The WhistleBlower That Couldn’t Be Silenced

The Inspirational Nicholas Wilson


 Banking and Finance 

Last updated at 12:01AM, December 9 2015
Customers use ATM cashpoints outside a HSBC bank branch in London
A whistleblower has alleged that it was unlawful for HFC, a subsidiary of HSBC, to levy a charge on the cost of recovering arrears
Justin Tallis/Getty Images

The financial regulator will open a new investigation into whether HSBC overcharged customers who were struggling to make credit card repayments, after years of campaigning by a whistleblower.

The Financial Conduct Authority, which has been issued with a stinging rebuke from its own complaints commissioner, said that it would “reconsider its decision not to look into allegations” that HFC bank, a subsidiary of HSBC, charged customers too much to cover the costs of trying to recoup missed payments.

Nicholas Wilson, a lawyer, has campaigned to bring the charges to the attention of the regulatory authorities. Mr Wilson has alleged that HFC’s practice of levying a charge on the cost of recovering arrears — taken as a percentage of the sum recovered and not the actual cost of the recovery — was unlawful.

Having contacted the regulator in 2012, Mr Wilson made several more attempts to highlight the issue, including submitting a Freedom of Information request to find out what had happened to the investigation. Finally he got in touch with the office of the complaints commissioner.

Antony Townsend, the commissioner, issued a letter on December 3, in which he said that the FCA’s actions were characterised by “delay and muddle” that “bordered on the farcical . . . The FCA should be transparent and, where it has made mistakes, freely admit it. In this case, the FCA’s defensiveness is wholly unsatisfactory.” The FCA should “offer a full apology for its serial failings” to Mr Wilson, the commissioner added.

Dominic Lindley, a consultant who used to run the financial services policy team at Which?, said: “The FCA is supposed to take whistleblowers seriously. There now needs to be a transparent investigation.”

HSBC bought HFC as part of its acquisition of Household, the American consumer finance group, in 2003. The business has managed store cards, including that of John Lewis. It stopped the charges, which were laid out in its terms and conditions, in 2010. The bank said that it would “co-operate fully with any FCA investigation”.

The commissioner noted that the FCA had assumed responsibility for consumer credit from the Office of Fair Trading on April 1, 2014. The FCA came into being in 2013, replacing the Financial Services Authority. The FSA believed that the matter should be passed to the OFT, but did not send it on. The FCA referred it to the OFT only a few weeks before it was itself due to take over responsibility for consumer credit.

The commissioner also criticised the FCA’s response to Mr Wilson’s FoI request, in February 2014. Having asked HSBC for information, the regulator included the bank’s wording in its own document, without attributing or verifying it. “The FCA simply should not have quoted directly this information without first verifying that the information was correct,” Mr Townsend said.

Regulator Ignores RBS WhistleBlower. Is This A Behaviour?

CAPX By Iain Martin 26th November 2015

RBS whistleblower: losses hidden to protect bonuses ahead of crisis

RBS whistleblower: losses hidden to protect bonuses ahead of crisis

Senior executives at the Royal Bank of Scotland colluded to ensure that tens of millions of pounds in bankers’ bonuses were paid out shortly before the financial crisis, an RBS whistleblower will say in evidence in a UK court case that could cost the bank billions.

It is understood that US-based Victor Hong, a risk consultant who worked for RBS, will also claim that the now disbanded British regulator, the Financial Services Authority, disregarded his evidence of wrongdoing at RBS when it undertook an investigation shortly after the financial crisis.

A source familiar with the case, someone close to Hong, says he will give evidence alleging that there was a coordinated effort at the bank to suppress the truth: “He was told repeatedly to suppress information. He was told by senior executives that he couldn’t mess up the bonuses. The word was, shut up about it, we don’t want the detail out.”

RBS grew rapidly pre-crisis to become, briefly, the biggest bank in the world with a balance sheet of almost £2trillion. It had to be rescued to the tune of £45.2bn by the British taxpayer in two tranches in 2008 and 2009.

Shareholders claim they were misled into investing when RBS launched the UK’s largest rights issue in history to shore up the bank and raise £12bn in April 2008 just months before the crash. RBS strongly contests the claims and is funding the defence of former chief executive Fred Goodwin and others cited.

Hong, who was based at RBS in Greenwich, in Connecticut in the US, resigned after six weeks in post having been hired to examine the state of a key part of the deteriorating business. He will give evidence that the bank’s management were told that losses from CDO (Collateralised Debt Obligation) mortgage-backed securities were going to be much worse than was being admitted. If they had been “marked down” further as he recommended it would have reduced profits, the bonus pool and bonuses in early 2008.

He will claim in court in London that he:

– warned senior executives repeatedly that the so-called “marks”, meaning prices, at which the CDOs that RBS held on its books were far too high, considering the state of the market and steps taken by other banks with similar problems.

– argued repeatedly, supported by several colleagues, for much more aggressive markdowns.

– was asked by a senior executive at RBS Greenwich if there was any way he could destroy an email containing warnings.

– was blocked from meetings with RBS’s auditor, Deloitte, when he made it clear he planned to detail his concerns.

– warned bosses that RBS’s disastrous takeover of ABN Amro would be tantamount to committing suicide because the CDO problem in the Dutch bank was on an even larger scale than that at RBS, but was told to forget concerns because the bank’s then boss, Sir Fred Goodwin, insisted that it go ahead.

– was begged not to resign ahead of sending a letter on November 8th 2007 to the bank’s then finance director in London, Chris Kyle.

– was only contacted late in the FSA inquiry shortly before it went to press and asked to approve a draft which downplayed the evidence of his warnings.

RBS was already facing difficulties before Goodwin led the takeover of ABN Amro, as the US sub-prime market on which CDOs were based had begun to misfire earlier in 2007. According to the source, Hong will say that pressure was applied in the weeks before the ABN Amro deal was concluded.

During the October 2007 merger “due-diligence”, Hong is understood to have warned four senior executives in Greenwich that taking on $35bn of super-senior CDO/RMBS tranches at ABN Amro would be disastrous, if RBS Greenwich already could not handle $5bn of its own similar assets.

A source close to Hong said: “It was sheer doubling-down to death. He says the due-diligence team seconded from RBS Greenwich to ABN Amro in Amsterdam was aghast, but also could not convince the top management, which demanded the merger go through at any cost. The impending corporate suicide was apparent.”

RBS is now under entirely new management and in August 2015 the government sold the first £2bn of its £32n shareholding. Chancellor George Osborne is keen to sell more.

But there remains the possibility of costly action in the US over alleged wrong-doing before the crisis and a separate criminal investigation is now underway. The Wall Street Journal reported earlier this month that federal investigators are examining a suspect $2.2bn deal to package mortgages into bonds in 2007. J.P. Morgan Chase is also under investigation over another matter, involving a residential mortgage deal.

In the UK, the trial instigated by shareholders is expected to get underway in 2016 or 2017. A spokesman for RBS said: “We are aware of the long standing allegations made by Victor Hong who worked briefly for the bank in 2007. These allegations have over the years have been the subject of review by both regulators and RBS and have not been the basis of any findings against the bank. We will respond to them at trial if necessary.”

Iceland We Salute You For Jailing Criminal Banker’s

First They Jailed the Bankers, Now Every Icelander to Get Paid in Bank Sale

2015-10-30 20:42


First, Iceland jailed its crooked bankers for their direct involvement in the financial crisis of 2008. Now, every Icelander will receive a payout for the sale of one of its three largest banks, Íslandsbanki.

If Finance Minister Bjarni Benediktsson has his way — and he likely will — Icelanders will be paid kr 30,000 after the government takes over ownership of the bank. Íslandsbanki would be second of the three largest banks under State proprietorship.

“I am saying that the government take [sic] some decided portion, 5%, and simply hand it over to the people of this country,” he stated.

Because Icelanders took control of their government, they effectively own the banks. Benediktsson believes this will bring foreign capital into the country and ultimately fuel the economy — which, incidentally, remains the only European nation to recover fully from the 2008 crisis. Iceland even managed to pay its outstanding debt to the IMF in full — in advance of the due date.

Guðlaugur Þór Þórðarson, Budget Committee vice chairperson, explained the move would facilitate the lifting of capital controls, though he wasn’t convinced State ownership would be the ideal solution. Former Finance Minister Steingrímur J. Sigfússon sided with Þórðarson, telling a radio show, “we shouldn’t lose the banks to the hands of fools” and that Iceland would benefit from a shift in focus to separate “commercial banking from investment banking.”

Plans haven’t yet been firmly set for when the takeover and subsequent payments to every person in the country will occur, but Iceland’s revolutionary approach to dealing with the international financial meltdown of 2008 certainly deserves every bit of the attention it’s garnered.

Iceland recently jailed its 26th banker — with 74 years of prison time amongst them — for causing the financial chaos. Meanwhile, U.S. banking criminals were rewarded for their fraud and market manipulation with an enormous bailout at the taxpayer’s expense.



