Sweeping the problem under the carpet

I doubt there is anyone (apart from the City criminal practitioners themselves) who would say that we don’t have a major problem inside our financial sector and the way it is administered.

Recent examples of massive wrongdoing by HSBC in providing and maintaining facilities to encourage tax payers to evade taxes and launder money out of their home jurisdictions, is merely the latest example of financial criminality, by a financial institution against the financial interests of the State. This was a conspiracy to defraud the Revenue, pure and simple, and HSBC have defined themselves as criminal enemies of the State!

There cannot be another market sector where such a huge volume of fraud, financial malpractice, dishonest conduct, and downright crookedness is practised , but where so little is done to check its influence.

If these crimes were being committed by any other sector of society, you may bet the farm that the Government would have mobilised an army of investigators to prosecute them!

Every proposal made to bring any kind of formal oversight to the control of the financial market however, is met with howls of protest and acres of newsprint as the City marshals its army of supporters in the media, the law firms, the accounting and consulting practitioners, to say why any kind of intervention or new regulation is wrong in principle, will drive business out of the City, and will be met by mass banker defections to other jurisdictions.

One of the reasons why the City gets away with this exercise in special pleading is because it has always managed to marginalise the views of any person whose opinions they do not like, whose theories do not match theirs exactly, who say anything other than that which is the accepted wisdom of the milieu, or whose attitudes differ in the slightest degree from those accepted by the City insiders.

Anyone whose views are informed but who has never worked inside the City can be ignored on the basis that they have no empirical knowledge on which to base an argument. Those whose views cannot be ignored are qualified as being ‘out of date or embittered’.

The City likes to be able to say, when dealing with overt wrongdoing, ‘...well, that was what things were like a few years ago, but of course everything has now changed...’ Those of you who read the HSBC full page advert last week will instantly recognise the model!

Nevertheless, this ability to simply ignore and brush off the words or opinions of others, is a very powerful weapon in their armoury, and they use this marginalisation process ruthlessly.

They do it through the age-old method of ‘taking soundings’ or ‘consulting widely’. In other words, whenever an issue that is likely to be possibly contentious looks like arising, the powers that be within the Square Mie will ring round their friends and colleagues and agree an accepted line of approach, so that it cannot be said that anyone inside the magic circle was taken by surprise.

This method of getting agreement on policy issues is of long standing and works very efficiently.

Government understands this only too well, and doesn’t seek to impose too high a degree of determinism when it comes down to gaining the City’s approval of policy.

During the PPI farrago, when the banks had been caught with their grubby fingers in the till over the fraudulent sale of PPI insurance contracts, the Government worked assiduously with the City to find ways of downplaying the possible consequences of the public perception of what had been going on.

Instead of calling the PPI era by its proper name and title which was ‘institutional fraud’, the Government re-named the practice as ‘Mis-selling’, a legal fiction, hitherto unknown to English jurisprudence.

Well, you couldn’t really let it be known that the British banks had been engaging in an orgy of theft and fraud at their client’s expense, could you? It would have sent a lot of wrong messages to others elsewhere who might have thought twice about investing their money in the UK!

No, far better to call it ‘mis-selling’, whatever that might mean, and allow others to form their own view. Mis-selling sounds so much more benign than ‘stealing’ or ‘fraud’.

Another technique the City uses to avoid the consequences of its misbehaviour is to claim and feign ignorance of the actual mal-practice being carried out, so that if anyone asks the awkward questions, the matter can be denied on a stack of bibles. You will have seen this repeatedly used by senior bankers as the details of the Libor fiddles, and the Forex scams leaked out recently. Suddenly, all these very high-powered bankers whose job it was to ensure the profitability of their institution, were denying any knowledge at all of the egregious techniques of enrichment alleged.

It is this power to ignore the obvious and pretend it isn’t happening and then denying all knowledge of its occurrence that gives the City its almost supernatural powers of survival.

I talked recently to a young academic who questioned whether there was any real point in advertising the City’s erring ways. His case was that there was no value to be obtained in prosecuting and convicting bad bankers because the adverse publicity would have a negative effect upon the willingness of outsiders to want to invest in London as a centre of integrity.

I pointed out to him that this was precisely what worked to prevent bankers from cheating and stealing in the first place if it was known that their bad behaviour would be publicised and attract attention.  I quoted Justice Louis D Brandeis’s famous aphorism to him – “..."Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman."

But after our conversation, I realised that of course, preventing transparency and covering up wrong-doing is exactly what the City criminal advocates. Anyone who suggests that to seek to hide the City’s crimes is in the best interests of the body politic is merely inviting more criminals to come in and and steal.

And this leads me to another of the City’s favourite practices, which is ignoring anyone who isn’t in their club of thieves and fraudsters.

This means that British bankers can routinely ignore any other agency of control which operates outside the UK, because they do not concede that they might have any influence over the British way of conducting business.

So it is that when another regulator in another country proposes involving themselves in the affairs of a British bank, they are met with significant opposition, and more recently, with abuse. Take the case of Ben Lawsky.

Benjamin Lawsky heads a new financial regulator in New York called the Department of Financial Services (DFS). 

He investigated Standard Chartered Bank and accused the bank of conducting secret money laundering transactions with Iran, triggering a 23.5% drop in share price. On August 14, 2012, Standard Chartered Bank agreed to pay a fine of $340 million (£220 million) to the New York State Department of Financial Services, conceding that $14 million in financial transactions involving Iranian parties were in violation of U.S. banking laws.

