NOTES FOR SPEECH AT HOUSE OF COMMONS & HOUSE OF LORDS
10 JULY 2018 9:00AM – 10:30AM
- 1½ years ago jury returned a guilty verdict on 5 defendants who had carried out a massive fraud out of HBOS Reading. This case has opened up far wider ranging corruption within banking.
- Over the last twenty years or more banks have grown accustomed to practices that are corrupt, and have not been held to account. The number of victims has grown steadily. The winning of a major criminal case against employees of a bank has changed things. For years nothing has been done to either stop the frauds or to recompense the victims. More has been achieved to right this over the last year and a half than over the past twenty. However there is still a long way to go.
- The fraud, which in my view was been replicated by other offices of HBOS and other banks, is simple, though there are many variations on the theme. A profitable company, with tangible assets, with personal guarantees from the Directors, and with an overdraft has the overdraft called in without any notice by the bank. Few companies have assets which they can realise instantly. The bank then puts in advisors on massive fees onto the board of the company, new accounts are opened at high interest rates with the bank, usually without the company principal owners even knowing. The company is then run down and liquidated. The bank recovers the loans from the sale of the assets at knock down prices. It has already made a great deal of money from exorbitant and punitive interest rate hikes. The bank managers get large bonuses, and their friends get the assets at a fraction of their real value. Business advisers, Solicitors, estate agents, and insolvency practitioners all make a great deal of money. The bank then goes for the personal assets of the company owners who had personal guarantees. Houses are repossessed, anything valuable is in effect stolen. The amount recovered by the bank and its associates far exceeds the original loan.
The Reading case was different to what went on in RBS, Lloyds itself and other banks in that the bank was so incompetent that the main fraudsters were able to defraud the bank as well as the customers.
The fraud using this basic technique was probably near £1Bn. Only a fraction will be recovered, it has been well laundered abroad.
The Crown Prosecution Service only prosecuted on £245 million. It is largely
Irrelevant on sentences whether £10m, £100m or £1Bn as the maximum sentence for fraud is 15 years, which is what the main defendant got. The senior banker, who pleaded guilty got 13 years. The bank only revealed part of the fraud which certainly greatly exceeded the amount that was revealed during the case.
There are reasons for that – to stay beneath the Lord Turnbull rules on disclosing losses. There are internal emails that say the bank must do all it can to stay beneath £250m so as to avoid having to report it.
The trial lasted 4 months.The very expensive police investigation had gone on for nearly 7 years.
If the bank had co-operated fully it would have taken less time and far less money. Considerable concerns over the bank’s obstruction and general lack of support have been lodged by TVP to the FCA. The bank may well have letters from the police thanking them for various disclosures, but throughout it was necessary for the police to have some degree of cooperation with the bank.
The final cost of the case was £7M, a huge bill for a police force. At no time until the jury returned its verdict would the bank admit it was itself a victim – to the tune of several £100M though again the total amount is not known.
The bank had known about the fraud for, at the very least, 9 years. There are internal emails which discuss the fraud in 2008. For the next 9 years the bank, which was taken over by Lloyds in 2008 went for the businesses-houses-assets and everything they could of those they had knowingly defrauded.
Unlike Libor and PPI, this fraud against companies was not skimming off the top, it ruined companies, livelihoods, jobs, farms, families. One family had 22 attempts made against them by the bank to steal their house. This was replicated a great number of times.
Did the board know about this? Absolutely. Large numbers of letters were written to the Chairman of HBOS and Lloyds. Sir Victor Blank-Sir Win Bischoff and Lord Blackwell received detailed accounts from those the bank had defrauded..
Nothing was done. Even when their own banker pleaded guilty Lloyds lawyers continued to pursue the personal assets of those they had defrauded.
The Professor Griggs investigation put in place by Lloyds to recompense victims is a travesty. Lloyds claim 50 of the 72 victims have been recompensed. There are far more victims than that. As far as I am aware none of the major claims has been accepted, let alone looked at. It will only look at those case were those defrauded were dealt with personally by one of those found guilty at the Reading trial. They had many working for them, those claims are ruled out.
