Monday, July 14, 2014

Understanding financial criminals - Why 'Shredded' must become compulsory reading!

Ian Fraser's new book 'Shredded - Inside RBS - The bank that broke Britain' should become required reading for every civil servant at H.M.Treasury, for every apparatchik in the FCA, and for every politician whose brief engages with the City.

Ian lashes out with fists crammed with facts, and his book leaves a wide variety of players badly bruised and with reputations seriously diminished!

When I was a detective at the Fraud Squad at New Scotland Yard, I had many opportunities to investigate and evaluate the attitudes and business morality of City bankers and other financial practitioners.

Between the years 1979 to 1986 I investigated the affairs of dishonest men (almost exclusively) who believed that their positions in the City hierarchy made them immune from the ordinary implications of the criminal law.

I also had a lot of dealings with civil servants, mainly from the Department of Trade and Industry, and I was constantly appalled by the lack of practical knowledge of the ways of criminals that they brought to their role as regulators of the financial sector. 

I was shocked by their arrogance, their insouciance, and the way that they believed that they were an all-knowing source and fount of expertise, when in so many cases, they were totally incompetent.

I rapidly came to the conclusion that one of the reasons that so much crime flourished in the financial sector was because the practitioners themselves believed that they were above the law and would not be prosecuted, while those who existed to regulate their activities, were largely useless and shockingly incompetent, but who knew that if they waited long enough, and didn't rock the boat, a job would be found for them in the financial community in the longer term.

Too many people in the DTI regulatory divisions had become subject to a phenomenon called 'Regulator Capture', in which a cosy relationship was allowed to develop between regulator and institution, and an unspoken agreement existed whereby both sides knew that in return for studied non-intervention, employment rewards awaited the compliant regulator!

Anyone who has worked in the financial sphere for any time has known these features. Anyone who has worked in the regulatory environment has seen the corrupt and corrosive atmosphere they inculcate, and the wrong-doing that is allowed to proliferate.

I have worked in this sphere for many years and I have seen all these phenomena and more, and, as each new bank scandal, criminal act, scam and rip-off went by unmolested, I had begun to despair that there would ever be a proper denouncing of the whole rotten edifice.

Well, now, at last, there is Ian Fraser's excoriating book, 'Shredded', and what amazing reading it is. He unpicks with forensic care the entire diseased carcass of what was the Royal Bank of Scotland, and he lays bare not only the bones of a once-great institution, but he exposes the sociopathic behaviour of a CEO, Fred Goodwin, or 'Fred The Shred', who presided over the denouement of this important bank.

In the telling of the story, a Greek Tragedy emerges as the arrogance and hubris of Goodwin are dissected and his ultimate downfall is foreseen!

But what makes this book so compelling is how Fraser manages to demonstrate the way in which the stage upon which Goodwin would tread his doomed existence, was prepared for him by earlier failures to regulate the banking sector. I intend to quote from selected paragraphs to illustrate this vitally important issue!

Talking about the regime of regulation, Fraser points out how New Labour re-designed the Margaret Thatcher model of financial regulation.

"...Brown and his advisors including Balls and Steve Robson (senior civil servant in H.M.Treasury who would later go on to a job with a major bank), decided Thatcher's patchwork quilt of regulators would have to go...It had turned out to be...incapable of preventing scams, financial disasters and swindles..."

"...But as New Labour's Financial Services and Markets Bill wended its way through Parliament, concerted lobbying by banks...ensured that the new regulator had its wings clipped before it had even hatched..."

Among its most deviant legacies was the requirement  that the new regulator, the FSA "...must consider the international mobility of the financial business before taking any enforcement action, and avoid damaging the UK's competitiveness..."

There, in black and white was the mantra which exonerated a new generation of incompetent regulators, who could always pray in aid this stipulation as a justification for doing nothing when the fight got hot and dirty!

Nick Cochan, a fine journalist pointed out that this phrase put bankers above the law, where they have remained until this day!

Another major problem was Gordon Brown, who was described by Steve Robson as 'having no interest in financial regulation'. Because Brown ignored it, the best and brightest Treasury civil servants ignored it!

