Recent happenings in the City of London have given rise to great public concern. What strikes Labour Members so forcefully is that those happenings seem not to have been treated by the Government with the same concern or urgency. Indeed, who believes that we would be having the debate tonight if it were not for the persistence and insistence of my hon. Friends the Members for Bolsover (Mr. Skinner) and for Hackney, South and Shoreditch (Mr. Sedgemore)? I am pleased to see that they are present.
The Chancellor of the Exchequer has attempted to claim otherwise, and we heard his false claim yet again yesterday. That, of course, was graphically exposed today for its falseness. But, even if his claim were true, it should be part of the Chancellor's duty, and it should not be something extraordinary that he should come to the House and claim bleatingly that he had done his duty. His response should have been normal and ordinary.
Of course the matter that we are dealing with tonight, fraud in the City of London, is extraordinary. It is extraordinary in moral, legal, criminal, financial and social—or perhaps I should say anti-social—terms. It is extraordinary in its scale, in the number of frauds that are perpetrated, in the audacity of the frauds that are perpetrated, and, indeed, in the treachery of the frauds that are perpetrated. We should remember that frauds in the City of London are frauds against the ordinary decent people of Britain who create the wealth of the country and entrust it to the financial institutions that lie within the City of London.
Of late, the Government seem to have an obsession with standards, probably because they do not seem to have many these days. Not long ago we were listening to the leaders of the Conservative party talking about standards in society—the need for more law and order, for hanging terrorists, for birching hunt saboteurs, for flogging miners, and, as Max Hastings said:
All the other little human touches that would make British civilisation a better and a finer thing.
I am glad that the Right-wing extollers of those particular virtues have seen fit to join us, and I greet them.
The one area in which they seem to be lacking in standards is in dealing with their friends in the City of London. The Lord Chancellor and the Secretary of State for Trade and Industry have relatively recently stated that the standards of probity in the City have not declined. This is manifestly not so. Either that shows an appalling lack of judgment on their behalf or a great naivety, or probably both.
One of the things that we have to consider in the background to the frauds is the fact that the City has changed. The image that people often want to put forward these days in defence of their friends in the City of London is that it is filled with good men and true, working hard and honestly for God, Queen and country; people whose word is their bond, who meet together in their clubs or in their old boy reunions and order the world for the benefit of the others. That is the image that they would like us to accept of the City of London—a square mile of integrity and honesty. But, of course, that is a mirage.
That might well have been the position some time ago, but it is an image that bears no relationship to the modern high technology money markets, where vast sums of money are moved and manipulated, and where the measure of success is not integrity but acquisition and greed.
We know that nowadays the City of London is a dynamic institution, in that it is constantly changing. Andrew Philips, a City solicitor, writing in The Observer on 15 December, said:
With all this, London has become an international crime haven, allowing financial racketeers from mainland Europe and the United States to continue their commodity swindles, advance fee frauds and the like unmolested. But we also have a fraud boom all of our own. Any firm you talk to will have its own in-house tale of woe. But it will probably remain under wraps. Exposing crooked employees in court is a rarity.
That is the City speaking of itself.
In the relatively superficial research that I have done for this debate I have been impressed by the scale and number of frauds perpetrated. [Interruption.] Yes, I am impressed—I came to the subject an innocent. Conservative Members may be experts on fraud, but I am new to the game. I bow to their superior knowledge of the criminal world. In my innocence, I was frightened rather than impressed by the volume and number of frauds perpetrated.
In 1981 the City of London police fraud department had 80 cases under investigation. In 1984 there were 117. New matters recorded were 536 in 1981 and 621 in 1984. In 1981 there were 35 arrests. By 1984 the figure had increased to 77. [HON. MEMBERS: "They are catching them."] Before the Conservatives draw any conclusions from those figures, let them consider the fact that there were 18 Crown court cases in 1981, and only 18 in 1984. If Members reflect on that, they will be led to certain conclusions.
The sums involved are extremely large. Andrew Philips writes:
A recent study, for example, calculates that British companies are now defrauded of £3 billion and more a year.
An informed insider reckons that the recent reinsurance frauds netted £500 million, and the City of London company fraud squad reports ever increasing numbers of ever larger financial crimes.
The Government's own Inland Revenue sings the same song. Earlier this year Lloyd's agreed to pay the Inland Revenue £42·5 million in respect of liabilities wrongfully secreted by members of Lloyd's. That was a settlement by Lloyd's to buy off the investigators. There are now 77 major fraud cases awaiting trial.
All this is further compounded by
the bizarre under-resourcing of those responsible for policing the City and bringing its malefactors to book. The Fraud Investigation Group of the DPP, for example, has a paltry qualified staff of 21. By contrast, for the last three years the Government has had 30 Specialist Claims Control Units in the DHSS comprised of 175 staff, chasing welfare chisellers",
as Conservative Members would describe them. There are only 21 investigators chasing the £3 billion, but 175 chasing the odd amounts that people might get away with under the welfare system. There is one law for the rich and another for the poor—steal £20 from the DHSS and one ends up in gaol, but steal £20 million from the City and one will end up in the Cayman Islands. That is the Conservatives' attitude to their friends in the City.
I want to finish, as a large number of Members want to speak tonight.
There is only ruthless severity for those whom the Government push into the ground, but for the Government's friends—the offshore dealers, the greasy manipulators, the property sharks—there is only laxity. I asked the Library today to provide details of instances of fraud on the stock exchange, the commodity markets, Lloyd's and banking. I was given a large sheaf of papers and told, "I have only gone back a short time, Mr. Rogers, as there were so many." I have with me the details of the frauds that have taken place during the past year, and any Conservative member can inspect them if he so wishes.
City fraud is not a new phenomenon. The Opposition have always known that corruption has existed in the City, and it is a shame that it has not been dealt with previously, but in recent years this problem—as with all law and order problems under this Government—has exploded in size. Getting near the truth of City corruption is difficult and has been difficult. The old boy network prevented it in previous days, when it was called the guarding of institutional solidarity, and today's instant electronic manipulations make it much more difficult to detect fraud.
There has been an enormous increase in City activity. It is no longer a square mile of honesty and integrity. Reputations mean nothing to people whose God is money, who travel fast and who can easily put their money and that of others beyond the law.—[Interruption.] They are aided and encouraged by Conservative Members who mutter from sedentary positions and by the quick buck, free market amorality of this Government.
Yesterday my hon. Friend the Member for Newham, North-East (Mr. Leighton) asked the Chancellor to explain where market forces end and fraud begins. To his great shame, the Chancellor replied:
If the hon. Gentleman does not know that, he is not fit to be a Member of the House".—[Official Report, 17 December 1985; Vol. 89, c. 162.]
We could well say that of the Chancellor and of his actions over the last six to nine months. Indeed, I honestly believe that he gave that answer because, like his hon. Friends, he did not know the difference between fraud and free market forces. He does not know where one begins and the other finishes. He does not know the difference between fraud and an insatiable greed—
I am pleased that the hon. Member for Beaconsfield (Mr. Smith) defends the Chancellor. I do not know whether he has a particular interest in doing so, but we shall have to look into that. Perhaps the hon. Gentleman does not know the difference between fraud and insatiable greed—
We must get on with the debate. I am listening very carefully. All hon. Members know that personal accusations are not allowed, and I have not heard any so far.
I simply heard the hon. Member for Rhondda (Mr. Rogers) suggest that the hon. Gentleman did not understand it. He was not suggesting that the hon. Gentleman was guilty of any kind of fraud. Hon. Members should not be too sensitive. Let us get on with the debate.
I would hate to say, "Methinks he doth protest too much". I have merely said that Conservative Members do not know the difference between fraud, an insatiable greed as practised in the City of London, and, as Andrew Philips said
a mechanistic commitment to the free market
is the perfect anaesthetic to moral disquiet. Some find it difficult to know where market forces stop and illegality begins. One opportunity can look very much like another, including the opportunity to escape the UK tax net. Hiding capital abroad is now widespread, as is juggling with the rules relating to tax residence and overseas earnings.
Many people in the City do not want to know the difference, and on occasions neither do some hon. Members.
In the City today, straight dealing is being sacrificed on the altar of competition. The Government, the Chancellor of the Exchequer and the leader of the Conservative party, with their hypocritical cant about moral standards, do not know the difference either.
I am not quite sure when we can condemn Ministers for their laxity. All I said was that the Lord Chancellor said last week:
The bottom seems to have dropped out of morality".
Some of the responses that we have had suggest that it has dropped out fairly close to home.
What is grossly unfair in this situation is that the wealth creators—the ordinary decent people in factories, mines, shops, offices, and also in the City of London—are being ripped off by the friends of the Tory party, who scuttle off to their tax havens to enjoy their illicit wealth. Considerable sums are involved, and it is no good Conservative Members scoffing at the huge sums of which the country is being defrauded.
The City of London must give a lead. It should purge itself and re-establish its reputation. Unfortunately, the Government seem not to want to come to grips with the problem, and foolishly and naively believe that a system of self-regulation is enough. I said yesterday that the Government's proposals would be seen by many to smack of setting a thief to catch a thief. There are many unanswered questions in relation to yesterday's proposals and the Financial Services Bill which is to be published tomorrow. I should like the Minister to answer one of them.
The Parliamentary Under-Secretary of State for Trade and Industry, the hon. and learned Member for Folkestone and Hythe (Mr. Howard), who is in charge of the Financial Services Bill, is a clever young lawyer. He is evidently quite a rich one, too, for he admits to being in membership of five Lloyd's syndicates. Lloyd's is not, however, covered by his Bill. It is not, the Minister says, an appropriate vehicle. Perhaps in the reply to the debate we can be told what would be an appropriate vehicle, or when the Government intend to find an appropriate vehicle to regulate Lloyd's.
Many people would ask whether the Parliamentary Secretary is an appropriate Minister to bring in the regulation; whether he should be responsible for regulating his friends and colleagues, or his erstwhile friends and colleagues. How can Conservative Members talk about the probity of Lloyd's after recent disclosures? To argue that most other financial centres are more corrupt than the City of London, or that there have always been rotten apples in the City of London, is not an answer.
The debate is vital for the interests of Britain. The collapse of the integrity of and trust in the City of London is incalculable in relation to the economy. The debate on whether there should be self-regulation or legislative control could now well be sterile. We cannot legislate for an institution where the underlying moral foundations are crumbling. The opportunities for crime in today's financial bazaar are immense. Laws may not be enough. Perhaps nothing short of a moral reformation can prevent the City from drowning in its own excesses.
This is an important occasion, because it is the beginning of a debate that will continue for many months. In July 1983, in the first debate on this issue, I said that I thought that this would be one of the most important matters that we would consider. The City of London is one of those great important institutions not just for the few to make fortunes and certainly not just for the few to make illegal and immoral fortunes—it is a great earner of capital for the growth of this country.
I deprecate the grapeshot technique that is being adopted. It is not helpful. It is based not on evidence but on the belief that, if enough barrels are fired off, a crook will be hit. It is like some of the wild accusations made against the Governor of the Bank of England, my right hon. Friend the Chancellor or my hon. and learned Friend the Under-Secretary of State—the Member for Folkestone and Hythe (Mr. Howard). That is not helpful to the debate. It will not be helpful in regulating the City. It diverts attention from the fact that the changes that will occur in the City with the big bang and the financial conglomerates that will be formed will require severe regulation or there will be large-scale fraud. The stock exchange recognises that.
I mention one point that has not been mentioned in talk about people being employed to regulate fraud and to limit the possibility of fraud. Forty-five members of the stock exchange are employed in a surveillance department, which is separate and separately administered, to look at fraud and movements in share prices—not as they are reported to them but as they come over on the screens—to ascertain whether there are illegal dealings. If there is fraud in a business where the turnover through the stock exchange alone is £350 billion, that is wrong and it should be investigated. The people charged should be sent to prison. If there is one thing that the Americans have over us, it is not the Securities and Exchange Commission itself, which is a very heavy bureaucracy, but the fact that they are faster at punishing malefactors. Since 1980 the stock exchange has conducted 278 investigations, 89 of which have resulted in information being sent to the Department of Trade and Industry, resulting in only five prosecutions. One cannot help thinking that nothing would concentrate integrity more than mounting some of these prosecutions faster and more thoroughly and meting out the right sentences.
