The Banker’s Exemption From the Criminal Law

It is better to use short words instead of long phrases. We should not call spades agricultural implements and we should not call fraud  serious misconduct. However, if you a fraudster operating in the banking system, organising large scale deceptions your chances of being prosecuted are so low that I do not think I can compute them.

There are so many examples of this, that I stand in pause to know where I should first begin, but I shall simply mention the sale by all the major UK banks of interest rate hedging products to small and medium sized businesses.

The facts are quite clear and indisputable. The banks believed that interest rates would fall and saw an opportunity to cash in on falling interest rates. They set up a scheme under which their bank managers would sell an interest rate hedging product to small businesses. Under that scheme the manager would advise the customer that interest rates would rise drastically (notwithstanding the fact that the bank’s own research believed the opposite would happen) and suggest that one of the bank’s specialists should come to advise the customer.  The specialist was a specialist in selling, not in interest rates, and customers trusting the bank, were talking into signing a contract some parts of which were hidden, into betting with the bank that interest rates would rise.

Of course the customers were not informed that in fact they were betting with the bank and that the bank believed interest rates would fall and that the bank were paying huge commissions to the sales people who deceived the customer with the advice about interest rates , or that the contracts were for much longer periods than the bank would ever agree to lend money to the customers or that as soon as the ink would dry on the contract the bank would sell it on at a huge profit to another bookmaker  or that the costs of getting out of the contract would be tremendous.

In order to promote this deception the banks required a great deal of specific organisation. Bank managers had to be trained to play their role, as did the sales people, who were called with a title that suggested that they were providing advice, as opposed to selling. Parameters had to be figured out. A system had to be devised to encourage, seduce or threaten small and medium sized businesses into signing up, and the key to the fraud was the banks’ representation that they believed interest rates would rise and rise. Each bank organised a complicated and robust system intended to defraud as many customers as it could.

Now this is pure and simple deception, and as you would expect English Law makes criminal such behaviour. The latest and perhaps clearest expression of the law is in Section 2 of the Fraud Act 2006:

Fraud by false representation

(1) A person is in breach of this section if he—

(a) dishonestly makes a false representation, and

(b) intends, by making the representation—

(i) to make a gain for himself or another, or

(ii) to cause loss to another or to expose another to a risk of loss.

(2) A representation is false if—

(a) it is untrue or misleading, and

(b) the person making it knows that it is, or might be, untrue or misleading.

(3)“Representation” means any representation as to fact or law, including a representation as to the state of mind of—

(a) the person making the representation, or

(b) any other person.

(4) A representation may be express or implied.

(5) For the purposes of this section a representation may be regarded as made if it (or anything implying it) is submitted in any form to any system or device designed to receive, convey or respond to communications (with or without human intervention).

This is the section under which promoters of worthless shares in boiler rooms are prosecuted but it applies equally to banks founded centuries ago as it does to a pop up boiler room in some remote part of the world.

The banks, in their promotion of deceptive interest rate hedging products have impoverished many businesses and many individuals, cost jobs and in substance stolen money from customers. No banker has been prosecuted, notwithstanding the fact that fraud has been deliberately thought up, organised and implemented over a wide range of businesses.

So perhaps we should add another sub-section to Section 2

“Nothing herein shall apply to any deception representation or dishonesty made by or conducted by a bank in the ordinary course of its business.”

But on reflection no such sub-section is required; the prosecution authorities in the United Kingdom simply refuse to prosecute the banks.


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