Friday, November 09, 2012

The FSA proves that it has finally lost the plot altogether.

If you ever had any doubt that the movers and shakers at the FSA have difficulty in communicating with us ordinary mortals over their role and function, you should watch the following video, and cease being in any doubt.

This vital piece of intelligence enables us to really observe how semi-detached the policy-makers at the FSA have become, and how far they have retreated from the reality of the financial world they are supposed to regulate.

The FSA is a regulatory authority and as such it has powers and responsibilities given to it by Parliament.

The word 'regulate' according to the Oxford English Dictionary means to control something,               ( especially a business activity) by means of rules and regulations: Its origin is from late Middle English (in the sense 'control by rules'): from late Latin regulat- 'directed, regulated', from the verb regulare, from Latin regula 'rule'.

This definition places the role of the regulator firmly in the forefront of the debate. They are there to control or rule, by means of rules or regulations. Their job is to impose rules and ensure they are obeyed. How they do that is debatable, but they must have a series of gradated sanctions which they can impose, because how else do they assert their devolved authority. And this is where I continue to assert that the FSA lost the plot a long time ago, and the passage of time has made their work product worse, they have lost the ability to enforce their will.

As a result, the industry they sit above generally despises them, and ignores them most of the time. How else can you interpret the level of financial criminality that goes repeatedly unpunished, the level of organised criminality which is endemic within the British banking sector, and the criminogenic culture which permeates the sector. On criminals such as these, fines have no effect whatsoever, because they are not even paid for by the Executives running the institutions being penalised. It is the shareholders who are forced to pick up the tab!

The discussion in the video revolves around the House of Commons Home Affairs Committee enquiring into the proceeds of narcotics dealing, and the question to Lord Adair and Tracy McDermott was whether there was an increase or a decrease in the amount of money laundering being carried on by those who use UK financial institutions to move the proceeds of drug trafficking.

The importance of this question is that it goes right to the heart of the whole responsibility of the FSA for regulating one major element of the UK financial market, the element of money laundering. Yet the answers appear to be frankly unsatisfactory, complacent, almost evasive, although the first answer from Lord Turner, boss of the UK's financial regulatory agency, was right on the money when he said;

"...I would have to say that I do not know the answer to that..."

The rest of the first element of the conversation that then flows for the next few minutes is not helpful to us. However, what it does demonstrate is through focusing on minutiae, how far away from one of the major issues of our time, Lord Turner has managed to distance himself. Let us review the facts.

The question of money laundering within the major banks in the UK has become among the most serious issues facing the regulators. As Keith Vaz, the chairman of the committee says at one stage, there have been cases such as those in Coutts, Lloyds Bank, HSBC in Mexico, Barclays Private Bank, etc, but there have been no prosecutions of anyone involved.

And this is where the real issue resides, there have been no prosecutions of anyone for what has amounted to billions of pounds worth of financial criminality in the form of money laundering.

Chairman Keith Vaz refers to the US Senate report which castigated HSBC and which detailed what it called a "...pervasively polluted' culture at HSBC which allowed the bank to act as financier to clients seeking to route shadowy funds from the world's most dangerous and secretive corners..."

Chairman Vaz asks Lord Turner whether this report had rung an alarm bell in the FSA, but all Turner can tell him is that it is '...something we are alarmed about...' he says it is '...prima facie, very concerning...' and then '...whether this contains implications for other UK-based banks, we don't know...' and that it will be a '...spur for us to look in more detail in the area of what we are doing in anti-money laundering...'

He then goes rambling off into a long apologia about the legal status of HSBC, and the role of the FSA with regard to a foreign-registered entity. Chairman Vaz tries to bring him back to the area of concern about the amount of money being laundered from drug profits through US and EU banks, but Turner reverts to Mandarin mode again and starts rambling on about the need to maintain strict controls within banks, and admits that what has happened inside HSBC means they will have to focus more on it. 

It is all smoke and mirrors of course, and at no stage does Turner evince the slightest admission that in reality, this level of banking criminality is something that he or his people intend to get excited about. It is as much as he can do to elevate his level of admitted concern to anything higher than a need to '...focus more intently...'  He admits he will be attending a debate where they will focus on whether the FSA needs to raise its concern. This is a classic re-statement of the FSA, civil service model of side-stepping responsibility and concern for what has become by any standards, a level of organised banking criminality on a grand scale, and reverting to the mode I have referred to in previous blogs where there has been a long-standing tradition within the agency of not prosecuting anyone for money laundering issues.

Turner talks in rotund tones about the way in which the FSA has in the last couple of years, been 'ramping up' their focus of concern about money laundering, but when Chairman Vaz, clearly rapidly reaching the limit of his patience at all the bullshit which Turner is spouting about thematic reports and the key issues regarding PEPs, wire transfers etc, and their inability to find an exact equivalent to Mexican activities, all of which he is using to try and filibuster his way through the question, asks him if after all the meetings he has attended and all the regulation he has done, that he is not concerned about the amount of money laundering being identified. Turner then utters a phrase which to me is the root cause of his problem, his utter lack of urgency to be doing something about financial crime more generally and money laundering in particular, and demonstrates that not only does he not apparently know the law, but that he wants to avoid the possible consequences of the law.