The hon. Member for Rhondda (Mr. Rogers) made it sound as though making a profit was quasi-evil.
The implication was that somehow profit was evil. If there were not profits and people who wanted to use the capital structure, all our constituents would be much poorer because thousands of millions of pounds are added to this country's wealth every year—not through the malefactors but through the majority of honest people. The trade unions invest hundreds of millions of pounds each year on behalf of their members so that their members get better pensions and benefits, and it is right and proper that they should do so.
There is no doubt that the past of Lloyd's gives rise to dismay and not merely concern. The phrase "A1 at Lloyd's" has taken on a meaning that the great majority of its members would not want. It was excellent that Ian Hay Davison was appointed director-general, and it gives rise to ominous concern that the chairman of Lloyd's, Mr. Miller, who himself might be busy answering questions, or should be in due course, said in getting rid of Mr. Hay Davison that he wished to be the Prime Minister of Lloyd's. I wish to cast no reflection upon my right hon. Friend the Prime Minister—on the contrary—but we all know of the power that Prime Ministers have. I believe that the Bank of England and the Government wanted Mr. Hay Davison to be in the end the true director-general of Lloyd's, to ensure that it was run properly and not by those who, by jove, were pretty close to getting their fingers in the jar.
If a director-general is appointed to Lloyd's, it should be with the advice and consent of the Department of Trade and Industry. The Government have a presence in these matters and no Government can say that there can be entire self-regulation. It is not possible to have entire self-regulation, but it is possible to have self-regulation with the provision that there shall be a Government presence in those who are appointed to top jobs and, even more important, to those who are dis-appointed from them. The more effective people like Mr. Hay Davison are, the better for Lloyd's and the country. It strikes me that the more effective he became, the more some people wanted to get shot of him. That was bad for the City and for Lloyd's, and I think that it was bad for the Government.
I made another suggestion to my right hon. Friend the Chancellor of the Exchequer, who said, in his sweet way, that I usually meant well. I think that he meant well in saying that I meant well. I say in no patronising sense to my betters that the Department of Trade and Industry, or the Treasury, cannot say that the Bank of England is enough. These are matters that I hope we can discuss when we consider the Financial Services Bill, but the Bank of England is not enough.
My right hon. Friend the Chancellor of the Exchequer did not seem to like it yesterday—he may have been tired—when I said that no Government can wash their hands of these matters. In the end, good or bad washes up to the steps of the House. These matters are the concern of Government; if they are not, why are we discussing them now?
I still believe that taking people willy-nilly out of the City, often those of tender years, to advise and help is not enough. They will return to the big pool. I say on a subliminal basis that those who are taken from the City and who are likely to return to it are not as likely to be as even-handed as those who may come from the City and not thereafter return to it. That is why I say that it would be a good thing if about five people who have done great service and are of great probity—in spite of what has been said, the City abounds with more people of great probity that it does with villains—should be appointed advisers to the Secretary of State for Trade and Industry. It does not matter whether the advice comes from accountants, bankers or brokers. The five should be nearing the end of their business careers so that they have considerable experience of the City. They should be appointed for five to seven years, so that they are thereafter retired from the City. They should be able to call for all the evidence and all the papers, talk to anyone they wish and advise the Secretary of State that all is well. That would be a small price to pay for the Secretary of State to have his own advisory set-up—then there would be self-regulation, which, in the end, would work better.
There is certainly concern about the system, and the small number of cases always attract great publicity. But I genuinely believe that what the City does for this country is good rather than evil. It does not abound in corrupt people. One of the few sound statements of lawyers is that justice should not only be done but be seen to be done. If we get the Bill right, the country will benefit and so will the integrity of this House and the City.
The hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) was right to remind us that the first of our debates on the important question of regulating the City was in July 1983. I think that he would join me in expressing a debt of gratitude to my hon. Friend the Member for Rhondda (Mr. Rogers) for giving us another opportunity to debate the issue, especially—I was about to say on the eve, but it is more appropriate to say on the morning—of publication of the Financial Services Bill. I have no doubt that the points made in this debate will be echoed in our debates over the coming months.
This debate takes place against the background—even in the foreground—of a rising tide of concern about the extent of fraud in the City. It is right to pay tribute to my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore), who has done so much to promote this issue, to focus political attention on it, to raise the level of political interest in it and, in shoe, to put it on the front pages. The Prime Minister, the chairman of the stock exchange, the Secretary of State for Trade and Industry and many other luminaries are now queueing day by day to assure the British public and the House of Commons that they too are determined to stamp out fraud in the City. That is all to the good and we wait to see what actions will be taken to follow those brave statements.
It may be true that City fraud is the flavour of the month, as one Sunday paper put it last week, but the grounds for concern go back a long way. We should remember that it was in 1981 that Professor Gower was asked to begin his report on City fraud. After all, that report was stimulated by a rash of fraud. The Roskill committee was set up at the end of 1983 precisely because there was growing concern to get prosecutions and convictions in cases of fraud.
While my hon. Friend the member for Hackney, South and Shoreditch has made skilful use of parliamentary privilege, the strength of the case against what the City is up to at present, the strength of the case against the failure to bring people to justice, is such that we do not need the protection of parliamentary privilege. A simple statement of the facts is quite enough to explain why there is that sense of outrage, of anxiety, almost of incredulity at the fact that people who are committing crime on a massive scale have so far escaped without criminal penalty.
I need not weary the House with a catalogue that will be repeated time and again—a catalogue that inevitably starts with Lloyd's, with the frauds committed in famous cases such as the PCW syndicates. Those frauds accounted for tens of millions of pounds—one is tempted to say hundreds of millions of pounds.
The scale of the offences being committed can best be. illustrated if we remind ourselves that individual fraudsters in some of those syndicates got away with as much money as was raised worldwide by Live Aid for the starving people of Africa. One or two people at a time in Lloyd's got away with that amount of money.
People are entitled to say that something has gone very badly wrong, not just because people were able to commit offences of that magnitude, undetected, but because they committed them and escaped without even being the subject of criminal charges. That is an astonishing state of affairs.
I can run through the rest of the catalogue quickly. The stock exchange is mercifully free of major frauds, with the exception of the Halliday-Simpson case in 1982. It is making an effort to deal with fraud and concedes that there is a rash of minor fraud that it hopes it is dealing with effectively. The commodities markets have also seen cases of fraud, with people getting away with tens of millions of pounds, escaping the jurisdiction and still not being brought back to face charges. There are also the banks; my hon. Friend the Member for Hackney, South arid Shoreditch has referred incessantly to that matter. The Johnson Matthey Bankers case shows that even in the banking sector, fraud is by no means a stranger, and can reach substantial proportions.
Let us be clear that when we talk about frauds arid scandals, we are talking about real criminal offences—thefts and frauds which, in any other context, would be immediately recognised as criminal offences of the same severity as muggings, robberies and various other criminal offences that we are more familiar with and used to dealing with.
Every pound of the hundreds of millions of pounds that have been misappropriated is money that belonged to somebody else. It is real money. That pound is just as real as the pound that the pickpocket takes from someone's pocket in Oxford street. It is sometimes instinctively felt among City people that somehow City fraud is less serious; it is not real money; somehow it has been conjured up out of thin air. It is real money, and those are real criminal offences.
We have in office a Government who have made great play of their stance on law and order. We know that in the realm of what one might call ordinary crime, the programme of law and order has been notably ineffective. There has been an explosion of crime, but at least in that area, the Government have said that they are concerned about it, are determined to devote more resources to its detection and prosecution, and are unhappy about the current situation. However, what has been largely unremarked by the Government until recently has been the greatest crime explosion—what Max Hastings called pin-stripe fraud.
It is noticeable that there has been no talk of short, sharp shocks and all sorts of other severe penalties, new resources and so on. I make it clear that I have been taking up the issue and writing to Ministers, Law Officers as well as Ministers in the Department of Trade and Industry, over the past two years. While there have been frequent expressions of concern at the fact that prosecutions have not been brought, the emphasis has always been on the great difficulties, problems and obstacles. That is not the same language as we hear about other criminal offences.
Many people will pause for a moment and ask: how is it that those insuperable problems seem to present themselves in the case of massive fraud in the City, yet in the case of social security fraud, which is no less a fraud—I am not making a distinction on that ground—they are much more minor? In those cases, there is no difficulty in bringing prosecutions and finding the resources to bring criminals before the courts.
My mind goes back two or three years to the famous instance in Oxford when hundreds of police rounded up 1,000 social security claimants, held them in detention for hours on end, grilled them and finally produced a handful of prosecutions and convictions of people who were among the most vulnerable in society, who did not have a roof over their heads. If the Government can mount such an operation against those people, we demand more effective action against City criminals.
What has been happening in the City is an affront to public opinion and to public morality. It is also very bad for the City. I think that I carry the hon. Member for Birmingham, Selly Oak with me on that. It is in the City's interests that these matters be cleaned up. It is in the City's interests that we have some prosecutions. Nothing will induce the re-establishment of that sense of integrity faster than the sight of one or two people going off for long prison sentences. It is also bad for the economy because, if we have an economy in which money is sloshing around and it is possible to make off with tens of millions of pounds without penalty, the result is a distortion of economic activity—a diversion of resources and energies. That cannot be good for the economy.
What has gone wrong? What has produced this rising level of fraud and therefore the rising level of anxiety? The mechanisms and instruments available for detection are simply inadequate for preparing cases for prosecution. It is unrealistic to expect 21 policemen to unravel the complicated affairs, some years later, of highly skilful fraudsters. As a result of that inablility to deal with such cases, we are rapidly developing a reputation, which is now spreading worldwide—it is certainly being picked up in West Germany—as the fraud centre of the world. There have been recent press reports that the West Germans are astonished that some of their nationals have been the victims of bogus commodity dealers working in London, yet the police in the City cannot be persuaded to take any notice of those cases.
The vice-chairman of the Conservative party enlightened us again today. He has been told—he has some experience of this—that only frauds involving more than £10 million are to be investigated because the resources to consider smaller ones do not exist. If that is true—I would be the last person to suggest that there is any doubt about the veracity and accuracy of what the vice-chairman of the Conservative party says—it is a truly astonishing situation on which the Minister must comment. Perhaps he should persuade some of the Law Officers to set the record straight.
We await the Roskill committee, which might ease matters in some respects. We should be clear, however, that Roskill will help us, if at all, only if the matter has been prepared for prosecution and brought to court. There might be changes which make it easier to get convictions. We are concerned about the ease with which it is possible to detect such crimes and to enable the Director of Public Prosecutions in this case—but perhaps we should be thinking of a different prosecuting authority—to prepare a case that has a chance of success.
The second thing that has gone wrong, as shown all too clearly by Lloyd's and JMB, is that the supervisory authorities have been lax and inadequate. They are confronted with the need to exercise ex post facto supervision, so they also find it extraordinarily difficult, given the methods of supervision available to them, to monitor what is going on and to detect what has happened. All too often, by the time they discover what has gone on, the criminals have flown the roost and escaped jurisdiction. With JMB, it is clear that the Bank of England had to rely on utterly unreliable instruments. The Bank of England is entirely dependent on the audit process. The auditors, who are appointed by the shareholders of the company being audited, have a duty to report to those shareholders. They will resist any attempt to be persuaded to report to the supervisory authority.
A small step was taken in the White Paper announced yesterday, but we are still a long way from a proper system of supervision. For the Bank of England a statutory audit commission with a distinct and separate function would be required, so that there could be no conflict of interest or unwilling conscripts, and the statutory auditors would have a clear duty to blow the whistle to the supervisors when they saw that things were going wrong.
Another factor militates against any effective supervision and adequate detection of fraud; that is that the standards of disclosure among financial institutions are too low. They lag substantially behind what is now the norm in most countries, particularly in the United States. Financial institutions simply do not publish enough information, and what is published is not sufficiently up to date to enable investors to make proper judgments. We know that the accounts for Lloyd's are sometimes five years out of date by the time they are subject to scrutiny.
The rules have hardly ever been applied to companies. Nearly 400,000 companies have not complied with their statutory obligations to submit the basic documentation to Companies house. That must be tightened up. If we are to have effective supervision, we need that information. That will become even more important in the City of the future where the maximum transparency will be at the heart of any effective provision against conflicts of interest. Unless we have that maximum transparency, and unless the City as a whole adjusts and adapts itself to that new requirement, we can kiss goodbye to any effective regulation, and expect a further rash of frauds.
