The origins of modern financial crime historical foundations and current problems in britain

Financial crisis 2007–8: a turning point for ‘financial crime’ In terms of identifying the significance of financial crime for society in early twenty-first century Britain, the financia

‘In this scrupulously researched book, Sarah Wilson brilliantly exposes the historical roots and contemporary consequences of financial crime, tracing the evolution of legal, popular and social scientific understandings of financial fraud over the past two centuries, and provides an important corrective to the mistaken idea that white-collar crime is a product of the twentieth century and its various technological revolutions The story of the long-running battle between the forces

of fairness and transparency versus those of fraud and exploitation has rarely been

so trenchantly told.’

Michael L Benson, Professor, School of Criminal Justice,

University of Cincinnati, USA

‘This is an impressive study of how we think about what constitutes the ary of legitimate business activity Rarely can a history have been so important

bound-in understandbound-ing the present and Sarah Wilson’s book frames current fbound-inancial regulation within the context of not just historical narrative, but a historiograph-ical appreciation of past and present This should inspire and encourage other scholars to investigate how legal ideas relate to the social and economic history

of business.’

Roy Edwards, Management School, University of Southampton, UK

‘This excellent book is a “must-read” for anybody working in the field of cial crime, practitioner or academic lawyer Financial crime has contributed

finan-to the global financial crisis and remains endemic in some business circles In explaining how we have arrived at this position, Dr Wilson is able to offer readers some extremely important thoughts as to how the future response should best be framed.’

Jonathan Fisher QC, practising barrister and Visiting Professor at the

London School of Economics, UK

‘Dr Sarah Wilson has produced an excellent commentary on the evolution and development of financial crime in the United Kingdom The monograph is timely, unique and a very significant piece of work and Dr Wilson must be commended for producing an intriguing and thought-provoking commentary on a significant multidisciplinary topic.’

Nicholas Ryder, Professor in Financial Crime,

University of the West of England, Bristol, UK

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The Origins of Modern

Financial Crime

The recent global financial crisis has been characterised as a turning point in the way we respond to financial crime Focusing on this change and ‘crime in the commercial sphere’, this text considers the legal and economic dimensions

of financial crime and its significance in societal consciousness in century Britain Considering how strongly criminal enforcement specifically features in identifying the post-crisis years as a ‘turning point’, it argues that nineteenth-century encounters with financial crime were transformative for contemporary British societal perceptions of ‘crime’ and its perpetrators, and have lasting resonance for legal responses and societal reactions today

twenty-first-The analysis in this text focuses primarily on how Victorian society perceived and responded to crime and its perpetrators, with its reactions to financial crime specifically couched within this It is proposed that examining how financial misconduct became recognised as crime during Victorian times makes this an important contribution to nineteenth-century history Beyond this, the analysis underlines that a historical perspective is essential for comprehending current issues raised by the ‘fight’ against financial crime, represented and analysed in law and criminology as matters of enormous intellectual and practical signifi-cance, even helping to illuminate the benefits and potential pitfalls which can

be encountered in current moves for extending the reach of criminal liability for financial misconduct

Sarah Wilson’s text on this highly topical issue will be essential reading for criminologists, legal scholars and historians alike It will also be of great interest

to the general reader

Sarah Wilson is an academic lawyer with a background in history She has

worked on financial crime, both as it affects society today and in its historical origins, for the last ten years A full-time academic, she has worked at Leeds, Keele and Manchester Universities and is currently at York Law School, the University of York

Routledge SOLON Explorations in Crime and Criminal

Justice Histories

Edited by Kim Stevenson, University of Plymouth,

Judith Rowbotham, Nottingham Trent University and

David Nash, Oxford Brookes University

This series is a collaboration between Routledge and the SOLON consortium moting studies in law, crime and history), to present cutting-edge interdisciplinary research in crime and criminal justice history, through monographs and thematic collected editions which reflect on key issues and dilemmas in criminology and socio-legal studies by locating them within a historical dimension The empha-sis here is on inspiring use of historical and historiographical methodological approaches to the contextualising and understanding of current priorities and prob-lems This series aims to highlight the best, most innovative interdisciplinary work from both new and established scholars in the field, through focusing on the endur-ing historical resonances to current core criminological and socio-legal issues

(pro-Shame, Blame and Culpability

Crime and violence in the modern state

Edited by Judith Rowbotham, Marianna Muravyeva and David Nash

Policing Twentieth Century Ireland

A history of An Garda Síochána

Vicky Conway

Capital Punishment in Twentieth-Century Britain

Audience, justice, memory

Lizzie Seal

The Origins of Modern Financial Crime

Historical foundations and current problems in Britain

Sarah Wilson

The Origins of Modern Financial Crime

Historical foundations and current problems in Britain

Sarah Wilson

First published 2014

by Routledge

2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN

and by Routledge

711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 2014 Sarah Wilson

The right of Sarah Wilson to be identified as author of this work has been asserted by her in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.

All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Trademark notice: Product or corporate names may be trademarks or

registered trademarks, and are used only for identification and explanation without intent to infringe.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data

Includes bibliographical references and index.

ISBN 978-0-415-62763-4 (hardback) ISBN 978-0-203-10193-3 (ebook)

1 Commercial crimes Great Britain History I Title.

Typeset in Times New Roman

by GreenGate Publishing Services, Tonbridge, Kent

1 The search for the ‘lexicon’ of financial crime:

‘business crime’ in legal definition and societal

2 The ‘problem’ of financial crime:

interdisciplinary perspectives on historiographical

3 Business, crime and ‘status’:

what is missing from current understanding? 73

4 Locating Victorian experiences of financial crime

in a ‘trajectory’: forwards and backwards 101

5 Victorian responses to financial crime:

illustrating ‘transformative understandings’ of crime 128

6 The rhetoric of capitalism and the language of

criminal proceedings: a ‘different’ type of deviance

and the search for the ‘lexicon’ of financial crime 157

7 Anxiety, determination and businessmen

viii Contents

8 The ‘lexicon’ of financial crime in the twenty-first century

understood as a complex legacy of Victorian experiences 210

General series introduction

The volumes in this series contribute to the unashamedly interdisciplinary exercise in which SOLON has engaged since its inception in 2000: something now enhanced by the collaboration with Routledge to present cutting-edge interdisciplinary research in crime and criminal justice history The focus is on issues which, while rooted in the past, also have a crucial current resonance, and so the volumes reflect on key issues and dilemmas which persist in terms of contemporary priorities

*****

This volume, on financial crime and the vocabulary, or lexicon, used to delineate

it and so define how it is comprehended, is highly topical Since 2007–8, the guage of financial crisis and of criminality associated with that crisis, has been a consistently dominant story in the media globally, as the scale of individual harm associated initially with the US sub-prime mortgage scandal remains newswor-thy Revelations of financial unsoundness and concerns about mismanagement would then generate a number of institutional scandals in the UK banking sector, concerning most centrally Northern Rock, Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBOS), with these and scandals surrounding the mis-selling of a range of financial products shocking many on account of the risks involved, and also the magnitude of apparent deception It has been felt to be a betrayal by institutions that have been considered to be the engines of modernity – driving nations around the world to socio-cultural improvements based on the economic successes guaranteed by such institutions Financial crime was not new

lan-in 2008, but governments had assured their populations that these lan-institutions were now properly regulated and could be trusted – that while (sadly and inevita-bly) individual ‘rogues’ would slip through the net, mass criminality was a thing

of the past When criminality such as that of Robert Maxwell was uncovered, therefore, it was shocking – but in a normative way We expect to be shocked when someone misuses their position in society to behave inappropriately, espe-cially when that improper conduct actually becomes criminal Such events force

us to concentrate on the issue which has caused the shock, and to enquire into

it – but not necessarily to question the mechanisms identifying it as shocking to

the extent of criminality This did happen to some considerable extent in the US

in the wake of the ‘corporate governance’ scandals of Enron and World Com But what appears to be happening post-2008, as revelations of misconduct continue and its persistent nature is being highlighted in the media as well as within regu-latory and wider policy discourses, is an enforced reassessment of the normative shock associated with financial crime This is a key ingredient of how it will be shortly proposed that the financial crisis has marked a ‘turning point’ for respond-ing to financial crime Associated with the tropes of rehabilitation and deterrence surrounding criminal justice strategies (including penal ones) is the concept of remorse and repentance for wrong-doing Yet, as this work most cogently reveals, the ‘respectable’ criminal who is responsible for large-scale financial crime, does not fit easily into this trope It is likely that the revelation of penalties for wrong-doing will have some deterrent effect, but even this is complex, and it is clearly the case that prosecutions for financial misconduct, such as these have transpired thus far, and the policy initiatives and legal reforms intended to add safeguards continue to be assailed and undermined by new incidents of misconduct and the policy initiatives and legal reforms intended to add further safeguards have con-tinuously been undermined by new incidents of misconduct, most recently, by the revelations about the fixing of the Libor rate The importance of this volume for the series is through the contributions it makes to the literature from how it under-lies that a historical perspective is essential to a comprehension of current issues

in law and criminology, both intellectual and practical It is a reminder that the issue of what constitutes appropriate punishment for misconduct is constricted by our long-standing lexicon of criminality in general This volume reveals that the concept of ‘punishment enough’ is not easy to decipher or apply

Judith Rowbotham, Kim Stevenson, David Nash

x General series introduction

From my Swansea days, thanks to my dear friend David Howell for his erous support and friendship over many years, a perfect complement to David Eastwood’s inspiring supervision, and Muriel Chamberlain’s even earlier influ-ences Thanks also to long-term SOLON stalwarts Kim Stevenson and David Nash, and also Shani D’Cruze and Lorie Charlesworth

gen-Having worked in a number of institutions, thanks for support and friendship are due to several colleagues, including Michael Cardwell, Martin Wasik, Tony Dugdale, Lieve Gies, David Booton, Hannah Quirk, Kirsty Keywood, Gillian Ulph and especially Margot Brazier Most recently at York, thanks to Jenny Steele for her support during this project, and to Richard Grimes for his zeal and enthusiasm, and for cherished friendship, with this also so very much is due to former York colleagues Stefan Enchelmaier and TT Arvind