Justice For Whistle-Blower

The Inspirational Nicholas Wilson

Must Read


Fraud and Corruption in Bank’s

The World Bank Featuring

Former Director, Department of Institutional Integrity and Counselor to the President

The World Bank recently issued a report detailing the results of its investigations into allegations of fraud and corruption in Bank-financed projects. These investigations, conducted by the Bank’s Department of Institutional Integrity, revealed that the schemes devised by corrupt actors — such as procurement fraud, collusion, kickbacks and bribes — are broadly similar whether in Africa, Asia, Europe, Latin America, or the Middle East. This is a critical lesson learned, as it is allowing the Bank to devise common interventions on a global basis.

Suzanne Folsom, Counselor to the President and Director of the Bank’s Integrity Department, answered your questions about how the Bank responds to allegations of corruption in its projects, as well as how the institution deals with complaints regarding possible staff misconduct.

isaac muli:
suzane what motivated you to join world bank?is world bank really supporting developing countries?some of your conditionalitiea are very stringent,what are you doing about them?
Suzanne Folsom:
Before I jump into addressing the questions, I’d like to begin by thanking everyone who took the time to send in a query. I’m happy to be here this morning, and look forward to this Speak Out. I think this is a great way to demystify INT and the Bank’s anti-corruption work.

I joined the Bank at the request of former President Jim Wolfensohn, who asked me to be a Counselor to the President. I accepted the President’s request because I know first-hand, from my work with the UN and the time I spent in the developing world – including a great deal of time in the beginning of my career in Africa as well as a fair amount of time in the Middle East – that an organization like the Bank can make a big difference.

Having been on dozens of delegations for my own government, I also learned that the key to making that difference is partnership. In the past, that’s something the Bank wasn’t as good at as we could have been, but I think we’re better than ever – and we keep working on it.

Rather than saying the Bank is supporting developing countries, I like to think we’re helping those countries help themselves. The countries are in the drivers’ seat.

As for conditionalities, that’s something that the Bank and its partners are always trying to improve. It’s not my area, but I do think – from where I sit – that conditions designed to make sure the money goes where it belongs are a good thing.

Madhusudan Mehta:
What is the estimate of the bank about the misuse of its funds by way of corruption in developing democratic countries? Is it 10,20, 30,or 50%.
Taking an example of Funding for Forestry Projects what is your estimate of loss to the project by way of corruption / fraud ?
Suzanne Folsom:
We just issued our annual Integrity report. What it says is that while we have a pretty good understanding of how Bank-financed projects can be vulnerable to corruption, we have a lot less knowledge of the frequency and scope of the problem. So we can’t give a percentage.

But one big finding from our investigations is that those schemes that the corrupt actors come up with are really quite similar across the world – in any country, anywhere. Corruption is corruption. This finding is helping us to design common risk mitigations Bank-wide.

Sushil K. Jain:
What specific measures are being taken by WB to overcome this widespread corruption?

Is this happening because of shortcomings in our education systems?
Can we impart the much needed wisdom systematically as a subject to develop an impersonal vision in people?

Suzanne Folsom:
The Bank has three approaches to dealing with corruption – at the country level, working on projects and programs with borrowers; at the project level, addressing risks in our loans and doing investigations such as those my department does; and at the global partnership level, including with the private sector, civil society and others. But let’s be clear: corruption is not a developing country problem alone. President Wolfowitz says again and again that any bribe involves two parties – a taker and a giver – and the giver is often from a rich country.

But education about the problem on a global level is important. That’s why I’m here today.

isaac muli:
what strategy do you have in place to create equal opportunity for all?
Suzanne Folsom:
The Bank is working to improve global equity, but I think we’re all a long way from equal opportunity for all. It’s a good goal, though.
Mr R J ritchie:
I note the reply to its investigations could uou please confierm th following
a How aws the audit and ambit of the inveastigations carried out
b On wahr basis did teh areas of corrupion cover did it check total funds apllication against total disbusrement , if not how did it arriev at its overview that has been given
Dis it audit the projects i.e check standard of work total goods procured and applied and total costs.
Did it check those suspected of corrupion and receiving fees and their bank accounts , did tehy check large muti or reduced withdrawal of money where it was given and why.
Having recently completed considerable work and given a formulae for Ghana o use indigenous assets linked with Financial acumen and audited with an independent body conducting reporst I really cannot accept that the inveastigations coudl have been carried out in all areas of recipt of total funds and their overall appliaction in monies expended on Projects although until I receive a reply to the areas targeted and requested I am unable to formulate an overview of the investigations carried.
All i see is the projects are sometimse never completed due to the funding running out or disappearing .
Perhaps if a separate body controlled the funsd in Trust and set up an auditing programme and costings and Bankign surviellance of the money then we may see the poverty reduced and the cildren of Africa have a better life style
Suzanne Folsom:
My department conducts investigations based primarily on allegations we receive. We get many of our project-related allegations from Bank staff – more than any other source. Our methodology of investigation is benchmarked against a number of international and bilateral units conducting similar work – like the other MDBs, and so on.

How we specifically conduct a single investigation is based on the nature of the allegation – but let’s remember: these aren’t criminal investigations, they’re administrative. We don’t have law enforcement powers here in INT. We just conduct fact-finding, through a combination of document review, witness interviews, forensic accounting, as well as other standard investigative tools. We then turn the facts we find over to others for their decisions.

Your suggestions seem to look toward changing the way the Bank does business, and I can’t begin to address that – it’s above my pay grade.

Madhusudan Mehta:
Knowing that the corruption is sidespread as an ongoing evil factor, what strategic action is envisaged by the world Bank for its projects.It is a well known fact that like water, the corruption flows from top to bottom. How do you check the corrruption of politically elected Ministers in a poverty stricken democratic country?. Instead of depending on the auditors and monitoring by the Bank will it not be wiser to give this work of evaluation and auditing to some reliable NGO? At the time of formulation ofprojects itself there is need to look into this aspect by an independent agency rather than by Bank employees.
Suzanne Folsom:
The Bank is currently developing a strategy for addressing corruption and governance on a global level – I’ll ask the person who is typing this to put in a link to the draft strategy. I think that will help answer the broader question of what the Bank does.

As for “checking” the corruption of specific ministers – that’s outside our mandate. If we do receive allegations regarding a minister involved in one of our Bank projects, we will refer that information to the Government for criminal investigation – again, our investigations aren’t law enforcement, they’re administrative.

ellsie pringle:
Suzanne Folsom,

How can you be both a counselor to the World Bank President and Director of the Bank’s Integrity Department – are those two positions inherently in conflict, as on the one hand you’re scrutinizing the Bank and yet you’re counselor to the Bank’s President??

Suzanne Folsom:
I’ve heard that question before – glad you asked. I entered the Bank as Counselor to the President and was moved laterally over to INT. It wasn’t a promotion.

As per INT’s board-approved Terms of Reference, the head of the department reports directly to the President – just like a Counselor does. Since the President isn’t staff, INT has no ‘jurisdiction,’ for lack of a better term, over him. I’m an ethics lawyer, and have done quite a bit of work on Conflicts of Interest – my titles pose no such conflict.

I should add, incidentally, that being Counselor to the President – the title, I mean – is actually important externally, in this line of work. When you’re meeting with Ministers and cabinet-level officials, you carry a bit more weight if your title shows you have the ear of the President. This is a hierarchical world (and Bank) – access matters, especially for women.

arne bettleman:
Who monitors the Department of Institutional Integrity to ensure that corruption does not exist within that department?
Suzanne Folsom:
We have several checks in place. Last year, soon after I arrived here, I asked if the entire department – from Administrative staff to senior management – would consider voluntarily filing Financial Disclosures, which are reviewed by an outside accounting firm for Conflicts of Interest and other ‘red flags.’ More than 92% of the department voluntarily complied, which I found very reassuring. This year, President Wolfowitz is making such disclosures mandatory for all of INT, but I’m proud of the fact that we did so voluntarily last year.

Second, we have a quarterly briefing to the Audit Committee of the Board – we have a dotted-line reporting to the shareholders themselves.

Another measure we’ve taken in the past year or so is to require everyone in INT to sign a strict confidentiality agreement, which calls for termination from the Bank if anyone discloses unauthorized information outside the institution. We’re trying to hold ourselves to a higher standard.

Finally, I have to say that we only hire the most dedicated professionals – people who have spent their entire careers in the front-lines in the fight against corruption. We have seasoned fraud investigators, white-collar crime prosecutors, criminologists, labor and ethics lawyers, and forensic accountants, all of whom have made it their life’s work to take on corruption. It’s a great department – I’m proud to be a part of it.

Veqar Ashraf Khan:
What sanctions are imposed on those misusing WB’s funds? Wouldn’t it be much more effective, if these sanctions were communicated to all suppliers *before* they start any work, to act as deterrents? I believe that severe sanctions together with the high expectation of getting caught would discourage potential corrupt practice, i.e. applying the concept that prevention is better than cure.
Suzanne Folsom:
When we find that a supplier has engaged in corruption in a project, we take actions to debar them – which means to make sure they can’t get any more contracts for a while. We also publicly debar – we list their names on our website. ‘Naming and shaming’ is a huge deterrent.