The real problems have arisen, not just because there are a few crooks at the margins. Wherever large sums are handled, there will be criminals on the edges. It is important that there are rules to detect them quickly, and penalties adequate to deter them in future. But that is not the essence of what has gone wrong in the City.
What went wrong at Lloyd's, for example, was not just that one or two people introduced a few criminal practices, got caught and fled, but that the reinsurance deals, the offshore arrangements to avoid taxes and the baby syndicates were embraced by the establishment. The establishment was tainted by those practices and lost the ability to make the distinction between what was acceptable and what was not. The frauds are the most obvious symptoms of what has gone wrong in the City—the difficulty of distinguishing on any objective criterion what outside people would regard as acceptable.
That factor imposes an enormous obligation on the Government, and they must grapple with it. It is not just Lloyd's. Many people in the City still do not fully understand what is required of them now, and what will be required of them in future. Many people still do not accept the distinction between trading in a professional capacity, for which they charge fees and commissions, and trading on their own account. Too often the distinction is blurred, and conflicts of interest arise. Those problems will become worse in future when the old institutional safeguards have been swept away. The opportunities for conflicts of interest to arise will be enormous. It will not be good enough for the City to soldier on on the basis of the current practice, because the current practice is unacceptable.
For example, when British Telecom shares were issued, several aspects of the flotation were unacceptable. By implication, the Government have agreed that they were unacceptable, because they have changed the rules. In the future, the rules will preclude what happened in the case of British Telecom. When firms such as Kleinwort, Benson, which was charging the Government a large fee for advising them and helping them to fix the share price, and many other firms acting in an underwriting capacity realised that the price had been fixed too low and that an immense capital profit could be made overnight, they threw away and conveniently forgot the distinction between the role that they had undertaken to fulfil, for which they had privileged access to shares—there was no limit on the shares in which they could deal—and their ability to deal in shares on their personal account'. There are many reports—some have been made to me—of City firms which dealt in the shares on their own account, and which gave those shares to their staff, distributed them to bonus funds, or gave them to favoured clients and friends of the firm. That is unacceptable.
One commodity firm, Rudolph Wolfe, took 1·3 million BT shares. I do not know what it did with the bulk of the shares, but it gave 20,000 to each head of department and 5,000 to each dealer. That is the confusion that leads to moral uncertainty, and I believe that it happened on a very large scale.
So far, the Government have refused to examine such cases. One case is with the Director of Public Prosecutions and another case was made public through the efforts of a journalist, but the Government have been extremely unwilling to provide the information on which we could make a proper judgement on how widespread the practice was. If the Government are to be regarded as treating the matter seriously, they must consider such cases so that we can clear the air, and so that we know that it will not happen in the future and that the Government are determined to deal with such practices.
I conclude by saying that the acid test for the Government will arise later today and in the months which follow as we consider the Financial Services Bill. It is one thing for the Government to say that they are worried about City fraud. We now need a determined and serious attempt to put in place the rules, penalties and remedies which will tackle City fraud. The Government have that opportunity, as the Minister well knows, in the Financial Services Bill to be published today.
The Bill must give the clearest possible statutory framework of rules, the clearest possible powers of enforcement, and the clearest possible remedies and penalties. If it does not, we are entitled to conclude that the Government are not serious about City fraud, that they retain their unfortunate attachment to their friends in the City which clouds their judgment. The Minister must say tonight whether the Bill will meet those criteria. If it does not, we shall give it a rough passage.
The Government say that the Bill will not embrace Lloyd's. On that basis, I presume that the Minister believes that he can handle the passage of the Bill, because it does not involve a conflict of interest, given that he is a member of Lloyd's syndicates.
I shall ask the Minister now, and I hope that he will answer now or when he replies: if the Bill were amended so that it brought Lloyds into the regulatory framework, would he regard his membership of Lloyd's syndicates as a ground for disqualifying him from proceeding with it? If he were to answer yes, as I hope he would, he should quite logically be prepared to say that the decision whether the Bill should embrace Lloyd's should be outside his scope, for the same reason. If he is not prepared to say that, we see, in the person of the Minister, the very conflict that has been bedevilling the City in many of its operations, and which is the cause of so many of its problems.
No, because, as the hon. Gentleman will appreciate with a moment's reflection, agriculture is a matter of public policy, and Lloyd's is the subject of a private Act, and it is a specific interest for which, if we were to legislate, we should have to use the procedure of a hybrid Bill, which is one of the arguments against doing so. That shows us that dealing with Lloyd's is different. It is not a matter of general public policy but of specific interests. As a member of a Lloyd's syndicate, the Minister is as much disqualified from dealing with Lloyd's as he would be if he were dealing in a company in which he held shares. The Minister is able to defend himself, and deny the statement if he wishes to do so.
The hon. Gentleman spoke about hybridity. Would that not in itself be a good reason for not including Lloyd's in the Bill? If he had any reasons for wanting another Bill to deal with Lloyd's, procedures are available to deal with those questions. He has given the answer to the problem.
It is not my purpose to argue that dealing with Lloyd's would involve problems of hybridity. I simply raised that point to show that Lloyd's is not a matter of public policy but one of specific interest, and I repeat that if the Minister is a member of one Lloyd's syndicate, or more, he is in the same position as that of a director of a company that is the subject of private legislation.
I shall explain my position fully in my speech, but so that the House does not waste any more time on this argument, I make it clear that I am no longer a member of any syndicate at Lloyd's.
I am grateful to the Minister for that reply, and I look forward to an explanation.
This point raises general questions. Is the seriousness of purpose that the Government proclaim and profess to be matched by the provisions of the Financial Services Bill? I fear from what I have heard in advance that the Bill will not do that, and will be deficient in the clarity and directness that will be needed to regulate the City of the future and to exclude fraud as far as that is possible. If the Bill does not do that, the Government will have missed an opportunity and failed an obligation. I hope that the Minister will take that point seriously, and that during the debates on the Bill, we can persuade him to strengthen it so that it will achieve its purpose.
The hon. Member for Dagenham (Mr. Gould) was right to draw attention to the fact that it was as long ago as 1981 that my right hon. Friend the Member for Shropshire, North (Mr. Biffen), as Secretary of State for Trade, asked Professor Gower to conduct his review into investor protection, in response to a number of frauds, including the Norton-Warburg scandal. It was also as long ago as 1983 that Lord Roskill was asked to look at the conduct of fraud trials. This gives the lie to the suggestion that this subject has somehow been raised by the hon. Members for Bolsover (Mr. Skinner) and for Hackney, South and Shoreditch (Mr. Sedgemore), when many right hon. and hon. Members have been concerned about the regulation of the financial services for a number of years.
We are concerned because of the growing scale of the problem. The figures speak for themselves. In 1981 the Metropolitan police and the City of London fraud squad together considered 378 cases of fraud, involving £262 million. By the end of 1984 that figure had risen to 711 cases, involving £776 million. That seems to refute Mr. Jeffrey Archer's suggestion today that they investigate only cases involving more than £10 million. If there were 711 cases involving £776 million, the average appears to be about £1 million. We know that there are a number of cases involving very large sums, but there are also quite a large number of cases involving sums smaller than £1 million. Mr. Archer's suggestion has already been denied by the police. They are obviously in a strong position to comment on these matters.
Ernst and Whinney, the firm of chartered accountants, has recently undertaken research on this issue. It conducted a survey and established that the average company loss through fraud each year—not just in financial service companies, but in business generally—was £6,100. Therefore, it is possible that the total loss each year is about £2·75 billion. Clearly, therefore, there is agreement about the scale of the problem that we face.
The hon. Member for Dagenham referred to the attitude of the public to fraud. It is not just that City people have adopted a slightly different approach to this issue compared with other categories of criminal offence. The point was well put at a recent conference on the subject by Detective Superintendent Perry of the City of London police, who said:
Unlike serious personal crimes like murder and rape and organised crimes of violence such as armed robbery, fraud cannot be called a high profile crime. Neither can it be compared with crimes which have serious personal impact like domestic burglary which has a profound effect on the victim regardless of the value of any property stolen. Indeed not only is most fraud low profile, it is even considered by many people to be 'clean', provided the victim is an organisation rather than the man in the street. In short by a combination of lack of violence or other personal loss and the fact that the aggrieved is often a large commercial organisation fraud manages to hide behind every other crime that plagues society today.
I suggest that public attitudes generally to fraud are different from public attitudes to other crimes, and this is a matter for concern. It starts at the lowest level, with cheating on expenses. It goes right the way up, from cheating on perhaps a few pence or a few pounds on an expense claim, to the multi-million pound thefts that have been discussed today.
The House has expressed concern about the level of the resources that are made available both to the police and to the Director of Public Prosecutions. There are 200 detectives in London, both in the Metropolitan police and in the City of London police, who are investigating fraud. They are clearly stretched in trying to deal with the number of cases that we know they have been asked to investigate.
The Assistant Director of Public Prosecutions, Mr. Wood, addressed a conference which I attended in the summer on this subject. He related the background and said:
When I first joined the Director of Public Prosecutions we had one man only dealing with fraud in London and in the Provinces. Prosecuting fraud cases was part of our general work. But as fraud becomes more prevalent, more international, more sophisticated we came to the conclusion that a separate division dealing with fraud in London and the Provinces was essential. Thus some ten years ago we created such a division under the control of an Assistant Director with five professional staff and non-professional support. A few years later we had to increase numbers and make two divisions, one for London and one for the
Provinces. Now with the advent of the Fraud Investigation Groups we have three divisions with a total of fifteen professional staff and three accountants. Such is the volume of work that they can barely cope and will have to be augmented.
Those figures—three accountants and 15 professional staff—speak for themselves. It is only recently that accountants have been recruited.
I have here something else that Mr. Wood had to say about the support given by accountants. He said:
We now have three accountants on our staff. When they first arrived I told them for the first few weeks they wouldn't be too busy and that until their work built up they would have time to do my tax returns. In reality after a few weeks they were busy and they are now having difficulty in keeping up. Such is their value that I cannot see how we ever managed to do without them. My tax return I regret has had to do without the benefit of an accountant's advice.
It is essential that the number of DPP staff concerned with fraud is increased substantially. We must devote resources to that.
There are other ways in which the accountancy profession can help. Voluntary methods might help, but professional, perhaps newly retired, accountants might assist. We must ensure that the resources are available.
The investigation of fraud requires special skills, as does other crime. All those involved in trying to deal with fraud are in difficulties, because fraud is so complex. Even judges have difficulty. That is why the institute to which I belong recently organised a series of seminars for High Court judges, designed to explain some of the devices used. Such seminars could be extended to instruct Department of Trade and Industry officials, fraud investigation groups, and so on.
Lawyers are used to presenting a case orally, without any support, in court. This might emerge in the Roskill report. Courts are out of date in that respect. If court procedure were modernised, and if prosecuting counsel were allowed to use audio-visual equipment to explain the complex structure of a group of companies used to perpetrate a fraud, that would be a great help to both judge and jury. I hope that the Roskill report addresses that issue.
The resources problem is both qualitative and quantitative. It is essential to have the right number of people with the right skills. As I said to the Economic Secretary the other day, it is important that investigators have the necessary powers to obtain evidence. The Police and Criminal Evidence Act, which comes into force on 1 January, might help. The real problem relates to overseas evidence and the difficulty of obtaining it. It is difficult to persuade witnesses from overseas to attend court to give evidence. There is no simple answer. The matter needs careful thought.
Reporting fraud is essential. We must distinguish between employee fraud and management fraud. Directors and management are under no obligation to report a fraud. As a result, a large proportion of employee fraud remains unreported.
My hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) said in a recent speech:
If top management set standards of personal conduct which discourage irregularities and take quick and decisive action when irregularities are brought to their notice, then fraud will have less chance to take root. But if top management are equivocal on fraud and fail to act when cases of suspected fraud are brought to their notice, dishonest employees will take advantage of the situation.
That is the present position. When employee fraud is brought to management's notice, the normal procedure is to get rid of the employee as quickly as possible and to take
no further action. Perhaps we should change the law and place an obligation on directors and managers to report fraud.
What should we do about management fraud? My hon. and learned Friend said that managers themselves could not deal with management fraud but that there was a special obligation on the auditors of companies. I agree that the auditors should report management fraud to the regulatory authorities.
