We recently had a chance to sit down and interview Ian Fraser, author of Shredded, Inside RBS: The Bank That Broke Britain, and talk to him about the infamous collapse of the Royal Bank of Scotland. If you haven’t read his book Shredded, it’s an amazing tale of lies and blunders whose effects are still felt inside the UK today. What surprised me most, though, was how much fraud and criminality have been rampant in the banking system. Money laundering, fraud, forgery, and even government blackmail help fill out a frighteningly long list of terrible things that have been discovered.
UK-based HSBC was heavily fined for laundering money for the Sinaloa drug cartel in 2012. It’s estimated the cartel had almost a full billion dollars in the bank before the scheme was uncovered. The bank is still subject to monitoring, and as recently as December of 2021, had to pay fines for their failure to follow anti-laundering procedures.
The Royal Bank of Scotland, now called NatWest, was also fined in December 2021 after it was discovered they were accepting hundreds of millions in cash at its branches. The massive amount of cash was being brought into branches in trash bags, and NatWest either failed to notice the suspicious behavior, or just didn’t care.
In 2016, when US-based Wells Fargo was caught creating millions of fraudulent accounts and subsequently charging their customers for them, they were quick to blame individual branch workers and managers for the problem. Taken with the myriad of other schemes that banks have been accused of orchestrating, it’s hard to see such fraud as the result of misconduct at the bottom level. Wells Fargo did eventually shift toward blaming cross-selling pressures coming from higher-level management, but it maintained that it was an issue with sales practices, rather than the culture cultivated at the company.
Fraser went on to talk about Julian Watts of the UK Bank signature Forgery Campaign, which has been ongoing for the last few years. Fraser explained that Watts has assembled “a dossier of evidence of about seven hundred plus cases, which are properly documented, showing that UK banks have forged the signatures of customers on official documents, including loan agreements, and other things related to [that, like] Personal Protection Insurance applications …. Basically, the banks appear to have engaged in industrial-scale signature forgery.” And despite growing evidence over the past two and a half years, regulatory authorities have yet to move in.
Perhaps most concerning, however, is the list of shady practices for which banks have not yet endured consequences. Fraser stated, “RBS, between 2009 and 2013, deliberately destroyed tens of thousands of UK small- and medium-sized companies in order to profit from their demise .… asset stripping, basically … And it would use a number of different … tactics to basically manufacture defaults … in what were otherwise profitable, credit-worthy companies. And it would do this by, for example, putting phony valuations on the company’s property assets.”
“So, if you had a warehouse that was worth, say … five million, [the bank] might say this warehouse is actually only worth 900,000. It would get [appraisers] … who would put a much lower value on the asset, and then RBS could actually claim that that company was in default, because its loan-to-value ratio was below the required level.”
Once the company was in default, RBS could move the loan into a division called Global Restructuring Group, “which would then basically siphon out cash through large fees and charges.” This would put the company into a position where “the company’s assets could be, essentially, seized by the bank.” According to Fraser, RBS and NatWest faced no consequences for those actions, but investigations and litigation claims are ongoing.
THE PATH FORWARD
It’s not all doom and gloom, though. We did discuss some of the possible paths forward that could help protect us all from banking malfeasance. “A bank which does stop paying bonuses and stop paying incentive payments to its staff is almost certainly going to behave better. And one bank that has done that … one that has stopped those payments is Handelsbanken.”
Additionally, incentivizing auditors and regulators that uncover criminality should help to address the sluggish and sometimes blind tendencies of regulatory bodies. Simply paying regulators higher wages could help, as former regulators often collect large fees to speak at, or even join a company they once regulated. Fraser also mentioned that, “there are some new mobile app-type banks in the UK … one of which is called Starling, which do seem to be slightly more ethical. So, there is hope. You know, it’s not all bad. That’s good.”
You can check out the full interview available exclusively on the 2 Bulls in a China Shop Podcast here.