Rowan Bosworth-Davies | Has the UK rediscovered its appetite for prosecuting ‘white collar’ crime?

In Blog by Ian Fraser17 Comments

16 March 2012

In the second in a series of guest posts, Rowan Bosworth-Davies, a financial crime consultant and former Scotland Yard detective, provides a historical perspective on the UK authorities’ lack of appetite for prosecuting high level financial crime

American sociologist Edwin Sutherland, 1883–1950

Edwin Sutherland, the American sociologist and criminologist, is perhaps best known for his 1949 book ‘White Collar Crime’. But it was ten years earlier that he coined the phrase ‘white collar crime’. Back in the late 1930s, this was fairly radical.

At the time, the assumption among politicians and judges was that the “respectable” upper echelons of society — professionals, bankers, financiers etc — were incapable of criminal behaviour. Despite Sutherland’s best efforts, I sometimes wonder how much has changed.

There was a brief interlude in UK history when the authorities had no qualms about prosecuting white collar crime. In the 1980s, the Serious Fraud Office prosecuted the mainstream bank, County NatWest, a division of NatWest. The main players were convicted of the criminal offence of covering up a failed issue of £873m of new stock (intended to finance the takeover of Manpower).

The scandal became known as the ‘Blue Arrow’ affair. The jury had no difficulty in convicting all the leading defendants, who included some of the ‘great and the good’ of the City at the time. However, for reasons that are almost beyond comprehension, the Court of Appeal overturned the guilty verdicts.

Normally, the Court of Appeal is loathe to overturn a conviction reached in a jury trial. It will consider an appeal against the sentence, and consider an appeal if it can be shown that the judge erred in law. But to overturn a sensibly-arrived at jury conviction is very rare, partly because such an appeal can be so damaging to public policy. Those who remember the ‘Guildford Four’ will recall how long it took to get their convictions challenged.

In the ‘Blue Arrow’ case, the Court of Appeal sat within a few months of the convictions and came to the conclusion that, since the case had taken so long to prosecute, it would have been impossible for any reasonable jury to have reached a sensible verdict, and the convictions were quashed. This was the most egregious example of people from the upper socioeconomic classes being given a “get-out-of-jail card” that I can think of, although I have witnessed other equally appalling efforts to help their kind.

Soon after the Blue Arrow sentences were quashed, a friend of mine in the Serious Fraud Office told me that “the message has come down from on high that there will never again be any similar kind of prosecution of any City institution or its senior executives.” One reason the Blue Arrow affair proved so terrifying for the managerial classes and senior financiers was that it demonstrated that ordinary juries could understand the ramifications of complex fraud cases, and that they could convict.

The lawyers in the trial had spent hundreds of hours of court time trying to cloud the issue and obfuscate, but the jury saw through all that and potted all the defendants that mattered.  The question is, in the wake of a disastrous decade of “light touch” regulation, will we see it’s like again?

Comments

  1. “impossible for any reasonable jury to reach a sensible verdict”
    Sounds like the jury got the wrong answer. Very disturbing.

  2. “After the Bue Arrow case, a friend of mine in the SFO told me that the message had come down from on high that there would never again be any similar kind of prosecution of any City institution or its senior executives.”
    If true, this is indeed very disturbing and throws perhaps a rather different light on the recent decision of the SFO, “after a lot of hand-wringing” and despite apparently having assembled a great deal of evidence, not to prosecute in connection with a suspected €500m market manipulation at Kaupthing Singer & Friedlander: http://www.guardian.co.uk/business/2012/mar/18/icleand-investigates-city-fraud-claims-feeble-watchdogs?newsfeed=true

  3. It is very disturbing indeed. There are clear parallels between the County NatWest (aka ‘Blue Arrow’) affair and the aftermath of Barings Bank’s 1995 collapse. The latter too was a disgraceful episode which also set the agenda for future regulatory failure. Manchester University’s Ian Greener has written a fascinating report on the Barings situation

    http://www.uk.sagepub.com/managingandorganizations/downloads/Online%20articles/ch05/2%20-%20Greener.pdf

    As with ‘Blue Arrow’ there appears to have been a “circling of the wagons” (in contrast to the 1990 Guinness trial which did lead to guilty convictions for Ernest Saunders, Gerald Ronson, Jack Lyons and Anthony Parnes, who repeatedly lost UK appeals).

    The post-Barings regulatory and judicial failures ensured that “rogue trader” Nick Leeson was the only individual to be brought to justice. Senior Barings executives, who appear to have been deeply culpable in the bank’s collapse, including its former chief executive Peter Norris, got off scot-free. As a result of this partial approach, the lessons from the Barings collapse were never learnt, and UK financial regulators continued to fail to regulate!