The Bank has sanctioned 338 firms and individuals – and let me tell you, the firms put up a fight, because they know that losing that business, combined with having your name on a list saying, “this company was corrupt,” is a very hard thing to swallow. But it’s the right thing for the Bank to do. You’re absolutely right: prevention is much better than finding out afterwards that money went into someone’s pocket.

We’re often asked why we don’t publicly name Bank staff who are terminated for fraud and corruption as well. The Bank’s rules don’t allow such disclosures….

sani mallum shallangwa:
I wish to congratulate the World Bank for the fight against Fraud and corruption. please i want to know how the bank plans to deal with corrupt staff found in its projects, because the Bank has good intentions for the poor.
Suzanne Folsom:
My department also deals with allegations involving Bank staff. If we find staff have engaged in wrongdoing through an investigation, we turn our findings over to our Vice President of Human Resources for a decision. Over the past two years, based on our investigations, the VP of HR has terminated or, in cases where the employee has left, barred from rehire 22 staff and disciplined 11 others for fraud and corruption.
My department is also responsible for investigating other types of misconduct, such as harassment or discrimination. I should note, though, that the number of serious allegations involving Bank staff amount to less than 1% of our total workforce at any given time.
Bella Irwan:
Your unit is mandated to give its reports to the Bank’s senior management….but what guarantee is that in operation that won;t ensure management simply sits on the reports or buries them? What are the safeguards?
Suzanne Folsom:
Well, there were rumors that, in the past, INT’s reports weren’t taken as seriously as they should have been. I can tell you that President Wolfowitz has made it a priority.

It’s still a struggle, though, to be honest. There are still a small number who don’t value the work of this department. But I think we’re making progress.

arne bettleman:
The World Bank President has been talking a lot about corruption….and its impact on the developing world. What’s the bank estimate of how much money is being diverted from the poor each year because of corruption? And what about within your own institution??
Suzanne Folsom:
The World Bank estimates that around $1 trillion a year is paid in bribes. At one point, Transparency International estimated that at least $400 billion a year was lost to bribery and corruption, in public procurement alone. But, as far as Bank projects and how susceptible they have been, we don’t have a figure – largely because INT only responds to allegations we receive, which is only a sub-set of the overall picture of corruption. We don’t go hunting around the world for corruption – we get enough work through allegations from staff alone.
arne bettleman:
In what region of the world are corrupt practices more common…and what form does that corrupt activity take?
Suzanne Folsom:
Corruption is largely the same all over the world, I’m sorry to say. As INT’s annual report noted this year, we see collusion, kickbacks and bribes, procurement fraud, project asset misuse, and misrepresentation of qualifications in bid submissions.

There’s a great quote from Adam Smith in “The Wealth of Nations” that my department is fond of citing: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

arne bettleman:
In your latest media release, you state “When appropriate, the Department also refers its investigative findings to the authorities of relevant member countries for further action” – how many cases have been referred to countries for action and what has been the response?
Suzanne Folsom:
Any time we believe criminal wrongdoing has taken place, we make a referral to the relevant government. I don’t have an exact figure as to the number of referrals we’ve made, but I can tell you that the response varies. Some governments take strong action, some no action at all. But I want to be clear: the lack of political will is not a developing country problem alone. There are plenty of rich countries we’ve made referrals to where there’s been zero action.

As far as results, we’ve seen 26 criminal convictions around the world as a result of INT referrals. That may not sound like a lot, but it’s a young department, and we’re seeing some encouraging trends emerging.

Bella Irwan:
The World Bank has declared Lahmeyer International GmbH (Lahmeyer), a German company, ineligible to be awarded Bank-financed contracts for a period of seven years, because of corrupt activities….but in its statement said that period could be reduced to 4 years….where is the incentive then for firms to not act in a corrupt fashion , if the penalty is so seemingly light…..four years after all for an international firm is not much.
Suzanne Folsom:
The Bank’s Sanctions Committee recommended that Lahmeyer’s sanction can only be reduced if they take some very serious steps to come into compliance and disclose past wrongdoings. But I think you underestimate the value of contracts that a firm can be awarded in four years – for a major firm, it’s in the tens of millions of dollars. And the reputational risk of being blacklisted is rather high, too – particularly in the post-Enron, post-OECD anti-bribery convention. Companies up for Sanctions Hearings at the Bank pay top dollar for K Street or New York white-collar law firms – it means a lot to them.
hi my question is
” many countrys taking loan from world bank. But this loans was not spending properley?, that projects was taking very long time, with in the time the governments of that consern states was changing very fastley, but projects was not compleating in time why?
Suzanne Folsom:
Well, project implementation is not my area, but I know that the average time period for project implementation and completion is between 5 and 7 years. That’s just an average, but that’s how long it generally takes.
Augustin Chabossou:
Quels doivent être les responsabilités de la société civile dans la lutte contre la corruption?
Suzanne Folsom:
Civil society plays a vital role in the fight against corruption. Be it global NGOs such as Transparency International or local CSOs working to hold their governments accountable, their contribution is critical. There are limits to what the Bank can do in terms of direct assistance to Civil Society, but the Governance strategy I mentioned earlier addresses the issue, and I recommend you checking it out if you’re interested in further reading.
S L Narasimhan:
In India corruption has been accepted as an integrated component of the process in awarding contracts. World Bank has not at all been effective in arresting this trend.People who report against corruption suffer humiliation later. What measures you think would be effective in combating corruption in a place like India where it is rampant and ever growing?
Suzanne Folsom:
I can’t speak about specific countries, but I know the Bank has taken steps to ensure that it mitigates risks to projects in areas where we are aware of vulnerabilities from corruption. I could make other comments about the role that people can make in encouraging change in democracies, but we’re forbidden from political discussions here – it’s outside our mandate.
Hassan Abbas:
How can you assess the impact corruption has/had to the economy in political trust in Tanzania, taking into account such scandals in power sector like the IPTL and Richmond Projects and the recent radar purchase saga?

And do you ascribe to the contention that, politicians in Tanzania, from the second face government to present, have failed to tuckle corruption?

Suzanne Folsom:
Again, I’m sorry I can’t speak to individual countries. But I can say that political will to deal with corruption varies from country to country, and some rich countries don’t have the best track record on this front either.
Teresinha N Napoli:
What I really do not understand why World Bank keep giving money to people & politicians involved in corruption in Brazil?
Several NGOs were create by politians just to get the money that goes to Brasil, Civil Society don’t have any participation at all! Everything is stage!!
Suzanne Folsom:
The way the Bank is structured is that we lend to governments. Brazil is a fast-growing economy, but it still has a big problem with poverty, especially in rural areas. So we think it’s important to stay engaged there. And I believe there are some CSOs that have been effective in Brazil. But as to specifics, as I said……
Mulumebet Spence:
What has been done to the corruption that is occuring within the Ethiopian government where people’s homes have been destroyed to build freeways and people have been displaced and grossly undercompenstated for thier property?
This is still occuring in Addis as we speak and I know that the World Bank is aware of the of this fact. What do propose to do about this? I also need the Ehtiopian Adminstrator from the World Bank so I can present my evidence in detail. Thank you
Suzanne Folsom:
If you have specific allegations involving Bank projects, please go to You’ll see that you can report your allegations anonymously, if you like, or call our 24/7 hotline.
what are the positive and negative effects of mining in the philippines?
Suzanne Folsom:
I’m sorry, but I’m not a mining expert. I would check the Philippines section on the Bank’s website and see if we have any research on the topic – the Bank has written a report about virtually every topic in the developing world
We are suppliers of Medical Products from India and have been supplying these products for World Bank Projects through Tenders awarded to different Organisations. One of such Organisations, has committed some Fraud with us and we would like to have your views on how to bring it to your notice and what help we can get from World Bank on this.
Suzanne Folsom:
As I mentioned above, allegations involving Bank projects can be made by going to
Dr. Ashish Manohar Urkude:
I have come to the conclusion that if corruption prevails for a century, it will corrupt air, water, human minds and hence slowly human beings will die natural death. The reason to think so are many. One of the live reason is, industrial houses pass their corrupt practises with fraud and corrupt practises. Thus, polluted water from industries will pollute sea. Unwanted polluted gases will pollute air as well. Minds will not believe some one is non corrupt. Another important point is, why moral practises, ethics die down as we grow old? Do you agree with me, if corruption prevails, humanity will be in danger?
Suzanne Folsom:
The Bank has identified corruption as perhaps the single biggest impediment to growth and poverty reduction — it’s a major issue. Poor governance and corruption are among the most challenging problems today for many of the Bank’s borrowers. And corruption hurts the poor people the hardest, since they rely most on public services and are least able to pay extra costs of bribery and fraud. So, yes, we think that attacking the problem head-on is critical in our overarching mission of fighting poverty in developing countries. Absolutely.
Ismail Radwan:
Is the World Bank responsible for corruption that occurs in developing countries regardless of whether or not the Bank is involved in funding. For instance if a corrupt transaction such as a privatization occurs in a developing country would it be fair to blame the Bank? Do staff have a moral or professional obligation to get involved in such cases to curb corruption?
Suzanne Folsom:
No, the Bank is not a global anti-corruption police. But we do work with countries that have identified fighting corruption as a priority, and we try to help them address the problem. I don’t think the Bank can be blamed for corruption, though – it’s been around a lot longer than we have.
ellsie pringle:
Hasn’t it taken the Bank a long time to learn that schemes devised by corrupt actors are broadly similiar? Why has the Bank not had “common interventions” in place already? It would seem too slow to come to realize this?
Suzanne Folsom:
Well I think it’s important to remember that, for the first 50 years the institution was in operation, we didn’t deal with corruption – it’s only in the past decade that we’ve been able to speak about it at all, and my department has only been investigating and issuing debarment notices since 1999. So I think we’ve come a long way. That said, we still have a long way to go.
Keith Burwell:
You (the bank) regularly publishes a blacklist of companies and individual contractors / consultants that have been proved to be involved in shady practices but do nothing about naming and shaming the other party (normally a government official) to the deal. Corruption takes two parties – the one who asks for the payment and the other who gives it. How can the bank justify only admonishing one and not the other? Until the bank actually starts publishing names of government officials who ask for and take the illegal payments then I cannot believe the bank is serious about tackling the problem and all the rhetoric to date is mere window dressing.
Suzanne Folsom:
We are not in the business of naming public officials – I think it’s important to remember that the Bank is not a monolithic institution; we’re owned by these governments. At the same time, I can tell you that, if we have an investigation where ministry officials are named as being parties to corruption, we put that information into our referral to the government so that they can do a criminal investigation and perhaps prosecute. We only have administrative powers, remember.
your article mentions a number of different types of corruption….which type of corrupt activity is more prevalent – kickbacks; fraud;lbribes?
Suzanne Folsom:
As I think I mentioned earlier, these schemes are all quite common across the world. This is especially true in public procurement, where the money hits the ground.
Bill Hurlbut:
The World Bank has neither the resources nor the mandate to police the entire globe. How does INT go about making the choices necessary to keep the task manageable?
Suzanne Folsom:
Well, as I mentioned, we don’t go around looking for corruption, and we’re not the police. Most of our work entails responding to allegations we receive. That gives us more than enough work. We’re a small department – we have less than 60 people, and our budget is only around $14 million. So we have to prioritize quite a bit.
Bill Hurlbut:
As you noted in an earlier response, you hire professionals with long experience in investigating fraud and corruption. How do you find people with the relevant skills as well as the cultural knowledge necessary to work in developing countries? What are the challenges involved in building such a staff?
Suzanne Folsom:
It is quite challenging. We do a lot of international recruitment – we have some underway right now. We’re lucky enough to attract ‘the best and the brightest.’ We have here investigators who used to be at other MDBs, at the United Nations, in prosecutorial units across Europe, as well as from Asia and Latin America. There are also a few Americans like me, too.