There is the problem of client confidentiality, about which we have heard in the context of banking supervision, and we shall hear about it again in the context of building societies and in the context of the Financial Services Bill. Lord Benson said in a recent report that the auditor should first inform his client. There are two difficulties in that proposition, the first being to question who is the auditor's client. It is not the management of the company. The auditor's client is the shareholders of the company. That is the distinction which, I am afraid, sometimes my profession has difficulty in making. If that is the distinction, the question of confidentiality is not so important because we are talking about reporting to the shareholders, and that boils down to the public interest—reporting to the public.
The second difficulty is that if one tells one's client that one has it in mind tomorrow to arrange a meeting with the regulatory authorities about his suspected fraud, one will go to the meeting and one's client will go to Heathrow. I agree that it would be nothing less than a tip-off, so the auditor must in such circumstances report the fraud without informing his client, but that will have to be a statutory obligation.
We have heard much in the debate about self-regulation, but what the Government will propose in the Financial Services Bill will not be just self-regulation. It will be a mixture of self-regulation reinforced by a statutory framework. In the end we shall have to decide what to do if a self-regulatory organisation refuses to change its rules so that those rules are consistent with the principles set down in the Bill and the conduct of business rules published by the Securities Investment Board.
While we have not yet seen the Bill, I understand that it will say that the only sanction open to the SIB in those circumstances will be to derecognise the SRO. That is all very well, but there will have to a specific power to require an SRO to change its rules to be consistent with the conduct of business rules arid the principles in the Bill.
If, as I hope, the House agrees on that, we shall have not self-regulation, but qualified self-regulation; qualified by the fact that there will be a statutory back-up with an ability to interfere. That, in these circumstances, is only to recognise the limitations of self-regulation. Perhaps one cannot expect people to go too far, which brings me back to what I said about auditors. I do not think that we can persuade the accountancy profession to change its rules, and if we cannot do that, we must change the law—that is clearly the alternative—so that there is no doubt about the position.
It is not reasonable to leave this to self-regulation, and I hope that the Minister will consider my two proposals for ensuring that suspected fraud is reported. That is as essential as the full investigation if fraudsters are to be brought to book. We need, in summary, adequate resources, adequate powers for the investigators and an obligation on directors and auditors to report suspected fraud.
I wish at the outset to pay tribute to my hon. Friend the Member for Rhondda (Mr. Rogers) for initiating this debate about the City, Johnson Matthey Bankers, Lloyd's, the stock exchange and the whole question of fraud. He brought to the attention of the House some interesting facts that he had obtained—not from any Marxist periodicals but from the House of Commons Library—about the amount of fraud that had gone undetected and the millions of pounds that had been lost as a result. That there is fraud has been established without doubt by my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) and accepted even by Conservative Members.
The City is a powerful lobby. We were discussing lobbies yesterday—little lobbies, like the Channel tunnel lobby. They are little in comparison. The Channel tunnel is a once-and-for-all project. Build the tunnel and a lot of people make money. Tory Members make a few bob on the side—£2,000. Then they move on to another lobby. But this lobby is the most powerful that gets into the House of Commons. There is no question at all about that.
The hon. Member for Beaconsfield (Mr. Smith) is part of that powerful lobby. That is why he can speak so well about the City. He knows it inside out. One just has to look in the Register of Members' Interests. He is parliamentary consultant to the National Association of Security Dealers and Investment Managers. He ought to know a bit about it. He is parliamentary consultant to the County bank. That is one of the little banks—perhaps a little bank like Johnson Matthey. I am not too sure of its size. So he is well versed in it.
One out of eight Tory Members, roughly speaking, are members of Lloyd's. That is discounting all those who are names. The Minister said that he was not a member of a syndicate, but I wonder whether he is a name. Perhaps he will tell us that. My barrister friend tells me that there is a significant difference. Perhaps he will explain it.
The power of the City finds a great presence in the House of Commons, and, for that matter, in the House of Lords as well. So is it any wonder that from time to time a few Labour Members decide that the thing smells like a sewer and that we ought to expose it?
It is at this point that we should pay a compliment to my hon. Friend the Member for Hackney, South and Shoreditch for filling in a lot of gaps. Although many of us were arguing about the state of Johnson Matthey and Lloyd's for many months, my hon. Friend managed to insert into the gaps, as a result of the meticulous methods that he used, some of the names—the pack drill. He taught us all that what we could smell in the sewer of the City was something that was more tangible by explaining in more detail exactly who was up to their neck in the Johnson Matthey fraud. More lately, as he explained in the House recently, he wanted to get the Johnson Matthey affair off his back because he was entering into the arena of Lloyd's. He has done a wonderful job on that as well.
I want to refer to what the Chancellor of the Exchequer said yesterday. When he accused some of my right hon. and hon. Friends in the previous Labour Government of not doing the greatest job of all time in the post secondary banking crisis, inadvertently, I suppose—he probably did not realise it—he was admitting fault himself. He was saying that there was a secondary banking crisis in 1970, 1971, 1972, when the leader of the Liberal party was up to his neck in London and County Securities—
Yes, there was a pact all right, with the previous chairman of the 1922 Committee of the Tory party. The chairman of Keyser Ullman temporarily tried to bail out London and County Securities—I mentioned it in the House at the time—in order to try to save the leader of the Liberal party's neck. It did not work because as a result of that banking crisis and the domino effect Keyser Ullman ran into the same trouble. It is no wonder he sometimes has a job to pay his rates. That is another story.
One of the things about that banking crisis was that the banks were given a long lease and a long rein. None of the big fish was caught. We have heard how the PCW people escaped to America and Costa Rica with the money they got from Lloyd's. Gerald Kaplan, the head of London and County Securities, went off to America as well. When I asked questions in the House, my hon. Friends in the Labour Government said that they could not get hold of him because he was in America.
I had not heard of sequestration in those days. That came up during the miners' strike. It is marvellous how the Government can sequestrate all the miners' money in what I thought were rock-solid banks in Switzerland and Luxembourg. I had been led to believe that anyone who gets hold of a million or so and wants to avoid taxation just has to put it in one of those banks and no one would be able to find out anything about it. But when the NUM did the same it was not long before a Conservative official was found to drop over and break into a rock-solid bank. By using their friends in the law courts and the City, the Tories managed to sequestrate the lot. There is certainly a lesson in that for the next Labour Government. About £50 billion has gone overseas as a result of exchange controls being lifted by the Government to help the City. We should have an official sequestrator—a Minister even—acting full time to bring that money back and have it taxed in this country. Then we could build up the National Health Service, pay decent pensions, get people off the dole queues, build houses and all the rest.
Those are the double standards under which the Tories operate. The Chancellor referred yesterday to the secondary banking crisis in an attempt to chide my hon. Friends for not doing enough about it. Why did he do nothing about Johnson Matthey Bankers when the climate was worse? Everyone acknowledges that, however great and corrupt and fraudulent the secondary banking crisis was, it was not so big as the crisis today. When the Chancellor saw Johnson Matthey going down the drain, he should have done something about it, but he and his predecessor promoted a free market economy which allowed the banks to make money hand over fist through high interest rates and made the Barber boom of 1972 look insignificant in comparison. In a climate like that a decent Chancellor would have recognised that the banks were in greater peril than they were in the 1970s because there were problems abroad as well as in England.
We have been surrounded by an international debt crisis for several years and it is growing all the time. I am told that about $975 billion is owed by about 50 out of 150 countries in the world. Imagine running a shop with 150 customers and 50 of them not paying anything off their debts but still shopping. There is an international debt crisis. The International Monetary Fund went bankrupt about three months ago and had to be bailed out temporarily. The United States has a $130 billion deficit. Fancy becoming a debtor and going to the top of the first division in one fell swoop. In a financial climate like that, any Chancellor who knew what he was doing would have decided to keep an eye on the little banks in case there was another banking crisis. If there was a crisis in 1972 when the international climate was so different, just think what could happen now. The Chancellor gave the game away yesterday by linking the 1972 crisis with the problems we face today. He should have recognised that special care was needed to see exactly what was happening in the banking sector, but he did not.
Is it any wonder that Johnson Matthey lent all this money to all these curious people? It lent Sipra about £70 million, and Abdul Shamji, who owed about £20 million, occasionally saw the chairman of the Tory party and was a friend of the Prime Minister and other Tory Members. If he was friendly with all these people in the Tory Government, is it not just conceivable that someone might have known that he was borrowing all this money from the Johnson Matthey bank? That same man, Abdul Shamji, finished up in an enterprise zone in Stroud in Kent, and he did so, according to my information, before anyone else knew that it was an enterprise zone. Is it not just conceivable that he was tipped off by the Tory Government and that some members of that Government knew where his money had come from?
In such a climate, would not a responsible Chancellor of the Exchequer have said, "We had better keep an eye on the Johnson Matthey bank. It is lending to people who do not have the collateral to pay back"? When I and other hon. Members put questions to the Prime Minister in 1984–85, she said that they had to rescue Johnson Matthey because it might have an effect on the others. The private lobbying that appeared in the newspapers—attributable or otherwise—suggested that one of the reasons was that the Midland bank was in trouble.
I suppose that the Chancellor knew that the Midland bank had problems. My hon. Friend the member for Hackney, South and Shoreditch said that the rescue was wrapped up with three different problems. I managed to spot the Midland's difficulties with Crocker in America whose debt ratio suggested real problems.
With an international debt crisis, with Midland bank tottering about, and with 80 American banks last year going bankrupt, is it not just conceivable that someone in the Tory Government should have kept an eye on Johnson Matthey bank? Should not someone have asked Ronald Leigh-Pemberton—appointed by the Prime Minister because, as she put it, "He is one of us"—"By the way, are you watching Johnson Matthey bank, because we think that it is a bit dodgy? We have a crisis nationally and internationally, and we have funny borrowers who are not likely to pay back. Are you keeping an eye on it, Ronald?" [HON. MEMBERS: "He is called Robin."] As a matter of fact, that is a more Tory name. It certainly was not Christopher Robin.
It was right for my hon. Friend the Member for Hackney, South and Shoreditch to call for the resignation of the Governor of the Bank of England if he was incapable of keeping an eye on what was happening.
The Chancellor said yesterday that there would now be all these supervisors, but questions on that subject have been asked since 23 October 1984. I asked about supervision because I spotted in a journal that only one Bank of England employee was watching countless banks in Britain to see whether they were doing their job. When I asked that question, it was shrugged to one side.
Now the Government have decided to have some sort of supervision. So the Chancellor of the Exchequer has been negligent throughout the whole affair. Those who called for his resignation—my hon. Friend the Member for Hackney, South and Shoreditch, myself and others—were right to do so, because the Chancellor was not keeping his eye on the ball.
What can we expect, anyway? If the Government decide to run a free market economy and to let interest rates go into double figures for about six years non-stop, sometimes at 17 per cent.—banks can make money hand over fist when interest rates are that high—is it any wonder that there has to be a day of reckoning eventually? It cannot be allowed to go on for ever. In that scenario, with the Johnson Matthey bank bubbling away, the Chancellor should have seen the warning signs. That is why we do not believe him when he says that he knew nothing about the crisis.
Consider the bizarre rescue. Imagine what happened on 30 September. Imagine the telephone call when the Chancellor of the Exchequer says to the Prime Minister, "It's uneconomic." She says, "Shut it, then." It in the middle of the pit strike. The Chancellor says, "But it's a bank, Prime Minister". "Oh", says the Prime Minister., "keep it open if it's a bank. I thought it was a pit". That is roughly what happened.
The Prime Minister has the philosophy that a company must make a profit or die, but that philosophy does not apply to the casino economy, or when the Government's own friends are at risk, or when it is their people's money. If it is a little firm in the Rhondda valley or in Hackney, all the pleading by Labour Members to save 150 jobs falls on deaf ears with this Government, this Prime Minister. this Chancellor of the Exchequer and this chairman of the Tory party. It has to make a profit or go under, like all those miners who were chucked out of work.
The Government have double standards. A different law is applied to banks. They can be bailed out. There is no monetarist policy then, no free for all, no "Stand on your own two feet". At that point the Tory Government say, "Bail them out, and the use taxpayers' money if necessary to do it"—taxpayers' money that should be spent in areas such as Newcastle, where there is mass unemployment.
