- Created: Wednesday, 08 October 2014 14:57
- Written by Trevor Rayne
Research published in July 2014 by the London School of Economics shows that from the financial crisis in 2008 to the end of 2013 the top ten western banks had paid £100bn in fines for money laundering, rate-rigging, sanctions-busting, mis-selling mortgages, bonds and insurance and assorted other scams. By the end of 2014 it is reckoned the figure will reach £200bn. Britain’s Financial Conduct Authority (FCA) chief executive warned that more fines were in the pipeline for a financial sector with its capacity to ‘constantly surprise with bad conduct’. It is as if a contagion of crime had broken out in the citadels of finance. However, as the Financial Times notes, ‘barely a ful of bankers have been hauled away in handcuffs’. They are too big to fail and too big to jail.
In Britain, the oldest imperialist power, the dominant form of capital is financial capital. Financial capital, called ‘the City’, dominates British economic and political life and will make sure the law does it no harm. Today, profit increasingly takes a parasitic form: interest, currency exchange deals and the manipulation of financial assets. Fraud is an extension of these methods of securing a share of surplus value and is invaluable to the British ruling class.
The Financial Times reports that ‘legal risk is now replacing credit risk’ in banking calculations. By the end of 2013 the top ten banks had set aside £50bn to cover legal costs. Once it was a catastrophe for a bank to even be queried over its activities, never-mind being found guilty; banking was a gentleman’s profession. Fines were intended to dissuade and reform behaviour. No chance – fines are built into bank operating costs!
The FCA and Special Fraud Office (SFO), which investigate financial dealings, explain that they are ‘addressing areas of detriment and restoring consumer trust’, and ending embarrassing practice. They are primarily concerned with ensuring that the international status of the City institutions is not harmed. They also need to fend off incursions from European Union regulation that would undermine the City to the benefit of Frankfurt, Paris and Milan.
The UK has a Gross Domestic Product of £1.74 trillion. HSBC’s assets in 2013 were £1.64 trillion and net income £10.4bn, while Barclays’ assets were £1.33 trillion and net income was $548m (£342.5m). The fines levied against these banks can be paid with income from a few days’ trading. Further, banks are given a 30% discount on fines for settling early. One calculation of bank fine discounts in Britain was £100m by the end of August 2014. Nevertheless, money means profits and fines mean fewer profits, so the head of the Japanese bank Nomura’s operations in Europe (who also heads the UK Disasters Emergency Committee) warned that fines could result in less lending to poor countries. The head of HSBC said there was a ‘growing danger of disproportionate risk aversion creeping into decision making in our business’, because regulations were enforced – meaning someone will have to pay.
PPI and dodgy letters
Payment Protection Insurance (PPI) is a form of insurance added on to loans that is meant to cover payments if the borrower cannot pay, for example falling ill or being made redundant. In many cases the policies would not have paid out due to hidden clauses or were sold to borrowers without them knowing what they were buying. In Britain lenders have handled over 13 million PPI complaints since 2007, with 70% finding in the borrowers’ favour, amounting to some £16bn in payments. Lloyds has set aside £10bn for payments for wrongly selling PPI. The British government has a 25% stake in Lloyds.
Lloyds, RBS and HSBC have admitted to sending out letters to people struggling to pay debts that appear to be from independent law firms, when they are from their own staff. Banks used made-up names for letterheads; HSBC used DG&Co, RBS used Green&Co and Lloyds used SCM Solicitors to chase debts. No doubt a case of criminal contagion; why pass up a good idea and not frighten your customers if it gets the money in?
Barclays paid £290m to settle allegations that it had manipulated the Libor rate, but fines or no fines it seems that Barclays is a committed serial offender. It is now at the centre of an investigation into rate-rigging in the $5.3 trillion-a-day currency market. Former directors of Barclays have been told to give evidence to the SFO about Barclays’ efforts to get $5.8bn from Qatar in 2008 to avoid a government bailout. The SFO has had difficulty getting documents and has served a notice compelling Barclays to hand them over, denying the former directors the right to silence. However, individuals giving evidence will not be prosecuted as long they do not lie. Part of the SFO investigation will determine whether Barclays lent money to Qatari investors who then reinvested the money in Barclays, boosting its apparent creditworthiness. Barclays refused to hand over documents on grounds of ‘legal privilege’.
Royal Bank of Scotland (RBS) is 81% government owned, but it hardly sets an example. In August RBS/Natwest was fined £14.5m by the FCA for ‘serious failings’ in the advice provided to customers over mortgage sales to 30,000 customers. It is as if the redoubtable Captain Mainwaring in the television series Dad’s Army had been replaced by the spiv Private Walker as the local bank manager.
HBOS, Deutsche Bank, Bank of America, Societe Generale … the list of banking offenders grows by the week. Offences typically include not reporting transactions and misrepresenting financial details and excuses offered range from software failures to not knowing who was responsible. In one case, ‘The misreported transactions involved so-called equity swap contracts for difference, which allow traders to bet on stock price movements without owning the underlying shares.’ Pure parasitism! However, the bankers need not fret too much about over-enthusiastic enforcers; the government has cut the SFO budget by £16m to £36.6m since 2008.
Fight Racism! Fight Imperialism! 241 October/November 2014