It’s particularly hard to recruit people from developing countries, because the people fighting corruption in their own countries are usually very dedicated to that fight and don’t want to leave. I respect that position, but it makes it more difficult for us to attract their talent. We’re trying, though.

I believe we’re over time. Thanks for all the questions – sorry I couldn’t answer them all.

Thank you all for taking part in the discussion. For more information on the Department of Institutional Integrity and its work, please visit:

Kenneth Clarke: Put rogue bankers on trial

The Telegraph By Julie Henry

10:40AM BST 30 Jun 2012

Kenneth Clarke has said that it is easier to “get away with” financial crime than practically any other kind.

The justice secretary said that the UK’s track record on prosecuting financial crime was poor and that the work of the Serious Fraud Office should be reviewed.

Mr Clarke was commenting on the two scandals to rock the City this week. The rate-rigging scandal at Barclays has led to calls for a criminal investigation and the resignation of the bank’s chief executive Bob Diamond.

Taxpayer-backed Royal Bank of Scotland has also confirmed it was being investigated for manipulating the rates at which banks lend to each other, known as Libor.

Days later, an inquiry by the Financial Services Authority uncovered “serious failings” in the sale of complex financial products to small businesses.

The justice secretary said that if bankers were found to have breached the law, they should be brought to trial.

“We are very bad a prosecuting financial crime in this country,” Mr Clarke said in an Interview with Radio 4’s Today programme. “The new National Crime Agency should look at the record of the Serious Fraud Office. I suspect that financial crime is easier to get away with in this country than practically any other crime.

“If the bankers have committed criminal offences they should be brought to trail.”

He described the behaviour of bankers in the latest scandals to rock the financial world as “shocking”.

“They have distorted vital interest rates and sold product that are worthless to some of the people that have bought them,” he said.

The language used by traders and staff at Barclays who were involved in rate-fixing, revealed in a series of emails, was also criticised.

“Then there is the moral bankruptcy of comments being made by the people who are doing it,” said Mr Clarke.

He called for stronger regulation and said that that ministers must “resist the powerful lobbies that will claim regulations are damaging”.

“There plainly needs to be a cultural change in the banking system,” he added.

Ed Miliband has called for a full-scale public inquiry into banking culture and practises after the City was rocked by two major scandals in the space of a week.

The Labour leader said the industry was plagued by an “institutional corruption” that could only be eradicated by introducing a tough new code of conduct and jail sentences for immoral bankers who abuse the system.

His comments were echoed by Bank of England Governor Sir Mervyn King who demanded a “real change in culture” as Britain’s lenders were left reeling following a week blighted by controversy.

The National Crime Agency (NCA) a new body of operational crime fighters with a focus on public protection, will be up and running by 2013.

Why Bank Bosses Partying at Gleneagles Is a Crisis Warning Indicator

Huffington Post By Ian Fraser 1-12-2015

Award winning journalist and commentator

What is it about the Gleneagles Hotel and the Scottish banks? Is there something in the water at the opulent 1920s Perthshire spa and golfing resort – or perhaps in the generous single malt Scotch whiskies that are often served there – that causes Scottish bankers to lose their minds and embark on crazily ambitious growth plans?


I ask because, back in June 2006, both HBOS and RBS held “off-site” top management meetings at the grandiose £305-a-night hotel with a view to honing and agreeing growth strategies for the next couple of years.

Seemingly blind to the impending crisis in financial markets, both banks threw caution to the wind and set their sights on the hugely ambitious “stretch” growth targets that would ultimately prove their undoing.

Just 11 months earlier, the five-star hotel and resort complex had hosted the G8 summit at which Prime Minister Tony Blair, President George W Bush, President Jacques Chirac and President Vladimir Putin had hubristically pledged to eradicate global poverty. I don’t remember that working out too well either.

On Monday, 5 June 2006, Andy Hornby – then poised to succeed James Crosby as HBOS’s chief executive – together with colleagues including Benny Higgins (head of retail), Harry Baines (general counsel), Phil Hodkinson (finance director), Peter Cummings (head of corporate lending), Colin Matthew (head of international), and Jo Dawson (head of risk) descended on the Perthshire institution for a two-day “awayday”.

The decision of the company, formed from the merger of the Halifax building society and Bank of Scotland five years earlier, to describe a two-day event as “an awayday” was indicative of the liberties HBOS would take with the truth (liberties that were powerfully brought home in last week’s joint Financial Conduct Authority and Prudential Regulation Authority report into HBOS’s failure).

By piling on risky lending the bank had nearly doubled its balance sheet from £312bn of assets in 2002 to £540.9bn at the end of 2005. But at Gleneagles, and despite the uncertain economic outlook and a flawed business model that was reliant on wholesale funding, the bank decided to raise its targets for both retail and mortgage lending and for corporate lending in the UK, while going hammer and tongs for faster growth in Ireland, Europe, North America, Australia and Asia.

According to minutes of the June 2006 Gleneagles “awayday”, which were unearthed by the Parliamentary Commission on Banking Standards in 2012, HBOS executives dismissed their bank’s existing growth plans as “pedestrian”. They conceded that, while 20 per cent annual growth in underlying profits might seem “stretched” it “should be ultimately sustainable”. The self-delusion of Hornby was clear when he counted “the safest balance sheet in the sector” as one of HBOS’s competitive strengths.

According to the minutes, the HBOS execs present at the meeting could detect no risk of “major impairments” from commercial property lending and agreed that, in Ireland, “slower growth was not realistic, given the current views of the strength of the Irish market”.

Three years earlier, speaking on prime time television, the leading Irish economist David McWilliams had described Ireland’s housing market as a bubble of epic proportions whch was only being kept inflated by “excessive and irresponsible lending from our financial institutions”.

Tim Wallace produced an amusing account of HBOS’s Gleneagles meeting in the Daily Telegraph last week, writing that Hornby “was confidently predicting a golden future for the bank … It was in this heady atmosphere that the executives made the fateful decisions that put the bank on track to expand explosively and unsustainably, leaving it hopelessly overstretched when the credit crunch struck …”

A few days after HBOS’s Gleneagles “awayday”, the top brass of RBS congregated at the same hotel for a no less fateful management meeting of their own – a gathering I described in chapter 22 of my book Shredded: Inside RBS The Bank That Broke Britain.