This project also owes a great deal to the influence and support from rians Harold Perkin, George Robb and Clive Emsley, as well as those whose work mine has grown up around, especially James Taylor and John Locker From within Criminology, I am particularly grateful to Mike Levi, Susanne Karstedt and David Friedrichs There has also been a great deal of support from the bur-geoning financial crime community, notably from Nic Ryder and Jonathan Fisher

histo-QC, as well as the wider financial regulation community, especially Joanna Gray

I have also to thank my growing circle of valued colleagues in ‘Business’ and

‘Business History’ including Robert Hudson and Roy Edwards, and the wonderful Bank of England archivists – Mike Anson, Ben White and Lorna Williams – for their tireless support and assistance

Thanks, too, to my academic editor for this series, Judith Rowbotham for her just wonderful contributions to this book, and, at Routledge, to Heidi Lee and Tom Sutton for supporting the proposal, and also to Lyndsey Dodd

The person to whom most is owed is my husband and colleague Gary Wilson, for friendship, support and intellectual stimulation across our personal and profes-sional spheres is both inspirational and peerless

The cover image was taken from the author’s copy of the Report of the Trial of the

Directors of the City Glasgow Bank before the High Court of Justiciary Edinburgh from Monday, January 20, to Saturday, February 1, 1879 Second Edition, published

by the Edinburgh Publishing Company (London: Simpkin, Marshall, & Co., 1879)

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an innovative study of the relationships between business, society and law.1 This requires exploring perceptual appreciation of financial business crimes in Britain, achieving this through analysing the social processes which have informed this, and through considering how legal responses have been configured in this light Centrally the study shows how the way that financial crime impacted upon Victorian society is essential for gaining true appreciation of the ‘fight against fraud’

in twenty-first-century Britain.2 In turn, this is crafted around extensive archival study of fraud trials from the nineteenth century, where these events are presented

as iconic ones in charting the emergence of current responses to financial crime These Victorian ‘business crime’ trials are presented as a vital source of insight into the problem of financial crime in the twenty-first century Their exposure here is achieved through an interdisciplinary analysis of them, drawing on literature and methodologies from criminology, history and law

Financial crisis 2007–8: a turning point for ‘financial crime’

In terms of identifying the significance of financial crime for society in early twenty-first century Britain, the financial crisis of 2007–8 is regarded by many

as a very important touchstone In response to the current global financial

1 D O Friedrichs, Trusted Criminals: White Collar Crime in Contemporary Society, Belmont:

Thomson Wadsworth, 1996, p.156.

2 See D Kirk and A Woodcock, Serious Fraud: Investigation and Trial, London: Butterworth, 1996,

p.4.

2 Introduction

crisis much attention is currently focused on banking, and specifically upon rethinking core elements of its regulation This is on account of the apparent role played by banking practices in causing the crisis, and also the nature of the consequences of loss of confidence within financial systems Thus, much emphasis is on the importance of reducing systemic risk, and restoring and maintaining capital liquidity within the UK financial system, and prevent-ing the need in future for associated ‘rescue’ strategies of quantitative easing and particularly temporary public ownership for certain institutions deemed

‘too big to fail’.3 Much of this regulatory conversation is dominated by ceptions that interactions between risk-taking and responsibility (and, in the opinion of many, also remuneration) require realignment thereby address-

per-ing perceived misalignments widely believed to have precipitated the onset

of the crisis Clearly this ‘first crisis of globalisation’ has ensured that the dominant discourse in its aftermath is the need for profound alteration of the

architecture for regulating financial systems worldwide.4 However, exposures

of misconduct occurring during it have also generated interest in allegations of

‘large-scale illegality that occurs in the world of finance and financial tions’ Moreover these latter discourses are actually emphasising the crisis as a turning point for the enforcement of financial crime specifically.5 For Roman Tomasic, revelations of ‘potentially criminal behaviour’ will ensure that the crisis is likely to carry longstanding associations with the revelation of ‘mas-sive financial fraud’.6 This narrative is developed by Tomasic for locating his hypothesis that the financial crisis is likely to mark the departure of the ‘hap-hazard pursuit of financial crime’ characterising financial crime enforcement prior to it.7 Whilst for Tomasic, this movement towards a more concentrated and thereby less haphazard approach to enforcing financial crime is a global trend, for this study acknowledging this helps to frame the significance of financial crime for Britain in the twenty-first century

institu-This scholarly interest in exploring the connections subsisting between the financial crisis and exposure of white collar crime illustrated by Tomasic’s work, and also evident in the work of Nic Ryder, reflects events which started

to become apparent in the earliest aftermath of the crisis.8 This became ent first in the US (not Britain) where the collapse of investment giant Bear

appar-3 See FSA Press Notice PN/142/2009, 22 October 2009, relating to ‘systemical banks’; also Lord

Adair Turner, Mansion House Speech, 22 September 2009, Prospect Magazine, 23 October 2009,

https://www.prospectmagazine.co.uk/blog/adair-turner-addresses-mansion-house/#.Um6GGJ1FBnI, accessed 4 April 2014.

4 G Brown, Beyond the Crash: Overcoming the First Crisis of Globalisation, London: Simon and

transac-be brought in the UK A report ordered by the court overseeing bankruptcy proceedings for Lehman Bros criticised the role played by auditors Ernst and Young and ‘magic circle’ law firm Linklaters when exploring how it had been possible for $50bn of debts to be concealed from regulators.10 But no criminal

charges transpired from these investigations and the Goldman Sachs civil suit

for fraud relating to sub-prime mortgage misconduct was controversially tled This seemed to suggest that criminal convictions for banker misconduct during the crisis were likely to remain elusive, notwithstanding the widespread perceptions that harms emanating from high finance could be found reflected

set-in ‘millions of lost homes, jobs and savset-ings, along with broad and devastatset-ing effects on the physical and mental well-being of millions of people’.11

The alignment of the financial crisis with financial crime that was exposed

by the Libor-fixing revelations in June 2012 vindicated scholars’ laments about the failure to assign criminal liability to financial sector misconduct during the financial crisis It also silenced suggestions that the financial crisis was most accurately configured as an ‘ethical crisis’ The argument had been

it reflected practices which were certainly aggressive and inappropriate for financial system governance to foster, but these were ones which fell short

of being actually unlawful.12 The Libor revelations rocked insistence from key financial sector participants that they had engaged in ‘remorse and apol-ogy’ in the aftermath of the crisis.13 It undermined claims that their focus was on assisting economic recovery and becoming ‘better citizens’ in line with the spirit of new regulatory initiatives designed to promote increased financial system stability and resilience, as well as ensuring better supervision

9 L Thomas Jr, ‘Former Bear Stearns executives to face criminal charges in hedge fund collapse’,

New York Times, 19 June 2008.

10 P Inman, ‘Auditors face inquiry call after Lehman revelations’, The Guardian, 14 March 2010.

11 D O Friedrichs, ‘Wall Street: Crime Never Sleeps’, in S Will et al (eds), How They Got Away

With It: White-Collar Criminals and the Financial Meltdown, New York: Columbia University

Press, 2012, p.20.

12 J O’Brien, ‘The Facade of Enforcement: Goldman Sachs, Negotiated Prosecution, and the Politics

of Blame’, in S Will et al (eds), How They Got Away With It: White-Collar Criminals and the

Financial Meltdown, New York: Columbia University Press, 2012, pp.178–9.

13 See Oral Evidence taken by the Treasury Select Committee, 11 January 2011, to be published as

HC 612-vi, specifically question Q.535, questioning then Barclays CEO Bob Diamond.

‘bank-on the Failure of Royal Bank of Scotland (RBS) several m‘bank-onths earlier These had

clustered around how banking sector impropriety ‘can result in bank failure, payer losses, and wider economic harm’.17 Another concern highlighted was that

tax-as no individual had been found legally responsible for that particular institutional failure, it could be concluded that ‘action cannot be taken under existing rules’; meaning that rules for the future needed to be changed.18

Shortly after the inception of the PCBS was announced, a Treasury Consultation commencing in July 2012 laid out the government reaction to recommendations for strengthening the framework for individual banker liability through non-criminal reg-ulatory reform.19 This consultation also identified that this ‘regulatory sanctions and measures’ focus of the RBS Report had also ‘stimulated interest in the possible intro-duction of new criminal sanctions for misconduct in bank management as another way

of shifting the balance between risk and reward for bank directors’.20 The Consultation confirmed Government interest in introducing criminal sanctions for serious miscon-duct in the management of a bank which had been widely reported in the public arena, including the press in the immediate aftermath of the RBS Report’s publication.21

14 Bob Diamond, ‘First Radio 4 Today Business Lecture’, BBC, 3 November 2011, http://www.bbc co.uk/mediacentre/latestnews/041111diamondlecture.html; Andrew Haldane, ‘Small Lessons From

a Big Crisis’, Speech, 45 th Annual Conference, Federal Reserve Bank of Chicago, 8 May 2009, http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2009/speech397.pdf

See also The Role of Macroprudential Policy: A Discussion Paper, London: Bank of England,

2009, especially p.3.

15 Sir Mervyn King, ‘The Today Lecture 2012’, 2 May 2012; also P Aldrick, ‘King Attacks

“Deceitful” Banking Culture’, Daily Telegraph, 29 June 2012.

