Friday, 20 October 2017

Transgressions in the Banking Sector Continue Unabated

In today’s post the focus will be on the banking sector and, by focusing on three current issues, provides an overview of recent developments within this particular sector. By looking at the issues surrounding Barclays, HSBC, Standard Chartered, Lloyds, and RBS, a picture will be painted that details the need to ask much deeper questions about the role the banking sector plays within society and, perhaps more introspectively, the relationship between big business and humanity.

Going through the issues in no particular order, the first stop in today’s journey takes us to Barclays, with the news emerging that Red Kite Management, the world’s largest metals hedge fund, is suing the British Bank for ‘alleged market abuse in the copper market’, which it claims has cost the company at least £650 million between 2010 and 2013. The company’s claim, according to documents filed with the High Court, is that the Bank allowed some of its staff to share confidential information with the Bank’s proprietary traders on the floor of the London Metal Exchange (LME), with the result being that the traders were effectively betting against their own client. As this story has just broken, both parties are refusing to comment publically, but the inference is that Barclays is under considerable pressure from a number of sources. The LME simply stated that anyone found to be in breach of the rules and regulations of the Exchange will be subjected to disciplinary proceedings, whilst we know from other posts here in Financial Regulation Matters that the bank is facing charges of fraud over its connections with Qatar and its funding of a survival package at the height of the Crisis, and also that the Bank’s CEO, Jes Staley, is operating under incredible pressure because of his treatment of whistle-blowers; additionally, the Bank is mired in the LIBOR rate fixing scandal, with it reaching a number of settlements on both sides of the Atlantic totalling hundreds of millions of Pounds and there being the real possibility of more pain to come for Barclays and a whole host of other banks. If we were to take this issues in isolation, then it would not be farfetched to suggest that Barclays is in somewhat of a crisis, although nobody is suggesting that – the reason being that these issues are hardly unique to Barclays within this sector.

One of the largest banks in the world – HSBC – has found itself at the forefront of money laundering claims in South Africa, alongside Standard Chartered. We have looked at this issue of HSBC’s global connection to the facilitation of money laundering, so perhaps the following will be of no great surprise. The Banks are allegedly guilty of allowing illegal funds to pass through their networks, for the benefit of what UK Chancellor Philip Hammond (who himself has been critiqued here in Financial Regulation Matters) described as the ‘Gupta-Zuma criminal network’ – it is interesting to note that even though the links between the infamous Gupta family and South African President Jacob Zuma are well known, Hammond’s seemingly official condemnation of the leader of a sovereign nation represents the reality that leading nations are quick to rebuke those who cannot defend themselves; in fact, Hammond is actively leading the fight by referring the issue to the Serious Fraud Office, the National Crime Agency, and the Financial Conduct Authority. Furthermore, the FBI are focusing in on two of the Gupta Brothers, which seems to suggest that there is a concerted effort to tackle money laundering in this particular region, but we have heard very little about the global laundromat scandal that has many tentacles, apparently, within Russia; though all money laundering should be eradicated, the fervour with which this investigation is being pursued needs to be considered. This comes on the back of the collapsing of Bell Pottinger and the internal resignations within KPMG regarding their collaborations with the Gupta family, which should suggest that if either of the Banks are found to be complicit in facilitating money laundering by the family, then there will be massive consequences; Lord Peter Hain, the former Labour Cabinet Minister and now Non-Executive Director at African Potash, and someone leading the charge based upon his feeling that he is ‘pained by the betrayal of values of the freedom struggle that is occurring under the political leadership and its business cronies in South Africa today’, has suggested that he is not accusing the banks of complicity, but that he wants them to ‘help recoup any funds that have left the country by illicit means’ – what this confusing statement means is another matter, because that would suggest that the banks have had at least some involvement with the movement of illicit funds. These issues relate, potentially, to a cultural issue whereby a Bank is only interested in what it can make, with absolutely no regard to its effect nor even its perception to the outside world. Before the post concludes, there are two examples, which provide updates to a collection of posts here in Financial Regulation Matters, which demonstrate this sentiment perfectly.

There have been a large number of posts in Financial Regulation Matters that have covered the issue of compensation, particularly in relation to Lloyds and RBS. It is not necessary to go over either of these issues in detail here given the amount of exposure within the blog previously, but recent developments hint at the reality of the situation; if one believes that having compensation confirmed is a victory in this field, then they are sadly mistaken. Looking at Lloyds first, the compensation package owed to victims of Lyndon Scourfield and the Reading-based Unit that purposefully destroyed SMEs for profit, has been delayed again, with the suggestion being that victims will not be compensated in full until 2018 – nearly half of those affected have not even yet received a formal offer. Despite the best efforts of the bank’s most recognisable victims, who has bravely suffered the indignity of revealing the extraordinarily harrowing but private effects of the crime, little is being done. In a similar vein, victims of a similar crime at RBS by way of its ‘Global Restructuring Group’, have recently found out that the Bank has inexplicably altered its definition of those who can claim to be victims, with it being suggested that thousands of SMEs are now excluded from the £400 million compensation scheme. This is not surprising, really, because we have spoken before how, in reality, £400 million is hardly likely to be anywhere near enough to compensate for the damage caused. Despite RBS boss Ross McEwan’s quite repulsive statement that he is tired of small businesses ‘badmouthing’ the Bank, and also despite the best efforts of the FCA to bury the issue, it is being reported this week that the Authority has relented and allowed Nicky Morgan’s Treasury Select Committee to review the previously withdrawn report that is likely to be particularly damaging to RBS. The two cases demonstrate, quite clearly, that Banks have little interest in how they are perceived.

There is a reason why this is. Quite simply, the majority of banks (arguably all of them), are not ‘social citizens’. In fact, it can be argued that they are quite the opposite, and represent the antithesis of what a progressive society should be aiming for. If we look at these stories above, none of them are shocking. It is not shocking to hear of a bank rigging the marketplace and acting against its own clients. It is not shocking to hear of Banks actively facilitating money laundering for governments and leading business elites. It is not shocking to hear that not only are victims going without redress, but they are being victimised for being victims of crimes. There are many philosophical questions that could be raised; for example, we could ask whether these actions are demonstrative of a cultural phenomenon within the institutions themselves, of a wider phenomenon linked to Capitalism, or based upon something more tangible like regulatory failure. However, whilst all of those considerations would be valid, they unfortunately cloud the reality that these institutions act in a parasitic manner and are, when viewed in longer terms than an economic cycle or two, a blight on society. It is not right that such continued transgressions are viewed as ‘par for the course’, or demonstrative of a continuous battle between private enterprise and public regulation – banking simply does not have to be this way. Unfortunately, banking as an ideal or societal function has been hijacked by those intent on maximising their own personal gain so, in that sense, long may the ‘badmouthing’ continue because at every turn we must acknowledge the challenge that society faces with these large and extremely damaging entities.


Keywords – Banking, Crime, Money Laundering, Compensation, Market Abuse, Barclays, Lloyds, HSBC, Standard Chartered, RBS, Compensation, Systemic, White-Collar Crime, @finregmatters

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