Police dossier says former HBOS directors failed to act on fraud allegations

By Ian Fraser

Published: Sunday Herald

Date: March 13th, 2011

FSA and Business Secretary Vince Cable among those handed evidence linked to Operation Hornet investigation into alleged £1 billion scam. 

An alleged £1 billion HBOS fraud was known to former directors of the state-rescued bank, but they failed to act on the information, sources close to Thames Valley Police have told the Sunday Herald.

A dossier of evidence intended to support claims that the ex-directors failed to alert the appropriate authorities has been handed by the police to the Crown Prosecution Service (CPS).

Police sources have said that the 50-letter dossier was delivered to the CPS in late January, and that the file has also been circulated to Financial Services Authority (FSA) chief executive Hector Sants, Treasury Select Committee chairman Andrew Tyrie, other members of the parliamentary committee, and to Business Secretary Vince Cable.

Addressees of the letters are believed to include Lord Stevenson of Coddenham (pictured above), the former chairman of HBOS, the bank’s former chief executive Andy Hornby (now chief executive of Alliance Boots), head of corporate lending Peter Cummings and non-executive directors including Charles Dunstone and Sir Ron Garrick. These HBOS directors are purported to have been alerted to the alleged fraud by directors of “victimised” corporate customers during 2007.

A Lloyds Banking Group spokesman said:

“We cannot comment on the detail of this investigation by Thames Valley Police. Bank of Scotland itself is not the subject of the investigation. We have been assisting the police with their investigation.”

Between mid-2002 and late 2007, the main suspects in the case are alleged to have siphoned off and laundered an estimated £1bn that was lent by HBOS’s Bank of Scotland Corporate division to 200 corporate customer accounts. The main suspects are also alleged to have expropriated physical assets worth scores of millions and, in a series of administration deals handled by leading accountancy firms from April 2007, were permitted by the bank to take ownership of many of the surviving assets.

The alleged fraud has, since June 2010, been the subject of a criminal investigation code-named Operation Hornet, involving both Thames Valley Police and the Serious Organised Crime Agency (SOCA). One of the police officers involved has described Operation Hornet as “one of the largest fraud investigations of its type in UK history”.

In late September and October last year, Thames Valley Police arrested six suspects, including Bank of Scotland’s former director of mid-market high risk, Lynden Scourfield, and four consultants. The suspects have already been bailed twice, though none has yet been charged.

In a statement at the time of the first of these dawn raids, the police said:

“The Thames Valley Police Economic Crime Unit can confirm they are investigating corruption and large-scale fraud in connection with HBOS … A number of warrants were carried out at addresses in Berkshire, Warwickshire and Cheshire. Three people have been arrested on suspicion of corruption and conspiracy to defraud and money laundering. They remain in police custody.”

A director of one of the former BoS client companies said:

“One of most disappointing aspects is that, even when senior people in the bank were presented with incontrovertible evidence of fraud, they chose to ignore it. Their consistent response has been to claim the matter has been ‘thoroughly investigated’, that they’ve treated us ‘fairly and reasonably’ and have ‘nothing further to add and don’t propose any further correspondence concerning these matters’.”

In July 2009, the FSA’s Hector Sants said in an email to one of the corporate executives: “The information you provided raises serious allegations and has been passed to our supervisory group for review. The supervisory group will, if appropriate, liaise with the police.” However, the police did not become involved until a year later.

The alleged victims have claimed that HBOS personnel expropriated their businesses via the use of shadow directors and “pre-pack” administrations, through which they were able to characterise losses as assets.

This article was the business splash in the Sunday Herald on March 13th, 2011.

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