HBOS / Dobb White / Vavasseur frauds - The powerful speech from Anthony Stansfeld, the honourable Police & Crime Commissioner for Thames Valley

“Before becoming the Police and Crime Commissioner for the Thames Valley, one of the UK’s largest police forces, I had served worldwide as an Army Officer, worked in intelligence and been a Managing Director of an aircraft manufacturing company with aircraft in 120 countries. I did not expect that as a PCC much would shock me, I was wrong. The scale of corruption within at least four major UK banks, aided and abetted by their legal advisors, auditors and accountants has been on a massive scale.

Fraud is usually complicated, but the basics of this were simple. Profitable companies and farms with assets, or loss-making companies with assets that far exceeded their loans from a bank, would be targeted. The company loans would be transferred to the branch of the bank that purported to specialise in company restructuring. Its sole purpose was to make as much money as possible for the bank and its corrupt managers by liquidating the company. They would grossly underestimate the value of the assets, sell them at far less than actual value, recoup the loan, share the profits of the resale at proper value amongst their cohorts and then go for the personal guarantees of the company owners. Often this would be done through documentation that had been altered and signatures forged. The bank would regain far more than the original loan and those that assisted made fortunes.

There has been little effort or enthusiasm by the many regulatory authorities, notably the Bank of England, the Serious Fraud Office (SFO) and the Financial Conduct Agency (FCA), to either stop these frauds or bring the perpetrators to justice. Action Fraud, which comes under the City of London Police and is meant to correlate fraud, has been shown by the Times newspaper to be a complete shambles. Its job was contracted out to a call centre in Glasgow and was left unsupervised. It has failed thousands who were told by their local police force to report their fraud through it. Corruption seems to have become institutionalised and considered normal practice. There is ample evidence for both the scale of wrong-doing and the companies and individuals responsible.

Unlike Libor and PPI, these frauds were not skimming off the top. They ruined many tens of thousands, families and jobs have been destroyed. Homes, farms and possessions have been repossessed on forged documentation across the country. The damage to the UK economy has been massive.

In August this year the Treasury Select Committee asked the NCA to look into the industrial scale forging of signatures by banks and the alteration of documentation. Six large files of evidence were given to the NCA. In spite of having a responsibility for Serious Organised Crime, the files were immediately given to the FCA which has been aware of the problem for years. It has now been passed to the SFO, who have been in possession of similar documentation for several months. The ability of the Regulatory Authorities to pass the parcel between each other without anyone taking responsibility is a neat way to avoid action being taken.

The underlying problem is that senior white-collar crime is not seen by the establishment to be a real crime. The NCA claims that Serious Organised Crime (SOC) is running at £38Bn a year. It also states that fraud is running at £190Bn a year. I pointed out that £152Bn seemed to have gone missing and that the majority of that was SOC. A senior Metropolitan police fraud officer wrote to the Treasury Select Committee in 2017 stating that the executive boards of some of our most prominent banks were SOC syndicates. His report was hastily buried. From everything I have seen and which has become apparent over the last three years, he may well have a point. Stealing a million pounds through the front door of a bank will result in massive police response. Steal a billion through the back door and nothing is done.

In 2013 the Thames Valley Police started to investigate claims of a large fraud in HBOS bank. The fraud was based in just one branch, Reading. Two other police forces and the SFO had already turned the case down. The only reason TVP took on the case was that a family who had been ruined by the bank carried out an investigation and correlated the other victims of the bank. The bank had tried 21 times to evict them from their house. That was enough to convince the Chief Constable that an investigation should be initiated. The fraud was large, it had destroyed numerous companies and individuals and nearly £1Bn had been stolen, both from the banks customers and from the bank itself. Throughout an expensive and extensive three-year investigation the bank did little to help, in fact the opposite. Throughout the investigation Lloyds Bank, which had taken over HBOS, denied it had itself been a victim of the crime. The bank had known about the fraud since 2008. The bank was defrauded at least £100m. HBOS was different from the other banks perpetrating similar frauds in that its management seemed to allow the bank itself to be a victim. In February 2017, the long trial in Southwark Court came to an end with guilty verdicts on 6 fraudsters, and the heaviest prison sentences for a fraud ever in the UK. It was only then that Lloyds Bank which now owned HBOS, would admit a fraud had taken place.

The case cost Thames Valley Police £7m to bring to court. The FCA fined Lloyds Bank £45m for concealing the fraud, yet held no one responsible. The £45m was passed direct to the Treasury. In spite of my asking the Chancellor, Philip Hammond, for TVP to be reimbursed the cost of the case, he refused to do so. It is little wonder that Police forces, which rarely have either the capacity or capability to investigate high level fraud, are reluctant to take on fraud perpetrated through banks. It is costly to do so, and even if they recover massive sums of money, none reverts to the police force that has born the cost.

An internal review into what had gone on in Lloyds, called the Turnbull Report, had been written by an employee in 2013. It laid out in detail the consequences of the wildly inaccurate and possibly fraudulent KPMG audits carried out on the HBOS accounts. These had overlooked massive holes in the bank balance sheet approaching £40Bn, and the concealment of the £1Bn fraud carried out in Reading. On the back of these audits, both HBOS and Lloyds had raised billions in Rights Issues on knowingly false accounts. KPMG were also the auditors of the Co-Op Bank and Carillion. The senior partner of KPMG became Chairman of the FCA. It is interesting to note that the Chairman of the Financial Reporting Council (FRC), which is meant to monitor auditors, gave the KPMG audits of HBOS a clean bill of health. The Chairman of the FRC was in his previous job Chairman of Lloyds.