16 Parliamentary Commission on Banking Standards (PCBS):

http://www.parliament.uk/banking-standards In summer 2013 the PCBS published its Final Report Changing Banking For Good,

20 Ibid, para 4.1.

21 Matthew Hancock MP, ‘The right are right to challenge rewards for failure’, Speech, 12 January

2012, lenge-rewards-failure; For example ‘Reckless Bank Chiefs Could Be Sent To Jail’, Sky News, http://news.sky.com/story/916019/reckless-bank-chiefs-could-be-sent-to-jail, accessed 4 April 2014.

http://www.matthewhancock.co.uk/campaign/matthew-hancock-mp-right-are-right-chal-Introduction 5

The Treasury explained this proposition as arising from the criminal law’s ing role in ‘providing a sanction for improper behaviour in the financial services sphere’ as much as it did from perceptions of a current lacuna for liability reflecting impropriety falling short of dishonesty in ‘managerial misconduct’.22 In reconfiguring financial system regulation broadly, regulators are referencing the 2007–8 crisis as a

longstand-‘once-in-a-lifetime’ opportunity to rethink financial system operations.23 There is also recognition from regulators that this iconic milestone is likely to require regulatory boldness no less than departing from approaches of the past 50 years, and calling time

on ‘feeding’ the much vaunted ‘complexity’ of high finance in favour of ‘simpler’ rules on what is permitted and what is not.24 This appetite for combining boldness with simplicity in approach can be seen in a number of directions already signposted by the then incoming and now current Bank of England Governor Mark Carney Dr Carney has also reflected on the challenges for achieving overall financial system robustness where criminal conduct within financial markets has consequences for achieving their overall ‘orderliness’ and ultimately resilience and stability.25

The connection made by Dr Carney between system-focused regulation designed to promote resilience and stability, and conduct which falls outside this remit, but can detrimentally affect it is highly significant on account of the ‘twin peaks’ regulatory structure now in place by virtue of the Financial Services Act 2012, which has disbanded the UK regulator in place since 2000 – the Financial Services Authority (FSA) – and replaced it with two new bodies.26

It is very significant for this study of financial crime for a different reason It is

a commentary on financial system function which helps to clarify why financial misconduct attracts criminal liability at all, and also why the imposition of such liability can be contentious This in turn helps to identify the proposition at the heart of this study This is that ‘financial crime’ lies on a fault-line in British societal consciousness There is thus an operational tension between percep-tions that financial misconduct amounting to ‘large-scale illegality that occurs

in the world of finance and financial institutions’ ought to attract criminal ity on account of its potential for harm across a sweep of societal interests, and

liabil-22 Sanctions For the Directors of Failed Banks, para 4.2.

23 A Haldane and V Madouros, ‘The Dog and the Frisbee’, Paper, Federal Bank of Kansas Economic Policy Symposium, Wyoming, 31 August 2012, pp.22–5, http://www.bankofengland.co.uk/publi- cations/Pages/speeches/2012/596.aspx.

24 Ibid, pp.23–5.

25 In 2013 Dr Carney endorsed the controversial Vickers’ ‘ring-fencing’ recommendations for ing depositors from investment banking practices, and looks set to continue his predecessor’s tough line on supervision for large banks See Oral Evidence taken before the Treasury Committee relating to Dr Mark Carney’s appointment as Governor of the Bank of England, 7 February 2013; uncorrected Oral Evidence to be published as HC 944 See http://www.parliament.uk/documents/ commons-committees/treasury/carney%20pdf%20TC%2007-02-13.pdf; see response to Q111.

shield-26 The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) See

G Wilson and S Wilson, ‘The FSA, “credible deterrence”, and criminal enforcement – a

“haphazard pursuit”?’, Journal of Financial Crime, 2014, 21(1), p.4.

to ‘the sheer scale and variety’ of banker malpractice, perpetrated by a very large number of persons over very long periods of time.30 For him, ‘working through’ this would take time-consuming and painstaking work from regulators – who, he insisted, were both willing to do so and also adequately resourced to

be tasked with this.31 Interestingly, Mr Tyrie also suggested that existing nal law was adequate for directing responses, once the misconduct which had occurred was better understood.32

crimi-Criminal liability in the post-crisis regulatory and political

environment

Government support for extending criminal liability so as to include liability for reckless risk-taking in the context of institutional failure firstly became concre-tised in its response to the PCBS Report recommendations, now itself reflected

27 D O Friedrichs, see Note 1.

28 D Nelken, ‘White Collar Crime’, M Maguire et al (eds), The Oxford Handbook of Criminology,

Oxford: Oxford University Press, 1st edn, 1994, 355; p.355; S Shapiro, ‘The Road Not Taken:

The elusive path to criminal prosecution for white collar offenders’, Law and Society Review,

1985, 19(2), pp.179, 181.

29 See S Rustin, ‘Nerves in the City and No 11 as bankers’ unlikely nemesis readies his next salvo’,

The Guardian, 20 April 2013.

30 Ibid.

31 Ibid.

32 Ibid.

Introduction 7

in provisions within the Financial Services (Banking Reform) Act 2013.33 Prior

to this, whilst also harbouring some differences in perceptions of current issues

in criminal enforcement of business misconduct, both Andrew Tyrie and the lier Treasury Consultation had correctly identified the longstanding tradition of utilising criminal enforcement for financial impropriety In being focused on that which ‘occurs in the world of finance and financial institutions’, this analysis con-centrates on the significance for the present of the longstanding favour in Britain

ear-for criminal law as a tool ear-for delineating the outer limits of acceptable conduct within business activity Whilst the Treasury Consultation from 2012 did not

actually acknowledge that this is a tradition dating back to the nineteenth century, its remark that there subsists in the UK a longstanding ‘interest in … criminal sanctions … as [a] … way of shifting the balance between risk and reward’ in the context of business is enormously significant for framing the analysis now under-taken.34 This is an extended study of how strong favour for criminal enforcement was evident as much as 150 years prior to the current ‘crisis’ At the core of its analysis is the tradition within British legal culture for using the criminal law not simply in response to deliberate misuse of business environs for activities which

are ab initio deliberately dishonest, but also in response to misconduct uncovered

in the course of prima facie legitimate business activity.

This is of utmost significance in the context of current policy discourses, which are very consciously concerned with extending criminal liability cur-rently subsisting for ‘financial misconduct’ so as to embrace managerial misconduct more generally.35 This is particularly so given the current acknowl-edged need to target the ‘extremely risky’ activity associated with the crisis.36This analysis explains that criminal law was being utilised explicitly to pro-mote appropriate co-existences between risk-taking and responsibility during the middle years of the nineteenth century, as part of what was then emerging modern ‘business culture’ This approach is not distinctive, simply because

it discusses the present alongside the past Its distinctiveness lies in how the analysis suggests past events are highly significant in the light of current proposals for law reform The Treasury Consultation recorded Government favour for a new criminal offence of misconduct in banking management, and the view that this should be underpinned by the ‘egregious character’ of

33 The Government’s Response to the Parliamentary Commission on Banking Standards, HM

Treasury and Department of Business, Innovation and Skills, July 2013, https://www.gov.uk/ government/uploads/system/uploads/attachment_data/file/211047/gov_response_to_the_parlia- mentary_commission_on_banking_standards.pdf This advertisedly ‘marks the next step in the government’s plan to move the UK banking sector from rescue to recovery, and to build a banking sector that upholds the high standard of ethics and professionalism that society expects and under- pins a strong, safe and successful banking system that supports the economy’.

34 Sanctions For the Directors of Failed Banks, Treasury Consultation, London, 2012.

35 This is evident from the general thrust of the Treasury Consultation as well as specific aspects

of it.

36 Sanctions For the Directors of Failed Banks, para 4.10.

8 Introduction

recklessness.37 This is significant because it is an important departure from established offences requiring misconduct to be deliberate/intended – by being premised on knowledge or dishonesty – for criminal liability to arise.38 But

in its allusion to the crisis not engendering sufficient criminal liability in the light of the serious harm caused to society and economy which is attributed to banker operation within a financial system that lacks sufficient resilience and stability, this new reference point helps to orient and articulate this study’s primary remit It helps to explain why this particular analysis of financial crime regards events from the nineteenth century as so significant for discern-ing attitudinal patterns and ones of response to financial crime in Britain in the twenty-first century

In setting out Government favour for this new criminal liability, now borne out in the Financial Services (Banking Reform) Act 2013 and initially invit-ing responses accordingly, the Treasury Consultation expressed the view that surely ‘at the very least … [it would] make bank directors think twice before taking certain decisions’.39 This closely mirrored the rhetoric of the Government predating this, evident in the reflections of Chancellor George Osborne.40 His close ally, Matthew Hancock MP also echoed such rhetoric For Mr Hancock, the value in such an initiative lay in the ‘shadow of prosecution’ it would cast over those entrusted with institutions of ‘vital national importance’, which was situated alongside his hope that it would not actually be used.41 Both at the time

of consultation and now with the statutory provisions in place the key question was and remains whether extending criminal liability in this way alters bankers’ risk-taking behaviour The Treasury Consultation sought to explain how a hypo-thetical bank board would ‘obtain legal advice about whether a decision could

be considered to be reckless’, but acknowledged that defining risk-taking which attracts criminal liability will be complex because banking inevitably involves taking risks For the Treasury, complexity of a more practical nature could also arise from the criminal burden of proof, and the legal framework governing inves-tigation and prosecution, and their associated pecuniary costs,42 all of which are familiar territory for scholars of financial crime.43

www.gov.uk/government/speeches/statement-by-the-chancellor-of-the-exchequer-rt-hon-george-41 Matthew Hancock MP, ‘The right are right to challenge rewards for failure’, Speech,

12 January 2012, right-challenge-rewards-failure

http://www.matthewhancock.co.uk/campaign/matthew-hancock-mp-right-are-42 Sanctions For the Directors of Failed Banks, Treasury Consultation, London, 2012, paras 4.14–4.17.

43 G Wilson and S Wilson, ‘Market misconduct, the FSA and creating a system of “city grasses”:

blowing the whistle on whistle-blowing’, Company Lawyer, 2010, 31(3), p.68.

