News

To Discipline or Not?

April 30 2019

The recent decision of the Solicitors’ Regulatory Authority to strike off Emily Scott, a junior solicitor, for being involved in misconduct while a trainee, only belatedly raising her concerns as a whistleblower after she left, raises, albeit tangentially, the difficult question of when – or if – it is ever right to discipline an employee for misconduct if they are also a whistleblower about that misconduct.

In this case, Ms Scott felt unable to report clients being defrauded by her firm while she was a trainee.  She was involved in perpetrating the frauds on the instructions of the partners, the Disciplinary Tribunal finding her conduct to have been “deliberate, calculated and repeated”.  It was only after she had left, some two years after the conduct in question, that she reported the fraud to the SRA who then took action against the partners of her firm and, controversially, her.  The Tribunal reached its decision on Ms Scott despite accepting that she had been young, a trainee and had been “deceived, pressured, bullied and manipulated” by the partners into both carrying out the fraud and covering it up.  The fact that she did not use the confidential route open to her by reporting the matter to the SRA was a factor, as was the fact that part of the conduct involved misleading the regulator when it sought answers.  

Ms Scott feels that she has been punished for – eventually – doing the right thing, with the Tribunal refusing to accept her mitigation, even while expressing sympathy for her.  It is easy to feel sorry for her: in her first job, anxious to impress, worried about her prospects if she refused or left and feeling bullied.  In such circumstances, it is not hard to see how someone can justify to themselves what they are doing and convince themselves that they are still an honest person despite doing dishonest things.  

Still, the SRA took the view that a solicitor, even a trainee one, is rightly held to a very high standard and there can be no excuse for dishonesty.  Our system of justice depends on its practitioners being utterly trustworthy.  

Will such a decision nonetheless lead to unintended consequences?  Misconduct is often perpetrated by the most junior employees being made to do something wrong by superiors who seek to keep their hands clean.  So it will often be those most involved who have the best knowledge of misconduct which should be reported and stopped.  If their own careers will be lost – as Ms Scott’s has been – will this encourage those with the relevant knowledge to speak up?  The SRA is, understandably, reviewing its rules in light of this case in order to ensure that it gets that balance right.  

Ms Scott was not retaliated against by her employers for being a whistleblower.  She was disciplined by a regulatory authority, which has different and wider concerns.  Nonetheless, all employers will likely come across whistleblowers who have themselves been involved in bad behaviour and who may seek to protect themselves from the consequences of such bad behaviour by blowing the whistle, sometimes at a late stage when an investigation has already started – or is about to.  Ensuring that a whistleblower is not retaliated for speaking up but is not also given a free pass against being disciplined for misconduct requires the most careful of judgments.

But the moral – however harsh it may seem – is that, ultimately, a professional – or someone aspiring to be one – is responsible for their own actions, that they need to do the right thing even if this prejudices their personal position and that acting dishonestly but saying to yourself “I’m not a dishonest person” may be comforting but is still a dangerous self-deception.  It is our actions that make us what we are.

Similar considerations arose in the case of Dr Bawa-Garba, a paediatrician convicted of manslaughter over the death of a young child from sepsis, suspended from practice, then struck off and recently reinstated.  There are, however, some obvious differences between the two cases:-

  1. The doctor was open about – and admitted – her mistakes immediately and was convicted in court.  The initial medical disciplinary panel felt, however, that it was not just her mistakes which led to the child’s death and that these wider failures were a reason why her additional punishment should be suspension, during which she could do the necessary training to learn from those mistakes and improve her professional competence.
  2. It was the General Medical Council which sought to strike her off on the basis that her standards as a doctor were so far below those to be expected that she should not be allowed to practise.
  3. The concern within the medical community at this decision was that this would lead to the wrong consequences, both for doctors and patients.  Criminalising individual mistakes would be more likely to lead to cover ups and a failure to learn from problems.  It would have a chilling effect on health professionals’ willingness to be candid about errors and thereby learn what to do better next time.  There was also significant concern that the wider failings which had been identified – lack of staff, poor supervision, inadequate resources, poor note-keeping by others – were being ignored in favour of placing the blame, unfairly, all on one individual.  
  4. Most obviously, the consequences of the wrongful behaviour were much more serious in the doctor’s case than in Ms Scott’s.  Yet it is Ms Scott who has lost her career and the doctor who will continue to practice.

