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!