So Sir Fred Goodwin is now just Fred. I suspect it is a crushing blow to his ego. I suspect he's a man for whom ego is important. And let me be clear, for him and his family I feel a little sorrow: I don't revel in other's hurt.
But I don't regret the change of heart: the decision to grant Fred Goodwin and others knighthoods and peerages because they commanded the assets of public companies for personal gain without due consideration for others was an error of judgement, although a collective one of which all senior politicians were guilty.
Now it is time to make the gestures and do something much more important, and that is to really move on and change capitalism. Cameron shows no sign of doing that; he just makes the gestures.
Real change is needed. It starts with accountability and transparency. Backing country-by-country reporting would be a serious sign of commitment to that. It moves on to demand that companies are tax compliant - which is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.
And it continues by recognising the rights of employees, customers and society.
When business people are rewarded for their responsibility to society and not their greed I will be happier. But we're a long way from there as yet.
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The biggest scandal in all this is the notion that there is this lacuna in British law that allows the perpetrators of what is universally acknowledged to be the biggest banking failure the world has ever seen to escape justice. This is DEFINITELY NOT THE CASE. There is a range of criminal law the FSA and other regulators can invoke against the people behind the RBS collapse, if they were not captured by the people they were supposed to regulate.
For example, consider the following provisions of the Fraud Act 2006
1 Fraud
(1) A person is guilty of fraud if he is in breach of any of the sections listed in subsection (2) (which provide for different ways of committing the offence).
(2) The sections are–
(a) section 2 (fraud by false representation),
(b) section 3 (fraud by failing to disclose information), and
(c) section 4 (fraud by abuse of position).
(3) A person who is guilty of fraud is liable–
(a) on summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both);
(b) on conviction on indictment, to imprisonment for a term not exceeding 10 years or to a fine (or to both).
(4) Subsection (3)(a) applies in relation to Northern Ireland as if the reference to 12 months were a reference to 6 months.
2 Fraud by false representation
(1) A person is in breach of this section if he–
(a) dishonestly makes a false representation, and (b) intends, by making the representation–
(i) to make a gain for himself or another, or
(ii) to cause loss to another or to expose another to a risk of loss.
(2) A representation is false if–
(a) it is untrue or misleading, and
(b) the person making it knows that it is, or might be, untrue or misleading.
(3) “Representation” means any representation as to fact or law, including a representation as to the state of mind of–
(a) the person making the representation, or
(b) any other person.
(4) A representation may be express or implied.
(5) For the purposes of this section a representation may be regarded as made if it (or anything implying it) is submitted in any form to any system or device designed to receive, convey or respond to communications (with or without human intervention).
3 Fraud by failing to disclose information
A person is in breach of this section if he–
(a) dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and
(b) intends, by failing to disclose the information–
(i) to make a gain for himself or another, or
(ii) to cause loss to another or to expose another to a risk of loss.
4 Fraud by abuse of position
(1) A person is in breach of this section if he–
(a) occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person,
(b) dishonestly abuses that position, and
(c) intends, by means of the abuse of that position–
(i) to make a gain for himself or another, or
(ii) to cause loss to another or to expose another to a risk of loss.
(2) A person may be regarded as having abused his position even though his conduct consisted of an omission rather than an act.
5 “Gain” and “loss”
(1) The references to gain and loss in sections 2 to 4 are to be read in accordance with this section.
(2) “Gain” and “loss”–
(a) extend only to gain or loss in money or other property;
(b) include any such gain or loss whether temporary or permanent;
and “property” means any property whether real or personal (including things in action and other intangible property).
(3) “Gain” includes a gain by keeping what one has, as well as a gain by getting what one does not have.(4) “Loss” includes a loss by not getting what one might get, as well as a loss by parting with what one has.
Judge
I think you and I need to talk
Would you like to contact me?
Richard
Would whoever persuaded Lloyds that they had to takeover HBOS fall under the provisions of “Fraud by abuse of position”?
🙂
Banks everywhere should be being done on the basis of this section alone; 1) A person is in breach of this section if he–
(a) dishonestly makes a false representation, and (b) intends, by making the representation–
(i) to make a gain for himself or another, or
(ii) to cause loss to another or to expose another to a risk of loss.
Where in any banking ‘loan’ agreement does it make plain that the money the bank ‘loans’ you is in fact newly created? I suspect this is why they’re always ‘agreements’ and not ‘contracts’. However, the intent to make false representation is clear, the intended gain is clear, the intended losses (interest payments) are clear also. Where are the cuffs?