After being accused of megalomania, RBS’s chief executive Fred Goodwin had been forced to stop acquiring other banks, building societies and insurers, as investors feared he was overpaying for such deals, and therefore destroying the value of their shares.

Some felt his multi-million acquisitions of Irish mortgage lender First Active, UK insurance group Churchill and Ohio, USA-based lender Charter One were little more than “vanity purchases”. So, much to his chagrin, Fred “The Shred” Goodwin had been forced to “go cold turkey” where deal-making was concerned.

Desperate for alternative sources of growth, Goodwin and his RBS colleagues decided the best solution was to ratchet up the “organic growth” of RBS’s investment bank, then called Global Banking and Markets, including at RBS Greenwich Capital in Connecticut – and the decision was made at Gleneagles.

The bank’s top brass agreed to set the investment bank free and set stretch targets for growth in three key areas – leveraged finance (lending billions of dollars, pounds and euros to private equity buyouts etc.), US mortgages (many of which were, by then, subprime or tainted by subprime) and structured credit (including the creation of mortgage bonds and opaque financial instruments called collateralized debt obligations, towers of debt that had bundled subprime US mortgages as their foundation).

In an email sent to senior colleagues immediately after the Gleneagles meet, Brian Crowe, GBM’s deputy chief executive, wrote somewhat despairingly to senior colleagues. He said that the RBS board, then chaired by ex-pharmaceuticals researcher Sir Tom McKillop, “has been very bullish in the last 24 hours across all the GBM business in avoiding the defensiveness in approach that we tend to adopt, and to be more aggressive and ambitious.”

Crowe, now a Church of England vicar, seems to have known that RBS was launching its renewed push into these markets at the worst possible time in credit cycle.

Savvier Wall Street banks including Goldman Sachs and JPMorgan Chase, could sense that markets were on the turn and would soon start to pull back from such markets, and seek to ‘de-risk’ their balance sheets by essentially dumping as many of their mortgage-related financial instruments to unsuspecting third party investors as they could, a phenomenon portrayed in the 2011 Kevin SpaceyMargin Call.


Even after the credit crisis proper erupted, Goodwin went ahead with a deal and bought the subprime riddled investment banking arm of Dutch bank ABN Amro, which had been one of the leading “suckers” for more guileful Wall Street players.

So the fates of both the Edinburgh-headquartered banks were both effectively sealed at the same Scottish luxury hotel. And in the same month. Be afraid if you see a group of bankers hatching plans there today.

Swaps and the FCA Review process: is the Review working?

By Cat Maclean Partner and Solicitor Advocate, Head of Dispute Resolution at MBM Commercial LLP

Swaps and the FCA Review process: is the Review working?

Some 3 and a half years have now passed since the FCA announced a Review into the missale of interest rate hedging products, or swaps. Although approximately 40,000 small and medium sized businesses in the UK were missold swaps, since June 2012 only 18,000 have lodged claims with their banks, alleging that they were missold a hedging product or swap.


Any Redress offered by the banks under the Review should be fair and reasonable and should put the customer back in the position they would have been in had they not been mis-sold the IRHP.


The FCA ordered banks to identify eligible customers who were sold structured collars, swaps, or simple collars and invited them into the review, and report that all such claims have now been determined and offers of basic redress made where appropriate. Of the 18,000 customers identified, 16,000 chose to join the review, and 2,000 have chosen not to participate. At 89%, customer engagement has been high.

The FCA reports

that the banks have sent 18,100 redress determinations to customers, “14,600 of which include a cash redress offer”. Apparently in 3,500 cases, the banks have concluded that the IRHP sale complied with rules or that the customer suffered no loss.

The FCA maintain that, to date, around 13,200 customers have accepted a redress offer and £2 billion is being paid out, including more than £450 million to cover consequential losses. They say that “This means that, so far, around 90% of offers have been accepted”.


However, a significant number of claimants have received offers described as “Basic Redress” which simply offer to replace the missold swap for another swap. Even where the Review finds the product has been mis-sold, the Redress offered can be substantially less than the customer would be entitled to through the courts – or even nil, because Redress under the Review does not necessarily rip up the derivatives contract.



Categorising a “swap for a swap” offer as Redress has enabled the FCA to produce the oft quoted statistic that 90% of claimants under the Review scheme have been compensated.


Politicians on the Treasury Select Committee recently criticised the compensation scheme for delays and exclusions that have left hundreds of businesses dissatisfied.

“Firms feel that they have been doubly let down: first by mis-selling and now by the redress process. They may have a point. The Committee remains seriously concerned about the scheme’s effectiveness and lack of transparency,” said Andrew Tyrie, who chaired the committee.


In February of this year, the FCA came under significant fire from members of the Treasury Select Committee who accused the financial regulator of siding with the banks instead of the customers. Committee member Mark Garnier criticised the compensation process for only taking evidence from the banks, pointing to one case where just one paragraph of 70 pages of evidence from a customer was included in the adjudication documents. “What this clearly shows is that you came up with an idea, the banks put pressure on you, and you succumbed to pressure,” he said.


In March of this year, the TSC published its Eleventh report, entitled “Conduct and Competition in SME Lending”

which contained widespread criticism of the FCA Review process. The report comments that:

“The FCA has consistently maintained that the redress process has worked as intended. But there have been complaints that the process of the IRHP review falls short of delivering fair and reasonable redress. It has been difficult for this Committee to determine, however, whether these complaints are examples of isolated exceptions to an adequate process, or are signs of a wider, systemic problem with the review.

This in itself is indicative of a flaw in the process which the FCA should address. In particular, the FCA should collect the information necessary to establish whether there are systemic failures in the review. The FCA should publish its findings, a summary of the complaints it has examined, and take any action it decides is appropriate to ensure that all customers receive fair and reasonable redress.”

The particular issues which attracted criticism from the TSC in their report included conflicts of interest, particularly in respect of relations between the bank and its independent reviewer, lack of complainant access to the independent reviewer, lack of complainant access to case information, and lack of any appeals process.

Despite the TSC sending the strongest possible message to the FCA, the FCA remains apparently steadfast in its endorsement of the Review process. According to Karina McTeague, head of retail banking at the FCA, 90% of claimants in the Review process have been “paid out”. Commenting at a lecture given to Edinburgh University this week, she said: “I do believe that we have succeeded in what we set out to do. I would say the Review process has been speedy, and effective, and the vast majority have got their money back”.


Despite the FCA party line on the Review, an announcement on Friday 27th November, that the FCA is considering raising the redress limit available to small business complainants from the Financial Ombudsman Service (FOS) above its current limit of £150,000, is interesting. The move is part of a wider paper from the regulator on whether the level of protection provided to small and medium sized enterprises (SMEs) in its rules and guidance is broadly right, and comes in the wake of the widespread mis-selling of interest rate swap products to small businesses by banks.

It might be suggested that one reason for increasing the current financial limit on FOS compensation is because of its increasing use as the best alternative to an appeal from an unsatisfactory Review decision.

Christopher Woolard, director of strategy and competition at the FCA, said: “Small businesses are a vital part of the UK economy. We need to consider whether we’re doing our part in delivering an effective, proportionate regulatory framework that gives them the confidence required to use the financial services they need to grow.

“We want people to tell us whether our rules are appropriate: do they strike the right balance between protecting small businesses and encouraging firms to offer services to SMEs, to compete and to innovate?”

The assertion that FCA actively want to be told whether their rules are appropriate is remarkable, for want of a better word: it certainly does not chime with the FCA response to the TSC’s “Conduct and Competition in Commercial Lending” report. Despite a lengthy response paper running to many pages, the bottom line is set out by the FCA in just a few lines:   “We consider it would…be sensible to make any decision about the nature or extent of any review, including its oversight arrangements, after legal proceedings have  concluded, as the outcome of these may impact its scope”. This neatly avoids the point that the reason legal proceedings have been instituted by companies such as Holmcroft and Suremime is precisely because the review process has failed them. According to Karina McTeague of the FCA, the FCA’s aim in implementing the Review process was to get remediation and payment to small businesses as quickly as possible. However, it is undoubtedly the case that by instituting a flawed process, and by allowing that process to proceed unchecked, with no appeal or overview process, the FCA have failed many small businesses.

In closing, let’s look at a few positives however: judicial review of an independent reviewer’s decision is still proceeding through the courts in the Holmcroft case: the courts have held that there is a plainly arguable case that the banks owe a duty of care to customers to carry out the Review process fairly and according to the guidelines agreed with the FCA (Suremime); and the announcement by the FCA that it is considering increasing the compensation threshold at FOS above £150,000 can only be good news for those customers who have missed out in the Review process.

RBS and Standard Chartered weakest in Bank stress test

BBC News 

Bank of EnglandImage copyright AFP

Royal Bank of Scotland and Standard Chartered were the weakest of Britain’s seven largest lenders in a Bank of England stress test.

For the second year, the central bank has subjected the UK’s biggest lenders to tests to measure whether they would survive a financial shock.

This time, it was assumed that oil had fallen to $38 a barrel and that the global economy had slumped.

No bank was ordered to come up with a new capital plan.