Introduction 9

A nineteenth-century turning point for financial crime:

viewing the future through the prism of the past

This analysis of nineteenth-century responses to financial crime reveals not only the Victorian orientation of criminal law in response to misconduct which ‘occurs

in the world of finance and financial institutions’, but that this was a conscious reflection of the nature of perceived harm caused, and the acknowledged limita-tions of other legal responses adequately to suffice in this context, and thereby the limitations of liability which required ‘a man’ to make good ‘out of his own prop-erty’ a wrong committed.44 The narrative identifies the critical time frame for this

as broadly 1835–1880, and within this concentrates on a distinct ‘early phase’ in mapping Victorian responses to financial crime delineated by the years 1850–1880

It explains, within the broad parameters provided by Victoria’s reign (and indeed predating this slightly), how the years 1835–1880 reflect the earliest acknowledge-ment of financial misconduct crime as activity possibly requiring special responses within criminal policymaking, occurring during the 1830s It illuminates how this time frame also accommodates the very first ‘business crime’ trials during the 1850s together with the intervening events of the 1840s which actually set this in motion

It also situates these earlier milestones alongside the reality that by 1880, the City of London had borne witness to a number of major ‘business crime’ trials In doing so, the analysis explains how these reference points have been significant for writings

of ‘financial crime’ history such as those currently existing And in acknowledging this, it must be noted that this is not the only work to look at these trials, and its coverage of the ‘financial scandals’ underpinning them is far less extensive than can now be found elsewhere in the historiography.45 It focuses instead on how reactions

to financial crime in nineteenth-century Britain can themselves be regarded as a rative for how contemporaries lived through times of ‘striking change’.46

nar-The pursuit of financial history: its aims, methods

and new directions

From this emerges a narrative of a society embracing its sense of progress and advancement but possessed of a sense of insecurity and discomfort In many ways, acceptance of the nature of changes brought by the onset and progression of industrial

44 As was long-established in the context of a trustee’s breach of trust See Hansard, series 3, 46,

HC 8 June 1857, Serjeant Kinglake, col 1363; and similarly for breach of contract This was also apparent in the law of tort such as it developed during the nineteenth century, with it at this time having a very strong orientation towards deliberate harm caused to others or where a contrac- tual relationship raised the right to ‘due care’ See S Wilson, ‘Tort law, actors in the “enterprise economy”, and articulations of nineteenth-century capitalism with law: The Fraudulent Trustees

Act 1857 in context’, in T T Arvind and J Steele (eds), Tort Law and the Legislature: Common

Law, Statute and the Dynamics of Legal Change, Oxford: Hart, 2012.

45 Notably J Taylor, Boardroom Scandal: The Criminalization of Company Fraud in

Nineteenth-Century Britain, Oxford: Oxford University Press, 2013.

46 J Black and D MacRaild, Nineteenth-Century Britain, Basingstoke: Palgrave, 2003, p.xvii.

10 Introduction

capitalism, resulted in contemporaries being faced with the challenge of tive understandings’ of what constituted crime, and what was appropriate in the shape

‘transforma-of responses which reflected its harms.47 A very small cluster of ‘fraud’ trials helps

to bring together a series of ‘core’ issues associated with such Victorian tive understandings’ of financial crime within a broader analytical frame of Victorian hopes, ambitions, fears and concerns Such analysis must concentrate on illuminating contemporary perceptions of the opportunities provided by the economic transforma-tions of the age, as well as the threats presented by crime in general to this

‘transforma-From this stance, Tosh argues that for most historians, the aim of their study is (and has always been) ‘to discover what happened in the past and what it was like

to live in the past’.48 In clarifying this as an aspiration that almost all historians would accept, Tosh is able to explain how for some historians, there is an end-game beyond this.49 In his influential historiographical work, Tosh also identifies

a different type of historian who regards studies of the past as a useful tool for working through issues of today This direction is channelled through three car-dinal rules which allow us to see history not as showing ‘progress’ over time but actually revealing the process of social change.50 For Tosh, three principles of his-torical enquiry suggest that much can be learned and understood about the present, and even ‘purchase’ made on the future from looking at the past The past here is premised on understanding the present as a point on a trajectory still unfolding, which Tosh explains alongside key idea of ‘societal evolution’.51 This requires that historians pay attention to the prevailing conditions or context in which chosen ref-erence points emerged It also requires a respect for the gulf of time separating past and present This thereby identifies in reverse Tosh’s three principles of historical enquiry – historical difference, historical context and historical process.52 In terms

of how changes in law can be ‘subject matter’ for linking past with present, much of

the significance of Tosh’s representations of historical enquiry as a mechanism for understating societal status and societal evolution can be seen in the rationale for the study of legal history within legal scholarship and education

This is certainly so for the study of so-called external legal history, whereby the history of law is strongly premised on understanding how law has evolved as

we would recognise and insists that this requires understanding the social, nomic and political context, in which key legal developments emerged.53 Even so-called internal legal history – the study of the law itself, and the way legal

eco-47 D O Friedrichs, ‘Wall Street: Crime Never Sleeps’, in S Will et al (eds), How They Got Away

With It: White-Collar Criminals and the Financial Meltdown, New York: Columbia University

Press, 2012, p.20.

48 J Tosh, The Pursuit of History: Aims, methods and new directions in the study of modern history,

Harlow: Longman, 2010, especially pp.45–7.

Introduction 11

categories, concepts and doctrines, the mechanisms used by lawyers to organise their thoughts, were actually understood by lawyers and jurists at a particular time – is also strongly premised on understanding change over time.54 In insisting that the study of legal history remains as important as ever for students of law today, Sir John Baker has stated that legal history is the ‘study of legal change’, and claimed that ‘unless we regard law as no more than a body of randomly changing rules, its history must be an essential dimension in its study’.55

David Ibbetson’s reflections on legal ideas not being ‘natural facts waiting to

be uncovered’ and being ‘indeterminate and flexible, always at least potentially

in a state of flux’ are a precursor to his suggestion that lawyers will commonly disagree about them, and that there will always be ‘forward-looking individu-als proposing different models and structures’.56 This mirrors Tosh’s reflections

on the absence of consensus ‘of expert opinion’: historiography like legal arship provides an arena of ‘heated arguments concerning the objectives and limitations of historical study’.57 In seeking to emphasise the value of legal his-tory for legal scholarship, Ibbetson’s thoughts on its necessity for understanding the current law and its underpinnings reflect closely those of Baker However,

schol-in identifyschol-ing how the ‘structure of modern law is too heavily dependent on the legacy of the past to be marginalized as something of purely antiquarian inter-est’, Ibbetson furthermore insists that the understanding of law which can only be achieved through understanding of its history, is a vital component of the pursuit

of confident law reform.58 In marrying the interest of historians in utilising tory for providing a commentary on the present and future, with legal historians’ insistence on the importance of understanding law’s own history, a convincing case can be made for looking at the past to provide a more comprehensive set-ting for formulating new ‘rules for the future’ For financial crime specifically, this was identified intellectually sometime prior to the financial crisis, with this also strongly grounded in the work of Tosh.59 It was argued in 2003 that utilising

his-law emerging from c.1750 onwards, and especially dating from the nineteenth

century, can help to construct a commentary on society and social change which helps us to ‘know ourselves’ as well as we possibly can, and to have as clear a view on societal status and societal change as we can possibly muster, as we – as

a society – face the future.60 Adopting such an approach in respect of financial crime helps to illustrate and explain the essence of law for society more generally, and how law can be most effectively deployed in furtherance of societal interests

54 D Ibbetson, A Historical Introduction to the Law of Obligations, Oxford: Clarendon, 1999, p.v.

55 J H Baker, ‘Why the History of English Law Has Not Been Finished’, Cambridge Law Journal,

2000, 59(1), p.62.

56 D Ibbetson, A Historical Introduction to the Law of Obligations, Oxford: Clarendon, 1999, p.v.

57 Ibid See also Tosh, Pursuit of History, p.ix.

58 D Ibbetson, A Historical Introduction to the Law of Obligations, Oxford: Clarendon, 1999, p.v–vi.

59 S Wilson, ‘Invisible Criminals?: Legal, Social and Cultural Perspectives on Financial Crime in Britain 1800–1930’, unpublished PhD thesis, University of Wales (Swansea), 2003.

60 Tosh, Pursuit of History, pp.1, 8–12, 33; also S Wilson, see Note 59.

12 Introduction

This analysis is now concerned with explaining why it was during the teenth century that these earliest modern responses to business crime appeared, with this itself reflecting the acknowledged importance of the nineteenth century for both legal historians and historians of modern Britain alike The sentiment that ‘the great improvements which have been made, both to our law and in its administration’ during the nineteenth century were equally worthy of proclama-tion as the ‘advancement of science, the wonders of invention, the extension of trade, the increase in population, and of the country’s material wealth’ comple-ments how the latter are found ubiquitously represented and analysed in the work

nine-of historians.61 Indeed, such representations of the nineteenth century within toriography reflect the ‘sheer exuberance and confidence of the age’ and also consequent ‘curiosity and dynamism’ noted by legal historians.62 There is also acknowledgement from both spheres that all points in time represent an interplay

his-of continuity and change, on account his-of how these ‘twin forces’ are ‘always at work in society’.63 Moreover, beyond the shared identification by historians and legal historians of the nineteenth century as an age unlike anything before it, there

is also a shared broad consensus that whilst the emblem of this time was very much articulating progress, that much of this became oriented towards governing the adverse externalities of progress experienced in social, economic and political spheres Here legal history has proposed that whilst law clearly became a frame-work for governing progress and whilst this was a society that was plainly both that curious and confident in making progress, it was also one very much ill at ease with itself with the manner of seeking and achieving progress, and even with the very idea of progress itself

This sentiment is readily apparent in how modern British history has lysed nineteenth-century changes such as in the administration of poor relief and the introduction of factories’ legislation, albeit with characteristically less

ana-emphasis on the legal underpinnings of social change This analysis now shows

how nineteenth-century responses to financial crime reveal these very tensions

of confidence and anxiety extremely effectively, as it meshes together closely understandings of legal change and social change to remedy how this particular externality of the emergence of modern capitalism remains under-represented in the work of historians of crime and also within ‘business history’ The intellectual case for looking at nineteenth-century reactions to externalities created by the emergence of capitalism embodied in ‘financial crime’, as it is termed today, was

61 Anonymous, A Century of Law Reform: Twelve Lectures on the Changes in the Law of England

During the Nineteenth Century, London: Council of Legal Education, 1901, p.1; E Evans, The Forging of the Modern State: Early Industrial Britain 1783–1870, London: Longman Press, 1983.