Prof Griggs is not independent of the bank, he is a long time consultant to the bank. The bank offers to victims do not compensate them properly for the damage that has been done to their lives, there is no accumulative interest for the loss over the past ten years or more. There is no consequential loss accepted.
Most of the victims are now elderly. They are made a ‘take it or leave it’ offer. Most have been trying to get compensation for years. They believe, rightly in my view, that if they do not accept the offer they will get nothing. The offer is accompanied by a frightening gagging order. They have no choice but to accept.There is no independent appeal against the sometimes derisory compensation.
The banks internal enquiry by Dame Linda Dobbs is, I believe, being done properly. However, it was hugely under-resourced to start with. It will take at least another year to complete, I suspect longer. She has not yet interviewed the police who investigated the case. I gather it will made public after considerable parliamentary pressure. However by the time it has been published most of the main board directors of Lloyds will have retired to Portugal and other localities with colossal bonuses and huge pay offs. I believe that Dame Linda Dobbs should provide an interim report by October this year and it must be made public. That would go some way to avoid the accusation that it is being used by Lloyds to delay any adverse comment until most of the board have left for other occupations or retired.
The Turnbull Report 2013
This report was written by a senior manager of Lloyds. It was disclosed by the bank to the police – though police were already aware of its contents. It was not used in the HBOS trial as not directly relevant to the HBOS fraud case.
What the Report lays out in devastating detail is the cover up of the massive HBOS fraud and hole of approaching £40Bn in the HBOS accounts.
Major rights issues were then done on what I would have thought were dishonest and possibly criminally fraudulent prospectus. We are talking of over £20Bn. Neither the hole in the accounts nor the £1Bn fraud was reported in any prospectus.
I will not go into details of the report which became into the public forum when released by one of the defendants now residing at her majesty’s pleasure. You can read it on the APPG website.
The report name names and the audit companies involved. I have no reason to suppose the report is not accurate, and I cannot see how those named can continue in public life in the prominent positions many still hold. The behaviour of the three named Audit Companies is unacceptable.
The Whistleblower – the Author of the Report
Lloyds have repeatedly said the Turnbull Report was unauthorised and not substantiated. They have consistently discredited the report and the author claiming it to be unauthorised and unsubstantiated. It is clearly substantiated in its main premises – that there was a major cover up of both the fraud and hole in the HBOS accounts. Lloyds bank continued to deny that there was a fraud for a further three years after the report was written. They would not admit to a fraud until the jury returned its verdict. This was even after their own banker had pleaded guilty some months before. The author of the report was constructively dismissed against her wishes. The report was clearly authorised by the Head of Lloyds Audit, and there are emails between the author and the Head of Audit discussing it.
The full might of the London Lawyers – Freshfields, were thrown against her to the time of several million to stop her winning her complaint of constructive dismissal at an Employment Tribunal. She eventually outspent and was forced to settle at a minimal recompense, and with a comprehensive gagging order. She is now unemployable. I trust this gross injustice is now being sorted out.
- Other Banks
I have ample reason to believe similar frauds to HBOS were carried out by other banks. Recent House of Commons debates have shown this went on nationwide. The sums involved are huge, and almost certainly exceed £100Bn – if proper restitution is taken into account vastly more. Many of the frauds would seem to be connected across banks. The same names crop up in cases mentioned by MPs in both Lloyds Bristol and HBOS.
I believe Lloyds Bristol to be a larger fraud than HBOS but has yet to be investigated properly. I have brought it to the attention of the Chief Constable of Avon and Somerset who claims it has been investigated. I do not believe it has been looked into in any depth by police officers who actually understand fraud. Very few of the victims have even been contacted by Avon and Somerset Police. Thames Valley Police have twice offered to assist Avon and Somerset, the offer has not been taken up. It also appears to have taken place also from a number of other Lloyds offices. I am repeating what was said in the House of Commons by MPs from all 6 Parliamentary Parties. One of the victims, who owned a large Car Auction company, appeared in front of the TSC. He was taken down by the Leeds office. There are a great many more companies destroyed by other branches of Lloyds Business Support Units. While I have no doubt some of the companies were bankrupt, the majority were viable and profitable companies. RBS were also carrying on similar frauds against business customers. The total number of companies destroyed by RBS has never been determined but RBS GRG Division alone appear to have brought down 16,000 companies, again some may have been bankrupt. The vast majority were viable companies. It was not meant to be a profit centre, it made billions through this fraud.