    And as we all know to our immense cost, the regulatory oblivion to high-level financial crime became even more entrenched once the “light touch, limited touch” FSA took control of financial regulation from 1997. Arguably more than anything else, this ensured that London became what Max Keiser calls the “world’s capital of fraud”.

    Here are some choice excerpts from Ian Greener’s excellent report:-

    Finally, there is the role of the Bank of England—a remarkable extension of Leeson’s network as he was not directly involved in it at all. The Bank’s enquiry into the bankruptcy of Barings (Board of Banking Supervision, 1995), not entirely surprisingly, found itself not guilty of failing in its duty as the regulator of UK Banking. The Singapore Report (Ministry of Finance, 1995), however, was rather more damning, blaming the Bank for allowing Barings to send virtually their entire capital abroad, in breach of its own financial regulations.

    Other parties too had to distentangle themselves from Leeson. It is hard not to see Leeson’s unheard requests for extradition from Singapore to London as a deliberate attempt by the regulatory bodies in London to distentangle themselves from as much blame as possible (Pollard, 1995)….

    It is also hard not to see some role for conspiracy in interpreting the reasons why Barings’ executives were not held to be more culpable in the collapse of the Bank; the subsequent inquiry by the SFA appears to be noticeable for its reticence to prosecute senior Barings management but found ‘lesser officers . . . arraigned in front of us and shot’ (Economist, 1996). Barings figures such as Ron Baker and James Bax felt that they were being sacrificed to protect senior managers and appealed against their SFA penalties (Financial Times, 1997b). Without the tacit compliance of the Bank, Leeson would not have bankrupted Barings. …

    It is interesting that whenever significant financial trading fraud occurs, the central protagonist is always portrayed in a similar way to Leeson, as acting alone and subverting the system (see, for example Merrell, 2001). But malfeasance does not work like this, as we have seen. For significant fraud to occur, the fraudster must be trusted and even protected by those around him or her (Granovetter, 1985).

  4. The British establishment thrives on bribes, back-handers, nepotism, cronyism and corruption – all of which are needed to keep a nation built on fiat money spinning. This is why the ‘protectorates'(the likes of Deloitte, Baker Tilly, PWC, and much of the Legal profession) have grown stronger and meatier while the Commoners, and victims of the white Collar crime, have ended up staggering and falling about the place — losing their homes and health in fighting off the rabid culture of asset-stripping for which Britain has become famous.

    The oligarchy has reached critical mass, and now having wrecked virtually everything in sight, is unable to resist the tide of change which promises to redress the long-lost balance.

    These white collar criminals, instead of peopling Britain’s jails, are running them! They have also been unduly influencing all aspects of the HM Partnership – the courts, the HMRC, the HM Insolvency service etc etc, with an army of “regulators” who have shamelessly acted in their interests in the guise of ‘complaints systems’….but it is changing, the people are waking up, and can now see through their methods.

    For most victims, complaining has become historically a useless step, as none of their complaints – however legitimate and well-evidenced – are ever upheld. The cronies who protect the ‘Establishment’ have created the powerbase with the Corrupt, the idle, and the dishonest. Turning the British People into their chattel. Did it not all begin in the 1700’s when King George III went to the Bank of England for a large loan, when Britain was bankrupt?

  5. Are you aware of the Early Day Motion (EDM) that was tabled asking to abolish the City of London Corporation because of abuse of power? http://www.parliament.uk/edm/2012-13/369

    The Bureau of Investigative Journalism mentioned by the EDM has collated some interesting ‘money data’ about lobbyists. http://bit.ly/MriiTn

    In my experience of watching victims of white collar crime, fraud takes place among ANY professional, not just in the financial sector. It is most embarrassing when committed by public authorities. But they are the last who seem to mind. Their policy always prefers to cover up than to admit to mistakes.

  6. Thanks for this Sabine. And I agree that white collar crime has infected the professions. Indeed if the big banks and other financial institutions did not have the likes of PWC, KPMG and Deloitte to give false accounting etc the stamp of approval, they would really struggle. And don’t get me started on the lawyers!

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  14. I just found this Press Association article, via The Independent, from 29 July 1992 which suggests that there was more to the quashing of the Blue Arrow verdicts on appeal than Rowan makes out above:-

    http://www.independent.co.uk/news/business/blue-arrow-trial-labelled-pounds-40m-disaster-1536262.html.

    In particular the article refers to the decision of Mr Justice McKinnon, the trial judge in the original jury trial, one month before the jury retired, to restrict the case to the ‘late take-up’ issue and tell the jurors to ignore 75 per cent of the evidence as being the reason why the original guilty verdicts were potentially unsound.

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