62 C Stebbings, ‘Benefits and barriers: The making of Victorian legal history’, in A Musson

and C Stebbings (eds), Making Legal History: Approaches and Methodologies, Cambridge:

Cambridge University Press, 2012, pp.72–3.

63 F M L Thompson, The Rise of Respectable Society: A Social History of Victorian Britain 1830–

1900, London: Fontana, 1988, p.13; Black, J and MacRaild, D., Nineteenth-Century Britain,

London: Palgrave, 2003, p.xvii.

Introduction 13

actually so by contemporaries from c.1850, and thus has extensive support from

within legal history and also modern historiography.64 It also has support from a further and very significant discourse The situation of the past so closely along-side the present and future is what makes this analysis distinctive, and support for this approach and also its timeliness is actually coming from those at the sharp end of achieving confident law reform in the aftermath of a ‘once-in-a-lifetime’ financial crisis, which also looks increasingly to be defined as harbouring large-scale financial crime That events from 150 years ago are increasingly regarded

as having powerful resonances – if not actually utmost significance – for current debates on law reform in this sphere is evident from a number of high profile references to the past and also to its significance

Back to the future: beyond the ‘lessons of history’, and

appreciating the contemporary context

When Governor of the Bank of England, Mervyn King lamented in 2012 that history told us that banking crises had happened before and that we had not paid more attention to the ‘lessons of history’ in the lead-up to the events of 2007.65 Much earlier reflections of this nature can be found from within the Bank of England itself, including that from then Deputy Governor Paul Tucker.66 The Bank’s Executive Director for Financial Stability, Andrew Haldane, also referred to the importance of history to illustrate (respectively) the vulnerability of banks to loss

of public confidence and to ‘deposit runs’, and also the importance of a banking system that is built on trust.67 Earlier still, and actually in the midst of the financial crisis itself, the Treasury Committee Report on Northern Rock noted that ‘the most notorious bank run in British history took place in May 1866 at the time of the collapse of Overend, Gurney and Co’, inviting readers to reflect on this as a lesson

in the causes and consequences of systemic failure.68 Again, it was stressed that it was one with significance for lessons which needed to be learned from the failure

of Northern Rock itself.69 These references to the past from Tucker and Haldane

in 2009 date from a point in time when the full extent of the Bank of England’s envisioned future role in financial system regulation – particularly that relating to

64 Indeed, this was a term actually used by contemporaries during the 1850s: See D M Evans, Facts,

Failures and Frauds: Revelations, Financial, Mercantile, Criminal, 1859, reprinted New York:

68 The House of Commons Treasury Committee Report on Northern Rock: The run on the Rock, HC

2007–8, 56–1, 8.

69 Ibid, pp.3–4 See also Chapter 7 , pp.104–13.

14 Introduction

banking supervision specifically and the promotion of financial system stability more generally – remained to be clarified, and certainly so in precise formulation.70 The regulator at the helm during the financial crisis was of course the Financial Services Authority (FSA) which has subsequently received extensive criticism for failures in its regulatory duties in identifying and adequately assessing systemic risk.71

A short time after this a new specific regulatory objective was added to the FSA’s portfolio by the Financial Services Act 2010.72 But in relation to its longstanding regu-latory objective of the ‘reduction of financial crime’,73 the Authority had, during 2009, critiqued the Hegelian adage that ‘if history teaches us one thing, it’s that history teaches us nothing’.74 The FSA sought to suggest that whilst the cyclical nature of scandals would continue ‘to rock the financial system to its very core’ that we must learn from the past.75 This powerful message from the FSA’s then Managing Director

of Wholesale was directed specifically towards the challenges presented by financial crime.76 It predated many of the actual exposures and revelations which will ensure the long-term associations between the global financial crisis and financial crime are likely to endure, including the ‘game-changing’ Libor scandal, and academic reflec-tions on this, such as Tomasic’s In so doing, it provides a financial crime-specific illustration of contemporary (from 2009) reflection on the crisis from Reinhart and Rogoff warning against failing to learn lessons from past financial crises by deluding ourselves that ‘this time is different’.77 These reflections from regulators on the impor-tance of the past for current conversations on law and wider regulatory reform do not acknowledge intellectual debates attached to history’s possible applications for the present and future, or legal scholarship’s insistence on the necessity of legal history for law reform, but references to the past and actually to its importance for current and future directions are being made in these circles This clearly operates to strengthen the case for the analytical direction of the study, which was always distinctive.Through this, the long-standing intellectual rationale for looking at past expe-riences of financial crime, and indeed utilising the past in the search for new laws which will discourage impropriety is now in receipt of important support

70 For an overview of the Bank of England’s envisioned role see A New Approach to Financial

Regulation: Building a Stronger System, HM Treasury 2011, and the now voluminous Bank of

England commentary reflecting its enhanced role in banking supervision, and discussing the new PRA’s role alongside the Bank’s new Financial Policy Committee’s (FPC), macroprudential func- tions, with the new ‘Twin Peaks’ regime introduced by the Financial Services Act 2012, and now implemented.

71 Of a nature which became manifested in Northern Rock itself: See The run on the Rock, p.3.

72 Courtesy of s.1 of the Act.

73 FSMA s.2(2), as illuminated in s.6(3).

74 S Dewar, ‘Tackling financial crime in the current economic climate’, Paper, Annual Financial Crime Conference, 27 April 2009, http://webarchive.nationalarchives.gov.uk/*/http:/www.fsa gov.uk/, accessed 4 April 2014.

75 Ibid.

76 Ibid.

77 C Reinhart and K Rogoff, This Time is Different: Eight Centuries of Financial Folly, Princeton:

Princeton University Press, 2009.

Introduction 15

from policymakers In this setting of a very highly profiled allusion to the

con-tinuities across ‘past and present’, the The run on the Rock is perhaps especially

important, by virtue of referencing high profile collapses of financial institutions experiencing viability difficulties against a backdrop of wider ‘financial distress’ during the nineteenth century.78 This is because a number of these cases of institutional difficulty actually provided the context for the earliest ‘business crime’ trials in Britain As the narrative will explain, the strong prominence

of banking scandals in calibrating earliest responses to business crime which are recognisable today, and which form the basis of much of today’s oper-ating context, reflect the current and widely held view that the position of banks within (most and indeed certainly capitalist) economies is unique, and underpins why governments establish ‘public policy for banks in the public interest’.79 It will become apparent how this view concretised during the 1850s and became recognisable as this current view, rhetorically as well as a matter

of substance From this emerges a unique, and actually the first systematic analysis of events which it will be argued were the first modern trials for what scholars today term ‘financial crime’ It does this as part of its wider analy-

sis of how criminal law can be used effectively in the sphere of business in

the twenty-first century, and how regulatory strategies must also ensure that

its use is appropriate Here, analysis of criminal proceedings embodied in

the ‘Victorian fraud trial’ will be situated alongside very clear recognition of the ‘problem of’ financial crime today, and also well-documented discourses regarding efficacy and legitimacy as twin areas of concern relating to the criminal law’s application for misconduct within business This can be seen manifested in concerns pointing to highly ambivalent perceptions relating to the nature of financial crime itself, and also to responses directed towards it It

is also evident from recognition that although recourse to criminal law in this sphere may have a long tradition it is also one which is highly complex For example, whilst the criminal law is seen widely documented within academic literature and policy discourses as a ‘blunt instrument’ of response to ‘busi-ness crime’ it is also perceived with equal strength as being inappropriately heavy-handed, taking insufficient account of the exigencies of business, and often amounting to using a ‘sledge hammer to crush a marshmallow’.80

78 The run on the Rock, p.8.

79 Prudential Regulation and Banking Supervision, World Bank Background paper for the 1989

World Development Report, Washington DC 1989, http://www-wds.worldbank.org/servlet/ WDSContentServer/WDSP/IB/1990/01/01/000009265_3960928161430/Rendered/PDF/multi_ page.pdf.

80 See for example: A Bequai, White Collar Crime: A 20th-Century Crisis, Massachusetts: Lexington

Press, 1978, Preface The Law Commission was also very clearly aware of this perception in Law

Commission, Fraud and Deception: A Consultation Paper, CP No 155, London: HMSO, 1999, as

evident in its references in paras 1.3, 1.4 and 1.5 to law which was in urgent need of modernisation,

on account that it allowed fraudsters to escape justice, and which was likened in para 1.5, to an

‘unoverhauled bus’ unable to cope This latter and quite different perspective can be seen in T M

Ashe and L Counsell, Insider Trading, Croydon: Tolley, 1993, p.178.

16 Introduction

The analysis of Victorian fraud trials will be directed towards considering how the challenges of today might be both similar to and also different from the experiences

of past societies, and how responses for the twenty-first century might be configured

in this light In doing this, the narrative will bring to life the difficulties entailed

in responding to financial crimes today, as it maps existing criminal law responses onto the activities of ‘business enterprises’ and financial institutions This analysis celebrates the Victorian fraud trial as iconic reflection of the encouragement of entre-preneurial activity for essential economic and wider societal well-being, and also the tensions arising from contemporary insistence that failures of businessmen which could jeopardise this had to be taken very seriously The appearance of the fraud tri-als shows that for Victorian society this meant that misconduct in business would be capable of giving rise to criminal liability in certain circumstances Brief reference

to highly profiled cases from the late twentieth and early twenty-first centuries also help to contextualise this opportunity for acknowledging Victorian contributions to the determination that business officers should be accountable for a range of ‘mal-feasance that occurred on their watch’.81 A richly textured account of financial crime

in Britain from 1840 to the present explains how it is possible to assert that aspects

of the relationship which British society has with financial crime are undermining the delivery of effective responses A recurrent theme throughout this study of the historical foundations of legal responses to financial crime shall be that even if ulti-mately it is concluded that there are many more differences between Victorian times and today on account of the distinctive features of an increasingly globalised world and its impact on twenty-first century Britain, that there is significant value in adopt-ing a forward-looking approach by looking at the past

It will be acknowledged that there are genuine differences of scholarly opinion

on whether ‘this time’ really is ‘different’,82 but equal stress will be placed on the importance of looking at the past as we face the future First and foremost it will be suggested that seeking ‘some purchase on the future’ can be significantly less dra-matic as it sounds This message can be as neutral as being aware of possible pitfalls that we might not otherwise know about, and this exploration of nineteenth-century financial crime will help to explain that history can help us to know ourselves, where we have come from and how we have arrived at this point in time This approach concurs entirely with Tosh’s position that the point of historical study is not to seek to predict the future, or even to find a precedent for ‘now’, with its value instead represented in its ability to alert us to possibilities As Tosh himself has stated, history is an ‘inventory of alternatives’, being mindful of which reminds us that there is often more than one way of interpreting a predicament or responding

81 C Johnson, ‘Ebbers Gets 25-Year Sentence For Role in WorldCom Fraud’, Washington Post, 14

July 2005, observing the political fall-out likely to follow the collapse of WorldCom.

