We have a law on fraud, and Ed Balls is right to bring attention to s.2 and s.4 of the Fraud Act (2006). Contrary to what George Osborne and Lord Tunnicliffe said either innocently, negligently or fraudulently, this law is to be found in the statute book. It’s hard to get away from the fact that interest rate rigging is a criminal offence; in the same way that phone hacking in the ways described by News Corporation has been found to be a criminal offence. This complete denial of what is a criminal offence by the Conservatives, further by disingenuously implying that there is insufficient regulation generally, is highly disturbing. Whilst there is no law yet for the LIBOR fixing in the financial services legislation itself, the Special Fraud Office is more than capable in ascertaining whether there is sufficient evidence to prosecute for fraud by abuse of position or by false representation, theft by false accounting, or, more likely, a conspiracy to defraud. A law specifically on LIBOR was proposed by Labour earlier this year, and the Coalition rejected it. This open discussion about whether our law is inadequate, from all parties, has only served to undermine trust in our law; the common contention is that you can go to prison for years if you shoplift a bottle of mineral water in the riots, but a trillion dollar fraud will go unpunished.
All parties can go through the motions of whether the system was sufficiently regulated, but we have a fraud criminal justice system in this UK. More importantly, the US have a foreign corrupt practices Act, which may have extra-territorial effect here. So it is somewhat distracting that Mark Hoban in 2006 apparently said that it was necessary to send out a firm message that Britain had a ‘light regulation’ régime. The Tories are scared of the City, and are totally disinterested in a coherent full analysis of the corporate culture which leads to immoral and criminal activity.
The issue anyway with having a full Leveson-style inquiry that this might have sent out a message that there was something wrong with the investment banking industry of the City, and such a spectacle might have been followed around the world from corporate investors with great scrutiny. Donations from the financial sector have risen steeply since David Cameron became leader of the Conservative party. A study by the Bureau for Investigative Journalism has found that the City accounted for £11.4m of Tory funding – 50.79% of its total haul – in 2010, a general election year. This compared with £2.7m, or 25% of its funding, in 2005, when David Cameron became party leader.
In her interview with Andrew Neil yesterday, Rachel Reeves MP, Shadow Chief Secretary to the Treasury, repeated an apology from Labour that ‘mistakes had been made’ regarding regulation. However, nobody can deny that Labour had tried extremely hard to woo the City during the Blair/Brown years. Prof. Anthony Giddens, previously at Cambridge and now at the London School of Economics, puts a brave gloss on this approach by New Labour:
“Most of Labour’s policy prescriptions followed from this analysis. The era of Keynesian demand management, linked to state direction of economic enterprise, was over. A different relationship of government to business had to be established, recognising the key role of enterprise in wealth creation and the limits of state power. No country, however large and powerful, could control that marketplace: hence the “prawn cocktail offensive” that Labour launched to woo the support of the City.”
There have been numerous inquiries in recent history, including the Saville Inquiry, the Chilcot inquiry and the Leveson Inquiry. It is far from certain whether these inquiries lead to enforceable end-points, let alone interesting and relevant law, and possibly are implemented to play for time and allow a political buffering space. This may, or may not be, the actual reason why David Cameron has this afternoon pledged a full parliamentary inquiry, rather a judicial inquiry, into the rate-fixing scandal banking industry. According to the PM, evidence will be obtained on full oath, and begin very soon, in the form of a parliamentary inquiry. This parliamentary inquiry into banking to be chaired by Treasury select committee chairman Andrew Tyrie – support form Treasury officials. The Government will establish a joint Committee from the Commons and the Lords. The terms and references should build on the Select Committee work, and also current trends in international regulaten. Oath of current MPs and House of Lords. The Joint Committee will report by the end of this year. This will mean in practical terms that the Banking Reform Bill will be redrafted next year.
However, Ed Miliband has voiced his concerns that such an inquiry will not command the trust and confidence of the public:
“It’s right he reconsidered the need for a full inquiry. I am not convinced by his way forward as I do not believe it measures up to the scale of the task. …People are understandably angry about how the banks let them down. There had already been a number of Select Committee reports into the banking inquiries….. We will continue to campaign for a full, open and independent enquiry to built trust with the bankers.”
In support of Ed’s argument, whilst banks and newspapers exist in the private sector, their actions are pervasive the fabric of society. However, trial-by-media is perhaps not the correct punishment for the LIBOR-fixing scandal. As for phone hacking, criminal sanctions are. Ed Miliband would presumably have preferred a judicial-inquiry, as the modern day equivalent of the mediaeval ducking school, in justice being seen to do. This also produces short-term political capital, but it is ironically it is this short-termism which has been the fundamental problem with the Wall Street approach to banking.
George Osborne intends to make amendments to the Financial Services Bill, so that any financial penalties accrued in future will go to the public. Osborne has therefore asked Martin Wheatley to review what changes are required to the mechanism of setting of LIBOR, the activity of regulators, recommendations concerning the transparency of the process, and scrutiny of the adequacy of current civil and criminal powers with special reference to market abuse and LIBOR. Wheatley is going to report this summer, so that the regulatory authorities can implement the requisite action. This is an extremely effective response. Osborne proposes that a long and costly judicial inquiry is not necessary, and this notion is indeed supported to the guidance to implementation of the Inquiries Act (2005) (download here). Rather, the Banking Reform Bill will bring lasting changes to the operations of banks, including-ringfencing, and clarity on the civil and criminal sanctions. However, George Osborne claims that this will address the culture which has gone wrong with the banking industry.
Osborne is wrong about the state of the fraud law which has been enacted, on advice of a Law Commission. That is incredibly deceitful. More worryingly, he has no grasp on how toxic cultures come about in corporate organisations. Wrong employees are recruited, employees act illegally in a drive to improve shareholder dividend, employees are too scared to whistleblow about the toxic culture, and there is mutual collusion with other parties in a systemic pathology, including for example accountants and auditors. A mature, expert-led review is the only way to address this, if done properly, and examine the issues in meticulous detail which are clearly different from ‘Bloody Sunday’, phone hacking or going into war against Iraq.