Unfair?  Superficially maybe.  Is gross incompetence in a doctor less bad than dishonesty in a lawyer? Whatever the doctor’s failings, she was not dishonest; indeed, her very openness about her failings made it easier for her to be convicted and disciplined.  A lack of knowledge or competence is something which is capable of being remedied.  

Whereas integrity and honesty and the courage to say no when asked to do the wrong thing go to the heart of what it means to be a lawyer.  If they are missing or capable of being so easily subverted, what else is there?  

And while the work culture in which a person operates matters, often significantly, and frequently needs improving, it should never be an excuse for behaving without integrity.

 

Photo by Vladislav Babienko on Unsplash

Ask Not For Whom The Bell Tolls

January 21 2019

The best single essay on financial misbehaviour was written not by a journalist, academic or former trader, but by a novelist and 25 years ago: The Deficit Millionaires by Julian Barnes, that most pointillist and French of English writers.  It is about Lloyds of London, the huge losses it suffered in the early 1990’s and how trusting Names slowly realised that their faith in a long-standing and well-established institution was utterly misplaced.  Lloyds had been around for ever.  It was part of the City’s furniture.  And it was insurance, after all.  How boring is that. How could anything possibly go wrong?

Well, with exquisite care and sympathy and the precision of a surgeon’s scalpel, Barnes shows us how.  And the story is a surprisingly familiar one.

  • A novel but complicated instrument designed to reduce risk but instead increasing it – the London Market Excess, or the spiral of reinsurance.  “Making a turn” – in the spiral – “was the easiest way to make money” one underwriter said.”
  • Greed – “If you are making a good living, if you have self-regulation, if you are outside exchange control, it’s human nature to get greedier and greedier and greedier”.
  • The market’s rapid expansion in a short period of time.  There was a near-ten-fold increase in the number of Names in 14 years, most of them trusting amateurs and all looking for insurance to underwrite.
  • A lack of due diligence, a suspension of critical faculties, a lack of scepticism coupled with an all too human willingness to believe in the promises of a no risk investment, all wrapped up in a flattering appeal to vanity.
  • A  deeply cynical – and possibly fraudulent – approach by the professionals to those who joined (“If God had not meant them to be sheared, he would not have made them sheep.”) 
  • Relaxation of the rules and lax monitoring of those that existed.
  • The undisclosed conflicts of interest – recruiters were paid a fee for each Name who joined.
  • A lack of transparency – it was Lloyds insiders rather than external members who got onto the best managed, low risk and least spivvy syndicates, justified by the then Chief Executive thus – “In any activity, the professionals will know more than the others.”
  • The breakdown of trust – what Barnes describes as the “tickle of fraud“, the realisation that the belief in “an honourable society, operating on trust, on shared values” was a chimera.  Or as one Name put it more bluntly, “You know, trust, honour, and then to find in such an august body a bunch of craven crooks”.
  • The realisation, far too late, that private warnings were given about some of the risks and unacceptable/criminal behaviour but these were ignored or not shared with those who ought to have been told.
  • The turning of blind eyes to unacceptable/negligent and/or criminal behaviour by a remarkable cast of shameless rogues during the 1980’s, even when the latter were the subject of legal action.
  • The failed institution’s repeated insistence that any problems were only the result of that well-worn old favourite: one or two rotten apples, despite one of those rotten apples being a Chairman of Lloyds.
  • The determined focus by new management only on its new procedures and processes and business plans for the future in the hope that a veil would be cast over the past, without any unseemly digging into it.
  • The eventual realisation by the institution that, as its deputy Chairman, put it, for the previous twenty years it had lacked “total integrity” and “strong government“.

Even the modern new building housing the salvaged and totemic Lutine Bell and built by a famous “name” architect is part of the story.

Barnes eloquently shows how an institution believed to be “the highest name of honesty“, seen as part of a certain sort of honourable Englishness, around for three hundred and five years, a stalwart of the City, selling its services around the world, as venerable as the Bank of England and thought to be as safe, came to be seen, harshly but accurately, as “a cesspit of dishonesty“.

