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RBS May Have Saved Rogue Bankers From Jail With 'Whitewash' Report

RBS May Have Saved Its Rogue Bankers From Jail With 'Whitewash' Report
Asa Bennett
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Protesters outside the RBS (Royal Bank of Scotland) annual general meeting in Gogarburn, Scotland, as The World Development Movement call on the bank to stop investing in coal mining.
Danny Lawson/PA Wire

The Royal Bank of Scotland may have saved some of its rogue bankers from jail by commissioning a report, widely condemned as a "whitewash”, clearing its controversial GRG business recovery unit of systematically defrauding small firms.

The Serious Fraud Office warned that companies who recruit "independent" experts to look into allegations of criminal behaviour in their businesses risked destroying the evidence needed to secure convictions and that privately paid-for investigations by external lawyers often had an "inherent conflict".

David Green, director-general of the SFO, which is considering launching a criminal probe into the GRG unit, told the Times: “The report itself may tend to minimise the problem one way or another. Later claims of legal privilege on witness statements taken by the external lawyers can be questionable. And, of course, the crime scene can be churned up by the investigation. The SFO will never take such a report at face value and will drill down into its evidence and conclusions."

RBS last year brought in Clifford Chance to look into allegations that its global restructuring group had deliberately driven businesses under for profit. The state-owned bank seized on Clifford Chance's £1.5 million report in an attempt to dispel entrepreneur Lawrence Tomlinson's allegations that the bank's GRG unit had been "killing off" small firms by adding on fees or pulling lines of credit.

7 Things RBS Would Not Want You To Know Was In The Clifford Chance 'Whitewash'
RBS didn't play by the book in its valuations(01 of07)
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The Clifford Chance report reveals that RBS' internal valuations of businesses were not carried out in accordance with best practise as laid out by the Royal Institute of Chartered Surveyors, saying: "Internal valuations were not carried out to the standard of the Red Book, but they were undertaken according to set assumptions by qualified surveyors employed by the bank.
RBS may have exploited small firms' debt levels(02 of07)
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Clifford Chance suggested that RBS should revisit a GRG training manual suggested threatening to remove a distressed business' overdraft as a way to gain "leverage" in negotiations over equity.Or as the report termed it: "using the on-demand nature of the overdraft as a point of leverage in negotiations of equity upsides when the customer is not in breach of its facilities but the business may be experiencing underperformance against expectations/forecasts.But the firm didn't pass judgement, saying: “The circumstances win which it is appropriate for a bank to remove or to warn a customer that it will remove an overdraft are beyond the scope of this report”.
Even Clifford Chance couldn't understand RBS' fees(03 of07)
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"We found it difficult to understand how the bank calculated the fees which it proposed to customers in any particular case and therefore found it difficult to assess allegations of unfairness," Clifford Chance write. Not a ringing endorsement for a report into how fairly businesses were treated by RBS.
Some perfectly profitable businesses got RBS 'support'(04 of07)
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Clifford Chance "identified a number of other cases where a customer had been transferred to BRG [Business Restructuring Group] without an event of default having occurred.”In short, the firms were not struggling with their loans, but were still deemed to need help.
RBS used fees to 'encourage' firms to do things(05 of07)
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Clifford Chance found that RBS "sought to encourage or incentivise a specific course of action by the customer through its pricing such as an exit or sale of assets to reduce the customer’s debt." The law firm decides not to pass moral judgement, saying: "It is difficult for us to say that it is wrong in principle for the bank to use fees as a lever to persuade the customer to follow a particular course of action."
RBS staff were meant to have an eye on money (06 of07)
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Clifford Chance found that the financial contribution from RBS "relationship managers" in the Business Restructuring Group was "clearly an important part of the performance assessment process" and worked towards its "revenue generation/loss avoidance" objective.Individual RBS staff who generated extraordinary amounts of revenue were "highlighted" at appraisal, especially "cases where they had generated strong revenues". Clifford Chance found that RBS relationship managers were "encouraged to seek upsides" in negotiations, but that they also were made aware of "the need to treat customers fairly.”
And what about West Register? (07 of07)
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RBS admitted that the fact that a "damaging perception" of a conflict of interest arose due to fact that the bank was effectively able to buy a business' property through its West Register vehicle. And so the bank has decided to sell all assets on its books and wind it down.As the report noted; "In December 2012, West Register's UK property portfolio was valued at £929m. Property acquired from the bank's UK SME customers totalled approximately £400m, less than half the overall portfolio. Between 2008 and 2013, West Register made acquisitions from 166 SME customers13 at an average of approximately 50% of the original loan value at the date of the transfer to GRG."

However Alison Loveday, managing partner at independent law firm Berg, told HuffPostUK that the report "missed the opportunity to really uncover what was happening in GRG".

She added: "Initial feedback from clients is that they are not surprised by the outcome, as they always questioned Clifford Chance's independence and very much see this as a 'whitewash'."

The bank recently signalled that it would be winding up the controversial GRG unit, which shareholders accused in June of being staffed by "corporate psychopaths".

This came after RBS boss Ross McEwan was publicly ambushed about the unit, which is still being investigated by the Financial Conduct Authority city watchdog, and was forced to deny that it had been "malicious or fraudulent".

The SFO's warning to the Royal Bank of Scotland comes as the bank was fined £14.5 million over "serious failings" in its advice to mortgage customers.

The Financial Conduct Authority (FCA) said only two of the 164 sales it reviewed between June 2011 and March 2013 were considered to meet the standard required overall in a sales process.

It found RBS and its retail arm NatWest failed to consider the full extent of a customer's budget when making a recommendation, while staff did not advise customers what mortgage term was appropriate for them.

The regulator said there was no evidence that there was widespread detriment to customers, although RBS and NatWest will contact 30,000 consumers so they can raise any concerns they have about the advice they received.

RBS said that in response to the regulator's findings at the end of 2012, it overhauled its mortgage sales process and re-trained all mortgage advisers.

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