This is always the problem with civil servants, they will look to see which issues their political masters espouse and then commit themselves. The stage was being set under Brown and Ed Balls for a regulatory-free zone in financial services, in a market run by a group of financial great white sharks.
Blair was no better, he was not interested in financial regulation either. 

",,,In March 2003, the Blair Government indicated what sort of regulator it wanted when it announced that former Barclays investment banker, Sir Callum McCarthy was taking over as FSA chairman...On his watch the FSA succumbed to regulatory capture, not least with the appointment of James Crosby of HBOS as a non-executive director..."

This period was characterised by the emergence of 'light-touch regulation', a phrase which became synonymous with 'no regulation at all'.  "...Blair, Brown and regulators like McCarthy had created an environment in which financial firms...were pretty much above the law..."

As an epitaph for the state of financial regulation at this time, the following paragraph sums up the state of play in London at the start of the Great Financial Crisis.

"...In a memo one former FSA senior executive revealed that between 2003 and 2008, mid-ranking FSA staff were, for the miost part, incompetent, poorly qualified and of too low a calibre to have any chance of reguating the financial services sector. Others were too lazy and complacent to bother checking up on what financial firms were doing. He added that none had the influence or the inclination to challenge the pervading 'light touch, laissez-faire regulation'... FSA supervision was hollowed out and its depleted ranks were staffed with mediocre people who cared little about the business of supervising firms..."

For years, people like myself and Ian Fraser, Nick Cochan and others, have been identifying these shortfalls and incompetencies. We have written about them, we have spoken on public platforms, and all the while, we have been routinely ignored. My evidence on this topic which I sent to the Parliamentary Commission on Banking Culture and Standards was conveniently 'lost' by the Government servants, who initially denied having received it, and then later, when admitting they had had it all the time, said it had to be redacted (censored) because it contained evidence the banks wouldn't like.
(Actually I rather thought that was the whole point!)

Ian Fraser's brilliant book deserves to be read by anyone who has any interest in understanding why and how our financial services sector has been allowed to become an organised criminal enterprise, run by a mob of mafia goombahs!

It is an important piece of work because it throws down a heavy gauntlet to the financial establishment and challenges them to pick it up and answer the charges it contains. Ian has done what very few writers succeed in doing, he has confronted the otherwise 'protected species' and laid bare their inadequacies. They must respond or stand accused of craven complicity in assisting in a world turned upside down!

Friday, July 11, 2014

Barclays Compliance Programme - A Triumph of Hope Over Experience

Barclays' Compliance Programme - A Triumph of Hope over Experience

I have been giving some more thought to the proposed Financial Compliance Centre being set up at the Judge Business School in Cambridge, in conjunction with Barclays Bank.

In so many ways, this proposal is wholly predictable, and in its own way, it identifies so many of the problems which beset the management of the British financial sector, which have resulted in the creation of a monster which has become too big to fail, and whose senior executives have become too big to jail!

The first, and perhaps the most obvious piece of predictable conduct is the marrying of Barclays Bank and Cambridge University.

Barclays Bank has always thought no end of itself, its executive culture has always been one of effortless superiority and high-class status. It was a Barclays Main Board Director who, at a dinner for delegates at a very exclusive executive 'retreat' at which I had been speaking, said to me;

"...You are entirely wrong if you believe that H.M.Government will ever prosecute someone from my class for financial crime or money laundering. This will never happen, we are a protected species..."

Over the years I have come to realise he was absolutely right, and that Barclays work very hard to maintain that level of Establishment protection. It is the very essence of this class-based approach towards financial services which has always bedevilled the British approach towards the way in which it views dishonest conduct in financial markets, and more importantly, how it should be dealt with.

When I was a detective at New Scotland Yard, I was sent to America to study financial regulation, US style! John Fedders, the Head of Enforcement of the SEC said to me when we met;

"...You British assume that everyone who works in the financial sector is a gentleman and you are shocked and horrified when you discover the opposite is true. In America, we assume that everyone who handles another person's money has the propensity to be a crook, and we legislate for the likelihood. When you stop pretending that markets can be regulated by 'good chaps' in between doing deals, and make the money available to regulate your markets effectively, then we will take you seriously. Until then, don't waste my time..!"

