Ask Kweku Adoboli why bankers do not go to jail, and he would no doubt look surprised. A London-based trader at the Swiss bank UBS, Adoboli was jailed in November 2012 for what police described as the biggest fraud in UK history. He racked up £1.2bn of losses through secretive trades – and at one point those trades could have forced UBS to take a £7bn hit, enough to bring down the Swiss bank.
He is not the only banker to have been incarcerated. Nick Leeson – jailed in Singapore for bringing down Barings in 1995 – is now on the after-dinner speaking circuit. In August, he announced free trading programmes intended, he said, to “help people not make the same mistakes I did”.
Tom Hayes is behind bars, serving 11 years after being convicted for rigging Libor interest rates. Four former Barclays bankers have also been jailed for conspiring to fraudulently rig global benchmark interest rates.
But those who ask why bankers have not gone to jail are probably thinking of the 2008 banking crisis and, with the anniversary of the collapse of Lehman Brothers approaching (15 September 2008), the question may once again be at the front of people’s minds. After Lehmans collapsed, more than £65bn of taxpayer funds were pumped in to Royal Bank of Scotland (RBS) and Lloyds Banking Group and a rescue package put in place for Bradford & Bingley. Northern Rock had been nationalised earlier in 2008.
Kenneth Peasnell, distinguished professor of accounting at Lancaster University management school, suggests that this question “is driven by a sense of unfairness, there being one rule for the rich and powerful and another for the rest of us … The wealthy seem to get a slap on the wrist for not paying their taxes while the single mother gets locked up for cheating on benefits”.
As the banking crisis was unfolding, the main focus of the policymakers appears to have been keeping the banks afloat rather than trying to apportion blame. The official report into what went wrong at RBS, published in 2011, concluded that “multiple poor decisions” were at the root of its collapse. None of those “multiple poor decisions” were crimes. At the time of the publication of the report, Lord Turner, then the chairman of the now defunct Financial Services Authority, said: “The fact that no individual has been found legally responsible for the failure begs the question: if action cannot be taken under existing rules, should not the rules be changed for the future?”
He was not necessarily talking about criminal prosecution but more about the City regulatory regime under which individuals are authorised to work in certain financial roles and can be banned from holding particular positions or fined.
Eventually prosecutors examined RBS, and in May this year – eight years after the bank was bailed out – concluded that there was insufficient evidence of criminal behaviour to bring charges against the bank or former employees.
In situations where there have been attempts to launch criminal proceedings against banks, there is evidence that politicians have become anxious about the possible impact on financial markets. In July, a US congressional report revealed that George Osborne, when he was chancellor, warned the US government that criminal charges against HSBC could lead to global financial disaster. His intervention, on which he has not commented, took place four years ago when HSBC – the UK’s biggest bank – was being investigated by the US authorities for allowing terrorists and drug dealers to launder millions of dollars.
Some countries have jailed bankers for cases arising out of the crisis. In Ireland – which pumped €64bn into its banks and later had to be bailed out itself – three bankers were sentenced in July: former Irish Life & Permanent chief executive Denis Casey; Willie McAteer, former finance director at the failed Anglo Irish Bank; and John Bowe, former head of capital markets at Anglo Irish Bank.
In the wake of the crisis, Iceland appointed a special prosecutor, Ólafur Hauksson, to examine the collapsed Kaupthing, Landsbanki and Glitnir banks. He has been bringing charges of market manipulation, fraud, embezzlement and fraudulent loans.
Robert Jenkins, a former Bank of England policymaker who is now a senior fellow at Better Markets said: “During the crisis, [there was] a misplaced judgment on the part of authorities that prosecution would undermine further confidence in the banking system.”
The UK did not set up a special commission or appoint an Icelandic-style prosecutor after the 2008 crisis. But in 2012, following the outrage caused by the Libor rigging scandal, Conservative MP Andrew Tyrie chaired the parliamentary commission on banking standards. The MPs and peers who sat on the commission were charged with looking at the culture of the UK banking sector and seeing if lessons could be learned about corporate governance.
Peasnell argues that public outrage is not enough to send bankers to jail. “A crime has to have been committed. Making a reckless or stupid investment decision does not in itself qualify,” Peasnell said.
Tyrie’s parliamentary commission on banking standards led to the prospect of a seven-year jail term for reckless misconduct. It is yet to be tested – and there is scepticism about whether it would put any bankers behind bars in the future.
