Stop pussyfooting, Britain needs to rewrite the rules on economic crime

British regulators have not done enough to tackle white-collar crime among the country's financial institutions. AP

In December 2012, HSBC was fined $1.8 billion, the biggest amount in US history, for enabling the laundering of billions of dollars by the Sinaloa drugs cartel.

The 32 pages of admissions from the bank make for shocking reading. No bank executive was prosecuted, despite the Americans’ desire to press criminal charges. That was because the British government, in the form of George Osborne, who was chancellor at the time, dramatically intervened at the last minute, claiming that seeking convictions of individual bankers risked bringing down the giant corporation, indeed the entire financial system.

The fact that Stephen Green, now Lord Green, who ran HSBC for much of the period in question, was by now a minister in the same government as Osborne had no bearing on the official response. Of course not.

HSBC was penalised – the fine amounted to just five weeks of the banks’ profits – and that was that. There was no official inquiry in Britain, despite HSBC being the country’s biggest bank. Parliament and the financial watchdogs all looked the other way.

If there is a case that perfectly encapsulates the UK’s lackadaisical attitude to economic crime it is HSBC and Mexico. It does not fit with the nation’s role as a leading global financial centre, as a magnet for international capital, to ask too many questions, to crack down too heavily on the sources of that wealth.

In theory, the UK has a body called the Serious Fraud Office, or SFO, that is meant, as its title suggests, to pursue such activity. But its track record is lamentable – Private Eye calls it the “Serious Farce Office”. To be fair, ranged against it is the full panoply of City law firms that specialise in tying SFO investigations up in knots, stalling and blocking at every opportunity.

UK fraud regulators are understaffed and underfunded compared with the banking behemoths. Reuters.

Not only that – despite the best efforts of its staff and successive directors, the suspicion persists that on high, the SFO is regarded as an inconvenience, a burden, not something worthy of full-on backing, from the government and establishment.

This is borne out by a new report from the Institute of Economic Affairs, or IEA, think tank, calling for radical reform of the organisation, claiming that its problems stem from “cultural and institutional inadequacies”. The report says juries should be replaced with expert tribunals in complex fraud cases, but goes further, arguing the SFO could be abolished altogether and its responsibilities divided among existing law enforcement agencies.

If there is a case that encapsulates the UK’s lackadaisical attitude to economic crime it is HSBC and Mexico

Dr James Forder, the report’s author, claims anti-fraud measures in England and Wales are “in crisis”. Says Forder: “The effective control of serious fraud is [essential to] being a global business centre, but in England and Wales this aspect of law enforcement is in crisis. The law and legal procedure have failed to keep pace with the growing complexity and scale of modern business. This requires serious and urgent attention.”

He believes that “over a period of decades”, the SFO has “fallen far below the standards that should be expected and required of it” and a “radical shake-up is now urgent”.

The report was published as the attorney general, Victoria Prentis, KC, MP, is commencing the search for a successor to the SFO’s current director, Lisa Osofsky, who has confirmed she will stand down at the end of her five-year term in August.

It’s hard to think of a more difficult, thankless job, such is the lack of support for the SFO. The government could devote more resources to it – and not just funding, but love and attention, ensuring its status and power are recognised and appreciated – yet chooses not to do so. Meanwhile, it’s expected to tackle a City that is supremely well funded, employing the best lawyers, accountants and financial brains to run rings round the hapless SFO officials.

British banks have frequently failed to ask difficult questions about the source of their clients' wealth

Coincidentally, too, the home secretary, Suella Braverman, has just unveiled The Economic Crime Plan 2023-2026. Delayed by nine months, it includes measures for tackling money laundering and recovering the proceeds of crime, reducing fraud and enforcing sanctions. Given that an estimated £100 billion in criminal proceeds are laundered through the UK every year and fraud is reckoned to cost the country £136 billion per annum, the report is clearly welcome, even if overdue.

But is it enough? Braverman says she will employ an additional 475 financial investigation staff. That seems like a lot, but we’re dealing with decades of neglect in this area and the level of catch-up is enormous.

Helena Wood, co-head of the UK Economic Crime Programme at the Royal United Services Institute think tank, says: “The plan aims to improve the policing response to economic crime, but does little to deal with the fact that economic crime represents only 1 per cent of policing resources; the additional 475 staff earmarked in the plan are not enough to stem a multi-jurisdictional, multibillion-pound threat to the UK’s national security.”

We still await, as well, the government’s Fraud Strategy, also delayed since July 2022. There’s no detail forthcoming either on cohesive legal rules for tackling the assets of those made subject to sanctions. Until they are introduced, bans, such as those currently imposed on Russians, have little prospect of being properly effective.

Charles Bott, KC, a leading fraud and white collar crime barrister and head of advocacy for asset recovery law firm, Martin Kennedy & Co, in the British Virgin Islands, says: “The UK currently lacks a credible system to tackle serious economic crime and its record in criminal asset recovery is weak.” Bott calls them, “stale proposals that have not succeeded in the past, and the extra resources are unlikely to make a real difference. A better understanding of the complex nature of economic crime and how money laundering works is needed. I’d hoped for more, I’m afraid”.

Bott is right. Hard as it is for ministers and the authorities to swallow, and in the face of intensive City lobbying, we really must stop pussyfooting about where economic crime and fraud are concerned.

Chris Blackhurst is the author of Too Big To Jail: Inside HSBC, the Mexican drug cartels and the greatest banking scandal of the century (Macmillan)