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The Case of the Missing Documents

September 17 2019

My very first case as a junior solicitor with Slaughter and May was the litigation around the International Tin Council, a long-since forgotten entity set up by various countries via international treaty to control the price of tin. Its attempts to manipulate the price of tin were unsuccessful and it went bust owing a number of banks and commodity brokers large amounts of money. They sought to recover their losses from the countries which had set it up. Ultimately the Lords (as it then was) ruled that they could not do so, the entity being legally separate from the countries behind it.

One of the many issues explored at length in the case was whether the matter was justiciable at all. Justiciability seemed a strange – if fascinating – concept which provided hours of interest in the Court of Appeal and then the Lords. And then never came up again in any of the cases I worked on.  It seemed to be one of those esoteric pieces of knowledge, of interest only to a few.

Until now – when it is all over the news in relation to the prorogation of Parliament.

But in all the fuss about whether the courts can review the government’s decision, one of the issues which has not perhaps had the attention it should has been Parliament’s request for documentation relating to the decision to prorogue, a request which has been denied by the government. That request arose out of a belief – however well-founded or misguided we don’t yet know and may never find out – that there was something iffy about the decision, that it may have been done for improper motives or in a questionable manner.  The government’s refusal to comply with Parliament’s request and to provide any sworn evidence at all in support of its case to the courts has not allayed those fears.  And yet those missing documents might well turn out to be highly relevant, given the inferences which were drawn by the Court of Sessions from the absence of any sworn evidence from the government in support of its position.

Why this might be so and why how a decision is arrived at is as important as what the decision is are explored further in this article.

Whatever the outcome of the Supreme Court’s decision, trust is essential to the good functioning of any organisation, especially government. It should not need a court case to establish that.

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

Seeing the bigger picture

May 13 2018

Even regulators can sometimes fail to see the wood for the trees.  In highlighting Mr Staley’s conflict of interest when he became aware of the whistleblower’s letter against an employee he had hired, the regulators barely scratched the surface of a wider issue.  It was not just his failure to recognise that it was his conflict of interest which made it wrong for him to involve himself at all in the whistleblowing process.  Rather, it is that he did not seem to understand (or if he did, he did not let this understanding guide his actions) the crucial importance of both knowing when there was an actual or potential conflict of interest and knowing how to avoid it or minimise it.

This is critical to more than just whistleblowing.

At a time when the all-encompassing financial institution is pretty much the norm, conflicts of interest policies are essential – to address conflicts between firms and their clients, between clients, between employees and the firm, employees and clients etc etc.  But above all they are essential because they seek to address the very problem caused by the existence of financial behemoths. Their very size and and the scope of their activities create all sorts of actual and potential conflicts of interest which, if not properly recognised and managed, risk damaging the trust which is essential to the survival and success of a financial institution, indeed of the financial sector as a whole.

One of the ironies of that Big Bang 21 years ago is that, in enabling the abolition of the inefficiencies of all those small brokers, jobbers and the rest (inefficiencies which were believed to hold the industry back) through their mergers and takeovers by large (mostly) US banks, it led to the recreation on a massive scale and in enhanced form of all sorts of new conflicts and issues around trust, necessitating ever larger – and increasingly complex – rulebooks.

The regulators have been playing Whack-A-Mole with wrongdoers ever since.

So it is not a surprise that a failure to recognise and/or a determination to ignore conflicts of interest have been at the heart of some of the worst scandals of recent years: split cap investment trusts, market manipulation, PPI and pensions mis-selling, LIBOR, FX, front-running and so, dismally, on.   All the more important, therefore, for those at the top to understand why managing conflicts of interest properly is at the heart of establishing and maintaining trust in their institution – and the whole sector.

Note too the reference to Mr Staley being concerned that his authority to make hiring decisions was being undermined by the whistleblowing allegation.  There is the authentically aggrieved tone of the senior man unused to not getting his own way.  Let’s not be too hard on him though.  He is not the only person in power to have reacted thus to any challenge, though possibly the first to have this made public in such circumstances.  And yet the hiring process is the first – and often – best collective opportunity to decide whether this person is right for this firm in this role. A whistleblowing provides an opportunity for such a challenge, as does the vetting process.  The latter risks being seen as a bureaucratic step to be got through, rather than an opportunity for proper scrutiny, if people feel that the decision is already a done deal and any questioning of it unwelcome.

After a year long investigation a pity that the regulators’ decision did not consider these points.

Still, no reason for the industry not to take the wider view about the lessons to be learned from this affair.  Will its leaders do so?  Or will they breathe a sigh of relief, make some process changes, create a few more reports but largely carry on much as before?

 

Photo by Drew Coffman on Unsplash