If only this had been published more widely than in a US publication and, later, a book of essays.  If only we had paid more attention.  If only we had learnt the lessons that were there to be learnt.

Everything that went wrong in the run up to the near collapse of the Lloyds insurance market happened again two decades later and led to the financial crash 10 years ago, even with the benefit of external regulation and control.  Indeed, pretty much the same things happened in the lead in to most financial scandals going back hundreds of years.

And, human nature being what it is, it’s a pretty safe bet that a version of all or some of these will happen the next time, may indeed be happening now.  The same behaviours will once again come under the spotlight when the the next scandal becomes known, with its inevitable backing chorus.  

Why didn’t anyone see?  

Why did no-one ask the obvious questions?  

Why did no-one listen to the warnings?  

Why, oh why didn’t anyone act?

As Parliament’s Intelligence and Security Committee put it in a different context“it has been striking how some the issues which arose in [2005 and 2013] have also been seen as having been a factor in 2017.  We have previously made recommendations in these areas, yet they do not appear to have been acted on.”

Scepticism.  Curiosity.  Asking tough questions.  Learning lessons from previous events.  Their absence is a regular feature of many incidents of misconduct, many crises, both large and small.

But ultimately, in finance, as in other sectors, it is those old-fashioned concepts – trustworthiness, integrity, honourable dealing – which remain as essential in 2019, and years to come, as they have always been.

 

Photo by Boris Stefanik on Unsplash

At last……

November 14 2018

2,185 days after he was convicted of two counts of fraud by abuse of position at Southwark Crown Court on 20th November 2012 after a 10-week trial, and despite a shamelessly self-pitying and self-justifying campaign to avoid the consequences of his actions, Adoboli has finally been deported to his home country, Ghana.

The wheels of British justice grind exceedingly slow but they do – eventually – get there.

Let’s put those 2,185 days into a bit of perspective.

  • Amount of money lost by his fraudulent trading: US$2,500,000,000.  (If the sums spent by UBS on remediation and dealing with the consequences of this loss were added in, the totals would be truly eye-watering.)
  • Days spent on remand before his trial: 267
  • Days spent by my team and others working on the investigation: 438
  • Sentence: 7 years or 2,556 days
  • Time actually spent in prison following his sentence: 946

As the City of London Police said following his conviction: “This was the UK’s biggest fraud, committed by one of the most sophisticated fraudsters the City of London Police has ever come across.”  The trial judge, Mr Justice Keith, admirably summed up his character when he described him as a gambler, arrogant and in denial and said that he was: “profoundly unselfconscious” of his own failings.

But despite his masterly conduct of the trial, Mr Justice Keith did not explain in his sentencing remarks why what Adoboli did was so wrong, why fraud – of any type – is so damaging and this lacuna is perhaps symptomatic of our failure to take fraud as seriously as we should, as some other countries do.  After all, if the UK’s biggest fraud does not result in the maximum sentence, what will?

Fraud is too often seen as a victimless or somewhat technical crime or, perhaps more accurately, the victims, especially institutions, are seen as unsympathetic and partly responsible for their plight.  After all, who cares if an arrogant bank loses some money.  They are not like some naive widow conned out of her life savings.  Who gets hurt, really?

But the damage that fraud does is not the loss of money, bad as that can be.  Nor is it even the damage to reputation – and that can be very bad indeed and much more long-lasting than most think.

Fraud is damaging because it is so corrosive of the trust that is the essence of banking, that is – or should be – at the heart of any working environment, at the heart of any good relationship with colleagues, bosses, clients, the public, at the heart of any well-functioning community.  Fraud breaks those bonds of trust.  When someone is trusted and they let you down by lying, by cheating, by taking advantage, by behaving like Adoboli did, like many other fraudsters have done, real people are hurt.  Worse – the very idea of having confidence – in the institution, in your colleagues, in banking as a dependable underpinning of our society – is damaged and takes time to rebuild.  A fraudster does not just destroy their own reputation.  Their actions chip away at the reputation of everyone else in their sector.  And they make it just that bit harder for those people – however good, however hard-working, however trustworthy – to be trusted by others, by the public.

That is the real harm that fraud does.  We would do well to take it more seriously than we do.

 

Photo by rawpixel on Unsplash