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Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited
See no evil, speak no evil and certainly speak no evil!
Article Type: Editorial From: Journal of Money Laundering Control, Volume 16, Issue 3
The extent to which those working in the financial sector by their own excesses contributed to the near collapse of Western banking will be a matter of debate for many years to come. It is perhaps a reflection of our reluctance in the financial sector to call a spade a spade or, for that matter, a crook a crook that this discussion, even in the USA, has been so gentlemanly and reserved. The truth is that few determined attempts have been made anywhere around the world to fix real legal responsibility on those who appeared to have forgotten that basic truth in the markets – so eloquently put by President Roosevelt, when introducing his New Deal, that those who mind other peoples wealth are in the case of stewards and should be held to the time honoured obligations of such. In practice, of course, the problem is that in the main the law does not recognise the majority of persons working in the financial sector as fiduciaries and therefore does not hold these persons to account on this basis. Even where there might be a traditional fiduciary nexus, even in the USA where perhaps more than anywhere real attempts are made to ensure personal accountability of issues of integrity these obligations appear to be often ignored or circumvented. For example, in 2001, New York Attorney General Eliot Spitzer reported to a US Senate Committee that in case after case his investigators had found on Wall Street the wholesale abandonment of this principle by fund managers the like. It is also clear that the many regulators including the Securities and Exchange Commission and FSA considered that imposing such standards was a cost too far.
Of course, for good reasons we generally pitch responsibility in the criminal law at the level of personal culpability – in other words in circumstances where we can prove beyond a reasonable doubt that the person knew and appreciated what he was about. Furthermore, we have been reluctant to impose obligations on individuals particularly in market situations that might inhibit the unbridled pursuit of greed and personal self-advancement. Of course, there are some limits and the wanton pursuit of greed is properly curbed by forbidding the use of false statements, but not generally the omission to disclose highly material information, unless there is an independent obligation to in fact disclose it. Mere silence does not amount to fraud! By the same token we have been careful in burdening the pursuit of profit with duties of care to others. Of course, there are significant and very real reasons why the law has historically exercised considerable caution in the markets, none the less perhaps the time is now ripe for at least a little tinkering?
Thought is being given in the corridors of those institutions that still think about such issues to expanding the obligations of those who supervise or in some manner assume responsibility for the conduct of those under them. In some respects this is not a new approach. There were various examples of this in even President Roosevelt’s legislation and the rules made under it. However, judges do not like imposing liability which in practice amounts to attributing the fraud of others to the relatively innocent and many of these provisions have been diluted into what is commonly referred to as “control liability”. While useful in delivering the odd scalp this form of liability is not going to change the perimeters of accountability. This is not happening even with the extended form of strict liability that we see in Section 7 of our Bribery Act. Indeed, the main effect of this seems to have been to revive the fortunes of those who offer compliance training and provide employment opportunities for former SFO staff!
It is also very important to distinguish between the imposition of liability, for whatever reason, on a company or firm and making individuals properly accountable. The new chairman of the Financial Conduct Authority has already expressed the view that imposing very large fines on financial institutions may not be particularly effective other than in denouncing what has taken place. Indeed, there are those who argue that punishing the enterprise only harms the innocent stakeholders who in practice have little opportunity to monitor conduct let alone influence it. A rather more fundamental change is law and attitude is required. It is not enough to achieve this even by attempting as the Americans are now doing, by applying what are at least described as fiduciary obligations to persons in the financial services industry who would not normally be in a fiduciary relationship. The scope and import of such obligations is sufficiently uncertain in practice as to render them almost impossible to enforce, other that a compliance level.
In my opinion if we lock people up for negligently diving cars we should be able to prosecute those who negligently “drive” banks and other financial institutions that mind other people’s money. This would not require tremendous development in our jurisprudence or radical thinking over and above what we already have in our law in the context of insolvency. We have long accepted that the voluntary taking or getting into positions where there are reasonable expectations of obligation to others, justifies the intervention of public law and accountability. Preventing or even addressing the wrecking of our financial system would seem to be a worthy public interest. Indeed, even if there is no appetite in our political classes to impose the rigors of the criminal law on merely the negligent and witless – there is good law, which justifies a court distinguishing between someone who is negligent and someone who is so negligent that they make for themselves a profit or a bonus! It might not surprise – at least the readers of this journal, that such suggestions to those who might be thought to take an interest in such issues in the public interest, has resulted in another manifestation of the three monkeys approach to life!