The debate is important because it shows the Tory party's morality in relation to the industrial economy and to the casino economy, Johnson Matthey, Lloyd's, the stock exchange, or anywhere that the Tory party's people proliferate, with the most powerful lobby in this building.
Imagine the scene, with all the people waddling up Threadneedle street, called by the Governor of the Bank of England to bail out Johnson Matthey Bankers. I wrote to the Prime Minister asking why all the shareholders were not allowed to go to the meeting. Only those who could be contacted at the time were called to the meeting. Why was there no ballot? All the talk in the autumn of 1984 was about having a ballot of miners. There was no ballot for the shareholders. Instead there was what is called an aggregate meeting. There they were, with their little square briefcases on a Sunday night. Just imagine 200 people going up Threadneedle street at midnight on a Sunday. They were not stopped at Dartford tunnel. The police knew that they were on a special journey—to bail out a segment of the Tories' beloved economy. There were different rules for them—one law for the banks and another for the rest.
There is another aspect of the case that has not been covered adequately. Why was not the parent company made to look after its errant child? Johnson Matthey plc spawned Johnson Matthey Bankers. The Prime Minister talks about the family; about parents having to look after the children when they go wrong. Yet when Johnson Matthey plc found that its bank was going under, what happened? The Tory Government sent in the social workers to look after the brat. They used taxpayers money to bail it out. Completely different standards were applied to the bank.
Why was Charter Consolidated, a major shareholder in the company, not told, "You have a bank that is bankrupt. We ask you to put your money where your mouth is"? But Charter Consolidated conned the Government and Anglo-American. The bank was saved while 20,000 bankruptcies occurred in Britain that year.
To top it off, according to the information available at the time, when the rest of the City people were asked to put in money to save the Johnson Matthey bank, some of the city financiers said, "We think that Charter Consolidated should bear more of the burden than it has. We are not happy about putting some of our money in. We might be putting more good money after bad." They were tipped off that they would be looked after by the tax authorities.
I sent another letter to the Prime Minister asking why those City financiers and institutions were given the nod and the wink and told that, if they put their money into saving the Johnson Matthey bank, along with the £100 million from the taxpayers, they could write off every penny against taxes in case they became bad debts.
It would be wonderful if the parents of the 4 million people on the dole could set off tax relief to look after the 20-year-olds who have never had a job. Different standards are applied to them.
Yesterday, the Chancellor launched a violent attack on my hon. Friend the Member for Hackney, South and Shoreditch because of his questioning in past months. The right hon. Gentleman tried to imply that we had come across this information in July after he had made his statement. It is on the record that several Opposition Members had been raising the matter since the bank collapsed. On 11 November 1984, I asked the Attorney-General, who said that he was concerned about the level of crime in the City, to send in the fraud squad. He refused. The Chancellor is wrong to suggest that we have not argued about this case for long enough.
The fraud squad did not find the crooks in London and County Securities or in Keyser Ullman, although the crooks were staring them in the face. It did not find them in all the other secondary banks. Almost no one was tackled when Crown Agents went under. The fraud squad was sent in eight months after I had asked that question in November. I am not naive enough to suppose that the fraud squad is capable of catching someone who has been given eight months' start. The Government did not give the miners eight months' start when they were engaged in their battle to save their jobs.
Now the Government have the cheek to talk about self-regulation for the City. It means keeping it in the family for banks, for Lloyd's and for the stock exchange. Yet, during the past six years, the Government have said to the trade unions, "No self-regulation for you. We shall tell you not only how to organise yourself but you must conduct ballots when we say so. You must ballot to elect all your executives." Why do not the Government start on Lloyd's? Why not have a few ballots in Lloyd's and in the stock exchange?
The banking consultant—the hon. Member for Beaconsfield—knows.
There is no self-regulation for local government. It would be wonderful if we returned to the self-regulatory system of local government which would enable local authorities to levy a rate to provide services for those in the inner cities and elsewhere. There is a difference between the inner cities and the City of London, where self-regulation is the order of the day.
There is no self-regulation for teachers. Teachers would argue that they could carry out their own appraisal, but the Government say, "You cannot have self-regulation. We will regulate for you. We will decide which grades you should be in."
When it comes to auditors investigating the affairs of Johnson Matthey and others, the result is a clean bill of health. Lambeth and Liverpool councils and several other authorities did not levy a rate for a few weeks and the Government sent in the auditors post haste to try to drive councillors out of office.
The Chancellor of the Exchequer has brought in new measures. We are to have bank supervisors. Why does he not allow the supervisors to confer with the auditors to ensure that everything is intact? Why does he not have an inspectorate? There is an inspectorate in the United States which controls about 14,000 banks. Why cannot we have an inspectorate instead of allowing self-regulation to continue?
The Government have a policy for the casino economy and one for those who work in industry and local government. Market forces and monetarism operate for the banks as long as they are making money. The moment that they run into trouble, the Government are there to bail them out. It is the job of Labour Members to expose these double standards when we see them. There has not been enough of that.
We have been under attack for the past six years. We have tried to defend our friends in the trade unions and local government while others have been making money hand over fist—[Interruption.] Tory Members like the hon. Member for Beaconsfield, who keeps chirping from a sedentary position, have been making money out of the system. They have been lining their pockets while the Government have been attacking councils, cutting grants and attacking trade unions, the teachers and working people generally. At the same time, millions have been made by others.
It is no good saying that it is only those outside the House who have made money. We know that one in eight Tory Members are members of Lloyd's. At the latest count, 400 consultancies are divided by about 230 Tory Members. It is difficult to keep up with the Register of Members' Interests, for they are coming on it that fast.
Against a background of neglect, I agree with those who have called for the sacking of the Governor of the Bank of England. Heads should roll when there is fraud on such a scale and when the taxpayer is having to find the money to bail out the City. Of course, there should be a pubic inquiry into the cesspool at Lloyd's and into the Johnson Matthey bank failure and its rescue by the British people. That must be said over and over again. If the Tory Government will not do that, the Chancellor of the Exchequer should pack up and go.
I join others in congratulating the hon. Member for Rhondda (Mr. Rogers) on giving us a chance to respond to an important debate which has been going on for some months. My right hon. and hon. Friends have not had a chance to put in our two-penny worth.
As we have witnessed the rather dramatic learning curve of the Opposition on fraud in the City, there have been a number of opportunities for Opposition Members to say what they feel. I raised the matter in a debate in February, and we then had the debate on the White Paper on financial services, during which Opposition Members were strangely silent. Since those debates, there have been a number of developments. We have had the conference in Geneva of the United Nations committee for trade development on international and maritime fraud, the revelations in the "Panorama" programme of a few weeks ago and the publication of the Lloyd's disciplinary proceedings, which I believe is the first sign that the Lloyd's Act 1982 is working properly.
Above all, we have had the revelations from the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore). I think that the hon. Gentleman has done three things, apart from demonstrating the fine art of the early-day motion, which he used to promote his cause. First, he made accusations of fraud in the City. I have no idea whether those accusations are true. If he has concrete evidence, I hope that he will not hesitate to pass it on to the fraud squad—
I am delighted to hear that. I am not criticising the hon. Gentleman. I only said that I hoped he would pass on any evidence. The hon. Member for Dagenham (Mr. Gould), if my ears heard him right, made the remarkable comment that Kleinwort Benson was a party to fraud in the British Telecom share issue. I hope that he will pass that information on to the fraud squad.
I think that it has been accepted by the Treasury Bench and Ministers at the Department of Trade and Industry that Kleinwort Benson, which was dealing with the matter and charging the Government a substantial sum for giving them advice, was itself dealing in the shares. That is an incontrovertible fact, and that is accepted on all sides.
The hon. Gentleman is clearly astonished, as, indeed, am I, that such conduct has been passed by the Government almost without comment. The Government simply say that they can see nothing wrong with this. All that they have done is to advise merchant barkers in similar positions not to behave in that way. I believe, as clearly the hon. Gentleman believes, that that was a clear case of, at best, an undesirable conflict of interest, and, at worst, something that approached fraud. If he is with me in that, I hope that he will join me in putting pressure on the Treasury Bench to ensure that people committing such an offence are brought to book.
I thank the hon. Gentleman for explaining that. I accept that he is not making allegations of fraud. I am as concerned as he is about this matter, which I was not aware of previously.
I make no apologies for the fact that I work in the City. I daily move around the place, and I must tell the House that 99·9 per cent. of those whom we meet in the City, who travel on the commuter trains each morning and evening, have absolutely no idea of how to carry out fraud even if they wanted to do so. They are performing a useful function, which is to earn invisible exports for this country. What we are talking about are an irresponsible few who are not necessarily British. Many of the criticisms of Opposition Members are causing more harm to the City than that criticism merits, especially bearing in mind the sterling earning capacity of the City.
The second thing that the hon. Member for Hackney, South and Shoreditch has apparently done is to galvanise the Government into action. As someone who has been campaigning for action on this front, I welcome the hon. Gentleman to the club of those trying to achieve more movement.
The third thing that the hon. Gentleman has done is to highlight a rather important defect in the law—and that is the grey area of what is a civil and what is a criminal matter. During the debate on the Queen's Speech, when he managed to slip in that subject during the foreign affairs debate, the hon. Gentleman gave an example of someone pinching 80p from a barrow in Hackney, who would then be chased by two policemen and prosecuted. The difficulty is that if that person, rather than stealing the 80p, said to the barrow owner, "Will you lend me 80p?", knowing that there was no intention to return it, the question arises whether that is a criminal offence or whether the barrow owner should sue that person for the return of the 80p. That is one of the main problems with what is happening in the City. It is the confusion over what is a civil case and what is a criminal case.
The hon. Gentleman may know about the Chartwell affair, when Mr. Bruckman sold shares that he did not own. The fraud squad investigated, and it was confused about whether it was a criminal or civil case. While the confusion was reigning, Mr. Bruckman disappeared.
On this topic, the Opposition are short on remedies. The Government have instigated the fraud investigation group, initiated the inquiry and review of fraud trials by Lord Justice Roskill and instigated the Green Paper on extradition. Above all, as many hon. Members have mentioned, we have had the debate on the White Paper on financial services.
I do not know whether this will come out in the Financial Services Bill, but the White Paper says that the key to enforcement in the City is having self-regulation underpinned by criminal sanctions. The Attorney-General admits that fraud is growing in the City, and the director of the International Maritime Bureau says that it is running at $10 billion a year. I find that figure exaggerated, as it is staggering. We must ask ourselves whether self-regulation is sufficient, whether those doing the underpinning have sufficient support and resources, and whether the criminal sanctions are effective.
Lloyd's is the best example of self-regulation. It is understandable that some hon. Members are concerned. Mr. Cameron Webb did not feature in the disciplinary proceedings by the simple trick of resigning from Lloyd's, so he did not come under scrutiny. He disappeared to Spain, and as soon as we signed an extradition treaty with Spain, he slipped off to California. The Director of Public Prosecutions says that we do not have enough evidence to bring him back from California. I say to him that we should go out and get the evidence. It is available. We also have Peter Dixon, who was fined £1 million. It is a fat lot of use fining a man £1 million if he is living in Marbella at the time. We must get him back from Marbella.
Self-regulation can work only if there is no conflict between the regulators and the market. The other day Mr. Posgate, who probably knows his way around Lloyd's better than most people, said that business was being transferred to preferred syndicates and that members of the council of Lloyd's were members of the preferred syndicates. I have no idea whether that is true, but I hope that it is being investigated by Lloyd's.
When syndicates crash, we come back to the point that I raised earlier—is it a criminal or a civil matter? We read in the papers this morning of offers being made to some of the innocent victims of the crash at Lloyd's. That seems to show that some people say that it is a civil matter, because if it was not they could be suing for their money. Yet others say that it is a criminal matter. That distinction must be examined.
Let us consider self-regulation on the stock exchange. We all know that insider dealing is illegal, yet about 65 per cent. of all price movements before a major announcement occur as a result of insider dealing. The figure from the stock exchange is that four people have been prosecuted. In the unit trust world, we look at the cases of late booking. When people make transactions, instead of committing themselves to where the transaction is being placed, they put in a suspense account. I believed that M and G, of all people, was above suspicion. It looks after my investments. When it was discovered that someone in M and G had operated a suspense account, it had no records. That is disgraceful. The stock exchange confirmed that it had no rules to deal with late booking.