If the average company was worth £5M and 12000 viable companies were destroyed, some were much larger, some smaller, we are looking at a loss of £60Bn without consequential loss from RBS scams alone. Other banks that would seem to have been involved in similar frauds were Clydesdale and Dunbar. I am sure it is a coincidence, but Scottish banking was always a byword for honesty.
The damage to the UK economy has been massive. SMEs account for 80% of UK employment outside Government Services and huge numbers lost their jobs. The Treasury ignores this, though it has been aware of it for several years.
The destruction of viable companies by banks to repair their balance sheets started under the Chancellorship of Gordon Brown, and was continued under Alistair Darling, George Osborne, and now under Philip Hammond. Even when their own constituents who have been ruined have brought it to their individual attentions they have been ignored.
The establishment fails to understand that SME’s account for far more of the economy than large multi nationals. Without proper bank support how will these companies expand in the future? Lloyds are currently carrying an advertisement for small business loans, its catchphrase is ‘ we are at your side’. I would have thought ‘at your throat’ would be more appropriate. German banks lend far more to their SMEs than UK banks, and it shows.
The interests of the banks have always taken priority for the Treasury. That is not surprising. How many senior civil servants from the Treasury go into banks when they leave their Treasury jobs? How may Treasury Ministers when they leave parliament go into very well paid cosy banking related Directorships? Most of them.
In 2016 the University of Portsmouth did a study into the size of fraud in the UK it estimated as £193Bn, and that is the figure I now hear quoted by the NCA. Six years ago I heard the Home secretary say it was running at over £60Bn. It is probably over £200Bn today. It is serious organised crime and a significant proportion is committed at the most senior level of banks. HBOS is the only case prosecuted, and that was at middle rank, not senior rank bankers. Less than 1% is ever investigated. That is a staggering amount of money that is stolen and laundered successfully. If £100k is stolen from the front of a bank there is a massive police response. If £100m is stolen from a company through fraud it is usually ignored. The police have neither the capability, capacity, or money to take on fraud. The HBOS case costThames Valley Police £7m. Only £2m could be reclaimed from the Home Office. Two other police forces had turned down the HBOS case, and the SFO did not investigate it. If TVP had not taken it on it would have gone unprosecuted.
It is no wonder fraud is not investigated by the police, they have not got the money to take it on. It is not even a priority for the NCA.
It was in great part because Paul and Nikki Turner, who had be defrauded by HBOS and Lloyds correlated the case that TVP took it on. They deserve a medal. There was absolutely no desire by Lloyds to investigate it internally, even though it was well-known about. Police Scotland has never investigated properly RBS GRG massive frauds, and Avon and Somerset Police are conflicted over the frauds that came out of Lloyds Recoveries in Bristol which I believe to be larger than HBOS. The NCA has, so far, not investigated what went on at the Bristol Recovery branch of Lloyds, and has taken the word of the FCA and Avon and Somerset Police said that there is nothing to investigate. I am not aware of a single company that was a victim has been questioned. There are hundreds if not thousands of victims of these frauds which were laid bare in at least two parliamentary debates. I trust this decision will be reversed.
I brought the whole affair to the notice of No 10 last year when I wrote a detailed letter to the PM, an MP in Thames Valley. I also gave the Turnbull Report to a senior SPAD in No 10. It was all passed to the Cabinet Secretary, Sir Jeremy Heywood. He then wrote to me offering to meet me and discuss what had gone on. My office and the Cabinet office then discussed dates for the meeting. I then received a letter from him saying ‘On the recommendations given me in briefings I have decided that I will be unable to meet you to discuss these matters’. When I politely enquired who had advised him, and why they had advised him not to meet me I did not even have the courtesy of a reply.
I also sent a copy of the Turnbull Report to the Governor of the Bank of England, asking whether he should not be doing something about clear mismanagement of a major bank. I eventually got a reply, after a reminder letter, from his private secretary, saying I should pass it on the FCA. The FCA had been sitting on it for 4 years.
