My Lords, Amendment 107 seeks transparency about ministerial interventions in regulatory investigations, by requiring the FCA to make a statement. I am grateful to the noble Baroness, Lady Bennett of Manor Castle, for her support. Currently, ministerial interventions are made in secret, and neither Parliament nor the people are able to call Ministers to account. Ministers intervene to stymie investigations, and the trail is often carefully concealed. Some years later, a few interventions do become visible.
Consider the case of HSBC, a bank supervised by UK regulators, implicated in global money laundering and protected by UK Ministers and regulators. In July 2012, the US Senate Permanent Subcommittee on Investigations published a report entitled U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing:
HSBC Case History, which documented the fact that, despite evidence, HSBC staff knowingly laundered money for criminals and engaged in sanctions-busting.
In December 2012, HSBC was fined $1.9 billion by the US authorities—the biggest fine at that time. The US Department of Justice said that HSBC permitted
“narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries”.
It added that HSBC had
“accepted responsibility for its criminal conduct and that of its employees.”
However, HSBC was not prosecuted, and instead entered into a deferred prosecution agreement until 2017. The levying of the largest ever fine on a UK bank and admission of “criminal conduct” did not prompt an investigation of HSBC’s practices in the UK. Did the bank engage in similar practices here?
In March 2013, the US House of Representatives Committee on Financial Services began a review of the US Department of Justice’s decision not to prosecute HSBC or any of its employees or executives for criminal activities. The committee’s July 2016 report, Too Big to Jail, showed that the Governor of the Bank of England, the chief executive of the Financial Services Authority and Chancellor George Osborne intervened to protect HSBC. The report contained a two-page letter, dated 10 September 2012, from the Chancellor to Ben Bernanke, chairman of the US Federal Reserve. It urged the US to go easy on HSBC, as it was too big to fail. The US report reproduced some correspondence showing the determination of the UK Government and regulators to protect a bank that had, by its own admission, engaged in “criminal conduct”.
The FSA, Bank of England and Chancellor also urged the US to go easy on Standard Chartered Bank, which was fined $670 million for money laundering, sanctions busting and falsification of records. Its deception was aided by Deloitte. The US Treasury court documents referred to the bank as a “rogue institution”. No statement was made at that time to the UK Parliament to explain regulatory silence or the Chancellor’s interventions. How do we improve banking regulation or hold anyone to account for nefarious practices when Ministers and regulators collude to protect wrongdoers?
I shall return to some questions after my next illustration. It relates to the July 1991 closure of the Bank of Credit and Commerce International. It was the site of the biggest banking fraud of the 20th century. BCCI was supervised by the Bank of England and was closed only after investigations in the US. The UK closure was followed by a few prosecutions and some parliamentary committee hearings. However, unlike previous bank collapses in the 1970s and 1980s, or even subsequent ones such as Barings in the 1990s, there has been no independent forensic investigation and key documents continue to be suppressed to this day.
On 19 July 1991, the Government appointed Lord Justice Bingham to examine some aspects of the Bank of England’s supervision of BCCI. The Prime Minister John Major told Parliament:
“The conclusions of the inquiry will be made public.”—[Official Report, Commons, 22/7/1991; col. 755.]
The Bingham report was published on 22 October 1992 and was highly critical of the Bank of England’s failures. However, it was published without the supporting appendices containing extracts from a document codenamed the “Sandstorm report”, which provided information about some of the frauds and named some of the parties involved in them.
Meanwhile, the US Senate Foreign Affairs Committee investigated BCCI frauds and, in December 1992, published a report titled The BCCI Affair, which said that
“BCCI’s British auditors, Abu Dhabi owners, and British regulators, had now become BCCI’s partners, not in crime, but in cover-up.”
The US Senate committee secured a censored version of the Sandstorm report from the Federal Reserve, which had obtained it from the Bank of England. The committee also secured an uncensored version and said that it
“revealed criminality on an even wider scale than that set forth in the censored version.”
The committee also had access to CIA files on BCCI, which have been made public. Despite this, the Sandstorm report remains suppressed in the UK.
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Some time later, a US academic and I began research into some puzzling aspects of the BCCI episode. My co-author visited the US Congress Library and found the censored version of the Sandstorm report. On 3 January 2006, I used freedom of information legislation to request a full copy of the Sandstorm report. The Treasury refused, and the Information Commissioner agreed with the Treasury. To cut a long story short, I pursued the matter. Five and a half years later, on 11 July 2011, three judges in the case of Professor Prem Sikka v Information Commissioner and HM Treasury unanimously ordered the Treasury to release the full version of the Sandstorm report to me. The judges said:
“In our view there is considerable public interest in the public seeing the whole of the Sandstorm Report so that it can be seen, not just what happened, but what role was played by the governments, institutions and individuals who were involved with an organisation guilty of what the authors of the Sandstorm Report … described as ‘an enormous and complex web of fictitious transactions in what is probably one of the most complex deceptions in banking history’”.
At paragraph 42 of the judgment, the judges rebuked the Treasury for shielding the identity of
“the architects of a group-wide programme of fraud and concealment”.
By comparing the version of the Sandstorm report given to me by the Government with the censored version found in the US Library of Congress, one can get some idea of the parties being protected by the UK Government and regulators. These include individuals thought to be linked to al-Qaeda, Saudi intelligence, the royal families of Abu Dhabi and other countries in the Middle East, as well as arms dealers, smugglers, fraudsters, convicted criminals, BCCI senior personnel and politicians. The Government even fought to shield the identity of some criminals who had died in the intervening years. Words such as “Grand Cayman”, “Bahrain”, “Turks and Caicos”, “North American Finance and Investment”, “Arab Livestock Company”,
“Saudi National Commerce Bank” and “Royal Bank of Scotland” had also been concealed by the UK Government.
Since the 2011 court judgment, there have been a number of requests in Parliament to place the Sandstorm report in the parliamentary Libraries. The Government have refused. I asked a Written Question and on 2 November 2020 the Government replied:
“There are currently no plans to publish an unredacted version of the report by Lord Justice Bingham into the Supervision of the Bank of Credit and Commerce International.”
So, after nearly 30 years the Sandstorm report is sitting in nearly 1,300 US libraries but it is still a state secret here. Governments have gone to considerable lengths to protect the wrongdoers.
I have cited examples of ministerial interventions from different time periods to show that a culture of cover-up is deeply institutionalised. Ministerial cover-ups have only emboldened banks. Last September, we learned of the FinCEN files, which showed that HSBC allowed fraudsters to transfer millions of dollars around the world even after it had learned of their scams. In relation to the ongoing saga of the RBS and HBOS frauds, the Thames Valley police and crime commissioner publicly stated:
“I am convinced the cover-up goes right up to Cabinet level.”
Some no doubt will remind me that we have the best regulation in the world—but best for whom? There is a huge difference between regulation on the books and regulation in practice. A commonsensical understanding is that financial regulatory mechanisms exist to protect the interests of investors and depositors, but that cannot be done without investigation and a purge of corrupt practices. Anything less harms people, industry markets and possibilities of democracy. By shielding wrongdoers, Governments may appease some, but what of the people’s right to know? How can Ministers and regulators be called to account when Governments and regulators protect wrongdoers? How can a good system of regulation be developed under such circumstances?
Governments claim to adhere to seven principles of public life, which include accountability, openness, honesty and integrity. In the absence of disclosures about ministerial interventions, such claims will continue to have little substance. My amendment would strengthen democracy by requiring regulators to make disclosures about ministerial interventions. I beg to move, and I hope that this Committee will support this call for transparency.