Monday, 6 February 2017

HBOS Fraud Trial: Effective Deterrent?

On the 2nd of February 2017 six financiers were jailed for a total of almost 50 years for their part in a widespread scheme that drained almost £245 million from HBOS and small businesses. This is an extraordinarily positive step in re-balancing the notion of ‘crime’ so that financial crime, which can be just as damaging as ‘conventional’ crime, and arguably more so, can be punished just as severely. Yet, is it true that this headline-grabbing sentencing promotes the idea that financial crime is considered to be just as serious as any other serious crime? This blog post will briefly discuss the elements of the case, and will ultimately show that whilst the sentencing is indeed worthy of attention, what went before it may show the bias towards treating the crimes of the influential as lesser than that of anybody else.

Financial crime can be, and it is argued here is, more damaging to the public than almost anything else. Whilst large-scale crimes are, by definition, shocking in their very nature – environmental crimes or terrorism, to name but two – the interconnectedness of the modern world means that financial crime has the potential to affect vast swathes of the global population. We have just seen evidence of this in 2007/08, and those who need to be convinced of the long-term effect of such crimes need not look any further than the sensational world-balance that we witness today – Brexit; Donald Trump’s Presidency; the increase of nationalism throughout the European bloc – are all just some regional examples of the effects of financial crime in the long-term.

So, with that in mind, the near-50 years sentence given out to the guilty financiers in this case seems awfully positive and in-line with a renewed understanding as to what constitutes crime, irrespective of who commits it. Essentially, the scheme, which was built upon intimidation and a sense of invincibility, forced small business owners into the hands of the HBOS Corporate Division, housed in Reading, and who were then classified as ‘high risk’, irrespective of whether they had performed poorly or not[1]. Then, the head of that Division, Lynden Scourfield, would require that those businesses would have to appoint his desired recovery consultants, Quayside Corporate Services (QCS) in order to retain the assistance of the bank – which at this time was of real importance owing to them being designated as ‘high risk’. However, QCS was controlled by Michael Bancroft and David Mills, both of whom were in cahoots with Scourfield. QCS would then submit inflated business cases for additional finance – often against the wishes of the business owners – and that increased finance availability would then be extended by Scourfield who would siphon off the profits and share them with the controlling members of QCS. If the small businesses failed, which was often the case, then QCS would strip their assets or buy the companies for a nominal value[2].

Whilst this conduct is appalling, and those who committed such acts are rightly imprisoned for their crimes, there are other elements to the story which may allude to a differing set of values. For example, this conscious and considered crime, when aligned to the damage it caused to families, and indeed communities, by attacking what stands as the central hub for most economies (the support for small business), is perhaps worth a lot more than the headline sentence of 11 years and 3 months for Scourfield. Also, the length of time it took to a) take any notice of the complaints of the victims and then b) to bring the case to a conclusion, signals a different attitude to prosecuting financial crime. Furthermore, the failings of other parties has been noted but not acted upon. The BBC note that the Board of HBOS, its successor Lloyd’s Banking Group, the Financial Services Authority (now defunct), the Serious Fraud Office, and even the Treasury, were all alerted to the fraud but still failed to act[3]. Furthermore, the case was even discussed in Parliament in 2009[4], but it was not initially investigated formally until 2010 and even then took six years to come to a conclusion. This is indicative of an understanding that is well known within the upper echelons of the financial world – there is very little appetite to punish the rich and influential. There is also very little appetite to hold those who are tasked with safeguarding vulnerable parties from the worst transgressions of the financial elite responsible for their failures. Perhaps what this case shows us is that if you want to commit such crimes, then you must do it in a more sophisticated way – it is arguable that the brashness of the HBOS-linked financiers was their downfall.

Ultimately the sentencing is a step forward, but a very small one. It is welcomed, but now we must ask ‘does it deter others?’, ‘have regulators been admonished enough for their failures?’, and ‘does this incident bring the punishment of financial crime closer to that of more “conventional” crimes?’. Arguably, the answers to all of these questions are the same. But, if we are to reduce the appetite for partaking in such callous and destructive finance in the future, we must attempt to show, whenever possible, a causal link between predatory and destructive finance and the real-world effect of their actions – only then can we attempt to bring the punishments of financial crime in line with more conventional crimes and approach the task of punishing offenders with an equality that is surely deserved.

[1] Andy Verity ‘HBOS: A highly unusual fraud case’ [2017] BBC (Jan 30)
[2] ibid.
[3] ibid.
[4] UK Parliament Commons Debates: Daily Hansard (2009) (Jun 2)

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