Jeremy Warner's Outlook: Is anyone safe as Spitzer takes aim at insurers?

Banking extradition; Manchester United; Muddling through
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The Independent Online

Is no one safe from Eliot Spitzer's accusing finger? After the investment banking, fund management and pharmaceuticals industries comes the insurance sector, which in a suit filed by the New York attorney general on Thursday night, is accused of widespread corruption and anti-competitive practice. Mr Spitzer's allegations don't directly seem to affect any UK quoted or domiciled companies. Benfield has confirmed it has been subpoenaed by Mr Spitzer as part of an information gathering exercise, and it admits to having acquired US businesses which engaged in so-called "premium service agreements". However, all such practices were swiftly terminated.

Is no one safe from Eliot Spitzer's accusing finger? After the investment banking, fund management and pharmaceuticals industries comes the insurance sector, which in a suit filed by the New York attorney general on Thursday night, is accused of widespread corruption and anti-competitive practice. Mr Spitzer's allegations don't directly seem to affect any UK quoted or domiciled companies. Benfield has confirmed it has been subpoenaed by Mr Spitzer as part of an information gathering exercise, and it admits to having acquired US businesses which engaged in so-called "premium service agreements". However, all such practices were swiftly terminated.

Yet Marsh & McLennan, the main focus of Mr Spitzer's latest assault, has a substantial presence in the London insurance broking market, and it seems a reasonable bet that these practices are relatively commonplace here too. The alleged scam is simple enough. In return for extra commission, the insurer gets a premium service, for which read favourable treatment in the placement of business.

Mr Spitzer is an ambitious politician who by depicting great swathes of business and financial activity as essentially theft has secured a big popular following. Yet Mr Spitzer is no demagogue. His suit against GlaxoSmithKline for allegedly misleading doctors over the dangers of prescribing Paxil, an antidepressant, to adolescents, was off target, but the rest of his crusades have been spot on, to the obvious discomfort of the US Securities & Exchange Commission, whose job it is to root out and prosecute abuse in the financial system.

The latest assault looks equally well informed and judged. According to the complaint, anything up to a third of Marsh & McLennan's earnings came from special commissions. If even remotely correct, this is an astonishing finding in a country which prides itself on its anti-trust and anti-racketeering law. Which industry is Mr Spitzer going to turn his formidable powers of investigating and action on next? The robber barons of Wall Street were perhaps always sitting ducks, but as he digs down into the substrata of capitalism, Mr Spitzer seems to be finding untoward and unfair business practice all over the place.

Banking extradition

Try as i might, I cannot think of the attempt to extradite three former NatWest bankers to the US on Enron-related charges as a breach of human rights. But though it is hard to have much sympathy with their plight - they each pocketed £1.5m for selling a stake in an Enron-related entity at an alleged undervalue - this is by no means an open and shut case.

The NatWest three say that since the alleged crimes substantially happened on UK soil and the alleged victim was a British bank, they should be tried here, not in the US, yet there is no sign of the UK Financial Services Authority wanting to proceed. What's more, they cannot hope to get a fair trial in the US, where even the remotest connection with the collapsed energy trader is still regarded as a hanging offence.

It's hard to agree. In fact the FSA hasn't decided not to proceed at all, only not to do anything about it until the outcome of the extradition case is known. Since there is no point in attempting to prosecute the bankers twice, this seems an eminently sensible approach. Nor, if you look at it from the prosecution's point of view, is there any chance of them getting a fair trial here either. The first question any British jury would ask is why on earth is it hearing a case which has about as much to do with Britain as the New Hampshire primaries.

Enron was a Texas-based company whose fraudulent collapse had little direct impact on these shores outside the disappearance of Arthur Andersen. Few jurors would have a clue what the whole thing was about. NatWest, allegedly the defrauded party, will only say that it is still trying to get to the bottom of these matters, and reserves all rights. Surprisingly for a bank which was allegedly defrauded by its employees, it still has an ongoing relationship with them. It provides their mortgages and lends money to at least one of their businesses.

Yet the most concerning aspect of the affair is less the claimed injustice of the extradition itself, as the oddly one-sided nature of the extradition treaty it has highlighted. Under a new treaty designed to combat terrorism, the US is not obliged to present any prima facie evidence to support its allegations when attempting to extradite a suspect. This treaty has been agreed to by the UK, but not yet by the US, where the UK must continue to demonstrate "probable cause" to secure an extradition. The lack of reciprocity alone give the three bankers some cause for grievance.

Still, at least the three musketeers have something to be thankful for. Yesterday's magistrates' court ruling can still be appealed right through to the House of Lords. If the decision had been left entirely to the discretion of David Blunkett, the Home Secretary, they would already have gone to the electric chair by now.

Manchester United

It was a game of two halves for Manchester United shares yesterday. At lunchtime, they were trading 5 per cent off on the story that Malcolm Glazer was about to throw in the towel with his mooted £800m takeover bid having failed to reach agreement with the football club's two big Irish shareholders, John Magnier and JP McManus. They've apparently got other plans for their shares, though they won't say what.

Then in the late afternoon, there was a dramatic change of fortune. In a tea-time raid, Mr Glazer raised his stake by 6 per cent to 25.3 per cent. Plainly he's not yet given up. But if the Irish won't sell, how can he succeed? There's no rule in the City that says a takeover deadlock must be settled by a penalty shootout.

The biggest mystery of all is just why Mr Glazer, an American businessman who owns the NFL's Tampa Bay Buccaneers, wants to buy at all. In Britain, football clubs exist primarily for the benefit of their players and fans. For the owner, there are the pleasures of the directors' box, but outside self indulgence, there are few other rewards. Mr Glazer, 76, reckons he can break the mould and make a decent rate of return. As they say, there's no fool like an old fool.

Muddling through

Adair Turner, the chairman of the Pensions Commission, admitted this week that there is a fourth option to his main three for solving the pensions crisis. The three main options were higher taxes, greater compulsion in saving or a higher retirement age. The fourth is simply to muddle through. Perhaps regrettably, it may well be the latter that we have to reconcile ourselves to.

There was certainly plenty of muddled thinking in the brief remarks Tony Blair made on the issue while at a conference in Budapest yesterday for left leaning, or "progressive", politicians and thinkers. Mr Blair suggested that it would be possible to pay for a higher basic state pension by "reconfiguring" the existing welfare system, and in particular by getting people off incapacity benefit, which would free up more money for pensions.

Incapacity benefit costs the taxpayer £6.5bn a year, so it's quite a treasure trove if it can be got at. Unfortunately, it wouldn't be enough to give the growing tsunami of aged a decent state pension. Yet the real problem Mr Blair has got in pushing for a non means tested, higher state pension is the Chancellor, who even if he could bring himself to agree with anything the Prime Minister said, is too wedded to the cat's cradle of tax credits and means tested benefit he himself created to contemplate its demise. Until this extraordinarily destructive stand-off at the heart of Government is somehow resolved, muddling through on pensions, as on so many other policy issues, looks like the best we can hope for.

jeremy.warner@independent.co.uk

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