Integrity in Financial Services – A question of real leadership

An important story in today’s newspapers deals with former trader Paul Robson who has been banned for life from the UK financial services industry by the FCA following a conviction for fraud in America, the regulator's first public action against a trader for manipulating Libor submissions.

In 2014 Robson, who worked at Rabobank, pleaded guilty in a New York court in August 2015 to his part in a conspiracy to manipulate Rabobank’s Yen Libor submissions to benefit trading positions.

As a result, he has been banned for lacking ‘honesty and integrity'. 

This ban comes ahead of Robson's 2017 sentencing in the US and the FCA's proceedings were stayed due to ongoing criminal proceedings since they issued Robson with a warning notice in 2013.

FCA acting director of enforcement and market oversight Georgina Philippou said: 'No excuse can be made for Mr Robson’s behaviour, which was particularly serious. He was the primary submitter of Yen Libor at Rabobank for a number of years and experienced in the market. 

'He knew what he was doing was wrong. This ban reinforces our expectation that individuals and firms take responsibility for ensuring market integrity and reminds them of the consequences if they fall short of our standards.'

This story is important for a number of issues.

Firstly, it raises the vexed question of the lack of dynamic action by the FCA and the SFO against a UK-registered individual for a particularly dishonest and grubby criminal offence involving the criminal manipulation of the LIBOR benchmark. Why was the criminal case left to the Americans?

Now, it may be that the SFO had decided to let the case lie while they observed what their US counterparts wanted to do about it. It would not be too far from reality to observe that if there were US defendants involved in the conspiracy, and the US prosecutors had taken the lead in the investigation, then the trial might more properly be allowed to take place in New York.

It seems this is probably what has happened, and Robson will later be sentenced by the New York Courts in 2017, no doubt when other similar cases arising out of the same circumstances have been finalised.

This case does raise more issues however, issues which have to do with integrity and moral transparency, and which underpin an argument for the need for a greater degree of strategic leadership.

This issue of strategic leadership was also amplified by the actions of former HSBC boss, Lord Green, the former chief executive and chairman of HSBC, who has just revealed his “dismay” and “deep regret” over the tax evasion row that has engulfed the bank. 

The HSBC veteran admitted that management had made mistakes during his time at the lender, which coincided with alleged moves by its Swiss private bank to help wealthy clients hide billions of pounds in order to escape taxes in the mid-2000s. 

What sheer bloody hypocrisy!

This man, who refuses to answer any questions over what he knew and how he knew it about the tax evasion scandal was a career banker. I have every expectation that he knew all about Swiss banking methods and tax evasion issues. If he didn’t, which I don’t for one second believe, then he was remarkably ill-informed, but his career tells a different story.

In January 2005, Green became Chairman of HSBC Bank plc, the group's UK clearing bank subsidiary, and Group Executive Chairman in June 2006. In its July 2005 issue, Bloomberg Markets magazine reported that HSBC was allowing money laundering by drug dealers and state sponsors of terrorism; the magazine alleged that this had included a transfer of $100,000 in April 2000 to the Taliban in Afghanistan which had subsequently resulted in a fine levied by the US Treasury Department. 

Green denied the allegations, calling them “a singular and wholly irresponsible attack on the bank’s international compliance procedures”. Subsequent investigations however, confirmed that money laundering had taken place at the bank for several years throughout Green's tenure as Chief Executive and Chairman, chiefly for the Sinaloa Cartel.  It is widely reported that Stephen Green earned well over 25 million pounds per year at the time, although it is hard to quantify the exact amount. 

Green's successor as the top of HSBC, Stuart Gulliver, said “between 2004 and 2010, our anti-money laundering controls should have been stronger and more effective and we failed to spot and deal with unacceptable behaviour”.

So what did ‘Lord Green of See No Evil’ think his Swiss Bank was doing for UK clients, selling cuckoo clocks?

For this man to talk about setting high standards, is a travesty and an abuse of the ordinary meaning of words. This was not leadership, it was a deliberate and willing avoidance of the truth, and he needs to go and ponder the parable about camels, rich men and the eyes of needles before he spouts any more hypocritical tosh!

