The NatWest Three have, at long last, been sentenced to jail, although they will probably be back in the UK and writing their memoirs within the year.
When I worked in the City, I didn’t know Gary Mulgrew, Giles Darby or David Bermingham but I knew people who did. The complaint often heard was that NatWest allowed them to get away with murder. Because they were seen to have a Midas touch and made lots of money for the bank, they road roughshod over everyone else and no-one really held them to account.
Much of this was just hearsay but, as the detail of their fraud came out, it became clear that the three had indeed run rings around the NatWest management.
This has a familiar sound. Bankers are finding ever more complex ways of making vast amounts of money but senior executives who are supposed to be supervising them have no understanding of how these instruments work. Consequently, the banks’ directors just cross their fingers and hope that the money keeps rolling in. Most of the time this works but occasionally something falls over and well known banks like Barings, Societe Generale, Northern Rock and NatWest, who had kidded the public for years that they were solid competent outfits, are left in ruins.
Unless I have missed something, though, the activities of Gary Mulgrew, Giles Darby and David Bermingham did not contribute to the collapse of Enron. Initially, the US authorities’ only reason for trying to extradite them was to get them to testify against their co-conspirators in Enron. The three were not seen as being instrumental to the company’s demise. The injured party in this case was not Enron but NatWest. The compensation that the trio are being forced to pay will go to NatWest’s owner RBS, not to anyone in the USA. This crime took place in the UK against a British bank.
Think about that for a minute. An American court has found three British people guilty of a fraud committed in the UK and forced them to compensate the injured party in the UK. In short, the US court has done the dirty work that should have been done by courts in London.
NatWest was the bank that lost money. Surely, the two co-conspirators in the USA should have been brought to the UK to stand trail alongside the NatWest Three for helping them to rob the bank, rather than the other way around.
The case of the NatWest Three throws a light on the appalling laxity of control and regulation, both internal and external, on UK banks. British regulators have no teeth. Although a crime had been committed, (at least, according to the US courts) no case would have been brought in the UK unless RBS had chosen to prosecute. As Jeff Randall said, the reason it didn’t is because a trial in the UK might have revealed a lot more embarrassing information about the bank’s dealings with Enron.
Were the legal dominoes to fall the wrong way, the bank might end up having to pay out billions in settlements and face demands for the extradition to the US of other RBS executives, far more senior than the NatWest Three. RBS, which earned about $83m from its dealings with
Enron between 1994 and 2001, has already settled one case for $20m over its relationship with the defunct company. But that payout might seem like smalltime charity if the bank fails to head off a massive class action from a group led by the University of California.
Known as the Newby suit, the plaintiffs’ case draws heavily on evidence from an investigation by Neal Batson, the court-appointed official examiner, into the Enron scandal. In his report, Batson says: “RBS aided and abetted certain Enron officers in breaching their fiduciary duties”.
The names of leading RBS bankers, past and present, including that of Johnny Cameron, a current main board director, are woven into the Batson report like multi-coloured threads in a Harris tweed jacket.
A generous interpretation of Batson’s conclusions would be that RBS was naively credulous over Enron. Harsher observers would almost certainly take a different view.
So RBS sat on its hands and allowed a US court to exact its revenge by proxy. RBS is left looking rather like a boy who had his sweets stolen in the playground but had to get a bigger boy to get them back for him. The bank will get its $7.3 million back without having to do very much for it.
During the trial of the NatWest Three, US regulators have been openly critical of the UK’s Devil-may-care regulatory system. It is an embarrassment that a US court had to bring Gary Mulgrew, Giles Darby and David Bermingham to book for a crime they committed in the UK because the British system was unable to do so.
A lot of people who the three pissed off during their rise to power will be smiling into their Sunday lunchtime drinks today. They will be thinking that perhaps there is some justice in the world after all. It’s just a pity it couldn’t have been delivered by a British court.