to back-pedal on the financial sector, to regulate with a light hand, so perhaps we should not be too surprised when we see that no-one was bringing any fraud charges against the bankers.

But what happened when the LIBOR scandals broke? We cannot address those issues presently as criminal charges have been finally laid against an individual and are sub judice.

The outpourings from the City Press about the draconian nature of these new proposals should be disregarded in their entirety, they are just puffing smoke to please their City PR snouts!

The real truth is to be found in the statements of the City insiders.

Responding to the Parliamentary Commission on Banking Standards' report, BBA Chief Executive Anthony Browne said:

“...This is the most significant report into banking for a generation. There has already been a huge amount of change in the industry since the financial crisis but the banks recognise that more needs to be done. Regaining trust is an absolute priority - we want the UK’s banking industry to once again set the gold standard for professionalism and integrity.

“...We look forward to working with Government and regulators to take forward the constructive proposals contained in the report, learning the lessons of recent years in order to deliver a banking industry which is trusted, financially sound and serves the interests of its customers, shareholders and society...”

Did you spot the soft soap and the snake oil?

When organisations like the BBA, the most guilty organisation of all when it comes to the failure to administer the LIBOR management properly, can come out with claptrap like this, you know that they aren't hurting. This is the City Establishment at its best, doing what it knows how to do better than anyone - selling you and me a toothless pup, while sharpening their own canine fangs for a better return to the hunt for profits at our expense!

Don't believe the simpering smiles, the protestations of wanting to regain trust or learning lessons, the 'how can I help you' approaches we will all see for the next few months, the banks know they have got away with it, because no-one has the courage to face up to their excesses, and cut them down to size.

There will be lots of talk about break-ups and re-thinks, but in the end, the City will carry on just like it always has before. Governments and Parliamentary Commissions may think that they can dictate to the City of London, but they can't, the banks will always win, because as Willy Sutton, the great American bank robber once observed, 'that's where they keep the money', and money, as we all know, is the real power!

"A Fudge Too Far" - A Response to the Commission on Banking Standards Report.

The Report issued by the Commission on Banking Standards falls into the same trap as so many similar official submissions over the years. It is too wordy, it aims too far, and it misses the point.

The point is that they have completely failed to undertake any meaningful examination of the criminogenic culture which permeates the banking industry, and they have deliberately disregarded the possibility that what has been allowed to develop is an organised criminal enterprise within British Banking.

The question we all need to ask ourselves is that "as a result of this report and all the consideration that has gone into it, will it change anything in the culture of banking in the future?"

The answer, I submit, is a resounding 'no'!

The first intimation for me of this outcome was watching Sir Martin Jacomb, former deputy chairman of Barclays Bank, general all round jolly-good-chap and well-known City safe-pair-of-hands, talking on Newsnight last night, when all he could say of any substance was that everything contained in the report was yesterday's news, that was then, this is now!

This is a typical response from someone who has been so enmeshed in the fabric of the City for as long as Sir Martin has, and if that is all a man of his experience has to say about it, then we already know that the City Establishment has discounted the Report and its contents, and is already looking to the future, secure in the knowledge that their lobbying impact has drawn the teeth  of any proposals that were going to mean anything.

This is very worrying because it means that frankly, the Commission's report will be allowed to fester on departmental shelves, small sub-committees will spend months discussing its implications, and in the end, nothing will be done, as too much time will have been allowed to elapse since the publication, and things will have changed.

As I predicted a few days ago, the proposal to introduce a new criminal offense will have absolutely no effect at all, and I really don't know why they have bothered to even spend time debating the issue. I will address this point, later in this blog.

First, let us examine the issues which have concerned the vast majority of the ordinary people in this country.

We, the daily users of the banking sector have found ourselves prejudiced and financially damaged by the actions of those whom we have trusted to give us good financial advice, look after our savings or engage with our ordinary day-to-day banking requirements.

We have been defrauded if we bought PPI contracts, we were exposed to bank lending fraud when we sought to borrow money to expand a business or enhance a property, we were ripped off by bad service offerings, and we were forced to share the embarrassment and the hubris, as our banks failed, were charged with money laundering or engaged in criminal malpractice in the LIBOR markets.

We were further defrauded later of the taxes we had paid to build schools and hospitals, when the Government, which had wholly failed to regulate the banking sector, and constrain their reckless lending and spending, then decided to give them vast sums of public money to help keep them afloat.

As a result of their criminal excesses and their reckless profligacy, thousands of bank employees were paid salaries and bonuses at levels which would make Croesus envious, and when we, the tax-payers were forced to bail the bastards out, they continued to demand their million pound bonuses, ignoring the fact that we were keeping them in their jobs.

The culture of the banks in the latter years has been one of sheer greed, a lack of any normal moral scruples, the ambition to cheat, defraud and steal from their clients, to grab as 'big a piece of the client's wallet' as they could so do, and generally to act in a way that exposed their clients, their shareholders and their employees to shame, dislike and public  opprobrium.

Theirs was a culture of 'anomie', of normlessness; they were behaving like mercenaries in a criminogenic environment, and they were committing criminal offences. These offences were already catered for in statute.

The report admits at para 1174. "...A number of 'financial crimes' already exist relating to money laundering, insider dealing, market abuse, misleading statements and fraud or dishonesty. The Serious Fraud Office, for example, is able to investigate and prosecute investment fraud, corporate fraud and public sector fraud under the Fraud Act 2006, the Theft Act 1968, the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2007. Individuals are prosecuted under these and other powers..."

The report admits ruefully; "...However, the types of offence which give rise to criminal sanctions at present tend mostly to involve individuals or small groups, and do not cover the apparent mismanagement and failure of control by senior bankers which has been at the heart of the recent concerns about standards and culture in banking..."