Out of the seven banks tested, RBS and Standard Chartered were found not to have enough capital strength, but both took steps to raise capital, so were not told to come up with a new plan, as Co-Operative Bank was last year.


Commenting on the results, RBS chief financial officer Ewen Stevenson said: “We are pleased with the progress we have made relative to the 2014 stress test, but recognise we still have much to do to restore RBS to be a strong and resilient bank for our customers.”

Standard Chartered’s chief executive Bill Winters said: “The results of the test demonstrate our resilience to a marked slowdown across the key markets in which we operate.

“The test was conducted on our balance sheet as at the end of 2014. Since then we have made further significant progress in strengthening our capital position.

“We are operating at capital levels above current minimum regulatory requirements and have a number of additional levers at our disposal to further manage capital.”

New measures

However, all banks were told they would have to set aside capital to protect their UK exposures as part of a new measure that the bank is phasing in, called a “countercyclical capital buffer”.

The extra cash should allow banks more room in times of economic decline to absorb losses from bad loans and other problems.

It will mean the banks have to allocate more money to protect against lending losses in the UK, but some of this will be brought in from other reserves that the banks already have.

The regulator will advise banks when to fill the buffer, setting aside reserves during stable times in the economic cycle.

‘We will not increase capital’

When trouble is expected, the regulator can set the buffer back to zero, freeing up reserves for banks to write down the value of loans they have made and accept losses if they need to.

“We will not increase capital… the overall level of capital won’t increase in the system,” said Bank of England Governor Mark Carney at a news conference. Large capital raisings are off the agenda and banks largely have or have access to the reserves they need, he said.

Still, the countercyclical capital needed will represent £10bn across UK banking, and banks will have to make profits or sell bonds or shares to fill some of that buffer.

And Mr Carney admitted that at its 1% peak, the buffer would could cost about 0.1% of gross domestic product after three years. Restraining credit growth is not what this new capital is for, Mr Carney said, but he warned that the extra capital costs will be passed on to customers. That probably means marginally higher rates for borrowers.

Analysis: Kamal Ahmed, BBC business editor

Today, the Bank of England has produced two reports dealing with the issue of financial stability.

Its key message? That the UK’s major banks are in a relatively resilient state and that the need for ever higher regulatory controls is coming to an end.

Yes, the Royal Bank of Scotland and Standard Chartered had to do some work to strengthen their position.

But no-one failed the stress test.

This is an “inflection point” in the post-financial world – a new chapter, the Bank signalled.

The Bank does not believe in a “long march to ever more capital”.

And feels that banks are now handling risk more prudently.

Read Kamal’s blog in full

As well as economic stresses, new costs of £40bn were assumed to pay for potential misconduct.

UK lenders have spent billions of pounds repaying customers who were wrongly sold insurance or loans they didn’t want, need or understand.

Regulators across the world have been imposing stricter rules on banks in order to try to avoid the publicly-funded bailouts needed following the 2008 financial crisis. RBS and Lloyds needed a combined £65bn in taxpayer money to keep them afloat.

Stricter next year

But holding more capital, for which investors demand a premium because of the risk, makes banking less profitable.

The Bank has tested seven lenders: HSBC, RBS, Lloyds, Barclays, Santander UK, Standard Chartered and Nationwide Building Society.

Last year, the list was eight long and included Co-Operative Bank. However, the Bank has said since that it will limit the tests to lenders with £50bn or more in deposits.

According to Bernstein analyst Chirantan Barua, next year’s stress test will be much stricter, with a much higher capital bar. On that basis, it could be Barclays that looks closest to the bottom, according to his analysis.

Mr Barua says that out of the five biggest banks – RBS, Lloyds, HSBC, Barclays and Standard Chartered – all but Lloyds had a more difficult time this year, because of the more international focus of this year’s tests.


Real Media By By Kam Sandhu 27-11-2015

RBS: Stripping Small Businesses, Boosting Big Banks And Getting Away With It

‘Taking on a bank, especially what was the largest bank in the world at one stage, I’m just a bricklayer, and it really is stressful as an SME to take on these people,’ Clive May tells the BBC. May has been working in construction since 1982. After leaving school he became a self-employed bricklayer, eventually setting up his own business – C May Brickworks, which at its peak turned over £3.2m and hired around 100 staff and sub-contractors. The company closed its doors on December 20th 2013, despite a ‘healthy order book’ because May says, of RBS’s actions, triggering a series of events which lead to the demise of his company.

May had taken out an Enterprise Finance Guarantee with RBS in 2010, a ‘loan guarantee scheme to facilitate lending to viable businesses that have been turned down for a normal commercial loan due to a lack of security or a proven track record.’ The scheme was launched by the government’s Department of Business, Innovation and Skills (BIS) in 2009 to encourage lending by banks to small and medium sized businesses (SMEs).

80-90% of all employment in the EU is provided by SMEs and yet these businesses have had greater difficulties in securing loans in the aftermath of the financial crisis with banks tightening credit terms rather than supporting businesses and ultimately securing jobs. The EFG gave banks a 75% government guarantee on loans that defaulted, ameliorating risk and encouraging lending. Companies still had to be viable, with the guarantee providing a last resort. And vitally, the guarantee was provided to the bank, not the borrower; businesses taking out the EFG loan would at all times be 100% liable.

EFGs also require a 2% fee per year on balances, making the loans more expensive than some other options. However, the loan was designed for companies that had exhausted their security, and generally were not eligible for loans elsewhere. Nonetheless, the advertisement of this 2% ‘premium’ also lead to confusion, as borrowers were lead to believe that this was an insurance payment for the scheme. This was what was confirmed to Clive May in writing from his relationship banking manager in September 2011.

In the same month, a BIS paper clearly reiterated that the guarantee for was the banks, which, Clive says, shows that BIS were aware of mis-selling even then:

Clive May

Clive May

‘I was told that the 2% annual premium was an insurance. The BIS changed the wording on EFG guidance in September 2011, adding it’s not an insurance to cover the borrower in the event of default. If they had no evidence why insert it but more so they bold texted it too?’

In fact, May was not even eligible for the loan and was not gaining extra working capital. May had an overdraft which, post-2008, became viewed by banks as toxic and capital heavy. Exchanging this overdraft for an EFG without lending any new money reduced the bank’s liability, ‘with the added benefit of the 75% payout in the event of default which was in many cases in the interests of the banks to engineer’ says May. RBS also used the exchange as an opportunity to reduce cash flow and change the terms and conditions of the loan which put increased pressure on the business:

‘The EFG was used to repay part of our overdraft. When it was drawn down RBS reduced our facilities even further so we could not trade.’

May now believes they did this ‘with the sole intention of claiming on the government guarantee.’


In March 2012, May opened up a complaint with RBS about his liability, with evidence including a letter from an RBS manager and a signed witness statement from his accountant. Despite this, the bank  refuted May’s statements:

‘RBS’ reaction was dismissal right from the start. They made me feel like a liar and an insignificant customer who, despite having all the info in writing, it didn’t matter.’

One of May’s complaints involved the removal of a second home from his application, which was done at the request of an RBS manager who said at the time that it did not need to be listed. The second home would have made May ineligible for the loan due to the available security. Six months after opening the complaint, May was told it was removed because ‘it was in fact held in your wife’s name due to the death of a relative so didn’t form part of our asset base.’

‘They made up a death in my wife’s family’, says May, in a bid to cover up why his security was altered for the application.

Further, May’s wife is company secretary to C May Brickworks Ltd with 33% shares in the company.  Under EFG rules, assets must be pledged if connected persons have more than 10% shares in the company.

This would prove to be just the start of what May would experience when trying to bring a case of fraud and mis-selling against one of the world’s biggest banks.

On the day that the EFG was drawn, C May Brickworks was also  transferred into the Special Relationship Department – one step from the Global Restructuring Group – a turnaround division where RBS placed ‘ailing’ businesses.

Screen shot 2015-11-14 at 16.47.52


In the recession of the early 90’s, RBS found itself hugely exposed to bad debts in the shape of ‘troubled UK commercial property and corporate borrowers.’ To counter this risk for future, chief executive Sir George Mathewson, decided to revamp the restructuring division into a profit making business.  To oversee this, RBS hired Derek Sach in 1992, to reduce the £400m bad debts, and make the turnaround division into a profit making centre for the bank.

Sach also took hold of the West Register, RBS’ property arm which was set up to buy property from its customers, often at reduced prices evaluated by other arms of the bank or the insolvency firms instructed and chosen by RBS.

In an article sponsored by his unit in October 2013, Sach told the Daily Telegraph ‘GRG’s modus operandi is helping to promote a ‘turnaround culture’ in the banking industry. Our approach offers the best possible chance to turn businesses around.’

Sach was seen as somewhat of an experienced hand who had proven his business skills. He had overseen the comeback of the flailing holiday package provider Thomas Cook, and also was credited with providing HMV with a second chance. His work at RBS was also commended as being a success for the banking industry.

While Sach and RBS were being covered in praise from the financial sector, one man was gathering evidence of 15 ‘copycat’ case studies whereby SMEs tilted into the GRG were driven to the point of insolvency through the actions of RBS.

