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‘A Haven For Dirty Money’: Nearly Half of All Corporate Violations in the Past Decade Committed by Financial Sector

New data analysed by the Byline Intelligence Team shows the extent of fines handed out to the the largest banks – despite financial services contributing less than 7% to the UK economy

The City of London, home to the UK’s biggest banks. Photo: Pere Sanz/Alamy

‘A Haven For Dirty Money’Nearly Half of All Corporate Violations in the Past Decade Committed by Financial Sector

New data analysed by the Byline Intelligence Team shows the extent of fines handed out to the the largest banks – despite financial services contributing less than 7% to the UK economy

Almost half of all Government-decreed business violations actions are by the financial services industry – despite the sector contributing to less than 10% of the UK’s economic output, the Byline Intelligence Team can reveal. 

Data from 2019 shows that the financial sector contributed to just 6.9% of the UK economy, but that the banking and finance sector was found guilty for 46% of the £9.8 billion fines handed down by Government agencies to the 10 British industries most punished for corporate misconduct over the past decade. 

UK financial services have paid £4.5 billion in penalties since 2010, according to an analysis of a new database created by ‘Good Jobs First‘, which seeks to track companies’ irresponsible corporate behaviour. By comparison, fines for the next three most penalised UK industries – aerospace, telecommunications and utilities – amount to just £3.4 billion. 

The findings raise questions about the City of London’s light-touch regulation amid fears of post-Brexit Britain adopting a ‘Singapore on Thames’ economic model with lower taxes, lax regulations and loose morals around ‘dirty money’. In July, for instance, the Prime Minister endorsed plans for a ‘one-in, two-out’ rule on new regulations.

Big Bad Banks

According to the Byline Intelligence Team‘s analysis of more than 60,000 cases brought against companies, the UK’s biggest banks – HSBC, Natwest, Lloyds and Barclays – were found to have been fined £1.6 billion over the 11-year period, dominated by the Conservative party in government.

Barclays has paid the largest fines in the financial sector, handing over £515 million to regulators since 2010. 

Despite being notorious for misconduct, Barclays maintains close links to Boris Johnson. As Mayor of London, Johnson would regularly attend Barclays’ private dinner at the annual World Economic Forum summit in Davos. The Times has also reported that the former chief executive of Barclays, Bob Diamond, donated £50,000 to the Conservative Party in February 2020. Diamond was forced to resign from Barclays in 2012 following the Libor scandal when Barclays was fined £290 million for manipulating the interbank lending rate.  

Data from Good Jobs First’s ‘Violation Tracker’ shows that the bank committed 19 other instances of financial misconduct in the 11-year period. The largest penalty was for rigging foreign exchange markets in 2015, leading to a fine of £284 million by the Financial Conduct Authority (FCA) for manipulation of the £3.5trillion-a-day market. 

Known as the Forex Fix scandal, the fine followed traders at Barclays colluding with other bankers to place aggressive ‘buy’ or ‘sell’ orders in order to distort the daily exchange rate fix. Communicating through chat rooms, the staff members involved called themselves “the players”, “the three musketeers” and the “A-team”. 

The Violation Tracker’s third-worst offender in the financial sector, UBS, was fined £234 million for its role in the Forex Fix scandal, which the FCA feared would “undermine confidence in the UK financial system and put its integrity at risk”. 

Analysis of the database found that more than 10% of total penalties levied at the financial sector were paid by Lloyds, making the bank the financial services industry’s second most penalised company. This year, Lloyds’ insurance division was fined £90.7 million for misleading customers over their home insurance quotes. The bank claimed that renewal quotes were a “competitive price” but offered new customers a lower rate. 

Lloyds was also hit with a £117 million fine for mishandling payment protection insurance (PPI) complaints in 2015. This represents the largest penalty levied at the then 19% taxpayer-owned bank.

Earlier this year, a record-breaking fine was handed down to Credit Suisse for its role in the “tuna bonds” loan scandal that pushed Mozambique into financial crisis.

The scandal arose from $1.3 billion (£940 million) worth of loans that Credit Suisse arranged for the Republic of Mozambique between 2012 and 2016. The loans were said to be aimed at Government-sponsored investment schemes including maritime security projects and a state tuna fishery. However, a portion of the funds were unaccounted for, with one of Mozambique’s contractors later found to have secretly arranged “significant kickbacks” worth at least $137 million. This included $50 million for bankers at Credit Suisse. According to regulators, the sum was designed to secure more favourable deals on the loans.

The fraud, facilitated by Credit Suisse and the Russian bank VTB, cost Mozambique’s economy $11 billion, or $400 per citizen.  

The £292.2 million penalty was the largest amount a business in the financial sector has ever been fined. According to the database, Credit Suisse’s penalty was the fifth-biggest enforcement action across all sectors since 2010. 

Getting Away With It 

More than 10 years on from the depths of the financial crisis, it seems that efforts to tighten financial oversight have not always resulted in sanctions. 

Despite even being linked to laundering Mexican cartel-linked drug profits, HSBC has not been fined for any offence pertaining to this in the past 11 years.

The FinCEN Files probe found that HSBC profited from allowing fraudsters to transfer millions of dollars around the world. The bank continued to facilitate the transfer of dirty money, even after HSBC bankers were alerted to the scam. 

In 2017, openDemocracy reported on HSBC’s indirect Conservative donations, pointing to Osborne’s £68,225 payment for a five-hour speech in HSBC’s offices. 

The Violation Tracker reveals that there were at least 63 banks found to have committed misconduct, but were let off with no financial penalty by Government agencies. 

The Competitions and Market Authority (CMA) found that eight banks – including Barclays, Lloyds and Santander – were in serious breach of the Payment Protection Insurance Market Investigation Order. Although the banks failed to send accurate annual statements to PPI customers, they were not penalised by the CMA.

Labour MP Dame Margaret Hodge, chair of the Anti-Corruption and Responsible Tax All-Party Parliamentary Group, told Byline Times that the financial sector must “clean up its act”, but warned that the scale of misconduct revealed by the Violation Tracker is even greater in reality. 

“Our regulatory bodies are often under-resourced and unwilling to take the toughest action against big financial institutions, in stark contrast to the US,” she said. “So, if anything, fines throughout the last decade should be higher. This sorely shows that the sector has a long way to go to eradicate malpractice and to stop the UK from being a haven for dirty money.”

This article was produced by the Byline Intelligence Team – a collaborative investigative project formed by Byline Times with The Citizens. If you would like to find out more about the Intelligence Team and how to fund its work, click on the button below.

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