On June 18, 2013, the Department announced that Deloitte Financial Advisory Services LLP (“Deloitte FAS”) was fined $10 million and banned from advising banks in New York for one year after accusing the firm of watering down a report about money-laundering controls at Standard Chartered. 

He is noted for targeting individuals within the financial sector who commit wrongdoing, and not merely handing out fines to the companies they work for, an approach he explains as follows: "Corporations are a legal fiction. You have to deter bad individual conduct within corporations. People who did the conduct are going to be held accountable.” 

Benjamin Lawsky is a very powerful entity indeed, with a world-wide brief. He is someone to be taken very seriously because he has the power to suspend or remove an individual bank’s licence to clear US dollars in New York. This is the banking equivalent of the kiss of death to any institution, should Mr Lawsky choose to exercise his powers, and any foreign bank which has engaged in international acts of egregious criminality could easily find itself on the receiving end of an order from Benjamin Lawsky inviting them to contemplate their banking future, but without the ability to clear US dollars.

Standard Chartered Bank, back in 2012, made a promise to behave itself in future when it bought its way out of a New York Department of Financial Services investigation into its affairs. The bank ended up paying a total of $667 million in fines and became the subject of a Deferred Prosecution Agreement to get out from under the threat of further investigation.

All it took to return in front of the Department was its failure to fully keep that promise.

At a public meeting following the report of the findings and the agreement, questions were asked concerning individual employee conduct and compensation following the deferred prosecution agreements. the Chairman, Sir John Peace had replied, when asked about bonuses for executives: "We had no wilful act to avoid sanctions; you know, mistakes are made – clerical errors – and we talked about last year a number of transactions which clearly were clerical errors or mistakes that were made."

This was not what had been agreed with the New York Authorities, and the words used sought to ameliorate the egregious conduct complained of. This wilful refusal to acknowledge the truth of the Deferred Prosecution Agreement resulted in an immediate riposte from the US Authorities, and later, Sir John Peace, was forced to retract his comments describing the breaches as "clerical errors" and apologised for describing them as not "wilful acts" after US regulators were infuriated by his comments at the bank's full-year press conference.

City banks are not accustomed to being treated like that by mere regulators. The FCA usually knows its place in these matters and never usually makes too great a degree of trouble for the banks being disciplined. Well, the Americans are different!

Back in 2014, Ben Lawsky was invited in his official capacity to attend a conference/seminar evening in London and to make a short talk to an invited London audience of British and European bankers, on the subject of "Consumer Financial Protection & Enforcement".

The organisers had also invited some other US speakers, Mr. William K. Black – former US Regulator involved in cleaning up the Savings and Loans Scandal in the late 1980's, and Mr.Neil Barofsky, formerly the the Special US Treasury Department Inspector General overseeing the Troubled Assets Relief Program. From the UK, Mr. Martin Wheatley, the Chief Executive Officer of the UK's Financial Conduct Authority and Mr. David Green CB QC, the Director of the UK's Serious Fraud Office were invited to take part.

This would have been a very interesting and valuable exercise in hearing from the Americans how they viewed and intended to view further examples of criminal behaviour which had an impact on US markets, and would have provided the invited audience with some insights into US regulatory thinking in this sphere.

Imagine the surprise on the part of the organisers of the event therefore to receive an email from the FCA quite late in the day, saying;

“...Thank you for requesting an FCA speaker for your event. 

“...(We apologise for the delay in our response but a lot of consideration was put into your request and so a number of people needed to be consulted for their opinion.) 

“...We have considered your request but unfortunately, on this occasion, we are unable to provide a speaker. The FCA is extremely busy at present and we are being more stringent in the assessment of requests and use of our resources...”

You will not be surprised to learn that the conference did not go ahead!

You will note that the FCA had adopted the traditional policy of ‘deep consultation’! Quite why the FCA, the lead regulator needed so much time to consult on the question of sharing a platform with Mr Lawsky, I simply cannot fathom.

What does come across in a highly amplified form is the absence of any of the usual courtesies which would normally be paid to a visiting regulator from a leading financial centre, and someone with so much power in the regulatory field.

Not to be able to field one representative of sufficient authority from the FCA to share a platform with Mr Lawsky cannot be considered to be anything other than the height of professional rudeness, and a deliberate slap in the face to him, his office and by extension, to US regulators more generally.

No doubt Martin Wheatley felt he had dodged a bullet by refusing to speak at this event, but the whole affair speaks volumes about the way in which the British Regulatory environment views itself and the way in which it conducts business.

It is this kind of behaviour which enables the British financial sector to turn a ‘Nelsonian’ blind eye to the actions of other regulators and enables them to pretend that they are immune from other regimes.

In a similar case, some years ago, John Moscow, a New York specialist white collar prosecutor was addressing a British audience on the subject of the rogue bank BCCI. This Pakistani-owned bank had been operating from London for years and had engaged in singular levels of criminal activity of many kinds. The New York Authorities were on the verge of taking swingeing legal action against the bank and its people, and Mr Moscow had attended a conference in Cambridge to liaise with UK investigators and prosecutors.

In his presentation, Mr Moscow warned the British banking regulators present on the dangers of continuing to fail to take appropriate action against BCCI, even when they were well aware of many of the dishonest activities that were being perpetrated there.

He said, (when talking about BCCI); ‘...It will be of no use trying to sweep this one under the carpet...If you do, there will be no room left between the carpet and the ceiling...’

Such a warning is even more appropriate today, and after the latest exposees regarding HSBC, need to be taken very seriously indeed! Snubbing a New York prosecutor in future isn’t going to cut the mustard!