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Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited
Article Type: Editorial From: Journal of Money Laundering Control, Volume 15, Issue 4
Another month, another scandal, exacerbated by shoddy journalism and politicians’ finger-pointing. Although the MPs’ appears to be safely buried, the Murdoch Press hacking scandal remains alive and well and now Barclays is the first of the banks to be hit by US investigation of the distorting of the Libor and Eurobor rates, although noises off from Germany and the US suggest that there will be many more developments to come.
The Libor rate rigging is not exactly the first time UK banks have been caught out by US prosecutors. Lloyds had to sign up to a Deferred Prosecution Agreement with the Manhattan DAs office and pay $350 million for falsifying bank records by “stripping” wire transfer information to conceal the identity of its Iranian and Sudanese clients between 2001 and 2004 (in the case of Iran) and up to 2007 (in the case of Sudan). Credit Suisse came to a similar agreement and ING bank from The Netherlands has only this year (2012) had to do the same and pay a fine of $619 million. Barclays itself was fined in 2010 and is of course now the owner of Lehman brothers, which makes it an institution of great interest in Manhattan.
The USA have thus fined and come to non-prosecution agreements with banks from a number of countries that have involved hefty fines and supervision of behaviour over a two-year period. There is an increasing feeling among US prosecutors, however, that fines are passed on to the customer base and ultimately, in the present financial climate, the taxpayer. The judge in the 2010 Barclays case, Emmet Sullivan questioned why the price was being paid by investors and not the Board of directors. A small, but increasingly vociferous lobby has argued for some time that banker behaviour is not likely to change unless individuals start to spend time in prison.
UK and other bankers still appear to operate on the “caveat emptor” principle. If you can make money, you deserve a bonus and there is nothing that is morally wrong. The market follows the principles of anarchy, or whatever principles the trader might have made up that very morning. How is a “rogue trader” supposed to know that what they are doing is “rogue”, other than when money has been lost?
As long ago as 1997, the EU attempted to redefine right and wrong in the neo-liberal age by bringing any threat to a level playing field for open markets, financial interests and trade into its definition of corruption.
“the interests of the Union (are defined) as being affected by corruption in that it:
(a) undermines sound decision making;
(b) distorts competition and challenges principles of open and free markets, in particular the proper functioning of the internal market;
(c) it damages the financial interests of the European communities;
(d) it had various effects upon external policies in respect of a number of states receiving the systems; and
(e) it is at variance with the transparent and open conduct of International Trade.”
(see Bill Tupman: “Transnationalisation and corruption: some theoretical and practical implications”, Chapter 11 in Sheptickiy and Wardak Transnational and Comparative Criminology, Praeger).
This changed approach does not seem to have got through to UK thinking, on the part of bankers, prosecutors and regulators. When the Barclays story broke, the response was that nothing illegal had occurred. This is not what it said in the news release from the Department of Justice. There is a failure to appreciate that transnational transactions are governed by the laws of states other than the UK and that prosecutions that are not possible in the UK can and will occur in the USA.
The traditional argument that imprisonment is the only successful deterrent is questioned when organised crime is involved. Imprisoning individuals does little to stop illicit business. Why, then, should we assume that it will change the working methods of bankers? Can bankers be taught to distinguish between licit and illicit business?
Neo-liberals assured us all that regulators and compliance officers would create the necessary rule-enforcement structures for a free market. As long as compliance officers are employees of the company concerned, they will put the company interest ahead of any other interest. They need to be reorganised into a separate professional association outside the firm like auditors. Although big accountancy companies and their behaviour do not inspire confidence that such a system will work.
Obviously, we cannot return to the system where bankers are trusted members of the local community, like Arthur Lowe (Captain Mainwaring) and John Le Messurier in their Dad’s Army civilian roles as small town bankers. Recruiting bankers to act as front line police officers in the war against money-laundering has only created a box-ticking mentality. KYC has not been a great success: show us your passport and a utility bill with your address on. Good. We know you now. There does not seem to be a system in place for know your employee (KYE), especially where “investment bankers” are involved.
The EU have at least some experience of converting citizens with a curious view of ethics back into the main stream. Germany had to do so with the old GDR police who had to sit a one-year course in democratic ethics and Who got their previous rank back if They passed an exam at the end of it. Why stop at bankers? An exam in democratic ethics for politicians and journalists might improve matters in a number of other areas too.
Separating institutions into a casino/investment bank and a solid “respectable” bank is just another way to avoid the problem rather than addressing it. Neoliberalism has destroyed the notion of professionalism. As was feared, dirty money has tainted everything it touched. Cleaning the Augean Stables of international banking requires a cross between Hercules and Pythagoras, and there is not such a creature available right now.
Bill Tupman8 July 2012