Jail the Anglo Bankers?

Nat O'Connor: In the wake of the Anglo Tapes, it was not surprising to see a poster on a lamp post today stating "Jail the Anglo Bankers". As well as refering to a PBP/SWP protest planned for tomorrow, it echoes a wider question of why - after so many years - are more people involved in the banking collapse not facing justice for what has happened to this country?

It is debateable whether Ireland has enough laws on the statute books to cover the kinds of subtle (and not so subtle) white collar crime that the Anglo bankers stand accused of. Moreover, I am not sure that our concept of 'fraud' is sufficiently comprehensive to deal with something like the damage that Anglo has done to Ireland.

The Journal.ie reports Minister Joan Burton's reaction to the tapes: "With regards to the events being examined by a Dáil committee, Burton said she feels that it should be resourced with, for example, an experienced lawyer, with experience of civil proceedings and banks, and also by somebody like a forensic accountant with an understanding of banking."

Prof. Bill Black of UMKC is fairly experienced as a former financial regulator, who led the investigation into the Savings & Loans scandal in the US in the 1980s and 90s. He's also a white collar criminologist and author of The Best Way to Rob a Bank is to Own One. (You can listen to David McWilliams interviewing Prof. Black in 2011).

He will be presenting an update on his specialist subject, 'control fraud', at the LSU 2013 Fraud and Forensic Conference on 29 July 2013.

My understanding of 'control fraud' is that it refers to the ability of those at the top of major financial organisations to pull enough different levers that they can enrich themselves (and others) by essentially taking unacceptably high levels of risk and reducing the institution's safeguards against that risk. This is insane/suicidal behaviour for the organisation, but it is rational behaviour for individuals who believe that they can get away with the personal benefits (remember all those big bonuses?) and leave others to pick up the pieces (i.e. the Irish taxpayer in the case of Anglo).

It is not clear to me that we have the necessary law on the books to deal with 'control fraud', although we might be able to address aspects of it. It is a form of fraudulent behaviour that straddles corporate governance, regulation and business ethics, as well as crime. But we still need to ensure we have sufficient legislation to cover criminal aspects of how senior executives use and abuse their positions of power and responsibility.

The Anglo Tapes feature in Prof. Black's substantial 181-slide presentation, which can viewed here. (It is well worth taking time to go over this material to consider what 'regulation' of the power of banks should or could mean). It is likely that the Irish banking collapse will not only enter the history books as one of the world's most expensive bank bailouts, but also will enter the curriculum of 'how not to do it' in terms of financial (non)regulation, banking crisis (non)resolution and (potentially) fraud.

Black's response to the Nyberg Report on the investigation into Ireland's banks is on slide 8. Nyberg (perhaps diplomatically) suggests that banks operating models restricted their ability to provision for likely future loan losses. Black suggests that the Anglo Tapes undermine any belief that the Anglo Irish bankers actually wanted to do this. On slide 9, Prof. Black reminds us that the Irish banks were woefully badly provisioned to deal with likely losses.

And that subtle correction of Nyberg is at the heart of the 'control fraud' argument. If the banks willingly took risks that they knew they could not cover, the potential is that this represented control fraud; i.e. using the institution to take risks and willfully failing to provision for those risks on the basis that someone else will pay.

The S&L crisis cost the US taxpayer $341 billion in 1996 (that's $510 billion in 2013's terms, or €388 billion). Anglo and Irish Nationwide have cost the Irish taxpayer around €35 billion, and AIB and BOI add further billion to that. Plus interest. The Department of Finance estimated a €65 billion cost from the bank bailouts.

Pause for thought.

The USA (pop. 265 million in 1996) had a €388 billion bailout. That's €1,464 per person.

Ireland (pop. 4.6 million) had a €65 billion bailout. That's €14,130 per person, or over nine times more expensive.

In the S&L crisis, Prof. Black's investigation involved 1,000 FBI agents and had a 90% conviction rate.

Of course, before any bankers go to jail, we need due process and for the DPP to bring charges, based on forensic evidence. But are we really serious about tracking down any wrong-doing if we haven't had hundreds of investigators tracking down the evidence over the last five years?

We know that, in 2010, the then new Financial Regulator Matthew Elderfield sought to recruit an extra 360 staff to bring his office up to international standards. I very much hope that most of those people have been focused on building up evidence for the DPP since then.