A standard practice is to close down enquiries or investigations by saying someone else is investigating it. The parcel can then be passed between the SFO, CPS, NCA, FCA, City of London Police, other police forces. It is a great way to do nothing, or kick it into the long grass indefinitely.
Less than £60M is spent on the SFO and Action Fraud. That is less than 0.03% of the losses through fraud. What is the Treasury up to?The very agencies that should be stopping fraud seem conflicted. Until April this year the Chairman of the FCA was, in his previous job, the senior partner of KPMG when KPMG audited the HBOS accounts in 2007 and 2008 and failed to notice a vast hole in the accounts and a huge fraud they were told about. If they were not told about it it was a huge dereliction of duty by the HBOS board. The Chairman of the FRC, which gave the KPMG audits a clean bill of health last year, was Chairman of Lloyds when the cover ups were going on. The FCA, FRC, and SFO are controlled by the Treasury. The extent of Treasury desire to cover up banking frauds is well illustrated by the correspondence Feb last year after the HBOS trial verdicts, between the Chairman of the TSC, Andrew, now Lord Tyrie, and the Chancellor Philip Hammond.
Banks are critical to the national prosperity and security. They cannot be destroyedor seriously damaged. However they have to be brought under control. I believe there are measures that can be taken;
We must have a Chapter 11 system in this country. Practically every other major country does. It should not be possible to take down viable companies by recalling loans over a weekend and giving them no chance to pay back the loan when they are capable of doing so. We need companies to be able to borrow to expand their companies. They will not do so if the loans can be recalled overnight, and their personal guarantees attacked. It is seriously damaging the UK economy.
We should ensure that the Chairmen of banks are not just placemen, but people who demand of their board’s ethical standards and enforcement of banking rules, and understand the rules. The late chairman of the Co-Op Bank is classic case of failure of a Chairman. The Co-Op Bank was, like HBOS audited by KPMG as was Carillion. Vast holes in the accounts of all these companies was found too late. KPMG would seem incapable of auditing a whelk stall.
Make it a rule that half the board of a bank must be qualified bankers. I believe there only one qualified banker on the board of any of our major banks.
Where a clear fraud or concealment has taken place at board level arrest the offenders and prosecute them and gaol them. They do in the US and there system is cleaner than ours. There is a belief at Bank Boards that they above the law. That attitude must change.
Make the Regulatory authorities, the SFO, FCA, FRC independent of the Treasury.
Stop the assumption that civil servants can move effortlessly on to highly paid jobs in banks that they have assisted in their roles in the Treasury. Likewise the FCA and FRC.
See that outside regulatory authorities are held to account. Notably the SRA and RICs, and insolvency practitioners.
Finance the fight against fraud properly. The money raised through FCA fines is more than enough to do this. It has averaged £1Bn a year over the last 5 years. It goes direct to the Treasury. Around £300M should go to the police, and Action Fraud in the City of London should be greatly expanded, as should the SFO.
The Police should use the money to form Regional Fraud Units in the same way we have regional serious organised crime and Counter terrorism.
We should institute a system of recompense for victims of banking fraud that is independent of the banks. There are a number of ways to do this.
Remove the 6 year statute of limitations that allows the bank’s lawyers push cases over the time limit.
Restrict the use of personal guarantees, and make it impossible for a bank to recover more than the amount of the original and agreed loan from a personal guarantee.
Stop banks using their unlimited funds to destroy perfectly legitimate claims against them by simply outspending claimants in civil cases. Even when judgements go against banks they find ways to not pay up and prolong cases until the claimant is unable to continue.
I believe if these measure were taken, and they are neither expensive nor difficult, then it should be possible to reduce fraud by a modest 10% in the first year. That is £20Bn. Once the systems were all in place it should be possible to reduce fraud by 40%, a saving to the economy of £80bn a year. Let’s get on with it and stop prevaricating.
If we carry on looking the other way and failing to finance it properly it will continue to be a massive drag on the UK economy.
Thank you very much,
PCC Thames Valley