"...The British banking sector has become an organised criminal enterprise which has been allowed to develop because of the criminogenic environment in which it functions, which has resulted from the absence of any meaningful regulation which those who control and manage the banks would fear.
" In this organised criminal category I include the various mis-selling cases, including pensions, PPI Insurance and interest rate swap derivatives; the criminal manipulation by Barclays and other banks of the LIBOR interest rate structures; the institutionalised level of money laundering as identified in the HSBC case; the serial abuse of the US sanctions provisions as indicated in the Standard Chartered Bank case; as well as many other examples of criminal actions such as theft of client funds, teeming and lading, abuse of client instructions, insider dealing, front running, churning, and market manipulation which have become the subject of international regulatory interventions.
"...If the recent financial devastation in UK financial markets has taught us anything, one qualifier stands out above all the rest of the explanations. The effective ‘regulation’ of the market in financial services in the United Kingdom, particularly in the areas of preventing and forestalling commercial activity which has the capability to undermine the well-being of the financial market, in which I include not only financial criminality and money laundering, but also the pro-active identification and prevention of financial damage has, to all intents and purposes, totally failed.
"...It has failed despite the huge bureaucratic organisation which has been created for its control, because those who are employed to provide the regulatory oversight of the market, the Lead Regulator, the Financial Services Authority, and the subordinate compliance officers within the individual regulated member firms, do not and have never understood the true nature of the criminogenic personality of so many of those who profess the trade of financial practitioner, nor do they exhibit any great inclination to wish to deal with the egregious activities of these individuals in a 'policing' manner..."
I wrote these words as the opening section of my evidence which I presented to the Parliamentary Commission on Banking.
My words and indeed, my entire report were completely ignored, and the government servants on the Committee sought to suppress my thoughts, on the grounds that I was saying things 'the banks wouldn't like'!
Well, in the last few days, we have been confronted with two more examples of behaviour of the most egregious kind, which prove, once again, that I was right, and that the British banking sector is a criminal sink, run by a bunch of the most criminogenic individuals, who have no moral compass, but who have no fear of the regulators, and so feel completely at ease with the commission of downright criminal offences.
I am referring to the Co-Operative Bank case, and to the latest scandal oozing from that publicly-owned bag of sleaze, the Royal Bank of Scotland.
It's hard to decide which is the more incredible story, the Co-op case with its lurid tales of sex, drugs and Rock of Ages; or the ghastly crimes being unveiled at RBS as the awful examples of business crime, bad faith, client gouging and general absence of any pretence at commercial ethics, becomes public property.
I think I must start with the RBS case, because it illustrates most clearly how the regulators have completely renounced any pretence they might have had to providing any meaningful regulation of the banking sector.
One of the duties of the regulatory function is to ensure that a regulated member and particularly a bank, is treating its clients fairly.
The FCA spells it out:
"... Treating customers fairly (TCF) remains central to our expectations of firms’ conduct, that firms put the well-being of customers at the heart of how they run their businesses..."
They continue by identifying how clients have a right to be treated with consideration in these financially difficult times.
"... We expect customers’ interests to be at the heart of how firms do business. Customers can expect to get financial services and products that meet their needs from firms that they can trust. Meeting customers’ fair and reasonable expectations should be the responsibility of firms, not that of the regulator..."
Well, that was clearly not the case with RBS.
Businessman Laurence Tomlinson has delivered a report to Vince Cable in which he outlines examples of egregious behaviour at RBS over the question of the way in which the bank was treating its customers. In his report he refers to an investigation conducted by The Sunday Times, saying;
“...The Sunday Times has uncovered deeply alarming evidence of abuse of small businesses by RBS, which is corroborated by many more cases . . . There is a wealth of evidence which suggests that RBS has forced healthy, vibrant businesses into financial trouble and . . . seized their assets to benefit its own vast property empire...”
The allegations centre on RBS’s feared problem lending division, Global Restructuring Group (GRG), which is tasked with maximising returns on loans deemed “risky”.