The decisive issue is whether they did it ‘dishonestly’. The current definition of dishonesty was established in R v Ghosh [1982] Q.B.1053. That judgment sets a two-stage test. The first question is whether a defendant’s behaviour would be regarded as dishonest by the ordinary standards of reasonable and honest people. If answered positively, the second question is whether the defendant was aware that his conduct was dishonest and would be regarded as dishonest by reasonable and honest people. Thus fraud by abuse of position applies in situations where the defendant has been put in a privileged position, and by virtue of this position is expected to safeguard another’s financial interests or not act against those interests.
According to the explanatory note to section 4 of the Fraud Act 2006:
“The term ‘abuse’ is not limited by a definition, because it is intended to cover a wide range of conduct. Moreover subsection (2) makes clear that the offence can be committed by omission as well as by positive action. For example, an employee who fails to take up the chance of a crucial contract in order that an associate or rival company can take it up instead at the expense of the employer, commits an offence under this section.”
This is an incredibly valuable intervention, Undercover Judge. Even as a non legal person I can see a range of the points you set out that seem to clearly apply not just to Fred Goodwin, but to many of those involved in the financial crisis. I hope this gets followed up.
I agree
And now I know who the Judge is I hope there may be more
I am also a non-legal person but can see this is going to be exceptionally difficult if not impossible to prove. Firstly, you have to prove dishonesty. Then, quite separately, you have to prove that he intended to cause gain to himself or loss to others. Note: not that he did cause gain to himself or loss to others, but that he intended to.
Or perhaps those with legal training could provide me with evidence that (i) he was dishonest and (ii) that he intended to cause profit/loss?
@ Peter, if we had the full facts and then we can then make an informed decision on whether or not the case can be proved. At the moment, all we have is the FSA’s say so, and I agree with Undercover Judge that the facts, all of it, should be published.
One critical issue you have omitted – in order to secure a criminal conviction the onus will be on the Crown to show intent.
Just how do you think they could show such intention?
This removal of this knighthood is only consistent if you believe, as all politicians do, that it was ‘casino banking’ rather than ‘shadow (also called non-bank or fringe) banking’ that was the main problem that led to the housing bubbles. In truth, it was the feedback of asset prices made possible by the investment banks and hedge funds that have never been regulated and which started to make asset bundles and then sell them off to other de-regulated (but still with capital requirements, however limited) banks with the support of the three rating agencies that is at the apex of the problem. Goodwin can’t do what he did without the shadow banks, simple as that.
Remember the FSA refused to publish any detailed report until the Chairman of the Treasury Committee, Andrew Tyrie, threatened to invoke Parliamentary privilege to compel them. Then the FSA set up a committee of two City grandees who effectively agreed the mutually acceptable report that is generally considered to be watertight with Fred Goodwin’s and FSA’s lawyers, and which was published on 12 December last year.
So when the FSA claims that there is no evidence to prosecute Goodwin, we should not take their word for it. First, the full facts remain concealed. Secondly, even the published report CAN sustain a successful prosecution under the Fraud Act 2006.
Here’s a link to the report
http://www.fsa.gov.uk/library/other_publications/miscellaneous/2011/rbs.shtml
There are two possible ways to test this. One is a judicial review of the FSA’s decision not to take any enforcement action, including prosecution, on the basis of the report they published in December. In fact the three months’ deadline to apply for a judicial review should expire three months from the date of publication of the FSA’s report on 12 December 2011 (i.e. 11 March 2012), so time is of the essence on this, should any activists out there be interested in exploring this option.
Another option is a campaign for an independent inquiry into the handling of the whole matter (including the decision not to take enforcement action) by the FSA. The FSA have as much to gain from drawing a line on this scandal as Fred Goodwin and others; yet said FSA has so far had the final word on whether or not there are grounds for enforcement action.
Hector Sands’ evidence to the Treasury Select Committee on Monday should have given the TSC more cause for concern than it appears to have done so far … see
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9050623/FSA-chief-Hector-Sants-says-sorry-for-RBS-failure.html
im sure a look at his bank balance will cheer Fred up……………
Did you see who came out in support of poor Mr Goodwin? It was as if someone had taken a sharp stick and poked into a nest of snakes.
@Undercover Judge:
This is indeed a very interesting intervention. Like others who have commented here, I am a non-legal person. As one of the victims of the collapse of Kaupthing Singer & Friedlander who has been heavily involved with the KSFIOM Depositors Action Group and still waiting for explanations, I am wondering about the possibility of any actions of the type you suggest being pursued in this connection.