Edwin Sutherland, the US criminologist tried to enunciate an explanation for such behaviour among white collar workers, in his book ‘White Collar Crime’, in 1939. Sutherland defined it as;

“...A crime committed by a person of respectability and high social status in the course of his occupation...“

In other words, a crime committed by someone who would otherwise not be thought of as a typical criminal type or a person likely to commit crimes.

In his theory of “Differential Association”, Sutherland posited that criminal behaviour is a result of a process of socialization, during which criminal “definitions” (ideas) are not only transmitted culturally,  but are actually learned through social interactions with trusted intimate groups.

Learned behaviour is neither invented, nor inherited. The skills and techniques required for criminal activity are not innovations, and they are not automatically obtained from birth.

Criminal behaviour is learned. Just as one learns to prepare a meal, so too one learns to cheat a client or manipulate a benchmark.

They are acquired through a process of learning from others in the same milieu.

Sutherland states that one learns criminal behaviour through social interaction and communication with others in the same ‘trusted’ group. 

This communication-based discovery occurs during the learning process about criminal activities. One may come to learn about bank crime through discussion with others, but also by witnessing the responses of the others towards the activity, such as maintaining a group silence about the practice, if questioned by supervisors.

Most learning of crime and deviance takes place in interaction with members of intimate, personal groups, such as fellow employees in a department or on a trading desk. 

The greater implication of this proposition is that it locates trust at the root of those social interactions which encourage deviance. 

New employees would be likely to first learn how to mis-sell products or manipulate a benchmark from their close associates within the close group or team, rather than from mere general acquaintances.

Sutherland’s concept of learning identifies what is acquired through communication with intimates that facilitates criminal activity. 

Through this learning process an individual gains not only the skills and techniques required to commit the crime, but also what Sutherland called the “motives, drives, rationalizations, and attitudes” that accompany the behaviour. 

Not every employee who learns, commits offences. Instead, Sutherland calls attention to a subjective component which individuals also have to learn, or adopt, the social, cultural and psychological attitudes that drive a violation of the law.

Such rationalizations and attitudes also explain the common excuse for criminal behaviour which is that it is warranted or deserved. 

“There are no laws against it”.

“Everyone is doing it – it must be ok” What David Matza would later call ‘Techniques of Neutralization”.

If what they do is not perceived by themselves, their sub-cultural peers or professional colleagues to be criminal because they have jointly accepted that the law does not apply to them in these circumstances, then regardless of Parliamentary intention or definition, any attempt by legislators to provide systems of regulatory control, particularly those which depend upon self-regulation for their authoritative administration become futile.

 

This is why there is such a need for strong moral leadership within the banking milieu!

If employees learn that their colleagues are rewarded for cheating, stealing, manipulating benchmarks or otherwise indulging in thinly disguised criminal behaviour, the more likely they will be to indulge in the same dishonest conduct themselves.

If earning objectives are set so high that it means that employees will need to cheat and steal to achieve those targets, then there should be no surprise if that is what happens.

Once management has instilled the idea that criminality is rewarded, while turning a blind eye to the provenance of the revenues being driven, employees will adopt these methods as a matter of course.

Remember, criminal conduct is what Sutherland defined as a ‘learned process’, and being rewarded for doing wrong is the fastest way to create an unstable and dysfunctional workforce.

So, when Paul Robson was engaging in his dishonest conduct, he was merely demonstrating his teaching and demonstrating that he had learned well.

What on earth would have possibly otherwise encouraged a man with a senior (and presumably well-paid job) to engage in such blatant criminal conduct. He must have known that what he was doing was dishonest, so why did he do it?

Clearly he had observed too many examples of others getting away with similar behaviour until such a time when it became unremarkable to him. However, he must also have known that management would remain untroubled by his actions, as long as he was making a profit!

Where management fail to provide the necessary degree of example of good business models and fair conduct, then their staff and direct reports will quickly learn how to manipulate the working environment to their own benefit.

This is why I suggest that senior directors of banks who conduct themselves like Lord Green of ‘Hear no Evil’, fail to provide the necessary degree of leadership and good example to their staff which will overcome the tendency to resort to criminal conduct.

Banking crime is not necessarily a foregone conclusion, nor does it need to be, but until such time as bank Boards start demonstrating a far greater degree of leadership and ethical suasion, and stop making pious excuses when it can be amply demonstrated that they were failing to lead the enterprise in an effective manner, cases such as that demonstrated by Paukl Robson will continue to proliferate.