82 Friedrichs adopting a contrasting position from Reinhart and Rogoff, see Note 77 See D O Friedrichs, ‘The Financial Crisis as White Collar or Economic, Crime and the Criminogenic Architecture of Wall Street’, Paper, Economic Crime and the State in the Twentieth Century: A German–American Comparison conference, German Institute of Historical Research, Washington

DC, 14 April 2011, cited with permission.

Introduction 17

to a situation, and that choices open to us are often more varied than we might have supposed.83 This proposition will be directed towards this study’s revelations that far too little is currently known about earliest responses to financial crime, which is actually extremely useful for us to understand as we are tasked with confident law reform, both targeting the financial system underpinning the economy generally, and also financial crime more specifically

In this regard it is highly significant for this study that beyond Legal Scholarship, calls for intellectual enrichment utilising history are also coming from the academic discipline of Criminology This is vitally important for this study of financial crime past and present on account of its interest fundamentally in how financial crimes are perceived in wider societal consciousness The cyclical relationship subsisting between perceptual appreciation and legal responses identified in Criminology is illustrative of how strongly this study of nineteenth-century responses to financial crime will draw on criminological study and (on occasions) its wider rootings in Sociology.84 In this regard, and in acknowledging the continuing endurance of Sutherland’s contentious classification of ‘white collar crime’ it is now some time since Locker and Godfrey called for criminologists to remedy the position whereby

‘while criminologists have [recognised and debated] … the topic of white collar crime … they have significantly overlooked its historical dimensions’.85 In doing so Locker and Godfrey also lament that ‘white collar offending … has suffered con-siderable neglect within historical academic discourses’.86 The location of financial crime – past and present – within academic study, as well as its notable absences from such is where the next chapter commences

83 J Tosh, The Pursuit of History: Aims, methods and new directions in the study of modern history,

Harlow: Longman, 2010, p.33.

84 As classically expressed by E H Sutherland, ‘Is “White Collar Crime” Crime?’, American

Sociological Review, 1945, 10, p.139.

85 J P Locker and B Godfrey, ‘Ontological Boundaries and Temporal Watersheds in the

Development of White-Collar Crime’, British Journal of Criminology, 2006, 46(6), p.976.

86 Ibid.

1 The search for the ‘lexicon’ of

financial crime

‘Business crime’ in legal definition

and societal consciousness

The relationship between the law and the mores tends to be circular The mores are crystallised in the law and each act of enforcement of the laws tends to re-enforce the mores The laws regarding white-collar crime, which conceal the criminality of

the behaviour, have been less effective than others in re-enforcement of the mores.1

Introduction

This analysis of the significance of nineteenth-century responses to financial crime for twenty-first century Britain focuses on particular illegal activities found within this broad rubric: those termed in legal discourse and in common par-lance as ‘business crime’ or ‘business fraud’ The ‘locations’ of these activities within both law and wider societal consciousness are now explored, commencing with the proposition that activities regarded as ‘financial crimes’ occurring in the

‘commercial sphere’ will continue to interfere with goals of societal stability and economic prosperity into the twenty-first century until the realities of their impact upon past societies are confronted.2 Equally, this narrative seeks to redress a point

of further dissatisfaction which flows from a poor understanding of white-collar

crime’s past that what eminent US criminologists Rosoff et al term the ‘lexicon’

of white-collar crime actually became part of wider societal, as well as legal sciousness in Britain during the nineteenth century.3 For many like Rosoff, the term white-collar crime is lexiconic because of the way in which this seminal construct of social science has become embedded in popular consciousness It has become a rhetorical expression of a wide understanding that although those

con-in upper-socio-economic groupcon-ings commit crimcon-inal activity, this behaviour is seen to differ from ‘the criminal behavior of the lower socioeconomic classes’.4

1 E H Sutherland, ‘Is “White-Collar Crime” Crime?’, American Sociological Review, 1945, 10,

p.139.

2 Lord Irvine (then Lord Chancellor), Law Commission, Fraud and Deception: A Consultation

Paper, CP No 155, London: HMSO, 1999, para 1.4.

3 S Rosoff et al., Profit without Honor: White-Collar Crime and the Looting of America, New Jersey:

Prentice Hall, 2010, p.3.

4 Ibid.

The search for the ‘lexicon’ of financial crime 19

Similar patterns of reaction and response can be observed from tury encounters with what contemporaries actually termed ‘financial crime’ Then

nineteenth-cen-as now, it reflected contemporary hopes and expectations but also fears and eties about these unlawful activities

Acknowledging that the beginning of the twenty-first century has already revealed itself to be a time of tremendous optimism and indeed opportunity, yet also one of intense anxiety, raises interesting prospects for this analysis It would appear that the time is ripe for exploring the idea of a ‘societal journey’ as pro-posed by Tosh especially as current discourses continue to lament the problem

of financial crime for twenty-first century Britain.5 If we are to regard Victorian experiences as having lasting significance, what is required is an interdisciplinary exploration of the rich and voluminous commentary on white-collar/financial crime today, to promote an understanding of how financial crimes have been (and are) accommodated within British/UK legal culture, with particular emphasis on English law Currently the scholarly analysis of white-collar/financial crime – notably from criminologists given their dominance in this academic commentary – has largely left itself unable to appreciate the significance of the experiences

of past societies for their reflections on these activities and their significance for the present across a spectrum of social and economic dimensions This analy-sis ‘teases out’ that significance by illuminating the implications of the silences within the modern literature It has also required paying close attention to how historians have constructed the nineteenth century as an intellectual end in itself within the general historiography as much as it does explaining how historians have hitherto approached the study of financial crime specifically

In following the lead of historian Peter King, this task is very much one of remedying the position whereby historians of crime ‘have relatively rarely made explicit the links between their own work and that of their criminological con-temporaries’.6 This reflection provides a valuable general statement on the lack

of dialogue between scholars from different academic disciplines whose lectual agendas clearly interface, and the importance of a different approach In

intel-1999 King insisted that cross-disciplinary dialogue must be engagement which

occurs not merely within disciplines as between willing participants, but actually systematically across disciplines.7 This spirit and intendment was expressed a short time later, and in the context of financial crime specifically, in calls made by the author of this present analysis for scholars of history, criminology and law to interface more extensively with one another.8 Both this general sentiment and its more specific orientation towards financial crime received important recognition

5 J Tosh, The Pursuit of History: Aims, methods and new directions in the study of modern history,

20 The search for the ‘lexicon’ of financial crime

from the criminology community in Locker and Godfrey’s 2006 work.9 Shortly prior to Locker and Godfrey, William Sewell JR stressed the importance of devel-oping serious dialogue between social scientists and historians Notwithstanding that this ‘mutual enlightenment’ was likely to enrich social science scholarship, Sewell also lamented that the contributions capable of being made by historians

on account of their sophisticated understanding of the ‘temporalities of social life’ had scarcely penetrated ‘social theoretical debate’.10 Capitalising on this now requires a more extensive focus on integrating accounts of Victorian experiences

of financial crime with current realities in order to show the echoes between those experiences This is oriented towards achieving better understanding of the nature

of the challenges presented by financial crimes for society in the twenty-first tury and how these challenges are currently manifested in legal definition and wider criminal justice process culture and operating practices

cen-This also involves further reference to the intellectual case in favour of looking

at the past for illuminating and responding to current challenges Consequently it

is important to emphasise that this study is grounded in the numerous strengths of existing scholarship for understanding the significance of white-collar crimes for society in the twenty-first century, as it is in illuminating the implications of the silences within the modern literature Thus this account of Victorian experiences

of financial crime is strongly influenced by the basic premise of Sutherland’s work, which was itself rooted in the proposition that criminalising activity is con-sidered to reflect and reinforce societal rejection of behaviour deemed injurious to its interests, through its ‘stigmatisation’ of wrongdoing and through consequences seeking to exclude participation from key aspects of ‘civic life’.11 This analysis takes a particular interest in how Sutherland observed differences in the operation

of this broad pattern, and in his argument that certain criminal activities attracted greater vigilance in legal responses, and mobilised greater repugnance in wider societal consciousness than others

For Sutherland this was inappropriate because it did not reflect the injurious nature

of (even unlawful) acts, because whilst white-collar crimes typically attracted far less of both legal vigilance and societal repugnance than other ordinary or ‘traditional’ crime, this did not reflect qualitative differences in social injuriousness White-collar crimes

were to be found, like all crimes ‘distributed along a continuum in which the mala in

se are at one extreme and the mala prohibita at the other’.12 This reflected the mistaken

perception held that white-collar crimes amounted to mala prohibita – being merely

technical violations of law rather than activities engendering serious harm.13 That this

9 J P Locker and B Godfrey, ‘Ontological Boundaries and Temporal Watersheds in the

Development of White-Collar Crime’, British Journal of Criminology, 2006, 46(6), p.976.

10 W H Sewell Jr., Logics of History: Social Theory and Social Transformation Chicago: University

of Chicago Press, 2005, p.1, and pp.6–12.

