After a week when the public has been bombarded with the great thoughts of policymakers on the tenth anniversary of the financial crisis one huge question remains unanswered.
Why is it that when financial institutions around the globe were engaged in a large swindle, which saw toxic sub-prime securities created and sold as if they were top grade ‘triple A’, virtually no one has been prosecuted or sent to jail?
Bizarrely, the only people arrested so far are the Barclays four including former chief executive John Varley. Their alleged fraud had the understandable goal of keeping Barclays out of state hands.
Former Barclays boss John Varley is one of only four people arrested in the wake of the financial crisis
The contrast between the way in which bankers involved in the 2007-08 financial meltdown have avoided justice and what happened after past financial debacles could not be more stark.
After the savings & loan crisis in the 1980s, which saw more than 1,000 savings banks across the US close their doors, US state and federal prosecutors brought 1,100 cases against the financiers involved and 800 went to jail.
When Enron imploded in 2002 the prosecutions rained down. The protagonists received long jail sentences and auditors Arthur Andersen were put out of business. The NatWest Three, caught up in an Enron sideshow, were extradited to the US on fraud charges and jailed.
Devotees of the TV box set success Billions, starring Damian Lewis, will be aware of how aggressive New York prosecutors like to be in reeling in their targets.
Even some of the banking heavyweights believe the lack of prosecutions has been a mighty mistake.
It is astonishing that Andy Hornby, who brought HBOS to its knees, went on to collect a fat pay-off from Boots after being deemed a failure and is now strutting his stuff at Ladbrokes Coral. His opposite number at the Royal Bank of Scotland, Fred Goodwin, is living it up on the greens of Scotland’s golf courses.
Bankers argue there is nothing likelier to keep them honest than seeing colleagues carted off the trading floor in handcuffs.
The most frequently quoted reason for the shyness of justice during and after the financial crisis was concern by policymakers that, in a fragile environment, seeing leading bankers in court could jeopardise hard-won stability.
Indeed, after HSBC was dragged through Congress on charges of laundering Mexican drug money and al-Qaeda funds, US prosecutors vowed that HSBC and its top executives would be held accountable.
Proposed prosecutions fell into quicksand after Britain warned the US authorities that bringing HSBC bosses to justice would be ‘very serious for financial stability’.
As importantly, US attorneys may have lost some of their mojo. The Serious Fraud Office (SFO) knows that bringing white-collar crime prosecutions against board bosses is a hit-and-miss business in which confused juries have to be convinced, sceptical judges overcome and defendants can deploy the best City lawyers.
In the Obama years in the US, ‘Chickens**t Justice’ prevailed. Prosecutors rejected uncertainty of outcomes, which might hold back their political careers, and opted for Deferred Prosecution Agreements (DPAs).
After the crisis there was no shortage of candidates for US trials including the bosses of Countrywide, Washington Mutual, AIG, Bank of America, Merrill Lynch and Morgan Stanley all singled out by the Financial Crisis Inquiry Commission. Instead of high-profile trials the companies and their lawyers settled on paying big fines.
The DPA has gained currency in Britain. Rolls-Royce paid a fine of £671m this year after a DPA negotiated with the SFO. It’s possible that there may be an individual prosecution for the so-called ‘controlling mind’ although the noise has quietened.
Former Barclays executives may well have escaped court hearings over Middle East fund-raising had the bank co-operated with the SFO when it demanded documents.
Instead, Barclays chose to play hardball hoping the SFO would go away. But SFO director, David Green declined to be intimidated. Probes into HBOS continue and there is a remote possibility that some former executives may yet face justice.
But don’t hold your breath.
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