Despite those difficulties, self-regulation has to work. If the City of London cannot work on self-regulation, we might as well pack up and go home. We cannot have policemen sitting around Lloyd's and the stock exchange. The Government must get to grips with giving the self-regulators more power and effectiveness. As my hon. Friend the Member for Beaconsfield (Mr. Smith) said, auditors must be given more power to report suspicious circumstances. We must ensure that the criminal sanctions underpinning self-regulation bite, and are seen to bite. There must be a massive boost in the staff of the DPP, and the fraud squad must be expanded.
I do not know whether any hon. Member present has tried lodging a complaint with the fraud squad. I tried about four years ago, and was told to visit a man in a room in Holborn called the caller sergeant. The chap came out with his note pad and pencil, which he sharpened, and took down a little statement and went away again. About three weeks later I received a letter. I had given the circumstances of the fraud and the name and address of the person I suggested had committed it. The letter said that the fraud squad could not prosecute because someone would have to go to Yugoslavia to take a statement and it did not have the money to do that.
The City of London is the financial centre of the world. It must have the respect of investors, and we must give the fraud squad the tools to police it. We must ask ourselves whether the law can cope with what is going on. At the moment, the answer is no. We can make improvements with jurisdiction and with extradition. There is a glaring loophole in the law of jurisdiction. Any two people can conspire to commit a crime overseas, but it is not an offence. If the crime is carried out in, for example, Turkey, with which we have no extradition treaty, it is possible to publish details in the papers and not be prosecuted, because no offence has been committed. When I asked Lord Justice Roskill whether he was looking into that in his inquiry, he said that he was not. It is easy to understand why people say that Britain is becoming a haven for overseas criminals. People can operate without fear of prosecution.
The Home Office has produced a Green Paper on extradition. I am disturbed by some of the trailers about what will happen to the law on extradition. I understand that the prima facie rule will be abolished. That is disturbing, and I hope that we shall have a chance to discuss it. It is vital that the Home Office proposals on extradition are brought forward and that we consider with whom we have extradition treaties.
We should have multilateral treaties. We should sign the European convention on extradition. Britain and Malta are the only countries in Europe which have not signed that convention. We run into most trouble with the number of Government Departments with which hon. Members must deal when approaching this subject. In matters of jurisdiction, we are referred to the Home Office. Financial services are the province of the Department of Trade and Industry. Fraud trials take us back to the Law Officers. The rules of extradition are matters for the Home Office, but extradition relations are matters for the Foreign Office. If we want to talk about the DPP, we must go to the Law Officers again, but, oddest of all, if there is fraud on a ship —if there is marine fraud—we are referred to the Department of Transport. If ever there was a classic example of a case for a Ministry of Justice, this is it.
There is no central drive in Government policy on this topic. The problem is international and requires art international solution. That has been recognised by the United Nations committee on trade and development, which is the only organisation that has got to grips with the internationalism of the problem. It is alone in proposing a convention on jurisdiction and extradition. When I referred that venture to the Department of Transport, which for some reason is dealing with the matter, it said that the proposals contained no practical solutions.
The Government are acting, but there is no co-ordination and no direction. Only this afternoon the International Maritime Bureau told me about a fraud involving some $2·3 million. The perpetrator is believed to have carried out a similar crime seven times in the past. We are not chasing burglars and leaving more men on the beat. We are up against sophisticated criminals. Until we are as sophisticated as they are, they will run rings round us until the cows come home.
I congratulate my hon. Friend the Member for Rhondda (Mr. Rogers) on choosing this subject and opening the debate so lucidly.
The huge increase in City fraud has brought the Government near to panic. They say that they are anxious to deal with fraud, but one of their main anxieties is that fraud is about to become electorally and politically embarrassing for them. Only today I was talking to a fraud squad officer who said that the Government had promised them 25 accountants. Where are they? The fact that they have not been provided is a reason why so few people who commit fraud get caught. Despite the rhetoric and the fact that there have been years of fraud at Lloyd's and Johnson Matthey bank, not one person has been arrested, charged, or is facing trial.
Mahmud Sipra is in Karachi laughing his socks off. Michael Hepker is amazed that he is still the chairnan of a public company in Leeds. Abdul Shamji genuinely believes that he can still buy his knighthood from the Government. Peter Cameron Webb is spending the loot in Miami. John Walrock can be seen in a sauna bath at the Mandarin hotel in Hong Kong. Peter Dixon is sunning himself on a sun-kissed beach in the southern hemisphere. The greatest fraud supremo of all from JMB, Mr Ian Fraser, believes that the Governor of the Bank of England, Mr. Robin Leigh-Pemberton, will give him a job on the banking supervision board.
It is absurd that those major criminals are scattered round the world, and there is no chance that any of them, except perhaps Mr. Fraser, will be charged. The Minister and the Law Officers should tell us why. They created an enormous red herring over Lloyd's by saying that they could not catch those people because they could not get the internal transcript of the Lloyd's proceedings. The Lloyd's solicitor, Mr. William Beckett, agrees that that is a red herring. I saw him on Friday. If those people are to be caught on the basis of evidence given to Lloyd's, the police must go to the same people and get the same statements. They cannot use the statements that were given to Lloyd's. The police have not done that, and until they do so those people will go free.
The second excuse is that we cannot extradite those people. Why cannot we extradite John Walrock from Hong Kong? Only a few months ago when he came to give evidence to Lloyd's, why was there no warrant for his arrest? Was he told that there was some form of immunity to prevent him from being arrested? It is an enormous puzzle why not one warrant has been issued for their arrest and why no one has been charged. Those papers have been with the Director of Public Prosecutions since 1982. But for the fact that I started to kick up a stink about Lloyd's five weeks ago, we would have heard nothing more about it. Those papers would have been left with the DPP for a further year and still no warrant would be issued, no charge would be made, and no one would face a criminal trial.
When I first began to hear about the details of JMB, I said to myself, "Come on, Sedgemore, you are going potty. It really cannot be like that. It is an enormous fantasy or some terrifying nightmare." I have made no claims of making the running on fraud. If other people want to claim that, it is up to them. I started—Ministers cannot take this away from me—painstakingly to stitch together pieces of evidence over a long period and to get a picture of what was happening. We did not get that picture from the fraud squad, from the Chancellor of the Exchequer, from any member of the Government or from the newspapers. We got it because I asked a few people to help me with inquiries to get a broad picture of v. hat was happening.
But there seems to be almost no limit to what some of the people who have been involved in those frauds will do. The most startling thing happened about three weeks ago. Mr. Abdul Shamji, who believes that there is no one he cannot buy, tried to buy me. It was extraordinary. He contacted someone whom he knew was in contact with me—an informant—and arranged to meet him at the Pavilion bar in Grosvenor House in Park lane. First, he tried to buy that person by saying that he should try to obtain confidential documents from me, and then he put forward a proposal which amounted to an attempt to buy me.
Who is Mr. Abdul Shamji? He has a perfectly proper relationship with the chairman of the Conservative party. There is no fraud involved; it is a normal relationship. There is a bit of minor entertainment, a couple of tickets at the Garrick, and tea at Park lane. He gives money to the Conservative party from his Gomba companies, via McAlpines, and he was a vice-president of the Small Business Bureau, which is located at Conservative party central office. But what happened when my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) said to the chairman of the Conservative party, "Mr. Shamji is a blatantly dishonest person and you should watch him"? The chairman of the Conservative party lost his temper and has refused to speak to my hon. Friend since. That illustrates the problems mentioned by my hon. Friends the Members for Dagenham (Mr. Gould) and for Bolsover (Mr. Skinner). There is too close a relationship between the Conservative party and the people involved in the City. It is not that Ministers are fraudulent or that they are in any way involved in fraud. There is an unhealthy relationship, and they do not appear to recognise its inherent dangers.
I wish to talk about Lloyd's tonight, because, of the two scandals, it is by far the biggest. It is the issue that we shall be discussing in the House during the next few months. Lloyd's will be issuing a pack later today, and it will arrive with some Government propaganda, following the publication of the Financial Services Bill. The purport of that propaganda or publicity pack is to say that there has been no fraud at Lloyd's since the 1982 Act was passed. That is another Lloyd's and Conservative party mirage. It is not a claim by me; it is a simple statement of fact that after the passing of the Lloyd's Act fraud continued in the Peter Cameron Webb syndicate. After the passing of the Lloyd's Act, fraud continued in the Alexander Howden syndicate. After the passing of the Lloyd's Act, fraud continued at Brooks and Dooley. After the passing of the Lloyd's Act, a series of fundamental questions hangs over the operations of the former chairman of Lloyd's, Sir Peter Green, and his relationship with Cresvale Securities and his further relationship with Janeen Services.
It is not true to say that there has been no fraud since the passing of the Lloyd's Act. Indeed, I do not know why some people wish to stand so heavily on the Act, since people like Mr. Kenneth Grob and Mr. John Walrock, who are two well-known criminals out of the jurisdiction, were the people who came to the House and told that Committee, which included some of my hon. Friends, that they were honest, decent, god-fearing people and that we could put our trust in them. We could not put our trust in them, and we cannot put our trust in the Lloyd's Act.
I talk to many people in Lloyd's now. They not only write to me in large numbers but come to see me, or I go to see them. Almost all of them are saying that they cannot expect Parliament or Lloyd's to satisfy them by what they do to clean up the Act unless they can be sure that there will be a clean out at the top of Lloyd's. They say that there are serious question marks hanging over the top people at Lloyd's and, in particular, Sir Peter Green, the past chairman of Lloyd's. They are all asking why there has not been an inquiry about Lloyd's—an open, proper, decent scrutiny of the activities of Sir Peter Green at Lloyd's. Why is there so much mystery about his activities?
The questions are asked about a number of sectors. First, they are about a number of syndicates that Sir Peter Green ran. I have read shoals of papers on this subject, and they contain serious questions about the operation of his Imperial and Cayman Islands Offshore Reinsurance company that have never been answered, although they should have been answered by now. I know that in November 1982 Sir Peter Green was questioned by the council of Lloyd's at Leeds castle, in Kent. He told the council that his farm was a beneficiary of the company. He tried to sell his interests, but he could not, and he put them into a trust. He has had to admit that his farm is still a potential beneficiary of the trust. Why have we not heard more about that?
Why has there been no investigation into the questions asked about whether the names are being deprived of money in relation to Cresvale Securities and its related companies, which have been mentioned in an early-day motion of mine? Why has there not been an inquiry into the relationship between Sir Peter Green and Janeen Services, one of his companies? The company looks as though it may be one of the methods by which names are being deprived of money.
What did Sir Peter Green do to help to cover up for Peter Cameron Webb? It is as clear as a pikestaff to anyone who understands simple morality that he did so. If the chairman of Lloyd's can do that so that Peter Cameron Webb was not subjected to scrutiny how can any hon. Member be asked to put his trust in Lloyd's? We know for a fact that Peter Cameron Webb was allowed to resign from Lloyd's with a month's notice, when six months is the required period for notice. That restriction of time prevented the freezing of his assets. Why did Peter Green allow that to happen? Why did he turn up in Hong Kong this year, just before John Walrock came over here and threatened to blow the gaff by giving his evidence on Lloyd's in public? Why did he suddenly change his mind at the last moment?
Sir Peter Green was asked to look into Peter Cameron Webb's Unimar slush fund. Everybody at Lloyd's refers to it as a slush fund. It is not one of the biggest slush funds at about £500,000, but it is a lot of money to go into a Monte Carlo slush fund. How could the chairman of Lloyd's, having inquired into it privately and off the record, gone back to the council without a written report and simply say that he was satisfied that nothing was wrong with the Unimar slush fund? That is nonsense.
How did Tuckey QC conduct an inquiry into Sir Peter Green's operations and come back with a report that was an even bigger nonsense, based on a wholly false premise? We know that a report is to be published that will show that Unimar was a slush fund and that big names and figures are involved. I could give them to the House now, but I shall not bother because it is not part of my speech.
How does the chairman manage to get away with these things? Unless and until Lloyd's can tell the House and the country that it is prepared to hold a rigorous inquiry into the activities of its past chairman, there will be grave cause for concern. It is not just Lloyd's that is involved in the cover-up of Sir Peter Green. I ask any hon. Member to rise now to interrupt me and explain why Sir Peter Green was summoned in March 1983 to see Sir Gordon Richardson, the then Governor of the Bank of England, in the presence of Mr. Henry Benson, his chief tax adviser, to discuss Sir Peter Green's tax affairs.
