Let the law deal with the spivs fixing lending rates

Columnist

Monday 2 July 2012

Politicians are, by nature, meddlesome, so it is not surprising that, in the face of any alarming news, their first instinct is generally to declare that "something must be done".

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Andrew McKie

They're not alone in this impulse. They share it with the majority of the population. The problem is that politicians seldom do what ought to be done, but insist upon doing something new. This, they hope, will justify their existence.

Take the tax-avoidance cases which have emerged over the past couple of weeks. We knew that the very rich were jokers when it came to paying tax, but had not realised how many comics were having the last laugh on the Revenue. Now that we do, David Cameron and George Osborne express moral outrage at the loopholes being exploited, and promise to close them.It does not seem to have occurred to them that the loopholes are the result of every new rule introduced to combat avoidance and evasion, and precisely what creates a huge industry designed to circumvent the longest tax code in the world (the Yellow and Orange books ran to nearly 18,000 pages in 2010-11). Every new thing done, short of ripping it all up and starting again, will only make matters worse.There is also the danger that legislation introduced to tackle specific cases which prompt public outrage end up being so ill-thought-through that you can drive a bus through the holes in it – as examples as various as firearms legislation, the Dangerous Dogs Act, the War Crimes Act and the Blair government's raft of anti-terror legislation all made apparent.These were solutions that made matters worse. It is as if politicians, having said "something must be done", seize the first idea to hand, say: "Well, this is something," and conclude that the fundamentals of logic mean it is therefore what needs to be done. In those cases it would have been better either to do nothing, or to enforce existing laws which already covered the problem.We may feel, however, that the fixing of the Libor rate for the gain of banks is one occasion for doing something. The popular view, one suspects, is that that something should be to give the bankers a doing.I heartily agree. The argument that something new needs doing, however, springs from the comments by Lord Turner, chairman of the Financial Services Authority, that though Libor has a direct and material effect on lending rates around the world, "because it is not a qualifying instrument under the Act, it is not covered by the criminal law".No doubt the head of the FSA knows where his remit stops. But he's wrong to think nothing can be done. And the fact he says he can't do anything doesn't mean something new needs to be done. There are existing laws which cover gaining material benefit, or causing others material loss, by abuse of position (even by omission). Section Four of the Fraud Act 2006 could hardly be more straightforward, and it is impossible to imagine that it would not apply to the allegations which have been made against traders at Barclays and RBS and (we can be certain) which will follow against employees of other banks. You can't operate a price-fixing cartel on your own, after all.What needs to be done is not to set up a judge-led inquiry into the banking system, as Ed Balls suggests, even if his suggestion meets with approval from quite a few figures on the Right. They, one imagines, are looking forward to the inquiry's obvious finding, which is that the banking regulations Mr Balls and the Labour government set up were a major factor in creating this mess.But, whatever their follies, and whatever the failures of the current government in reforming it, the obvious thing to do right now is not to introduce a whole lot of new wheezes, but to fix the blame where it belongs: on the crooks and thieves who have rigged the market to line their pockets. What should be done? Send in the police, is the short answer.Yesterday's move by RBS in sacking traders alleged to have been involved in price-fixing is only the latest acknowledgement of the problem. The bank got rid of a trader in Singapore in February for similar reasons – and it may be revealing that he is contesting his dismissal by claiming that such practices were endemic.The next step is not a hand-wringing inquiry, or a swathe of new laws with new loopholes (which cannot, in any case, be applied retrospectively with any justice), or further regulation dreamed up for the use of Lord Turner or Sir Mervyn King or any of the other incompetents apparently incapable of dealing with these spivs.We don't even need to wait for the Securities and Exchange Commission in the US, where they have very clear laws on distortions of the market, to seek the extradition of people who, if they have fixed the rate, have caused demonstrable material loss to American mortgage-holders. All the banks need do is hand over their evidence to Mr Plod.But then, that was all that needed to be done in the case of media phone-hacking and corrupt illegal payments to the police. Instead, we have the Leveson inquiry, which has now spent months discovering details about how newspapers go about their business which would be self-evident to anyone who has spent more than 24 hours in a newspaper office. Yet none of that, at root, has anything real bearing on freedom of the press, the relations between politicians and proprietors, or regulation. The material complaints are about people alleged to have broken laws which already exist. So it is with the banks.We might do something to improve matters in the future, if we are sure that we can, and think about it carefully. But for now, what needs doing is obvious: threaten to withdraw the banks' licences, stop all bonuses in state-owned banks unless real targets are met, enforce the perfectly adequate fraud laws by arresting anyone who has broken them, then lock 'em up. It can all be done already, so why isn't it being done?

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Let the law deal with the spivs fixing lending rates

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