But far from being “zombie companies”, many of the firms whose cases the Sunday Times newspaper has examined had never missed a loan repayment and were surviving the economic downturn before the bank pulled their finance.
RBS said it had put the firms into GRG because it did not consider them viable. The unit has the power to rip up loan deals, impose inflated interest rates and fines sometimes running to hundreds of thousands of pounds, drain cash from accounts and halt payments to suppliers and Her Majesty’s Revenue & Customs.
A former senior RBS insider has alleged that, as the recession hit, staff were tasked with scouring the loan book for businesses that had breached minor lending covenants so the bank could pull the deal and put them into GRG. He said the breaches could be as small as forgetting to file minor financial information.
Tomlinson’s report covers allegations of abuse against all the big banks, but singles out RBS for severe criticism. He accuses the bank of putting firms into GRG for minor setbacks which were “so insignificant, given the otherwise positive performance of the business, that the reaction of the bank can only be considered as utterly disproportionate at best and manipulative and conspiring at worst”.
The bank insists that it has every right to enforce the loan agreements in this way — but there are questions about whether it is appropriate for a taxpayer-owned bank to profit from the distress of small businesses in a downturn.
Whichever way one interprets this 'red in tooth and claw' behaviour, one thing is clear. RBS has behaved in a downright criminal manner, and their own conduct could be used in evidence against them.
In one case of the forcing of a valuable business into receivership, there is documentary evidence available to show that a bank official described how the banks' own property management company, West Register, “would have an appetite for the scheme.”, meaning that they were very anxious to get hold of the property concerned to add to their own portfolio. By forcing the company into threatened bankruptcy, West Register were able to try and buy the property at a considerable under value.
The presence of the word 'appetite' in this state of affairs changes the criminogenic nature of the actions engaged in by the bank, and puts them firmly into the area of the crime of theft.
It proves that the bank was not acting with the sole intention of protecting its loan book, and in circumstances where foreclosure was the only alternative. The word 'appetite' clearly indicates that the bank was anxious to add properties to its own portfolio, and that it would do so at whatever opportunity.
Any criminal investigation of these actions would focus intently on the similar fact evidence demonstrated by the RBS department in the undermining of perfectly solvent businesses by undervaluing their asset base. Such activity is clearly malicious and would go to negative any argument that the bank was acting within the limitations of its legitimate behaviour. The prosecutor would look at the way and the manner of the RBS technique and invite the Jury to infer that there was a 'method' by which RBS enriched themselves at the expense of their clients by holding out loans which they later disclosed on spurious undervaluing of their real worth, with the intention of taking over valuable real estate by a deceit. Such a finding would clearly demonstrate the necessary element of 'dishonesty', so all we need now is a prosecutor with the courage to take on the bank and the relevant directors and executives concerned!
As for the Co-op bank, well, what is there left to say?
A pathetic man who was not a banker (not that that necessarily means a great deal, but it would be nice to have an attempt made to find someone who could read a balance sheet), and whose taste in Class A drugs and exotic young men singled him out as perhaps someone who might not have been entirely 'fit and proper' to have control of a licensed bank.
I don't care personally about his own predilections, my concern is whether or not he is fit to have control of other people's money, and whether his habits may have laid him open to blackmail or unsound commercial judgments. Whatever, this is clearly yet another case where the regulators should hang their heads in shame, because they manifestly failed to undertake any proper due diligence into Paul Flowers' suitability for the post he held.
So, only a few months after the report of the Banking Commission, with the firm undertakings that things were going to be different from now on, we are faced with two more shameful exhibitions of British banking conduct.
The RBS case will limp along until everyone is bored with the issue and another scandal has surfaced to take its place. The best we can do is to keep loudly speaking truth to power and letting them know, in no uncertain terms that we don't accept this kind of behaviour, and that the regulators must stop shilly-shallying around and do something which finally demonstrates that they mean what they say!
Like I said, you couldn't make this crap up!