‘ACCOUNTANCY’ – JANUARY 2017
MONETARY SANCTIONS? USELESS ON THEIR OWN
Unfortunately for our profession, the ‘Big 4’ label may equally be taken to refer to HSBC, RBS, Lloyds and Barclays, which between them have incurred an eye-watering £50 billion in fines and lawsuits since the financial crisis began ten years ago.
Their misdemeanours relate mainly to mis-selling bundles of duff mortgages; facilitating multi-million pound tax evasion by clients; and a variety of market-rigging frauds. They also specialize in buying sovereign and corporate debt that will never be repaid, happy to roll it forward until hell freezes over.
HSBC has had to make a £900 million provision in its 2016 accounts to settle fines in the US, including £500 million for rigging foreign exchange markets. The bank refused to reveal its potential losses on “other regulatory matters’’, its spokesman declaring the details to be “commercially sensitive”. Try to keep a straight face!
Fines against banks scarcely make news
Fines against banks scarcely make news. When their activities border on outright criminality, you would expect a whiff of newsworthy scandal – but their direst conduct elicits little surprise when, in the public mind, they are all crooks anyway.
Where does the money go?
The question of where all the sanctions money goes remains a mystery. In the US, a spokesperson for the SEC regulator has admitted that most of it winds up with the US Treasury to be used for pursuing future legal claims against perennial banking wrongdoers; and for settling past legal bills for bringing transgressors to justice. Clearly, the legal profession is riding a gravy train of undreamed of riches.
We are left with only three certainties: (i) precious little of the sanctions money finds its way as compensation to the victims of this gargantuan travesty; (ii) no matter how many zeroes the numbers contain, the fines appear to have no effect whatever on the conduct of banking malfeasors; and consequently (iii) an imperative moral rearmament will dawn only when those found responsible are regularly locked up.
it’s people, not corporations, who breach rules or commit crimes
After all, it’s people, not corporations, who breach rules or commit crimes. There is no justice in levying monetary sanctions that effectively penalise shareholders for the transgressions of employees. A realistic risk of a spell inside, plus a painful financial penalty, would concentrate the minds of the directors wonderfully – and might even make a difference to corporate behaviour.
The other ‘Big 4’: conflicts of interest again
Closer to home there is renewed evidence that audit firms’ efforts to expand their consulting activities give rise to intractable conflicts of interest. Deloitte has recently been charged with violating auditor independence rules when its consulting affiliate maintained a separate business relationship with a trustee serving on the client’s audit committee and boards of three funds that it audited. Deloitte agreed to pay over $1 million to settle charges.
And you need only read Margaret Hodge’s book, “Called to Account”, about her years as Chair of the Public Accounts Committee to gain an insight into the insidious role of major firms in promoting aggressive tax avoidance. HMRC is at last acknowledging that the distinction between avoidance and evasion has become paper-thin, and demands have just been issued that could bankrupt many participants in notorious film investment shams.
How can an auditor substantiate an independent stance on accounting disclosures after assisting his client to set up a dodgy offshore revenue-shifting scheme with no more than a 50 per cent chance of surviving HMRC scrutiny?
Astronomic penalties
Here, as in the USA, the level of fines and sanctions imposed on accountants has gone crazy. The FRC recently imposed a fine of £4 million, its highest ever, on Deloitte following a 5-year investigation into accounting disclosures of cost-of-sales and stock valuations in its 2006-2008 audits of Aero Inventory plc.
But when firms’ annual profits run to several hundred million pounds even this level of sanctions fails to deter.
At the end of that particular drama a Deloitte spokesperson recited the 3-part mantra that we hear every time a member of the mega-firm fraternity is brought to book: (i) “we accept the tribunal’s findings; (ii) in this instance our work did not meet professional standards; and (iii) our audit quality processes have evolved significantly since these audits were performed”.
That’s a relief – but don’t hold your breath.
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