11 E H Sutherland, ‘Is “White Collar Crime” Crime?’, American Sociological Review, 1945, 10,

pp.136–7.

12 Ibid, p.139.

13 Ibid.

The search for the ‘lexicon’ of financial crime 21

perception remains, and continues to be regarded as mistaken in some quarters, is apparent from Friedrichs’ call, 70 years later, for ‘transformative understandings of crime’ to redress the position whereby ‘activities with relatively mild harmful conse-quences for society are accorded much attention and treated harshly’ whilst ‘activities with demonstrably major harmful consequences for society are accorded little attention and only very selectively addressed’.14 Friedrichs sought to redress this by insisting that ‘fraudulent misrepresentations in many different forms and on many different lev-els were clearly at the center’ of the financial meltdown of 2007–8, as a reflection of pre-crisis financial system architecture embodying conditions ‘that promote criminal activities and actions’.15 Friedrichs’ commentary on the crisis was one on the absence

of ‘collective consciousness about the nature of crime in relation to harm’, with strong echoes of Sutherland’s work generally, and specifically the latter’s hypothesis of ‘unor-ganised resentment’.16

Both scholars express a vital component for unpacking the nature of societal tudes towards financial crimes today, in the light of the challenges they present for law specifically and wider society more generally, and the circularity (or apparent lack of) operating between the two For Friedrichs, it is such mistaken beliefs about financial crime that hinder responding to them effectively, and at the heart of this appears to lie how the ‘ambivalent’ status of financial crime in wider societal consciousness is under-mining laws which are in place, and any impetus for strengthening legal responses From this a key question for examining the impact of financial crime on society past and present, and how this precipitates (and also, perhaps significantly, limits) the reach

atti-of legal responses, becomes very apparent This must surely be why there might be

an absence of ‘collective consciousness’ about the harms caused, which the academic

discourses do emphasise as being considerable This emphasis of the significant harms

believed to flow from financial crimes for society is also found reflected in key legal provisions that are in place, and also policy movements for law reform, on all of which more is said shortly For now it is suggested that appreciating the nature of lack of ‘col-lective consciousness’ of harms associated with financial crimes is one of the hallmarks

of the white-collar crime literature, and indeed one of its strengths, at the heart of which

is the way scholars have analysed the so-called ‘special nature’ of white-collar crime

The ‘lexicon’ and the ‘special nature’ of financial crime and

academic scholarship

What can be termed the ‘special nature’ of white-collar/financial crime is essentially

how this activity is widely perceived as being somehow distinct That it is somehow different from ‘ordinary’ crime, that it is extensively contrasted alongside in academic

14 D O Friedrichs, ‘Wall Street: Crime Never Sleeps’, in S Will et al (eds), How They Got Away

With It: White-Collar Criminals and the Financial Meltdown, New York: Columbia University

Press, 2012, p.20.

15 Ibid, pp.15, 20.

16 Ibid, p.15; E H Sutherland, ‘Is “White Collar Crime” Crime?’, American Sociological Review,

1945, 10, p.137.

22 The search for the ‘lexicon’ of financial crime

study, and as Rosoff et al contend, widely across societal understanding, giving this

scholarly construct a public ‘lexicon’ quality It is recognised by those who argue that there is nothing distinctive or even ‘special’ about white-collar crime, and that responses to it and underpinning attitudes, and also reflections on these from scholars should be brought within the purview of ‘unified criminological theory’.17 Thus recog-

nition of a ‘special status’ of white-collar crime is acknowledged by those who refute

its very premise, as much as it is by those who propose that white-collar crimes are qualitatively distinct This latter orientation of the ‘special nature’ of financial crime deploys the language of ‘ordinary offending’ to highlight the proximity of financial crime to legitimate occupational pursuits which is absent from other types of crimi-nality, and to illuminate the manifest difficulties entailed in, and the sensitivity and finesse in analysis called for, aligning misconduct in business with criminality.18 This latter viewpoint also illustrates how for some maintaining conceptual distinctiveness between white-collar crimes and other types of criminality is vital in the study of the former, precisely because it reflects perceived ambiguities in relation to the latter For those holding this particular view, appreciating their controversial character is what makes these activities so interesting for scholars, and importantly lies in how this can provide important clues on the norm conflicts and clashing group interests embodied

in them.19 But fundamentally, calls for abandoning the conceptual distinctiveness of white-collar crime as well as ones insisting this must remain are grounded in shared acknowledgement of perceived ‘ambiguities’ relating to it

There is extensive discussion in Chapter 3 of the viewpoint that ‘if Sutherland merited a Nobel prize … for pioneering this field of study, he certainly did not deserve it for the clarity or serviceableness of his definition’.20 But the extensive scholarly interest

in the ‘special nature’ of financial crime illustrates how scholars have transcended their dissatisfaction with Sutherland’s initial work and particularly his definition of white-collar crime as activity ‘committed by a person of respectability and high social status in the course of his occupation’ and continued to focus on the substance of his interest in the peculiarities of white-collar crime (alleged/perceived or otherwise).21Even work endeavouring to ‘liberate’ activity constituting ‘white-collar crime’ from Sutherland’s ‘imprisoning’ framework has remained a study of asserting/disproving its ‘distinctiveness’ from ‘ordinary’ or ‘common’ crime.22 Continuing interest in the considerations which so excited Aubert demonstrates very strongly the ability to

17 Most famously, see E H Sutherland, ‘Is “White Collar Crime” Crime?’, American Sociological

Review, 1945, 10, p.132.

18 D Nelken, ‘White-Collar Crime’, in M Maguire et al (eds), The Oxford Handbook of Criminology,

Oxford: Oxford University Press, 1994, p.383.

19 V Aubert, ‘White-Collar Crime and Social Structure’, American Journal of Sociology, 1952, 58,

p.266.

20 D Nelken, p.361, see Note 18.

21 E H Sutherland, White-Collar Crime, New York: Dryden Press, 1949, p.9.

22 S Shapiro, ‘Collaring the Crime, not the Criminal: Reconsidering the Concept of a White-Collar

Crime’, American Sociological Review, 1990, 55, p.346 With these terms used respectively by

Nelken in ‘White-Collar Crime’ and Shapiro in ‘Collaring the Crime’, with Sutherland’s own references being to ‘traditional’ crime.

The search for the ‘lexicon’ of financial crime 23

endure of this ‘special nature’, and on occasions even justification for it This is even evident in conceptual criticisms of Sutherland’s definitional approach, including those

of Nelken and Shapiro above, making important observations on the endurance of Sutherland’s contributions which have been reinforced in two notable additions to the white-collar crime literature Benson and Simpson’s ‘opportunity perspective’ on white-collar crime and Stuart Green’s development of a moral theory perspective to explore the limitations of applying law to activities conventionally termed ‘white-collar crime’ are ground-breaking analyses which also explain how Sutherland’s

‘founding father’ status has permeated beyond his intellectual descendants.23

Both works point to Sutherland’s continuing importance and the difficulties entailed in displacing Sutherland’s definitional approach and the value of not engaging in such a pursuit In explaining the drawbacks for research of ‘definitional fiat’, Benson and Simpson insist Sutherland is ‘rightly remembered and venerated’ for his critique of criminological theory and for stimulating criminologists’ interest

in societal vulnerabilities emanating from abuses of the powerful and the structural biases in the criminal justice system which concealed these.24 Green’s allusion to the embeddedness of one of social science’s best known ‘contested concepts’ explains that alternatives have failed to unite disciplinary and linguistic practices.25 In encouraging

‘reconsidering Sutherland’, these works reinforce the benefits of Sutherland’s

strengths for this analysis alongside the toils of those who have sought to remedy

his perceived shortcomings.26 Benson and Simpson’s ‘opportunity perspective’ on the intellectual and policy challenges of white-collar crime’s threats to economy and society provides one of the strongest and most balanced accounts of Sutherland’s work and his legacy, highlighting aspects of his work which have been overlooked alongside others which have been extensively criticised.27 Green’s analysis of the ‘moral or legal

ambiguity’ of laws governing activity conventionally termed ‘white-collar crime’

through the prism of everyday and largely unambiguous norm violations occurring in

‘lying, cheating and stealing’ also has much value for this study.28 It also draws on his

‘family resemblance’ approach classifying different kinds of misconduct along with his cross-discipline focused reminder that as the most weighty in civil society, penal sanctions underpinned by criminal law ‘should be reserved for conduct that is truly

and unambiguously blameworthy’ and of the significance of harm for this calculus.29

23 M L Benson and S S Simpson, White-Collar Crime: An Opportunity Perspective, London: Routledge, 2009; S P Green, Lying, Cheating and Stealing: A Moral Theory of White-Collar

Crime, Oxford: Oxford University Press, 2006, p.9.

24 M L Benson and S S Simpson, White-Collar Crime: An Opportunity Perspective, Abingdon:

Routledge, 2009, pp.7, 87–8.

25 S P Green, Lying, Cheating and Stealing: A Moral Theory of White-Collar Crime, Oxford:

Oxford University Press, 2006, pp.9–10.

26 M L Benson and S S Simpson, White-Collar Crime: An Opportunity Perspective, Abingdon:

Routledge, 2009, pp.87–8.

27 Ibid, p.57; illustrating this with reference to Sutherland’s hypothesis of ‘unorganised resentment’.

28 S P Green, Lying, Cheating and Stealing: A Moral Theory of White-Collar Crime, Oxford:

Oxford University Press, 2006, p.24.