The Governor of the Bank of England has no standing in law in relation to the tax affairs of anybody in this country. The Chancellor of the Exchequer has no standing in law in relation to the tax affairs of anybody in this country. It is a rigid rule that every private individual's tax affairs, whether they are hon. Members, members of the public or members of the Monarchy, are not discussed by any official. During the last two weeks we have been told by a Bank of England public relations official that Sir Peter Green went to see Sir Gordon Richardson and said, "I've got a tax problem" and that Sir Gordon said, "I'll tell you what to do, Sir Peter. You go and talk to an accountant about it." Sir Peter Green is a multi-millionaire. Which hon. Member will tell the House that Sir Peter Green does not have a gaggle of tax accountants and that he needs to go to the Governor of the Bank of England to be told that if he has a tax problem he should get hold of a tax accountant? It is preposterous. What kind of idiots does the Bank of England think we are? We shall not tolerate that kind of cover-up—in this House, or on the part of Lloyd's, or on the part of the Bank of England.
How did it come about subsequently that Sir Peter Green, who wanted a second term of office as chairman of Lloyd's, was told by the current Governor of the Bank of England, that he could not have it? Apparently, he went along and said that he had a few tax problems and that they would take him a little time to sort out. Are people trying to tell hon. Members that what Sir Peter Green said to Robin Leigh-Pemberton was, "I owe the tax people rather more money than I have paid. I have got a few problems, but they are not really serious" and that Robin Leigh-Pemberton said, "Oh, well, in that case you had better not carry on at Lloyd's. You had better get out because there is nothing wrong." No; Sir Peter Green has serious tax problems and the House, as well as the Inland Revenue, should be told what they are. That should be part of the inquiry. Until we can get to the bottom of it, nobody will take any notice of any protestation by Lloyd's. I am certainly not going to take any notice of William Beckett, the solicitor, telling me that they have cleaned up the place.
I saw William Beckett last Friday. I did not go along to see him. I went along just to look around the building. I was given a very pleasant guided tour, and he invited me to have a chat with him. I was surprised when he said to me that there was nothing in my early-day motion that Lloyd's did not know about. I thought, "Well, that's a bit odd, because these early-day motions are serious." The Chancellor of the Exchequer talks about McCarthyite smears, but his solicitor said, "I know about it all." If Lloyd's know about all of my early-day motions, may I remind the House that one of them relates to the fact that when Mr. Leslie Dew worked for Merrett he was leading substantial banking business for Alexander Howden. A number of the commissions were being paid direct into a Swiss bank account. Mr. Leslie Dew is a former vice-chairman of Lloyd's. How is it that the chairman and the vice-chairman of Lloyd's never seem to get investigated while the others do? If Mr. William Beckett and his predecessors—because Mr. William Beckett has just come from the Department of Trade and Industry—knew about that, why did they not hold an inquiry? If they want some leads, I shall give them a few.
The Alexander Howden banking business, which is related to Lloyds International and possibly to one other customer, was authorised by Mr. Kenneth Grob and Mr. Commerie, who are well known figures. The administration was carried out by Mr. Graham Sloan, the director of banking. Mr. Graham Sloan knows the Swiss bank account number into which the monies were paid because he paid them into the Swiss bank account.
The administration was also carried out by Mr. John Varney. All that Lloyd's has to do is to question these people and Mr. Leslie Dew to get to the bottom of the scandal. That seems fairly easy and straightforward. Why has it not been done?
I did not talk directly about that case to Mr. Beckett, but he asked me, "How far back do you want to go?" I told him, "As far back as there are people still alive." I am a barrister and I know that if someone commits a murder, a robbery or any other crime and someone finds out about it eight years later the person is not told, "You committed the crime eight years ago, so we'll forget it." People are charged for such crimes and go to prison, so why does not that happen in the Lloyd's case?
It is said that the information in my early-day motions is known. Several of the motions relate to the activities of Sir Peter Green and they give a lot of leads. If Mr. William Beckett and Lloyd's know all about this activity, why have they not at least—without charging Sir Peter Green as being guilty—carried out an investigation to answer all the questions that all the people at Lloyd's, not me, are asking? We must have some explanation from somebody. I can see some panic in the Box behind the Speaker's chair. The people there seek an explanation. The Minister laughs and shakes his head, but I shall be interested in his answer. I know that, because I can read him like a book. He is doing his best. I have no criticisms of his activity in any sphere, but I know that he will not give me a satisfactory answer.
Sometimes I wonder just how far the power of Lloyd's goes. I am about to send to the Lord Chancellor a document drawn up by a reputable solicitor. I have seen the solicitor and talked to his managing clerk and to some other people. When the British establishment starts to worry about cases, it illustrates how odd things can get. The document concerns the conduct of the Senior Master at the Royal Courts of Justice. He is not a judge, so l can talk about him. He deals with proceedings before they reach court. The case, which is over was called Tubero v. Toomey and involved 15,000 other Lloyd's names who were sued in a representative capacity. It was a recent action which was struck out. It concerns the loss of gems in Los Angeles.
I make no comment on the merits of the case. I have no interest in the plaintiffs and no interest in the defendants, but I am concerned with what happened. On 4 November 1984 the case was listed to come before Master Turner but the Senior Master, J. R. Bickford Smith, for reasons that nobody can understand, grabbed it for himself and insisted that he should deal with it. There is evidence that he had seen the papers, although he was not to deal with the case.
In December of that year—
The case went before Master J. R. Bickford Smith. Counsel said to him, "Do you really feel you can deal with this case because one of the defendants is called J. Bickford-Smith. J. R. Bickford Smith does not have a hyphen in his name, but J. Bickford-Smith does. Master Bickford Smith lied to counsel. Yes, he lied. He said:
You will not find another master in this corridor, nor a single judge in this building, who is not a Lloyd's underwriter.
That statement was manifestly untrue, because all the masters are not Lloyd's underwriters.
There might have been an inference that those Bickford Smiths were related. I have had a genealogist check the position and I can report that the grandfather of both of them was George Smith and that J. R. Bickford Smith is the cousin of J. Bickford-Smith. What is the Senior Master doing when one of the defendants in a case is his cousin? What is he doing when one of the other masters just down the corridor, Master Topley, is also a Lloyd's underwiter and a defendant in a case and is his best friend, and when the wife of Master Topley witnessed the marriage of Bickford Smith?
Further, what is happening in this case when of the solicitors, Elbourne Mitchell, Elbourne is a member of Lloyd's council, is a consultant in the case and is also a defendant in the case and Mr. Mitchell, the senior partner who is dealing with the case, is also a defendant in the case? It is all beginning to look very mucky.
I will take the grin off the Minister's face when I tell him that there was an absurd, pathetic letter from the Lord Chancellor's office which will have to be answered when it is claimed to an American attorney that there is no relationship between the Bickford Smiths. The Law Society is still looking into the activities of the solicitors in this case. Master J. R. Bickford Smith, the Senior Master—who happens to be a member of the Athlumney Freemasons Lodge, and there appear to be other freemasons in this case; we have a curious combination of freemasonry and the power of Lloyd's—actually makes orders which are outside the rule book for which he is personally responsible.
When the Lord Chancellor looks into this case, he will find a vipers' nest. It makes one wonder how far these sorts of relationship can go when we are talking about the vice-chairman of Lloyd's and no inquiry; about the chairman of Lloyd's and no inquiry; about the Senior Master at the Royal Courts of Justice and things going wrong; about the Law Society saying that it cannot believe what it is hearing; and about the Lord Chancellor's department writing silly letters to American attorneys. Where will it end?
There is grave public concern over this matter. I have received 800 letters. I shall not get round to answering them all for the next six months. About 100 of them concern serious cases and about 700 say, in effect, "You must carry on with what you are doing." I have a letter with me—it came this morning; that is the only reason why I have it in my possession now—which is typical. It says:
Dear Mr. Sedgemore
and it is interesting because it links Johnson Matthey with Lloyd's—
As one whose company lost money through Sipra's film ventures and has personally lost a very large sum through fraudulent underwriting at Lloyd's, I can only ask that you keep up the pressure against the ever-increasing criminal activities in the City of London. Self-regulation purely means that the most blatant excesses are curbed, and self-enrichment continues unabated by those who are on the inside track.
I have had many letters of that type. QCs have been writing to me saying that they intend to sue Lloyd's, and there will be a great deal of dirt and flak about. They are writing to me as though I can do something to help them, so that they do not have to sue Lloyd's and there does not have to be any flak. I cannot do anything to help them. Lloyd's must clean itself up or the Government will have to do the cleaning up for it.
I have a letter here which mentions Sturge and Company. I have a letter from Peter Rawlings which is so hysterical that it could have been written by the Chancellor of the Exchequer. He complains bitterly that I have mentioned them in an early-day motion and says that there is nothing to inquire into. I am going through a file on Sturge and Company, and when the new year comes and I have had a chance to sort it all out I shall make public what I know. Then Mr. Rawlings can write me another letter, although I hope that he will write it in less hysterical terms.
There is a serious problem, and the kind of self-regulatory devices that the Government are thinking up for the City of London are not sufficient. I hope that I shall be able to speak on Second Reading of the Financial Services Bill and even get on the Committee. It will be the only Committee that I have ever volunteered to go on. We can then go into these matters in great detail. It is not fair to say that we have not yet come forward with proposals. We shall come forward with a clutch of proposals which should help to alleviate the position.
I congratulate the hon. Member for Rhondda (Mr. Rogers) on initiating this debate, but I find the attitude of Labour Members difficult to understand. The Labour party decries profits, but if investors do not make profits Labour Members are the first to shout fraud.
On a point of order, Mr. Deputy Speaker. Profits have been mentioned twice now, first by the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) and now by the hon. Member for Bolton, North-East (Mr. Thurnham). If they had bothered to listen to my speech, and if they read Hansard tomorrow, they will know that nowhere did I mention the word "profit". I mentioned fraud on many occasions. My hon. Friends have now provided manifest evidence that there is a lot of fraud going on. Never at any time have I mentioned the honest—
Perhaps the hon. Gentleman has forgotten that he is a member of the party that taxed investor's earnings at 98 per cent. It is fraudulent for a Labour Member to initiate such a debate when one looks back at the Labour party's record. My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) talked about not liking a grapeshot approach. It is the grease gun approach, the smear gun approach, that I do not like. If the allegations of the hon. Member for Hackney, South and Frauditch are true, he should take them to the police in the first instance, as the police have said they wish he would. If they are not true, is it not a gross abuse of this House for him to publicise them in the way that he has done?
I thought that the hon. Member for Dagenham (Mr. Gould) would lift the tone of the debate somewhat, but I was disappointed at the way in which he attacked my hon. and learned Friend the Under-Secretary of State. I hope that he will not persist in that line of argument. That is no doubt why his leader struck such a poor deal with the Common Market if he was benefiting from his land holdings.
I did not hear all the speech of my hon. Friend the Member for Beaconsfield (Mr. Smith), but I should like to take up the point about the importance of auditors having powers to report on fraud. That is one of the most interesting aspects of the White Paper which my right hon. Friend the Chancellor gave us yesterday. I hope that we shall hear more about the powers of auditors when my hon. and learned Friend produces his Bill shortly.
We have lost the hon. Member for Bolsover (Mr. Skinner), but it was his union which was so busy trying to bankrupt the country at the time when he was saying the Government should have been worrying about our banks.
I want to look at the job that the City does, because it is the financial centre not only of Britain but of the world. It is the greatest financial centre, and we must ensure that it remains so. I look forward to the White Paper later today setting a legislative framework which will ensure a successful and great future for London as the financial centre of Britain and the world.
I trust that my hon. and learned Friend has considered the White Paper carefully in relation to the new Bill, as I believe that the key to self-regulation is for auditors to have power to go to the relevant body if necessary. If the power exists it becomes unnecessary because the client will wish to discuss the matter with the regulatory agency if he knows that the auditor has power to do so in any case. That was a key proposal in the White Paper on banking supervision, and I shall be interested to know the extent to which my hon. and learned Friend believes that it would be valuable in the new Bill.
I remind the hon. Member for Dagenham that we do not just look back to 1981. We can go back to 1720 and the South Sea bubble. More recent incidents include London and County Securities. It is extraordinary how long the Labour Government took to act in the secondary banking crisis. Indeed, we had to wait until 1979 for legislation on that. Yet Labour Members now criticise the present Government, who have acted very promptly.
