Treasury u-turn on plans to make bankers guilty until proven innocent under fire

Anti-corruption campaigners welcome the national risk assessment report’s findings, but were disappointed that the move to relax management responsibility seemed to be moving in the opposie direction.

Financial district of Canary Wharf (Getty)

The Treasury today faced calls to justify why it had opted to soften proposed rules making bank bosses responsible for the crimes of their staff on the same day that it identified banks as the most likely companies to be used for money laundering by criminals.

After extensive lobbying by the banks, the Treasury U-turned on plans to make senior bankers “guilty until proven innocent” of any knowledge of misconduct by staff.

The so-called reverse burden of proof was created was created to deal with the problem that senior executives seemed always to escape serious censure for scandals that occurred at their companies.

But the banking industry and big business trade associations argued it was too onerous and would drive the best executives to work overseas.

However, anti corruption pressure groups were concerned the government was going soft on the financial industry, particularly as a separate Treasury report highlighted British banks’ ongoing potential corruption by money launderers and funding for terrorists.

In its first national risk assessment for money laundering and terrorist financing, the Treasury concluded that, while UK law enforcement agencies are expertly equipped to tackle cash-based money laundering from drug dealing, there are “significant intelligence gaps” in relation to high end, non-cash laundering activity.

It highlights proceeds of major frauds and serious corruption held in bank accounts, real estate or other investments.

In a score of “structural risk” of being used for moneylaundering, banks came out by far the highest of all companies, followed by accountants and lawyers.

The report said law enforcement agencies were “still establishing the strength of understanding needed in this area” and that “more needs to be done to ensure it is commensurate with our status as a well regulated global financial centre.”

Anti-corruption campaigners welcome the national risk assessment report’s findings, but were disappointed that the move to relax management responsibility seemed to be moving in the opposie direction.

Stuart McWilliam, senior campaigner at Global Witness, said: “The government is giving out conflicting messages. Today it highlighted how banks play a key role in aiding corruption and money laundering, yet it also admitted to abandoning a major part of its commitment to hold senior bankers to account.

“A wide range of scandals since the financial crisis have demonstrated how banks regularly break the rules with little consequence for those who run banks. This shows why the government should not row back on the principle that the senior executives need to prove they did all they could to prevent major failings at their banks.”

City regulators played down the significance of the Treasury’s U-turn on bank executive’s reverse burden of proof. Tracey McDermott, acting head of the Financial Conduct Authority, said: “While the presumption of responsibility could have been helpful, it was never a panacea.”

The Chancellor of the Exchequer George Osborne and then-business secretary Vince Cable made clear in 2013 they would bring in a reverse burden of proof to address the poor behaviour of bankers.

However, banks lobbied heavily for its repeal.