29 Ibid pp.1, 17–18.

24 The search for the ‘lexicon’ of financial crime

This pattern of sustained academic interest in the ‘special nature’ of collar crime and its associations with ambiguity/ambivalence across a spectrum

white-of intellectual agendas is also evident in Wheeler et al.’s famous study on the

tensions arising in punishing white-collar crimes – famous for advancing their seminal ‘paradox of lenience and severity’ formulation, and for refuting popular perceptions of unduly lenient treatment of white-collar offenders.30 Thus, many studies on the ‘difficulties’ presented by the occurrence of fraud and the pursuit

of its ‘management’ for society reveal its purported ‘special nature’ as a ing feature throughout the literature on white-collar crime The conceptualisation

bind-of the special nature bind-of financial crime is extremely helpful for understanding ambivalences generated by financial crime within societal consciousness notwith-standing the challenges which are perceived to be arising from them A further signature feature of the white-collar crime literature lies in its ability to locate these ‘societal consciousness’ elements and align them with the perceived impli-cations of financial crime for society Much of this reflects a strong orthodoxy that what makes financial crime so challenging for society is attributable to the social and economic conditions of the twentieth and twenty-first centuries It will

be some time before a cogent picture of the interactions between the financial crisis of 2007–8 and the role played by financial crime in bringing it about can take shape, but it has already attracted the accolade of being the ‘first crisis of globalisation’.31 Academic commentary has already referenced how revelations

of ‘massive financial fraud’ will be a defining feature of the crisis for some time

to come.32 But prior to this, and throughout the latter part of the twentieth century, white-collar crime was widely regarded as representing a ‘20th-century Crisis’.33

Financial crime itself was even honoured as the ‘modern crime par excellence’,34notwithstanding that it would be a mistake to believe that frauds (and other white-collar type crimes) are a ‘new invention of the criminal mind’.35

Silences in academic literature: working towards legal

definitions of financial crime

From the literature it is clear just how synonymous financial/white-collar crime

is with the perceived social and particularly economic transformations of the late

30 S Wheeler et al., ‘Sentencing the White-Collar Offender: Rhetoric and Reality’, American

33 A Bequai, White-Collar Crime: A 20th-Century Crisis, Massachusetts: Lexington Press, 1978

See chapters 1 and 6

34 M Levi, Regulating Fraud: White-Collar Crime and the Criminal Process, London: Tavistock Press, 1987, p.1.

35 M L Benson and S S Simpson, White-Collar Crime: An Opportunity Perspective, Abingdon: Routledge, 2009, p.3.

The search for the ‘lexicon’ of financial crime 25

twentieth century for scholars, with much of this in turn being attributed to the empowering effects of technology Both Bequai and Levi’s reflections will in due course illustrate how scholars of white-collar crime have not universally actu-ally ignored the occurrence of white-collar crime in times predating the twentieth century, thereby indicating that this study’s references to ‘silences’ in the litera-ture is based on a more nuanced reading of key contributions to it But in firstly focusing on the significance of technology for scholars’ claims of white-collar crime as a distinctive twentieth-century ‘creature’, in the 1970s Bequai concluded technology had conferred ‘awesome powers’ in his alarmist prophecy of a ‘20th-century crisis’.36 A decade later Levi reflected on fraud as the ‘modern crime

par excellence’, where technology facilitated fraud’s ever-increasing reach not

only through inviting new types of crime, but because technological changes ‘can make old kinds of crime more freely available’.37 Both the scope for the appear-ance of new crimes (for example, computer crime such as ‘phishing’) and the enhanced facilitation of existing ones such as credit card fraud by technology con-tinue to be a source of significant discomfort in the early years of the twenty-first century.38 At the close of the twentieth century concern was such that ‘the modern methods by which dishonest activity may be effected [made] one constantly wor-ried that the unoverhauled bus may not be able to cope’.39 The earliest years of the twenty-first century are demonstrating that the reach of technology looks certain

to extend further into everyday life – both private and occupational – rather than

to become reduced, with anxieties about the opportunities presented by this for financially oriented crimes likely to follow suit

The concerns expressed above in 1997 about the criminal law’s ability to keep pace with technology clearly had in mind the likely growing technologisation of personal, and indeed ‘everyday’, lives which has transpired and indeed intensified

in the early years of the twenty-first century This observation was part of the early stages of a far-reaching policy debate, which resulted in significant change to the law relating to fraud The centrepiece reform was the Fraud Act 2006 itself, which provided a statutory definition of criminal fraud, but this was itself situated within

an extensive structural framework of support reflecting the need to tackle fraud on

‘several fronts’ The inception of the National Fraud Authority in 2008 embodied the view that tackling fraud through reactive response, even with much improved substantive law, would only go so far in the ‘fight against fraud’, and that what

36 A Bequai, White Collar Crime: A 20th-Century Crisis, Massachusetts: Lexington Press, 1978,

Criminal Process, London: Tavistock Press, 1987, p.1.

39 Lord Falconer of Thornton, ‘Commercial fraud or sharp practice – Challenge for the law’, Denning

Lecture, 14 October 1997, cited, Law Commission, Fraud and Deception: A Consultation Paper,

CP No 155, London: HMSO, 1999, para 1.5.

26 The search for the ‘lexicon’ of financial crime

was also required was the pursuit of active prevention through understanding and monitoring.40 As much as a decade prior to this, and certainly by 1999, the detri-mental effects of law and its supporting infrastructure failing to keep in step with technology were apparent in a further distinctive respect The Law Commission’s

1999 Consultation was strongly oriented towards how the criminal law’s ability to keep abreast of technological change would be challenged by the changing nature

of commercial activity Much attention was thus paid to the need to address the costs associated with fraud for undermining confidence in commercial dealings and wider reputational benefits for the City of London as a leading financial cen-tre, and Britain’s wider appeal as a ‘safe place’ for business.41

But a decade earlier still, similar concerns about the impact of fraud across private and commercial environs had been expressed in the influential Report of Lord Roskill’s Fraud Trials Committee The appointment of this Committee itself had reflected Government appreciation of longstanding public dissatisfaction with the investigation of what was termed serious and complex fraud in Britain, and its remit was to consider how greater effectiveness in fighting fraud could be achieved through changes being made to law and criminal proceedings.42 It is well known that the Roskill Committee’s main recommendation was for a new body responsible for the detection, investigation and prosecution of serious fraud cases, and through the Criminal Justice Act 1987, the Serious Fraud Office (SFO) was created as a cen-trepiece response to ‘serious or complex fraud’ in the UK Both the Roskill reforms and the policy movement leading to the Fraud Act 2006 two decades later clearly had in common attempts to direct law towards the challenges presented by financial crime, and also their attempts to promote understandings of fraud as very serious crime with considerable implications for economy and society.43

The SFO did become Britain’s most highly profiled prosecutor of fraud but the

limitations of the Roskill reforms during the 1980s were much in evidence out the 1990s.44 During this decade the SFO experienced significant difficulties with its ‘public profile’ on account of unwelcome high profile exposure from its involve-ment in trials such as those of the Maxwell brothers and Blue Arrow Despite this

through-it remained very publicly focused on the considerable constraints placed on through-its

40 As considered shortly See D Kirk and A Woodcock, Serious Fraud: Investigation and Trial,

London: Butterworth, 1996, p.4.

41 Law Commission, Fraud and Deception: A Consultation Paper, CP No 155, London: HMSO,

1999, para 1.4.

42 The SFO was established under s.1 Criminal Justice Act 1987, with jurisdiction in England and

Wales and Northern Ireland It resulted from the Roskill Report: Lord Roskill, Fraud Trials

Committee Report, London: HMSO, 1986 The original Roskill recommendation concerning

detection was not ultimately reflected in the legislation: see B Widlake, Serious Fraud Office,

London: Little, Brown and Co., 1995.

43 Law Commission, see Note 41, paras 1.4, 1.5 and 28; Lord Roskill, Fraud Trials Committee

Report, London: HMSO, 1986, paras 1.2 and especially 2.2.

44 The status of a prosecutor ‘at the top of its game’ is that which its current Director insists must subsist:

D Green, Speech, 10th Annual Corporate Accountability Conference, PricewaterhouseCoopers,

14 June 2012.

The search for the ‘lexicon’ of financial crime 27

activities by the substance of criminal law actually at its disposal in response to

‘serious or complex fraud’ The SFO was armed only with an ad hoc collection of

provisions within the Theft Act 1968 and the much-criticised conspiracy to defraud offences, which meant that there were significant gaps in the law relating to fraud and deception.45 Thus the SFO frequently lamented that ‘the present offences of theft and deception are not sufficiently flexible and robust to adapt to modern meth-ods of committing fraud’.46 It went so far as to argue that:

The criminal law should be able to address dishonest conduct and not be ited by the mechanics by which the fraud was carried out The SFO has long argued for a single offence of fraud, based on dishonesty on the same basis as conspiracy to defraud [for cases] which are now either not criminal at all, or where the theft or deception laws are strained to encompass the facts.47The Law Commission’s views in 1999 reflected that its remit was manifestly different from the SFO’s partisan prosecutor-focused one, and were framed in response to the arguments most often advanced as a basis for general substan-tive offences.48 However, it accepted that there were strong arguments in favour

lim-of simplifying the law, and thereby increasing its manageability for judges and accessibility for juries, and giving greater flexibility to prosecutors in response to the ‘complex’ fraudulent schemes increasingly becoming apparent.49 Although the Law Commission initially concluded against the introduction of a general fraud

offence in 1999, this was considered again in its Report Fraud 2002.50 This arose from Government perception that existing statutory offences were too specific ‘to offer a general description of fraud; while the common law offence of conspiracy

to defraud is so wide that it offers little guidance on the difference between lent and lawful conduct’ thereby making it impossible for juries to be furnished with a straightforward definition of fraud and militating against requisite concen-tration on ‘whether the facts of the case fit the crimes as charged’.51 The Fraud Act

fraudu-2006 introduced a general offence of fraud (and also one of deception).52 This was

45 Subsisting at common law and created by virtue of s.12 Criminal Justice Act 1987.

46 R Wright (then SFO Director), ‘The Investigation and Prosecution of Serious and Complex Fraud Towards the 21 st century’, Speech, ISRCL Commercial and Financial Fraud Conference, 12 July

1999 Ms Wright proposed that a number of concepts within the legislation could not be said to belong in the twentieth century let alone the twenty-first, and that there was ‘a huge litany of pos- sible offences to choose from in a fraud case, none of which necessarily meets the bill’ in terms

of being accommodated by the legislation, with illustration by the inability of electronic bank transfers to amount to ‘property’ being obtained as required under s.15 Theft Act 1968.