Sadly, the 'good chaps' imagery still operates in London.

Whenever Barclays have needed to project a more compliant image, they have always found an acceptable formula aimed at placating the British Government's ire! Hence the appointment of H.M.Treasury and Banking Establishment guru, Sir David Walker whose appointment as bank Chairman came within a month after former chairman Marcus Agius and Bob Diamond resigned within 24 hours of each other in the wake of the LIBOR criminal scandal.

Among other good reasons, Sir David was appointed to the post because he has an impeccable business and regulatory track record and is respected throughout the banking and financial services industry as a safe pair of hands, as well as being seen as an Establishment figure by Government. His appointment would have been seen as part of Barclays 'doing the right thing'!

So, it was probably inevitable that when Barclays decided that they had better do something to re-engineer the public perception of their criminogenic personality, that they chose to engage in the symbolic way that all high rollers do when they need to buy good opinions, by giving away lots of money to charity, albeit in a novel manner. By partnering with Cambridge University, the image of two of the most elitist, 'good chaps' organisations coming together in a mutual synergy becomes a trifle predictable! 

"...Sploshing the dosh..." is a tried and tested practice which has worked well over the years. Al Capone, in his time was extremely generous and outgoing. He attended baseball games and city functions. He donated money to many good causes and was known for his charitable giving. 

Al Capone opened up the very first soup kitchen in Chicago. He wanted to make sure everyone in the city who were jobless or homeless had a hot meal. Capone's kitchen served three meals a day and his soup kitchens exist to this day. 

Barclays, no doubt could have opened some food banks which would have had an immediate poverty-alleviating effect, but it is unlikely that would have fitted as well with their patrician image.

Instead, they turned to Cambridge University, another bastion of the Establishment, to become the recipient of their largesse! The Judge Business School turns out lots of highly qualified post-graduates who find jobs in banking and financial services, so the donations were not going to an undeserving cause!

"...The Cambridge-Barclays Compliance Career Academy is the first programme to be established under the school's Centre for Compliance and Trust. Its focus will be on a values and judgement-based approach to compliance, leading thinking and creating understanding around the emerging regulatory regimes which are being developed around the world..."

The University will take Barclays' money gratefully, all universities need munificent donors these days. Together, the two institutions have become a self-serving marriage made in heaven, and between them, they claim to have set up the first executive education academy for compliance in a bid to change the way the financial industry is run. 

This is not correct of course, there are already extremely successful similar academic courses being run at Portsmouth University, Sheffield University and Newcastle Business School.

More expertly, the Financial Regulation and Compliance LLM Courses being run in London at the BPP University Law School in Holborn offer a wide variety of courses for international students.

...The BPP University LLM (Financial Regulation and Compliance) focuses on the law and practice relating to the regulation of investment business in the United Kingdom from the perspective of compliance. The core module on financial regulation and compliance addresses the regulatory and legal environment within which persons authorised to conduct investment business operate. It also focuses on the particular role of compliance in the control and management of primary legal and regulatory risks. It is therefore far more than a programme on compliance. It is taught by practitioners and addresses the practical and problematic issues – including, for example, the personal exposure of compliance officers to legal and regulatory risk and the relevant law and practice to the exposure of financial intermediaries and their advisors to the legal risks, both criminal and civil, in handling other people’s wealth..."

In my earlier piece, I posed a challenge to the new Cambridge course managers by suggesting a programme on white collar criminogenics which I believe should be included in the programme, to give it a real relevance.

I do not expect them to incorporate such a module because it is not the sort of study that banks and patrician universities wish to include in their Business School offerings. The traditional view of financial regulation does not wish to include any study of any topic which smacks of criminality, because that immediately aligns their role with a policing one, and if there is one thing any compliance officer knows is that they do not perform any form of policing function, yet it is these elements which pose the greatest danger to the industry, because it is this behaviour which always causes the greatest volume of loss, and which explains why practitioners are so willing to break the criminal law.

If compliance practitioners are going to be really effective in identifying and recognising egregious conduct and dishonest behaviour among the practitioners they regulate, then they need these skills, and they need to be able to recognise the 'signs of crime', otherwise, they are worse than useless in their role.