You may have seen the recent article in the Telegraph by Tony Shearer who was CEO of Singer & Friedlander at the time of its take-over by Kaupthing in 2005 and whose warnings to the FSA that – in his view (and that of other senior colleagues) – the management of Kaupthing were ‘not fit and proper people’ to run a British bank were largely ignored: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8964213/Heads-should-roll-at-Bank-Treasury-and-the-FSA.html
We have long been asking for an independent inquiry into the KSF collapse, to no avail. It seems to me that in this case too, the evidence of Tony Shearer and the evasive and unsatisfactory responses of Hector Sants should also have given the TSC ‘more cause for concern’.
I take the liberty, if Richard will allow, of reproducing here my comments to Tony Shearer’s Telegraph article:
Mr Shearer did “sound off” — equally forcefully if less publicly – when he gave evidence to the Treasury Select Committee into the Banking Crisis back in 2009. At the time, his evidence was minimised by the Committee who, while finding it “laudable” that Mr Shearer had (in 2005) brought to the attention of the FSA his grave concerns over the takeover of Singer & Friedlander by Kaupthing, carefully refrained from any direct criticism of the
operation of the FSA when they (generously and with no real evidence) concluded that the FSA “[appeared] to have investigated these concerns”. In other words, they preferred to believe the facile assurances of Hector Sants (who was not even there at the time of the
takeover) rather than the — to me compelling – evidence of the former CEO of S&F.
In 2005, the FSA allowed the take-over of Singer & Friedlander by Kaupthing, despite severe reservations expressed by Tony, then CEO, and several other board members who warned the FSA that their experience of Kaupthing and its management lead them to believe that the Kaupthing management were “not fit and proper people to control
a UK bank”. Questioned on this by the Select Committee, Sants’ response was that the FSA was obliged to take the word of the Icelandic regulator and was thus effectively impotent. A somewhat astonishing admission, of little comfort to those who lost money as a
result.
Tony’s written evidence in several memoranda to the Committee was not limited to the Kaupthing affair. In connection with RBS (and other large banks), he wrote:
“… It is also a factor that these executives and
non-executive directors live in heady worlds with peerages,
knighthoods, feted by politicians and the media, membership of
Government think tanks, trips to and parties in Downing Street,
rewards beyond the dreams of avarice, and PR firms and departments to
obfuscate and to promote them as individuals. All of this makes them
believe that they have abilities and skills that they simply have
never had.
Coupled with the fact that they are surrounded by auditors, rating
agencies, lawyers, head-hunters, remuneration advisers, PR firms and
non-executives who want to earn fees and who are getting rich off
their patronage, and regulators who had come from the same
backgrounds, it is no wonder that the whole system has failed.
The Select Committee’s interviews with the Executives and former
Executives who are and were running our large banks showed that these
people still have absolutely no appreciation that running these very
large businesses was, and is, beyond their abilities. … ”
http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144ii.pdf
It seems to me that he said it all back then. But no-one was willing to hear. Maybe he feels the time is now ripe. I do hope so. What is surely needed though is not just the FSA investigating itself, but a fully independent enquiry, something those of us who lost money through the collapse of KSF have been demanding for the last 3 years. But no-one listened to us — even less so than to Tony.
It took the litigation launched my Sienna Millar and others to expose the cover up of the phone hacking scandal by the Press Complaints Commission and the Metropolitan Police. A court case is clearly the most effective antidote to the regulatory capture that is pushing the country to the brink, in light of very weak Parliamentary oversight. Confidentiality is the self-serving excuse of the captured regulator and surprisingly Select Committees buy it despite their unqualified power under Parliamentary privilege to access all documents and to question all persons relevant to their inquiry. But once there is litigation, the court usually orders the disclosure of all relevant documents. Sadly, litigation can be expensive and there are not many law firms prepared to take the risks as they do in the US. The proposed ‘legal aid’ bill will only exacerbate the situation.
Many thanks for the response, which basically confirms what I thought. I suspect the Select Committee’s are also to some extent “captured”; hence the need for public inquiries. In the case of KSF, the tacit acceptance of Hector Sants’ assurances was striking – especially as Hector Sants was not even there at the time of the disastrous Kaupthing take-over back in 2005.
… looks like there will be a court case on the RBS scandal after all …
http://www.heraldscotland.com/news/home-news/rbs-facing-legal-action-over-12bn-rights-issue.16648788
The decisions taken by FSA become clearer when it is appreciated that it has been set up as a private limited company based in The City. The link from Positive Money here makes interesting reading. The compensation figure is now £85,000 not £50,000.
http://forum.positivemoney.org.uk/viewtopic.php?f=4&t=15