High Street Banks
October 13th, 2010
The watchdog organization Global Witness released a report this week exposing ties between a number of British
NatWest Bank, Wimbledon High Street | Source: Flickr, Jessicamulley
High Street bankers and corrupt Nigerian officials. The report detailed the reprehensible actions of Barclays, NatWest, RBS, HSBC and UBS, which for years took money from Nigerian officials. As we are all acutely aware, such corruption fuels poverty, entrenches dishonest politicians, and exacerbates obstructions to development for many countries.
I want to be surprised. Really, I do. They just make it so hard for me.
Each of those banks has been embroiled in scandal at one point or another in the last ten years. Just a few months ago, Barclays, a British financial services company, paid a $298 million fine to the U.S. Department of Justice for breaching sanctions on Burma, a brutal and repressive totalitarian military dictatorship. In 2000 the British Securities and Futures Association (SFA) fined National Westminister Bank, or NatWest, when it discovered the bank used mispricing in derivatives to hide £90.5 million. The SFA penalized the bank with the second largest fine in its history. The Royal Bank of Scotland, also known as RBS, was found to have ties to Enron and likely played a role in the collapse of the infamous energy company.
The scandals surrounding HSBC and UBS are probably even more familiar to you. Both banks have recently come under scrutiny by the U.S. Department of Justice for aiding American citizens evade taxes (see: A Bitter Battle of Self Preservation). Both banks are fighting—and hopefully losing—to keep banking secrecy alive. Lest I need to remind you, tax evasion is still a crime.
But I guess at the very least I would have thought that when it comes to foreign corruption, the banks would have found it in their hearts to make a moral exception. In recognition of the damaging role that corruption plays in development, the international community has come to a consensus with regard to banks and politically exposed persons (PEPs). PEPs are people who are in public position (or are close to someone in public position) and therefore are at a greater risk to be involved in corruption or bribery. PEPs are a major issue for the Financial Action Task Force and were extensively addressed in the 2003 United Nations Convention Against Corruption.
Like most other industrialized countries, the United Kingdom has strict laws when it comes to PEPs. Under the UK Money Laundering Regulations, UK banks and other financial institutions must take enhanced due diligence measures, or an intensive investigation or audit, when they suspect they are dealing with a PEP or a “gate keeper” of a PEP.
When it comes to many of the scandals I outlined above, there is some possible gray area. HSBC and UBS both have hid behind Switzerland’s sovereignty and banking privacy laws (an extremely tenuous defense, particularly as their agents came onto American soil and helped American citizens violate American laws). The mispricing scandal involving NatWest was isolated to one employee, who was let go, although I find it unlikely he was acting completely of his own volition. RBS settled in the lawsuit for its involvement in the Enron collapse, so I suppose its guilt was not proved beyond a shadow of a doubt.
To me at least, this new example is cut and dry. The banks have a clear responsibility to investigate in any and all cases that might involve politically exposed persons. And the Global Witness report shows that not only did these High Street banks fail to conduct these investigations, they systematically and frequently, turned a blind eye. These cases would have been cut and dry for these bankers. According to the report, there is little wiggle room here. The banks were violating UK law. And they knew it.
Like I said, I would like nothing better than to be surprised by this shameful and flagrant disregard for their own country’s laws and their moral responsibility. Unfortunately, I’m just not.