For these reasons I am going to wait and see how effective this new exercise in academic partnering will be. While it may well be successful in assisting in the resurrection of the Barclays' reputation, I truly doubt it will add anything to our knowledge of how to effectively combat financial crime!

The real test will come when graduates of the school prove their worth in their compliance role by demonstrating that they have inspired and maintained a programme of financial compliance within which ethics and best practice are extolled, and where profits are honestly earned through good business conduct and fair dealing.

Friday, March 21, 2014

The Bar scene from Star Wars, or the Last Chance Saloon? A review of the 57th Session of the U.N. Commission on Narcotic Drugs!

For the second year running, I have been a delegate at the UN CND held in Vienna. I have a feeling it will be my last!

The whole event possess a surreal quality, starting with the “out-of-worldly” buildings which comprise the UN complex based in the Vienna International Centre, a few stops on the U-Bahn from the centre of this most beautiful of old Eastern European cities.

The UN complex, which includes the building in which the CND is held, resembles nothing so much as some demented architect’s futuristic vision of what a global-administrative agency should look like, but situated in a galaxy many light years away from here, hence the Star Wars connection! It is ugly beyond belief and rears up over the individual, dwarfing him by its sheer grotesque size, but to soften this overbearing image, there are no hard edges or sharp corners. 

Everything is rounded off, windows, in disciplined ranks are oval ended, the whole edifice is a study in curves and elipses, and painted in sickly pinks, oranges and beiges. It looks like a model made by a child from sticky Plasticene.

One is already having one’s mind programmed before gaining admission to the event – this is the UN, and you are being reminded of their almost unlimited power, but in ever such a user-friendly and politically-correct manner.

The delegates to the event represent a major cross section of just about every agency, NGO, lobby group, think tank and fellow traveller whose interests coincide with the issue of the legal or illegal status of narcotic drugs, their cultivation, possession, usage and dissemination.

There are some very exotic delegates, tattoos and body piercings abound, people will introduce themselves proudly with such words as, ‘Hi, I am a medicinal Cannabis user and a Ketamine injector” or whatever narcotic is their choice of achieving personal gratification. One gentleman, it turns out, is a registered user of Heroin and receives it on prescription, so I am advised. He is a highly intellectual debater and a powerful argument for demonstrating that under proper supervision, even the hardest drugs can maintain the user in a balanced equilibrium. The man who says he uses Ketamine ( I had always thought of it as a horse anaesthetic), is a well-balanced and gentle exponent of drug counselling and has spent many years as a drug mentor and guide, advising and supporting young people in managing their drug issues.

One woman talked quietly to me about her lifestyle choices involving Cannabis and Ecstasy, as well as occasional forays into other drugs, and she counselled me seriously on the many dangers inherent in my own personal choice of red wine which even taken in moderate quantities ‘...can do very bad things to you...’ 

Virtually every country in the world which grows, produces, exports, imports or uses these narcotics is represented, and every point of view is capable of being heard.

The UN and its mind-boggling bureaucracy is represented everywhere, from the gun-toting guards who stand around at every doorway and corridor, to its wholly unfriendly, surly coffee-bar staff, who run their posts with machine-like order.

They do not open for service before 9.00, despite the fact that a vast queue of thirsty coffee addicts is lined up at the counter. (Ironic how no-one at a drug conference appears to equate caffeine addiction with any of the other habit forming commodities being discussed)! Requests for service to the staff behind the counter are met with a mumbled refusal, and only when the clock passes the appointed hour do the staff then busy themselves cashing up the tills, bustling about, and eventually serving, but in a most inefficient manner. Don’t ask for change for the free-standing machines which dispense drinks at half the counter price, it will be refused. 

One should never overlook the message being sent by these time serving ladies, who are exactly the same ones whom I experienced last year! This is how the UN works, it has rules, it has a bureaucracy, it has apparatchiks, and nothing will or must be done to change anything that is written into the status quo. It is as if when you come to work in this building your brain is automatically taken over by a UN control mechanism which puts you on an auto-pilot mode which fits their design.