It is hard to say, and I do not intend to, that Lord Turner deliberately tried to mislead the Select Committee, or that he deliberately stated an untruth, but he clearly made a statement which is simply not correct either in fact or in law.

He said in response to Chairman Vaz's goading that '...we are not a law enforcement agency directly in this respect...' and then wanders off into burble-speak again.

I think this is the most important key point in the whole issue, and it is repeated later in the video when Tracy McDermott states that the FSA are '...not the prosecuting authority...' in this regard.

What we are witnessing in this video, most of which is taken up with a huge diatribe of regulator-doublespeak and fairly meaningless wabble-babble, is the core recognition of the fear that lies at the heart of the FSA (and presumably will continue with the FCA), that they might have to take on board the responsibilities which Parliament gave them in 2001, the responsibility for enforcing the Money Laundering Regulatory regime.

This, more than anything else, I think, colours their thinking and their approach to their responsibilities. They talk grandly and broadly about getting their views across to the industry through the production of their thematic reviews, and their consultation papers, and their periodic reviews and all the other detritus of a bureaucratic approach which seeks to focus on policy issues (beloved of all Mandarins and civil servants), while adamantly refusing to get their hands dirty by getting down and doing the job they were tasked to do which is to regulate the fucking sector, to control or rule it, and in default, by imposing their will on those who do not want to get into line.

Let us look at what the FSA's role is supposed to be.

Their own website page entitled 'Fighting Financial Crime' states;

"...One of our statutory objectives is to reduce the extent to which it is possible for a financial business to be used for a purpose connected with financial crime..."

Subsequently, the message reads; '...Financial crime includes any offence involving money laundering, fraud or dishonesty  or market abuse...'

At the foot of the page, it quotes a former FSA Chairman, Sir Callum McCarthy who stated;

"...We must not lose sight of the fact that the purpose of our financial crime objective is to help in the fight against crime; crime that creates real and social harm like drug-dealing, people trafficking, fraud, market abuse - and terrorism..."

I have quoted these statements in full, because I believe that they give the alternative interpretation to the statements made by both Turner and McDermott in their evidence to the Committee. 

It is manifestly clear that the FSA is a law enforcement authority, with a mandate to enforce the law with regard to money laundering, including drugs, and for Lord Turner to be unable to determine the scope of the role in dealing with drug money laundering is shameful. For him to evidence the paucity of his knowledge in this field is risible, and is merely more evidence of the de minimis level of concern he and others evince towards money laundering offences.

As to whether the FSA has the authority to prosecute money laundering offences, a fact denied by Tracy McDermott, well the principle is well established.

The Court of Appeal has stated quite clearly in the case of Rollins, R. v [2009] EWCA CRIM 1941, that the FSA has full powers to prosecute offences of money laundering, and that the FSA '...should be able to act as the single prosecutor instead of having to bring another prosecuting authority...'

So why these two experienced regulators should seek to dissemble before the Select Committee in this way is beyond me, but the facts are there in front of you and you can watch and hear them on this video. It is up to Lord Turner and Ms McDermott to persuade Chairman Keith Vaz that they had no intention to deliberately mislead the Committee, and I am certain that, gentleman that he is, he will eventually allow himself to be so persuaded. 

So, watch the video and then ask yourself if having seen its contents, that you feel that there is any greater degree of likelihood that serial organised criminal entities such as HSBC et al, are likely to be prosecuted for money laundering. Even the news this morning of the new allegations against HSBC Jersey will, I suspect, be allowed to slip between the fingers of Lord Turner and his new centurions, led by Ms McDermott.

There is one delightful moment in the video which is worth waiting for, which comes just at a time when you are beginning to wonder what kind of relationship exists at the top table inside the FSA.  Ms McDermott and Lord Turner are referring to each other on first name terms, which makes it all very chummy chummy, and inclusive, but does not give the sense of absolute professionalism which one might have thought should apply in a meeting before a Parliamentary Committee. After calling Lord Turner 'Adair' for the second time, Chairman Vaz purposefully reminds Ms McDermott that his title is 'Lord Turner', which Ms McDermott is forced to acknowledge with an apology, which she does courteously, but the point has been made.

In this one single, clever intervention, Chairman Vaz pointed up the lack of seriousness that clearly permeates this debate inside the FSA, such that these two public servants can appear in front of the Home Affairs Select Committee, and talk together as if they were merely sharing a coffee back at FSA HQ.

Priceless stuff, but deeply worrying all the same. Can we expect prosecutions now to be brought against HSBC as a result of the Jersey revelations today, which are clearly so blatant and so scandalous as to be nothing more than a direct challenge to the authority of the law. Might be ok if we had a prosecuting authority willing to take responsibility to bring a case, but I wouldn't hold your breath!


AbogadoNZ said...

As you say Rowan; 'deeply worrying'. The only conclusions that can be drawn are that Turner is:
a) lazy
b) stupid
d) corrupt
e) any combination of the above.
This is man who must be ridiculed in public and condemned for his ineptitude. Does his authority permit him to transfer liability from director to shareholder if so can he please identify the legislation that confers this authority. He is clearly a dangerously useless jerk. Perhaps I should use the word widely used in these parts (NZ) and call him a 'fuckwit'. There again that may be actionable - if so bring it on Turner - I'll see you in court any day you like.

Salford Lad said...

You got it right in one. He is a combination of all 4 plus a fuckwit.