This is where the report gets it both right, in a way, but also so wrong! 

In any organisation, it is simply not possible that small groups of underlings can be engaged in widespread wholesale criminal, behaviour, but such conduct is completely unknown to senior members of staff and supervisors.

Where big money is being made, it is a fact that supervisors and executives, tend to look the other way, and hope to deny all knowledge of the wrongdoing if it is ultimately identified.

In other cases, such as the PPI scandals, the supervisors and the executives were consciously pushing for these criminal actions to be continued and enhanced.

One of my students who has worked for a major City bank talked openly in class about her experiences as a junior compliance officer during the LIBOR manipulations.

"...Everyone knew what was going on, down on the floor...It was the talk of the trading floors...you can't stop traders bragging and boasting...we all knew that some of the traders were working the LIBOR rates to their own advantage...No-one thought this was criminal..."

And there lies the conundrum. No one stopped to think that what was going on was criminal!

Does anyone seriously believe that this knowledge was not being discussed on the 5th floor over the pre-lunch gin and tonics?  Of course it was, but it was always deniable!

It is this ability to operate at arm's-length, and to deny knowledge of criminal culpability which makes it more difficult to prosecute senior managers of firms where criminality is discovered.

Regulators talk convincingly about the difficulties associated with collating evidence to prosecute such cases.

The report states;

"...The FSA pointed out the main obstacle to the successful use of criminal sanctions:

"...For a criminal case the evidential burden will be even higher. There is, therefore, a risk that a criminal offence of mismanagement however constructed would rarely be prosecuted and consequently lose its deterrent value through its lack of use.

Tracey McDermott added:

"...we invested a significant amount of time and resource into the investigations we did into the failed banks, but we were not able to establish the evidence necessary to take regulatory action, so even if there had been a criminal offence on the statute book, that would not have got us there [...] a note of caution has to be sounded that this will not be an easy offence to prove [...] If the evidence is not there, it will not be there for criminal cases in the same way as it won't be there for regulatory cases. You can debate whether we got that call right or wrong, but ultimately the evidential standard is higher in criminal cases rather than lower..."

This really identifies the root element of the problem. It is something I have tried repeatedly to point out to regulators and the Commission itself, which is that most regulators are woefully and hopelessly ill-equipped to conduct meaningful criminal investigations, because they have received no training nor do they have any skills as criminal investigators.

As I stated in my evidence to the Commission, evidence which was suppressed by its civil servants;

"... One of the greatest tragedies of the British regime of financial regulation, and one of its biggest failings, is that none of those who hold down senior roles within the upper reaches of the regulatory agencies, have ever once undertaken even the simplest form of criminal investigation. They have never even arrested so much as a shoplifter, and they do not           know how criminals will behave when they are being investigated; they do not know what evidence is needed to bring these persons before a court and to obtain a safe and proper conviction; they do not know how   to go about acquiring even the most basic evidence which can be used to convict a criminal; and perhaps most importantly of all, they do not understand how to conduct themselves when they are being required to investigate a pattern of behaviour which might prove to possess important criminal consequences. Put more simply, they simply do not understand the signs of crime, and they are therefore ill-equipped to deal with them even when they are staring them in the face!

"...Yet these are the very people we put in charge of our regulatory agencies, and we give them very complex investigatory powers. Members of the ‘Great and Good’, people who have held down no doubt important roles in academe or the law, (even the Serious Fraud Office has been seriously criticised for its administrative failings), banking or other areas of financial business, former civil servants or senior partners in leading firms of accountants (if ever there was a serious conflict of interests it is in appointments such as these), or people who are seconded from other regulatory environments, but who have no experience at all in dealing with criminals.

"...While they all possess undoubted skills and experience, the one thing they all have in common is a complete lack of any understanding of the function of the criminal temperament..."

None of these issues have been debated in the report, all that has been proposed is a new offence as follows;

"... The Commission has concluded that there is a strong case in principle for a new criminal offence of reckless misconduct in the management of a bank. While all concerned should be under no illusions about the difficulties of securing a conviction for such a new offence, the fact that recklessness in carrying out professional responsibilities carries a risk of a criminal conviction and a prison sentence would give pause for thought to the senior officers of UK banks. The Commission recommends that the offence be limited to individuals covered by the new Senior Persons Regime, so that those concerned could have no doubts about their potential criminal liability..."

However, the Commission feels that the circumstances under which this offence should be applied are limited and specific;

"... The Commission would expect this offence to be pursued in cases involving only the most serious of failings, such as where a bank failed with substantial costs to the taxpayer, lasting consequences for the financial system, or serious harm to customers..."

This is a proposal to give the headline writers something to write about, but it is never going to happen! In reality, we should expect such a recommendation to be debated at excruciating length, both publicly and in Parliament. The banking lobby will throw vast sums of money at opposing the proposal, and we should expect no Parliamentary timetable to be available to debate the proposal for a minimum of 2 years. Putting it simply, I do not believe it will ever happen, because by the time any meaningful window of opportunity has presented itself to put this on the Statute books, Parliament will have lost interest in the debate.

As far as I am concerned, the rest of the Report will do little to change anything very greatly. As I said, Sir Martin Jacomb is already discounting it, and that means the rest of the City is taking its cue from him.

The issues which impact the ordinary British bank user the most remain untouched. The banking lobby has proved its worth, and it has talked out or emasculated the impact of any meaningful changes which might have made a real difference. This report merely tinkers at the edges, and has done little to change the culture of greed and dysfunctional conduct which has so identified the banking sector in the past.

This is why I say this is a fudge too far. The Commission have tried, through the production of a worthy tome, to give the impression that they really mean business this time, whereas the banking sector knows that whatever business is being planned, it is business as usual!