Neil Mitchell, former Torex Retail Chief Executive, would prove to be a thorn in the side for RBS. Mitchell, also an RBS shareholder and claimant, had initially wanted to bring his evidence to the attention of the bank ‘in the spirit of co-operation to help [RBS] quietly investigate internally.’

But he quickly felt the weight of RBS against him. According to Mitchell, RBS refused to look, engage or attend Parliamentary opportunities to study or discuss the ‘crates of evidence’ he had. After taking his case to the police and being promised an investigation, Mitchell received a short and curt letter stating that RBS denied everything.

Mitchell had also taken his case to the government itself, insisting that he had made the case clear to the coalition and Business Secretary Vince Cable, who Mitchell says knew about the cases since June 2011.

It was becoming apparent that there were layers of protection for RBS that extended beyond the bank itself, working to numb and quieten allegations of serious and institutional fraud. Mitchell said in a video he made for his website:

‘There is a lengthening list of Lords, politicians of different political parties, and Her Majesty’s government, departments and regulatory agents, especially her Majesty’s Treasury, UKFI and FSA who have been initially briefed and provided with summary information on this matter whom repeatedly seek ways of avoiding taking personal responsibility and action on this, by always wanting to pass it on to somebody else, so as not to personally act – as it may mean upsetting RBS and the banking establishment.

‘In the case of RBS we [also] have a cover up…accompanied by establishment collusion.’

But Mitchell was not going quietly. In 2012, at the RBS AGM,  he stood up to relay his experience in trying to bring his evidence of fraud to the attention of the bank, including the cease and desist order he had to procure against RBS, for the ‘physical and electronic surveillance’ being carried out on him by the bank.

Despite the silence, a new report authored by an Entrepeneur in Residence at the Department of Business, Skills and Innovation was to shed light on the practices and treatment of SMEs by RBS, and it would take into account Mitchell’s evidence.

The Tomlinson Report

In November 2013, Lawrence Tomlinson , Entrepeneur in Residence for the Department for Business, Innovation and Skills, released a damning report that looked into the GRG’s treatment of SMEs. The report was not confined to RBS, though remained its focus. The report, ‘Banks’ Lending Practices: Treatment of Businesses in Distress’ highlighted several tactics used by banks to drive viable SMEs to the wall within restructuring divisions, in order to extract assets, value and money, to boost balances for the bank and drive down their exposure to risk. These included banks engineering default positions, to ‘move the business out of local management and into their turnaround divisions, generating revenue through fees, increased margins, and devalued assets.’

For SMEs, this means that they are placed into groups like GRG under the false impression that they are put there to reinvigorate the business, when in reality, they are being stripped of assets and cash for what is now a profit making centre for the bank.

Tactics highlighted by Tomlinson in the report include:

Reduction in the valuation of assets

Companies’ assets were dramatically devalued, often within short spaces of time at the behest of bank evaluators, affecting the customers’ liability position. Examples included:

–        ‘A two thirds reduction in valuation in 2 months, during which the business’ RBS Relationship Manager informed them that ‘ no one has ever been sued for undervaluing a property.’

–        ‘A revaluation, in the same month, by the same valuers, reduced the valuation of the asset by £1.3m (over 17%) due to the new instructions given to the valuer by the bank.’

–        ‘A desktop valuation (having never visited the property) reduced the value of the asset from £5m to £1.6m in 2 years. This allowed the bank to renegotiate its terms and significantly increase their margins.’

Breach of covenants unduly enforced

Breach of covenants – promises made by the borrower to the bank – were unnecessarily enforced to manipulate default positions. ‘The breach could be as insignificant as being one day late in providing non-vital information on accounts’, even if there were no change in income and payments were being met, these ‘breaches’ were used to ‘trigger’ the move into GRGs.

It was also noted that in some cases,  constant pressure was put on business owners to provide non-essential information immediately, leading them to be distracted from their work, in order to meet unnecessary deadlines that were in fact created by the bank to increase chance of breach.


The report highlighted that many businesses were unsure of the reasons why actions were taken against them. Yet, once it is known that the bank is intent on moving the business into insolvency then it is clear why the bank took those actions. One example was given of a business which repeatedly asked why they were referred to the GRG group and was given different reasons each time. Tomlinson advises that if businesses were aware of the bank’s plans they could make different business decisions and also consider whether moving lender was an option.


Overdrafts, as May had, require capital intensive lending, with 100% security usually needed. These have become more of a concern for banks following 2008, and the Tomlinson report highlighted that overdrafts had reduced by £3bn in 2013 alone, 16% more than the previous year.  However, changes to the terms of the overdraft could push borrowers into a corner, without the ability to move to other lenders, allowing the bank free reign on the conditions.

Neil Mitchell: “What they did to my company, and what they do is in fact a system, every company that goes through GRG is to have the business relationship banking manager tip the company into this thing called GRG that then sets a new banking contract with them, new levels of fees and interest charges, and all sorts of payments and then also sells them additional products that basically swamps these enterprises with additional costs.

“As soon as the enterprise breaches any covenant or looks like it’s going to be in any trouble, quite often put there by the increased fees by the banks or by the products like interest rate swaps sold by the bank, or property re-evaluations demanded by the bank, then the business gets put into this unit. And effectively they then put the business into administration and sell their assets. And quite often they sell them to their own company West Register, and they then hide those in various subsidiaries of West Register here and in offshore structures.”

Max Keiser: “So it sounds a little bit like the mafia. So in the United States the mafia will torch a dry cleaning shop they might have an interest in, or a restaurant, to get the insurance payment. So here we have RBS who because of the malfeasance of its directors and previous directors found themselves needing a huge bailout and needing lots of cash. So like the mafia in a similar situation, they created a subsidiary, or worked with their subsidiary Global Restructuring Group to target Small to Medium Enterprises and not so small, for demolition, for destruction, to be crushed and sold off for pieces, to game the system and to act like a banking cartel, a banking mafia.”


The Basel III Reforms are voluntary reforms undertaken by banks following 2008, to hold more capital than risk. However, while this was meant to encourage healthier lending, it had the effect of tightening control and reducing lending and, as mentioned, SMEs have struggled more to secure loans in the aftermath of the last financial crisis.

This risk management changes completely however, when there is (taxpayer) government funded backing of banks’ loans and liability.

Screen shot 2015-11-14 at 17.06.27


Charles Henry Mogford, a convicted criminal, obtained an EFG for £500,000 for his business, Auto Ex Limited, a Land Rover Dealership in Berkshire.

After Mogford’s business had to be relocated for a high-speed rail link, Home Secretary Theresa May lobbied on his behalf to get the loan, but was apparently unaware of a 10 year prison sentence he had received in the US, where he plead guilty to several counts of grand theft and theft of state funds.

Auto Ex Limited also folded and concerns were raised about financial misconduct on Mogford’s part.

While media reports focused on the bad judgement of Theresa May, the responsibility of Barclays, who administered the loan of £580,000 five months before the business went bust, seemed unchallenged despite Mogford claiming that “Barclays were told. Our independent bookkeepers and accountants all knew. It was not a secret.’ Though, Mogford felt it was not necessary to tell the Home Secretary about this.

It is indeed the responsibility of the bank to check viability and vet applications, but Barclays refused to say whether they knew about Mogford’s past before giving out the loan. Yet, it is clear this should have raised alarms and put his eligibility for such a sum of money in question.

Nonetheless, whether a viable business or not, for banks the 75% guarantee and the option to seize assets for the remaining liability provide a win-win. No risk is carried by the bank – only by the taxpayer, which makes lending to risky businesses and owners in the interest of banks, as the public purse still picks up the bill when it goes wrong.

When a BIS spokesperson was asked, they stated the amount government had paid back to banks under the EFG was ‘commercially confidential’ despite being public money.

RBS Reviews: A Whitewash

Clive May continued to find himself being ignored, even after enlisting the help of his MP, David Hanson, who had supported May through his complaints.

‘RBS either through my MP or direct were contacted numerous times, at least 30-40 I’d say. In each response, they said no evidence was found to support my allegations of mis-selling.’

Clearly, with the release of Tomlinson’s report in November 2013, May knew he was not alone, but the outward statements of RBS and other EFG lending banks maintained that there had been no problems and no evidence of mis-selling.

The Tomlinson report lead to an independent audit of RBS. This was carried out by legal firm Clifford Chance. Clive May was interviewed and gave his full account and evidence to the review. Clifford Chance returned that there was no evidence of systemic fraud. RBS CEO Philip Hampton stated the independent audit showed no evidence of ‘wrongdoing’, and called for an end to the suspicion.

Yet, in February 2014, the Department of Business re-wrote to the 42 banks administering EFGs reminding them to train staff adequately.

Move Your Money had also been investigating claims and looking over evidence from clients such as Clive May. They challenged the evidence of the report and claimed that there had in fact been ‘serious widespread and evidenced allegations of criminal fraud.’ 