Having negotiated the almost incomprehensible agenda, and decided which of the many main events and side programmes are of greater or lesser interest, it is always worth reviewing the stalls and exhibitions. Until I attended last year, I had no idea just how much of the world’s rain forests are destroyed to meet the insatiable demand for paper on which to publish the outpourings of the groups who inhabit this strange world of drug discussion. A few examples will serve to explain my wonder!

“Sentencing policies for drug offences: Best practices in the UK”. Organised by a group calling itself the Academic Council on the UN System. Considering that some of our worst drug addictions are to be found inside our prison system, and the chances of leaving prison addicted to hard drugs, even if a prisoner was not so addicted upon entry, is so high, I hoped to hear a paper which talked of alternative means of sentencing drug-offenders which avoided custodial sentences. I may have missed it, but I am not sure if the issue was raised at all.

Or how about “Drug Trafficking and Consumption in West Africa” Organised by Cape Verde, Benin, et al.

Other papers dealt with ‘Violence against women who use drugs’,’ Protecting youth with drug policy’, ‘ Evidence-based tools and resources’, I could go on and on.

One extremely valuable presentation was made by the Portuguese during which they talked openly of the successes they had made in reducing narcotics harm through the use of a focused decriminalised drug use policy. But for every sensible and well-balanced presentation, there were others like the Drug Policy Futures Group who have set their hearts and minds against the entire campaign for decriminalisation and are determined to work against the well-intentioned agendas of those disparate groups who see decriminalisation as representing, ultimately, the only real policy which will have any meaningful effect against the influence of organised crime in the global drug markets.

Perhaps unsurprisingly, I could not discover any willingness to discuss the issue of the criminal laundering of the enormous proceeds of criminal drug trafficking, and as far as I could ascertain, there were no banks or financial institutions present, and willing, to discuss their attempts and methods to limit the amount of drug money entering their systems.

It is the major issue of the criminal money which is generated by the international drug trade which is the real elephant in the room at conferences such as these, but no-one it seems wants to discuss it. I tried to engineer a discussion with a delegate from Mexico, a representative of the Mexican drug control agency, but he just laughed in my face.

"...My deluded friend" he said, "...Everybody in this business knows that all the drug money from the narco- trafficantes finds its way to the City of London. Look at the HSBC bank, how they moved all those millions of dollars for the cartels in my country. Why your country did not prosecute them is clear to us, Great Britain does not care where the money comes from, as long as it comes to Great Britain, and no British Bank will be punished for bringing in the drug money. You people did it to China in the 19th century, and now you do it with the rest of the world. .."

What is clear to this overworked law enforcement agent from a country which is truly suffering from the corrupting effects of Cartel Heroin is that the UK has absolutely no agenda to promote or support any agenda for legalisation, because it would mean a strangling of the supply of illegally-generated drug profits, but then, the UK is not alone in having no intention of lifting the yoke of prohibition!

Regardless of the fact that the UNDOC, in the form of their President Raymond Yans, will discuss UN prohibitionist policies in terms of health, welfare and national benefits, he continues to talk down the likelihood and possibilities of legalisation in other countries of certain initial drug issues. This is in the face of the evidence now before the Conference from Uruguay, Washington State, and Colorado, where a degree of legalisation has now been achieved.
Listening to Mr Yans, I get the overwhelming impression that he is nothing so like the small Dutch boy, sticking his fingers in the dyke to prevent the leaks from leading to the entire edifice crumbling.

And this, or so it seems to me, is the essential conundrum behind this major annual jamboree. It seems to exist for the benefit of a very large number of people who belong to exotic-sounding organisations, and whose ambition is to continue pouring out learned papers and discussion documents on such issues as harm reduction, health management, youth protection, and who enjoy travelling to attractive venues to discuss their vested interests.

These people are dependent, for their cushy lifestyles, their expenses, and maybe their jobs, on the likelihood of drugs remaining prohibited for the foreseeable future. They have a vested interest in ensuring that the drug laws are not amended, or at least not too much, so as to threaten their functions. If these drugs were decriminalised and prohibition ended, bureaucrats and apparatchiks like Raymond Yans  would be out of a job.

