Financial crime is theft, pure and simple

Fraudsters may not physically rob individuals of their cash, but their victims will suffer none the less

Share
Related Topics
The specialised vocabulary we use to describe financial crime prevents people from seeing clearly what it is - stealing. Often, financial theft is made to seem no worse than dubious book-keeping or naughty dealing. Financial crime is breaking into and entering somebody's bank account or somebody's savings rather than somebody's home, but the aim is the same: it is to steal.

It may not always be easy to see exactly how a financial burglary has been carried out. Rows of figures in computer print-outs are not as instantly revealing as a broken window pane or a forced door. But the result is similar. In the case of the Lloyd's insurance market, for instance, its pin-striped criminals created "baby" underwriting syndicates to which they directed their best business exclusively for their own benefit rather than that of their investors (the so-called "names"). Diverting profits in this way is called fraud; this technical description of a form of theft should not disguise the nature of the crime. Some of the apparently respectable participants in the Lloyd's insurance market were, until recently, thieves.

Now another revered City institution, the merchant banking house Morgan Grenfell, is trying to establish whether one or a number of its employees - all middle-class executives - have been picking their customers' pockets, while their colleagues turned a blind eye. At risk have been the sums placed in three of Morgan Grenfell's trusts by 90,000 investors. That is where the equivalent of footprints in the flower beds and a ladder in the wrong place have been found. The evidence appears to be investments in mysterious Scandinavian companies, not quoted on any stock exchange, made via Luxembourg holding companies. But, if malfeasance is proved, the crime will have been no less serious than robbing an old lady in her cottage.

There are two basic forms of crime in the financial markets, each with innumerable variations. One is to create a false impression of value; the other is to put your clients' trading profits into your own bank account rather than theirs. In a common version of the first, above-average returns on investments are promised. However fishy this may look, there are always a number of fools who are tempted. These greedy folk are paid what they have been promised, not out of wise investments made on their behalf, but out of their own money, although they don't realise this. They are pleased and word of their "good fortune" spreads. More investors are attracted and their funds are used in the same way. The system works so long as new investors keep coming forward.

The best recent example is Barlow Clowes, the financial company which collapsed in the late 1980s owing pounds 225m to 11,000 mainly elderly investors. At the subsequent trial of Peter Clowes, prosecuting counsel put the case with brutal frankness: "You persuade people to entrust their savings to you by telling them that they will be kept safe in a particular rock-solid investment. You don't put the money in rock-solid investments but use it to live the life of Riley. You make good the deficiencies that come up with fresh money from new investors and you lie and cheat to cover your tracks."

Morgan Grenfell's problems look to be essentially of this type, only in this case the false value would have been created by over-valuing shareholdings in dubious companies. The result would be to inflate the prices of the bank's unit trusts. In turn this would attract investors to place more money with Morgan Grenfell than they might otherwise have done.

Just a week earlier, the equally prestigious City firm Fleming illustrated the second form of financial crime when it was fined a substantial sum and forced to compensate its customers on a massive scale because one of its dealers operating in Hong Kong had systematically placed profitable trades into his own account rather than his clients'. This is very similar to the Lloyd's example. The Fleming executive dealt in a particularly volatile type of security. When trading was finished he decided which transactions should be booked to which accounts. The person concerned has since made good clients' losses. But it is intimated that no criminal proceedings are expected.

I hope that at least a criminal investigation is going on. Prima facie a crime has been committed. The employer has been fined, compensation is being paid, funds have been put back, the dealer himself has resigned. But, straight away, we run into the special difficulties of financial crime. Is it the City of London police or the Hong Kong police who should mount an investigation? Have not the financial authorities, quasi-official as they are, already inquired, reached a conclusion and passed sentence? Do the police need to repeat this work? If they do, will a conviction be obtained? Because juries naturally find it difficult to understand complicated financial manoeuvres, they are more reluctant to convict than they should be.

These are real difficulties, but I think that they are also excuses. Middle-class people like to believe that crime is solely committed by an unruly, out of work, ill-educated fringe of society, which has nothing to do with them. That is why nobody in the City calls financial crime what it actually is: a sophisticated form of stealing.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Shine Night Walk 2014 - 'On the night' volunteer roles

Unpaid Voluntary Work : Cancer Research UK: We need motivational volunteers to...

Accounts Assistant (Accounts Payable & Accounts Receivable)

£23000 - £25000 per annum: Ashdown Group: Accounts Assistant (Accounts Payable...

Senior IT Trainer - Buckinghamshire - £250 - £350 p/d

£200 - £300 per day: Ashdown Group: IT Trainer - Marlow, Buckinghamshire - £25...

Education Recruitment Consultant- Learning Support

£18000 - £30000 per annum + Generous commission scheme: AER Teachers: Thames T...

Day In a Page

Read Next
 

Why black cats make amazing pets, and take good selfies too

Felicity Morse
Children of a bygone era  

Kids these days aren't what they used to be — they're a lot better. So why the fuss?

Archie Bland
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star