By this point, Mitchell had made 27 representations to Vince Cable in 4 years about his evidence. Lawrence Tomlinson had confirmed to Mitchell that the Business Secretary knew about the evidence in August 2013 yet he continued to say he had no knowledge until after the report was released in November. ‘He knew about this for 4 years and covered it up,’ says Mitchell.

After 4 years of complaints and rebuttals from RBS, and no action taken by the Financial Conduct Authority, the law societies nor Governor of the Bank of England Mark Carney to whom May wrote‘What does an SME in the UK have to do to have his case investigated?’, it was only when May took his case to North Wales Police to report RBS for fraud that things started to take a turn in his case. The removal of May’s second home, by the request of RBS, to adjust May’s eligibility for an EFG could count as an act of fraud committed by RBS against the government. Suddenly, May received a letter releasing him from liability under his personal guarantee. RBS gave no reason for doing so.

But May had lost his business and livelihood, he believes, through the wrongful actions of RBS, and the costs incurred by May to maintain cash flow, and pay for legal costs were now spiralling into the hundreds of thousands;

‘An ideal outcome for my case would be closure. A realistic settlement to cover legal fees and put me back into the position I was in before the mis-selling.’

Misleading Evidence

Bank directors were called before a Parliamentary hearing to investigate whether viable companies had in fact been forced to close by the GRG in light of the Tomlinson Report. Senior directors Derek Sach and Chris Sullivan were called to give evidence in June 2014.

While the pair maintained that practices were in line with enabling businesses to succeed, the story started to fall apart. One example cited as a success of the GRG in the hearing was West Midlands based metals processor Independent Slitters. RBS claimed that the company had been happy with the help of GRG and that it had contributed to their business.

However, shortly after the hearing, Chief Executive of Independent Slitters Daniel Wharrad, wrote to Committee Chairman Andrew Tyrie to explain that they had in fact been left less than satisfied, and Wharrad’s company had been ‘manipulated and played to enhance the public perception of GRG’s work.’

Derek Sachs IMG: sbcb

Derek Sach IMG: sbcb

But this would not prove to be the biggest deceit of the hearing. The committee attempted to distinguish whether the Global Restructuring Group was a profit making centre for the bank. Sir Phillip Hampton had written to Tyrie following the hearing explaining that it was. Yet incredibly, both Sachs and Sullivan suggested it was not a profit making centre.

‘Parliament expects witnesses to give straightforward evidence. Two senior managers fell short of this standard at a hearing with the Treasury Committee in June.’

‘Anybody can make a simple mistake in their evidence. But this was more than that – it was materially incorrect on a crucial point and unacceptable.’

Andrew Tyrie – After releasing the letters from Hampton and Wharrad

By August, Derek Sach left his position as GRG head with no fanfare, meaning little for the accountability of his reign for two decades. In December, it was an early leave for Chris Sullivan too, with rumours attributing this to the mis-selling scandal that was finally about to burst.

RBS come out on mis-selling

In January 2015, RBS finally admitted to the mis-selling of EFGs and vowed to contact 1800 of the 9000 businesses it had issued the loans with. According to RBS, these 1800 companies were given unclear information when taking out an EFG, and 300 were in default with many others nearing or showing signs of stress.

RBS now says it is conducting a case by case review, and findings will be sent to customers. Clive May awaits his report but remains skeptical of the internal review by a company that has managed to evade its guilt for years, particularly when the review is conducted with ex-GRG staff. Like Mitchell, May has come to the conclusion that the cover up is increasing the scale of these economic crimes.

“The banks commit fraud their solicitors cover it up and the regulator does nothing – that’s the scandal”

A report has also been commissioned into the GRG, which has been stretched out and delayed for months, though there is promise that conclusions will be released by the end of this year. Still, for those it concerns, the attempts to gloss over the structural ways in which this bank drove businesses to the wall is no less of a threat, and for RBS, conflict of interest continues apace and with impunity. PwC are the acting accountants during the investigation. They also previously re-structured company finances when brought in as an administrator for the GRG.

Yet while any threat of independent and appropriate investigations into RBS remain lax, the bank remains vigilant in the surveillance of people bringing cases against them. On September 10, while Clive May delivered a speech for the 33rd International Symposium on Economic Crime, an attendee came to the attention of the organisers. He had asked several questions at the end of May’s speech specifically about the EFG, with several other encounters that evening. Minimal research revealed the attendee had disguised his employment with RBS and his secondary work for a company involved in the EFG review.

May had said during his speech:

“I used to own a company called  C May Brickwork Ltd but it is fair to say that company was destroyed by the actions of  RBS . If that isn’t an economic crime, then I don’t know what is.

“My story isn’t unique.  Thousands of SMEs have been destroyed in a similar way- through economic crime in its widest sense. It is important that people listen to these stories and hear what we are saying. They involve real people, with real families and real lives, losing real jobs and sometimes sadly killing themselves. 

“The SME Alliance has been a great help to many of us, it means we aren’t alone and neither  were we the failures that the banks had made us feel. We were just conned by bankers helped by lawyers and accountants — people who we should have been able to trust.

“We are almost overwhelmed by the resources that banks like RBS are throwing at us to stop us claiming fair redress.”

May was invited to the symposium through the SME Alliance which he himself had helped to found.

1410863972‘SME Alliance was formed out of Twitter whereby like minded tweeters got together to vent anger and exchange experiences. We want to be a major voice for SMEs and to exchange experiences and information to lobby government for positive changes. Although seen as mainly bank complaint oriented, we do have other agendas.’

‘I don’t think SMEs are supported by the government, we are seen as easy prey. When going to government to complain against bank actions, the door is well and truly closed. It’s a pre-determined conclusion because the government backs the banks and places barriers to overcome.’

After RBS came out on EFG mis-selling, Chief Executive Ross McEwan said that he was aiming to rebuild trust within the banking industry. While some steps have been taken to change elements of the business, worrying evidence seems to demonstrate the bank is doing what it can to halt justice for some claimants.

Last Friday when McEwan appeared on LBC, Ian Fraser, a financial journalist and author of ‘Shredded: Inside RBS, The Bank That Broke Britain’ called in to ask about evidence of widespread falsification by RBS on business customer files. Fraser said:

“These were documented at the Cambridge symposium on financial crimes in September by a guy called Andy Keats, they’ve also been documented in The Times and various other internet and national newspapers and the allegations basically are that RBS is on a kind of industrial scale, falsifying the core files on SME customers, and these falsifications are allegedly enabling RBS to then win against these customers.”

McEwan can be heard laughing when hearing this, and when asked how concerned he was said he had looked at the files but ‘sorry, they’re just not true,’ before adding ‘what difference would it have made to the case?’

One of the files belongs to Clive May, who obtained a central file on his case through a Subject Access Request. He compared the letter he was sent with the one on the RBS central file.

The RBS version had 12 extra lines of text which were not on the letter Clive May received. Crucially, the extra text said that May should complete specific forms, return them and seek legal advice on his liabilities – which would include the second home that was removed. This extra text would grant RBS extra protection against the fraud allegation May is now pursuing with the police, as they recommended independent legal advice.

May showed this to Ross McEwan who now says that this was an administrative error, after being forced to admit the files clearly are different to the communication May received.

It seems while the bank may understand it needs to ‘rebuild trust’, the PR campaign still does not tally with the rejection of its systemic problems which continue to take their toll on SMEs.

The Road Ahead

These cases demonstrate the destruction wreaked when financial institutions are incentivised by working against social needs, while having their risks socialised and profit privatised. Susan George, who has written on finance for over four decades highlighted in a recent piece for New Internationalist that‘Finance Watch, a progressive Brussels thinktank, says that only 28 per cent of all banking activity goes to the real economy – the rest swells the financial products sector that makes money from money without passing through such boring phases as production and distribution.’


When banks were given impunity and protection for past economic crimes, wielding power over SMEs and redressing their balances with the assets and livelihoods of their customers became systemic. This is buttressed by the conduct authorities and government officials, whose will not to interfere with the  practices of banks, outweighs their will to protect the businesses at their mercy.

The wider question for our economy is understanding what does ‘pro business’ actually mean? It seems we have developed our language and economy around the massaging of bank power. While government has fiercely protected the deregulation of these huge financial institutions in the name of the economy and jobs, it has allowed them to systemically crush SMEs – who again, provide 80-90% of all employment in the EU and are the lifeblood of the economy.

Yet, even in the supposed recognition of systemic crimes, we are given terms to downplay the extent of their corruption. For us, for benefit claimants, for conmen, the allegations are fraud – against the taxpayer or a victim. For banks, corrupt systemic practices are ‘mis-selling’ – a guise of a mistake for what are the largest examples of fraud against the public, the taxpayer and the government. The protection racket extends to our own words.

Clive May was dismissed, ignored, overlooked and refuted for at least 4 years under the weight of RBS, legal firms, conduct authorities and government officials, before his case lead to the admittance of ‘mis-selling’ which in itself demonstrates the real forces being protected under the ‘pro-business’ mantra, by the legal and governmental figures who are meant to protect us. While the GRG has been shutdown, and May awaits the results of EFG reviews, he is well aware the fight for a just outcome is still ahead.