The Opposition talked about fraud in the City, but no one mentioned fraud elsewhere, although the Library can provide notes on that, too. In 1984 there were 77 reported incidents of fraud in local authorities. As so many of them failed to answer the questionnaires sent to them, it is thought that a large number of frauds also went undiscovered. Fraud is not just a matter for the City. It is a matter for all activities, both commercial and municipal, and we must be on our guard on that account.
I shall not detain the House any longer, as I know that my hon. and leaned Friend the Minister wishes to begin his reply.
I welcome the opportunity to contribute to this debate on a subject of great importance to people far beyond the City.
Honest dealing is fundamental to the working of our economic system, but our concern goes even deeper. Our whole system of morality is threatened if it is thought that fraud of any kind is tolerated. If it is tolerated in one place, it will quickly spread and become the norm elsewhere. That is why the Government have taken a whole series of steps to prevent fraud and to punish it when it occurs. They are serious steps, not just allegations about particular losses.
The foundation for many of the measures that I shall describe were laid over a period of several years and are not simply responses to recent headlines. The hon. Member for Dagenham (Mr. Gould) acknowledged that. He referred to the setting up of the Roskill committee in 1983 and the Gower committee in 1981. These steps have been at the forefront of Government attention for a considerable time.
Maintaining confidence in our financial institutions is a major task of my Department and of others primarily concerned—the Treasury, the Law Officers and the Home Office—and we recognise the seriousness of fraud. It not only causes loss to individuals, sometimes on a disastrous scale, but it can lead to business collapse and unemployment. The reputation of London, Edinburgh and other financial centres is a precious national asset which we must constantly strive to maintain. Fraud damages us all, so combating it is a national priority. I believe, too, that we all have a duty not to inflict unnecessary damage on those interests by exaggerating the scale of the problem. Serious though it is, it must be kept in proportion.
Despite what has happened at Lloyd's, for example, no Lloyd's policy holder has not been paid when he or she has a valid claim. The depositors in JMB have not lost their money. It is just as dangerous to exaggerate the scale of the problem as to minimise it. Those who exaggerate the problem are doing us all a great disservice.
I should like to review the Government's action programme on fraud. First and foremost, fraud involves crime, and I want to deal first with the criminal law aspects. Action to combat fraud is essentially a matter for the criminal law. The government have been active in seeking to overhaul our systems, laws and procedures, the better to tackle the growing amount of fraud and its increasing sophistication.
The difficulties in tackling commercial fraud should not be underestimated. Those who perpetrate fraud are usually careful to cover their tracks, and unravelling complicated transactions is a lengthy and painstaking process. Any criminal prosecution must be founded on evidence that is both available and admissible in criminal proceedings in this country. Interested parties are often reluctant to co-operate with a police investigation, for fear of prejudicing themselves in civil proceedings. Difficulties often exist in obtaining overseas evidence. If a witness is located within the jurisdiction of a foreign state, no power exists where by investigators in this country can compel the production of his evidence here.
A striking example of this kind of problem is provided in some of the cases involving Lloyd's. As my hon. And learned Friend the Solicitor-General informed the House, the investigations concerning the affairs of the PCW syndicate and Alexander Howden were first referred to the Director in 1982. He added:
Two separate but related investigations are being conducted under the auspices of a fraud investigation group formed for that purpose. It comprises police officers, members of the Director's professional staff, accountants and very experienced specialist: members of the Bar. Despite the considerable financial and manpower resources devoted to the case, serious delay has been imposed upon the progress of these investigations by the necessity of securing, in a form admissible in any criminal proceedings in England, evidence which hitherto has only been available from witnesses located within the jurisdiction of a foreign state."—[Official Report, 25 November 1985; 'Vol. 87, c. 362.]
The Solicitor-General went on to explain the difficulties and the way in which he hopes to overcome them. There one finds the distinction between cases such as those before us tonight and cases that were the subject of a comparison which the hon. Member for Dagenham must have known was too facile to be seriously helpful in the context of this debate. He spoke about frauds perpetrated on the DHSS and about action that was taken to deal with them. Is he suggesting that there is a problem in relation to frauds perpetrated on the DHSS because one cannot get the evidence that is located in a foreign country? Is he suggesting that the difficulties of getting the evidence necessary to satisfy a criminal court on the burden of proof are remotely comparable in cases involving fraud on the
DHSS and the cases with which we are now concerned? If so, he is demeaning the tone of what I hope over the weeks and months ahead will continue to be a very serious debate on this topic.
Had the Minister listened carefully to what I said—I am sure that he did—he would know that I was suggesting that we expected to see the same zeal, prompt action and use of resources in respect of the Oxford social security investigation put to the service of detecting major criminals who have got away with thousands of times more money than did any of the pathetic people in Oxford who were rounded up by the police.
I share the hon. Gentleman's desire to bring to book those who have got away with these large sums of money, and so do the Government. My hon. and learned Friend the Solicitor-General told the House frankly of the difficulties encountered in bringing these prosecutions. The kind of problem that he identified is precisely that which has been studied by the Roskill committee. That is what it was set up to consider. Its terms of reference were:
To consider in what ways the conduct of criminal proceedings in England and Wales arising from fraud can be improved and to consider what changes in existing law and procedure would be desirable to secure the just, expeditious and economical disposal of such proceedings".
We could well accept that the Government are applying themselves to a change in the law so that frauds can be prevented or made more easily detectable, but if a criminal act is taking place today, when there are obviously insufficient resources to pursue the criminals assiduously, why do the Government not take specific action to make more money and resources immediately available? I understand that there are only 21 people associated with the DPP investigating fraud, whereas there are 175 people associated with investigating social security frauds.
There is no secret about resources. My hon. and learned Friend the Solicitor-General has made it plain to the House that the question of resources is under active consideration. An application has been made and the matter is under consideration with a view to increasing the resources available to the fraud investigation groups. The difficulties, essentially, do not arise out of a lack of resources; they arise out of the procedural difficulties which the Roskill committee was set up to consider.
We look forward to the recommendations of the Roskill committee. We hope that its report will be published early in the new year and that it will play a critical role in enabling the criminal law to be a more effective vehicle for prosecuting fraud. Meanwhile, the Government are undertaking major changes in the system of prosecuting fraud. We have heard mention of the fraud investigation group system, which is designed to co-ordinate the legal and investigative aspects of an inquiry. It comprises police officers, members of the professional staff of the DPP, accountants and specialist members of the Bar. It has its own staff accountants. There is a training programme to ensure that the lawyers have the necessary understanding of accountancy, and a panel of specialist accountants is being compiled. The Department of Trade and Industry puts at the disposal of the fraud investigation group investigatory powers under the Companies Act. There we have machinery set up, representing a new way of pooling all the skills that are needed to combat sophisticated crime, and beginning to show its effectiveness. The central role which the criminal process will play in relation to fraud will always remain.
I turn to another area in which we have made less progress than I should have wished, and where again we propose to increase our powers to improve the effectiveness of the action we take. My hon. Friends the Members for Birmingham, Selly Oak (Mr. Beaumont-Dark) and for Nottingham, North (Mr. Ottaway) referred to the number of prosecutions for the offence of insider trading. We created a criminal offence in 1980, and a lamentably small number of successful prosecutions have been brought since that offence was put on the statute book. It is difficult to prove as a criminal charge. It is necessary to prove beyond all reasonable doubt that the defendant knew that he was in possession of price-sensitive information—not probably knew, or might have known, but definitely knew—and other jurisdictions have similar disappointing experiences.
I invite the attention of my hon. Friends who raised that point, and of all others who are seriously interested in the problem, to the powers that we propose to take to deal with the matter. They are contained in the Financial Services Bill and go considerably further than any powers that have ever been brought to bear on the problem. I put that forward to hon. Members as an indication of the seriousness with which we take the task of tackling abuse, malpractice and fraud.
I could cite a number of other measures that the Government have taken: the prosecutions that are carried out by my Department for fraudulent trading and failure to keep accounts, company investigations, the compulsory winding up of companies and the disqualification of unfit directors, where powers have been considerably extended and enhanced under the Insolvency Act 1985.
My hon. Friend the Member for Beaconsfield (Mr. Smith) was kind enough to refer to my recent speech on the role of accountants, especially auditors, in the fight against fraud. The Government's concern about this originated with my predecessor—my hon. Friend the Member for Edinburgh, Central (Mr. Fletcher)—and, as a result of his concern, the Institute of Chartered Accountants set up a working party a year ago, chaired by Ian Hay Davison, to examine the whole subject of fraud and what the accountant should be doing to prevent it in today's conditions. The working party's report was a most constructive response, and I pay tribute to those who produced it.
Since then, there has been a further report from a committee chaired by Lord Benson, which has also been helpful. The Government believe that those reports do not go far enough and that it is necessary for auditors to recognise a duty to report evidence of fraud, when they come across it, to the relevant authorities. We think that it is necessary in certain instances for that evidence to be reported without first informing the directors of the company concerned.
In a few hours, the Financial Services Bill will be published. It establishes a number of additional protections for investors, some of which are sufficiently well known for me not to be breaking any confidence by revealing them at this stage. All investment businesses will have to be authorised. There will be at least one designated regulation agency, with a wide range of powers to enable the investment authorities to ensure effective regulation. There will be compensation schemes to protect investors. There will he powers for the Secretary of State and any designated agency to apply to the court for injunctions to counter breaches of the legislation and to obtain restitution orders designed to recover for investors money that has been obtained in contravention of the legislation or the rules. There will be wide powers of investigation for the Secretary of State and any designated agency. All these measures will go a long way towards creating a climate that will be hostile to those who set out to perpetrate fraud. The debate has concentrated on the detection and the prosecution of fraud—the prevention of fraud is, none the less, important. It is in that context that we see the importance of the Financial Services Bill.
I turn to the subject of Lloyd's and begin by making my position clear, as I undertook to do. I ceased all underwriting at Lloyd's on 2 September, the day on which I was appointed to the Government, as required by the rules for Ministers in my position. I accordingly resigned on that day from all syndicates in which I had previously participated. I have done exactly what the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) suggested to the Prime Minister that I should do, except that I did it three months before he wrote to the Prime Minister about it. It is true that I remain a member of Lloyd's, but I have no further business there save for the running off of my pre-existing contracts.
The House will be grateful to the Minister for that explanation. As he has now made it clear that he was obliged to give up his membership, I think that he gives the lie to those of his hon. Friends who attempted to argue a little earlier that his position on this issue was no different from that of the Minister of Agriculture, Fisheries and Food, who might own some agricultural land. Will he concede that what he has told the House is at variance with what his hon. Friends attempted to argue?
The arguments of my hon. Friends is on the record and those who examine it will form their own assessment of its validity.
I shall deal with the substantive issues which have been raised on Lloyd's. I do not propose to respond to the various matters which were aired by the hon. Member for Hackney, South and Shoreditch. He assures the House that he has drawn to the attention of the police all the information that is in his possession. The police are clearly the appropriate people to be in possession of the information to which the lion. Gentleman has referred. What he thinks he will achieve by using the privilege of the House to repeat that information, if it is in the hands of the police, is a matter that only the hon. Gentleman can answer.
The hon. Gentleman assured the House earlier that he had put all the information in the hands of the police. He has said that he has done so, and I do not doubt that he has. However, I wonder why, having done that, and having ensured, so he tells us, that the information is in the hands of the police, he thinks it necessary and appropriate to use the privilege of the House to make various allegations.
Substantial progress has been made since the passage of the Lloyd's Act 1982 and the putting into place of the regulatory system under that measure, to establish an effective regulatory system at Lloyd's. It is too early to judge whether that system is sufficiently effective and one in which the Government can have sufficient confidence.
It may be appropriate to conclude by saying that the Government will not hestitate to take any action that is necessary to ensure that there is an effective regulatory system at Lloyd's. The Financial Services Bill, which is designed for entirely different purposes and to deal with a different area of concern—to set up a regulatory system to deal with investment business—is not, as we see it, the appropriate vehicle for that sort of action. If it is necessary to amend the Lloyd's Act 1982 to ensure that a proper regulatory system is set up, we shall not shrink from doing it, just as we have not shrunk from discharging our duty—