UPDATE 2-RBS review finds no evidence of fraud in UK business lending
* Bank to shut down West Register property division
* Accusations were made in report by government adviser
* Govt adviser says report is not a clean bill of health
* Investigation by financial regulator ongoing (Adds reaction from government adviser, lawyer)
By Matt Scuffham
LONDON, April 17 (Reuters) - Royal Bank of Scotland said on Thursday that an independent review by law firm Clifford Chance had found no evidence that it set out to defraud its business customers.
The bank, which is 81 percent-owned by the government, commissioned the review after a government adviser accused it of pushing struggling small businesses into its "turnaround" unit, so it could charge higher fees and take control of their assets.
"I welcome the Clifford Chance findings, which show no evidence of the serious and damaging allegation that we had set out to deliberately defraud our business customers," Chief Executive Ross McEwan said on Thursday.
Lawrence Tomlinson, who serves as an "entrepreneur-in-residence" at government minister Vince Cable's business department, said RBS had engineered businesses into default to move them into its Global Restructuring Group (GRG).
He said that enabled it to generate revenue through higher fees and the purchase of devalued assets by its property division, West Register.
Tomlinson said on Thursday that the Clifford Chance report had not given RBS a clean bill of health because the broader findings showed a "lack of fee transparency, lack of adherence to mandatory rules for internal valuations and a need for an improvement in the business culture at GRG".
"It's important to note that Clifford Chance did not investigate or reach conclusions on areas such as the validity of valuations and treatment of businesses," he said.
In response to the Clifford Chance report, RBS said it will wind down and sell any assets in West Register and will not increase interest charges for 90 days after a small business defaults.
The bank said the report found some cases where customers felt that its fees were not clear and a handful of clients had made allegations about the behaviour of bank staff. RBS said it is investigating those cases.
McEwan said that GRG had successfully turned round the vast majority of businesses it worked with, while continuing to deal with billions of pounds in bad loans built up by reckless lending in the run up to the 2008 financial crisis.
GRG's activities are still the subject of a review by Britain's financial regulator.
"I look forward to the FCA publishing their findings later this year, as their scope is much more robust, far reaching and, of course, independent," Tomlinson said.
Alison Loveday, managing partner at law firm Berg, which has received more than 150 complaints about GRG, said the Clifford Chance report was flawed.
"If a customer said one thing and the bank another, they did not, as part of their review, seek to deal with the factual dispute. So one presumes they just favoured one over the other," she said.
(Editing by Greg Mahlich and David Goodman)
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