The Turnbull Report was written by a senior Lloyd’s accountant, Sally Masterton. It named both the companies and individuals involved in both the frauds and the cover up. She was promptly made redundant with minimal compensation. The bank denied the report was authorised and did its best to denigrate its author. Both the Bank of England and the FCA received the report in early 2014. In spite of the evidence neither took action. Three years after Sally Masterton was sacked the bank had to admit her report was authorised and she was paid compensation.

The failure of the FCA to protect Sally Masterton is disgraceful, it took others to ensure the bank apologised to her and paid her compensation. Needless to say, it was accompanied by a draconian Non-Disclosure Agreement.

In 2017 it became apparent that the Turnbull Report had been concealed by the 3 man Executive Board of Lloyds from their own Chairman and non-executive directors. I personally ensured the Chairman, Lord Blackwell, was sent a copy of the report in March 2017. He took no action in spite of it being clear that a number of fundamental company rules had been flagrantly broken by his executive board. As far as it can be ascertained he failed to pass on the report from the other non-executive directors for a further year. Anita Frew, the senior non-executive Director of Lloyds, was asked when the Chairman shared the report with the other non-executive Directors. It is a simple question she would not answer, and neither would the Company Secretary. I believe it was not until the report was published through parliament that she and the other non-executive directors were aware of the report. It would appear that a devastating report of Lloyd’s financial misconduct was concealed from the main board of Lloyds for at least three years.

Similar frauds to HBOS were also going on in Lloyds itself, RBS and Clydesdale. In Lloyds alone a number of branches would appear to be involved. None of these has been investigated properly. Most police forces have neither the capacity nor capability to take on white collar fraud based on banks. Lloyds Bank spends nearly a billion on high priced lawyers annually. The SFO receives less than £40M a year to combat fraud. Its inability to win high profile cases against banks is symptomatic of this. The cost to TVP of taking on the Reading case was £7m. It clearly deterred other forces from taking on major fraud cases.

It is estimated that RBS alone took down around 16,000 companies. A proportion of these may not have been viable, a great number were, and had never defaulted on loans. The companies were pushed into the RBS Global Restructuring Group. This was meant to assist companies, not destroy them. Its Chief Executive told the Treasury Select Committee it was not a profit centre. It made billons pillaging companies. No one has been held to account for this. He is now Chief Executive of Santander Bank. The FCA and the Bank of England stood back and did nothing.

The SFO is now in possession of both the Turnbull Report and detailed files on the use of forged documents and signatures that have been used to convince courts to bankrupt a vast number of individuals and repossess their homes. The Turnbull report has sat with the SFO for a year, and with the FCA and Bank of England for five years. Action by them is well overdue. The evidence is clear. The files that cover the forged documents have been with the SFO for six months. Again the evidence is clear. I trust it will not be covered up like so much else has been.

Similar frauds were perpetrated in both the US and Australia. In the US, the banks were fined £25Bn for the forging of documents and bankers gaoled. In Australia the government set up a Royal Commission. Its report is devastating and the police are now taking action against the bankers and associates involved. In the UK nothing has been done. There would appear to have been a systematic cover up. The Bank of England, the FCA, the FRC and a number of other bodies have failed to hold the banks and accountancy companies to account. There is a revolving door between employment in these agencies and the major banks. It has been at the expense of thousands of small and medium size companies. The bail out of Lloyds and RBS by the Treasury merely compounded the loss to the UK economy.

Two major inquiries into Lloyds Bank are currently being undertaken. Sir Ros Cranston, a retired High Court Judge, is due to report in the near future on Lloyd’s Bank treatment and compensation paid to victims of the HBOS Reading frauds. The internal Lloyds scheme under a Professor Griggs is widely believed to have failed to properly compensate properly those small number of victims whose names came up in the court case. The others defrauded, whose cases were not brought up during the court case, have largely been ignored. It is worth mentioning that only a small part of the Reading fraud was prosecuted, probably less than a third of the overall fraud. This gave the bank the opportunity not to compensate the many others who had been defrauded. All those who have been compensated were made take it or leave it offers, accompanied by draconian Non-Disclosure Agreements (NDAs).

The other inquiry is an internal Lloyd’s inquiry headed by another senior Judge, Dame Linda Dobbs. This started in 2017 as a small inquiry into what had gone on within Lloyds over the HBOS case. It has now expanded into a massive inquiry that will not report until later in 2020. It will have taken nearly 4 years and a large team of lawyers supporting Dame Linda, with two lead QCs, to get to the bottom of this. Every stone that is turned over expands the inquiry.

The concern about this report is that most of those responsible will have departed the bank with large bonuses and pay offs before the report is released. Only part of the problem is being looked at by the inquiry. What went on in other branches of Lloyds is not part of the inquiry.

The Government should set up a full Public Judicial Inquiry into what went on in our banks. It should examine how it can be prevented ever happening again, why the regulatory authorities covered it up, how the victims should be compensated and who should be prosecuted.

At the moment less than 0.03% of the amount lost to fraud is spent to combat fraud. Sorting it out should not be difficult. At least £500m should be used to set up regional police fraud units with the majority employed being forensic accountants. The money required should be taken from the annual fines levied by the FCA and ring fenced for this. The SFO should be made fully independent of the Treasury, and have its budget greatly increased. The NCA should deal with the wide scale bank money laundering, and the international aspects of the frauds.

The UK needs a profitable banking system and it needs an honest one. The two are not incompatible”

Anthony Stansfeld

Police & Crime Commissioner for Thames Valley

29th October 2019