Buy and Cell: Do Bankers feel above the law?
11th April 2011
Why hasn’t anyone been prosecuted for their part in the financial crisis? Jon Hawkins finds out.
There’s something very British about Fred Goodwin being stripped of his knighthood earlier this year. It was a peculiarly polite public humiliation of the kind that, in times past, might instead have involved him being placed in the stocks while the public hurled rotten tomatoes at him. Everyone goes home radiating the warm, satisfied glow of retribution but no one gets hung.
Some, however, suggest that removing three letters from the beginning of an exceptionally rich man’s name doesn’t go very far in healing wounds caused by a financial crisis in which Goodwin played a starring role. Instead, he – and, to broaden out somewhat from the nation’s banking pariah au choix, other senior bankers – should be facing jail.
Certainly, there would be no shortage of supporting voices if that were the case. So, after all the forensic analysis of the financial crisis – which turned up a crime scene riddled with the banks’ dirty fingerprints – why have no senior bankers even appeared in court? And those calling for bankers to face jail terms: do they have a point?
In the early days of the crisis, at least, it appeared they had powerful support in one David Cameron MP, then the Leader of the Opposition. “To send out the right message about our country’s values to help stop this crisis from happening again and to help restore the City of London’s reputation, I believe it is now vital that investigations are vigorously pursued to their appropriate conclusion,” he said in a speech at Thomson Reuters’ Canary Wharf base in December 2008.
And if that meant criminal prosecutions, then so be it. “We need to make it 100% clear that those who break the law should face prosecution.” It won’t have escaped anyone’s attention that this hasn’t happened, which suggests that either: all senior bankers are squeaky clean and no one has broken the law; we don’t have the right laws in place; or there hasn’t been much by way of Cameron’s ‘vigorous pursuit’. Or all of the above.
THE LATTER TWO theories have gathered the most traction, and with good reason. For all of Cameron’s strong words, politicians, regulators and the banks themselves have hardly been falling over themselves to point the finger of blame in any meaningful way. Last December’s 450-page FSA report into RBS found mistakes were made by both bank and regulator, but stopped some way short of suggesting there was criminal activity at play.
But surely when incompetent, even reckless, management lands the public with a hefty bill and contributes to the worst financial crisis in almost 80 years, someone has to pay? According to Stephen Gilchrist, chairman of central London law firm Saunders Law, reckless business decisions may not even be criminal, “and usually aren’t in relation to offences of dishonesty since an intention to commit a criminal offence is usually required,” he says. “However, placing a company in jeopardy by a continuing series of reckless decisions may have implications within regulatory legislation.”
Like many others, Gilchrist says he is unsurprised no senior banker or regulator has been jailed for their role in the financial crisis. “Bankers and regulators live in their own bubble, protected from the ordinary pressures and threats of criminal justice by the politics of economics and the perception that at, all costs, chaos must not prevail,” Gilchrist explains. “Politicians and regulators fear most – entirely without justification – a breakdown of public order if the economic edifice is seen to be breaking down.”
So, have we created an environment in which not only are banks too big too fail, but their CEOs and senior bankers are too big to go to jail? “No one is above the law,” cautions Gilchrist, “but the fear of the implications of bank failure and/or the prosecution of their high and mighty is often too great to contemplate.”
GERAINT ANDERSON, AUTHOR of Cityboy and Just Business and a man whose revelations about the darker side of banking earned him the title ‘City whistleblower’, says that while bankers may not be above the law, “some of the white- collar crimes that some of them do engage in – such as fraud, insider trading, money laundering and market manipulation – are so damned difficult to gain convictions for they may well feel above it.”
He cites the FSA’s 2010 revelation that 30% of takeovers in the previous year were preceded by suspicious share price movements. “Yet the number of insider trading convictions can be counted on one hand,” he adds.
If they feel that way now, there are at least signs that things might be about to change. The FSA’s report into RBS may not have been spicy enough for some tastes, but its chairman, Lord Adair Turner, did at least question the adequacy of existing legislation: “If action cannot be taken under existing rules, should not the rules be changed for the future?”
And, lo and behold, that’s exactly what the Government is now looking to address, with the announcement in January of plans to introduce the new criminal offence of ‘corporate negligence’, under which City executives guilty of financial recklessness could be prosecuted. The Treasury is due to consult on proposals in the spring, though Saunders Law’s Gilchrist admits the definition of ‘corporate negligence’ isn’t yet clear. “Negligence is a term that can be, and has been, defined many times in civil and criminal law,” he says. “‘Corporate negligence’, presumably, is negligence by the company and the people running it, but beyond that I’ve got no idea what he [George Osborne] has got in mind.”
Along similar lines, Conservative backbench MP Steve Baker has also promoted a bill “to enforce strict liability on directors of financial institutions,” by, among other measures, requiring directors to post personal bonds as additional bank capital. In short, the bill aims to fix the lack of accountability at the top that many suggest helped land us in our current predicament in the first place. The Financial Institutions (Reform) Bill 2012 is due to get its second hearing in late April.
“Surely, when incompetent management contributes to the worst crisis for 80 years, someone has to pay”
BUT IRRESPECTIVE OF what the future holds for the banks and bankers, many people will feel some of the financial crisis’s key protagonists have escaped with little more than a slap on the wrist and a polite request to be good boys and girls in the future. And that our inability to punish those who have inflicted so much damage on the economy demonstrates the extent to which the Government is in thrall to this colossally powerful industry. Gilchrist, though, feels it’s time we moved on.
“Look, what’s happened has happened,” he says. “It’s all water under the bridge, and I’m a real believer in learning lessons from these situations rather than dwelling on the past. People aren’t being prosecuted, but let’s learn from it and make sure it doesn’t happen again.”
Only time will tell whether the Government and regulators are strong enough, this time, to be true to their word. Failing that, there will always be rotten tomatoes and the stocks to fall back on.