The organisation I represent, "Law Enforcement Against Prohibition", a global body of former law enforcers who have long since seen and realised the inherent dishonesty and futility of the so-called ‘war on drugs’ had put forward a discussion document for consideration and wider dissemination on a proposal to amend the United Nations Drug Treaties, essentially eliminating the criminalisation-oriented drug policy paradigm, replacing it with a health-harm reduction and human rights oriented policy.

You might think it odd that thousands of ex-police officers in a number of countries might see eye to eye on the logic and pure sense of such a policy, but it was there in black and white, on the table in the Meetings.

The effect of such a policy if accepted and enacted would begin to curtail the activities of many of the exotic delegates all clustering around the bar of wider discussion (hence the bar scene from Star Wars image), and it would begin to usher in a wider policy of decriminalisation.

This is the first time, as far as I am aware, that such an important enactment has been proposed, as it cuts, like a hot knife through butter, through the bullshit being talked at so many of the meetings. (One group was talking about decriminalising cannabis use for adults, while maintaining in the same legislation, criminal penalties for children caught using the stuff !!!)

I was very hopeful that our campaign would catch the imagination of delegates, and in one way, it did! We were almost routinely attacked by many of the major NGOs who were present. We were accused of failing to ‘discuss and debate’ our proposals with all the other groups, a process that would have been never ending and would have been subject to so many proposed amendments, that in the end, the poor bleeding rump that was left would not have had enough life in it to limp over the starting line of the amendment process.

At the same time, we attracted a lot of informed attention from a number of interested parties, and particularly delegates from a number of South American countries. (Now those boys and girls know the human cost of the war on drugs, I had a long and detailed discussion with a police colleague from Colombia, and I realised we were not even starting to scratch the surface when we talk about social harms from organised crime)!

So, how will things develop?

It’s very hard to say. Our amendment cuts through an enormous volume of red tape and bureaucracy and possesses some very desirable outcomes, if properly enacted. It enables member states to operate their own policies within the overall ambit of the UN, thus enabling them to create a Uruguayan-style outcome if they so wish. It also envisages through its flexibility, a Portuguese-style model format which many European states might find more to their taste.

We shall see. I do not expect any great speed to be generated in enacting our amendment, but it is there on the table, if the UN authorities want to bend down and pick it up!

This is the last-chance saloon for so many countries, if they are not to see and experience an entire organised crime makeover in the style of that experienced by Mexico, Colombia, Bolivia and other narco-states. There is a lot of good-will out there to bring forward and enact a sensible drug policy. We in the UK must start to examine our pathetic response to the conundrum, and begin to take steps towards developing an evidence-led debate, with information and medical facts supplied by people like Professor David Nutt. I don’t want to hear any more diatribes from Melanie Phillips or Peter Hitchens on this topic.

At the same time, we have to start really enforcing our anti-money laundering laws and Regulations and make them mean something, if we are not to be seen as merely pious hypocrites in the eyes of the rest of the world, to whom we are so willing to preach on their shortcomings. Our attitude towards openly accepting every narco-state's profits is doing us huge harm in the eyes and ears of those countries who know the reality of what dealing with 'Perfidious Albion' really means!

Finally, the papers this morning were all over Russell Brand and his personal contribution to the discussion in Vienna.

I find myself (again not unusually) in a small minority in my view of Mr Brand. It's not that what he says is wrong, it's that he is saying it! After all, this is the man who had an ill-advised obscene public discussion with Jonathan Ross, the tv presenter, and verbally defiled the grand-daughter of Andrew Sachs, a charming and harmless man who has given pleasure to countless number of people. This is the nature of the man, and he can be adjudged by his actions. Seductive though his message sounds, if we want to be taken seriously by international policy makers and law givers, the kind of people we really need to impress and influence, in order to see our side of the argument, then it is my personal view that Mr Brand, despite his high-flown rhetoric and his clever arguments, will not be the sort of person who will bring home the case for reform in the longer term. He is a celebrity, a creature of the night and the flashlight. He can put on an argument with the same ease he puts on a designer jacket, but, like the flashlight on the camera, which he seeks out in his lifestyle, he flares brightly, but fleetingly, and whether he will be there when the hard yards have to be put in to bring home the case for the reformers, I seriously doubt.

Time will tell, and I may well be proven horribly wrong, but for me, the jury is still out on Mr Brand!