BBC Radio: Why the UK Can’t Mirror US Crackdown on City Fraud

The UK lags far behind the US when it comes to enforcing City fraud laws – that was the view expressed by Fraud Advisory Panel Director David Clarke speaking this morning on the BBC Radio 5 Live programme, Wake Up to Money.

His words follow the announcements yesterday that the jailed Libor trader Tom Hayes was ordered to pay almost £880,000 deemed to be proceeds of crime, whilst another judge approved the extradition to the US of alleged flash crash fraudster Navinder Sarao.

David said extradition sends a clear message that the US in the driving seat when enforcing the law. Meanwhile in the UK we are not seeing the number of cases that reflect the serious nature of the fraud threat. He went on to say that in the US you’ll do time in prison and victims who feel cheated want to see perpetrators pay the price.

City veteran Justin Erquhart Stewart of Seven Investment Management says its right that the ‘noose is tightening around the neck of people who’ve been breaking the rules’ because fraud gives us all a bad reputation and we have to rebuild trust.

He believes the UK is going down the same enforcement route as the Americans. However, there’s a general fear that our regulators all too often defer to the Americans. If there’s a problem in the UK, our authorities will pass it over to them and you’re liable to get everything thrown at you, at the least being made bankrupt and at worst going to prison for a long time.

David says the solution to getting tougher enforcement in the UK is to have better resources devoted to fighting fraud and this means more people with the expertise to conduct investigations. Agencies must also work together and cooperate across international boundaries. He stressed the laws and powers in UK are extensive already, the issue is we need to use them and have the resources to enforce the laws. This echoed a previous call his charity, the Fraud Advisory Panel made in February when the UK Government announced the launch of its new Joint Fraud Task Force.

James Bevan, Chief Investment Officer at CCLA Investment Management said the alleged fraud that Sarao, the so called ‘Hound of Hounslow’ is accused of breaking a law that is a law in America and not in the UK. He was trading on the Chicago stock exchange which puts him under US jurisdiction. He pointed out that British laws are actually very complicated. Asked if the UK has toughened-up its stance against City firms since the financial crisis, James said the United States has certainly been a tougher regulatory environment for the banks as ‘bodies corporate’ but not so for individuals.

This has led the public to ask how come the authorities can impose multi-billion pound fines on banks for wrongdoing? Regulators prove the case, fines are paid and yet not a single individual is held responsible. James agreed that where individuals were held to account they tend to be further down the chain. Similarly, the fines imposed whilst eye wateringly big to most people, they are actually quite small in the context of the level of remuneration and bonus payments the miscreants received.

Alison Loveday CEO of law firm Berg who has represented clients that are taking action against banks following fines for Libor and Forex rigging was asked if the authorities in the UK are cracking down on fraud. Her belief is there is a marked reluctance by the regulator and the SFO to get involved and that we haven’t seen anything like the action taken in the US and called for by those affected by the frauds.

She shared the view that despite it being seen as a big problem there is a lack of financial resource in the UK to tackle the problem. She said this was very different to the situation in the US where there is an appetite to prosecute.

She also believes there is an absence of transparency that makes it difficult to move forward in this area. She wants to see more transparency around what has happened in major cases such as Libor. Alison says there is a feeling that Tom Hayes for example was made a scapegoat, there’s no one senior in the bank that been brought to account and we have other public banks like RBS where there have been no prosecutions.

David Clarke believes yesterday’s court rulings may make fraudsters think twice and should remind all individual and corporate investors about the ever present risk of fraud and their need to conduct adequate due diligence before making investment decisions.

David is our Group Head of Anti-Corruption and Multi-lingual Due Diligence Services and was the police officer who led the programme that established the National Fraud Intelligence Bureau (NFIB), Action Fraud and other new services that emanated from the UK Government’s Attorney General-led Fraud Review. He pioneered our AMLiss™ service for compliance professionals.

You can listen to selected part of the programme below or in its entirety on the BBC iPlayer website.

Image courtesy of Scene from The Wolf of Wall Street (Paramount Pictures)