| LONDON, Sept 13
LONDON, Sept 13 Will top bankers' behaviour ever
land them in jail? Or are bad business decisions even a crime at
Five years on from the bankruptcy of Lehman Brothers, the
debate over how to hold senior bank bosses to account for
failures is far from over, but legal sanctions for top
executives remain a largely remote threat.
Even as laws evolve - in Britain, the government wants to
criminalise recklessness in banking - a repeat of the global
financial crisis and near-collapses of 2008 would not
necessarily result in many more prosecutions today, lawyers say.
At issue is the difficulty in pinning the blame on any one
person for risks and decisions taken throughout a firm - one of
the main obstacles to building such cases so far.
"It's a case of the confused lines of responsibility and
accountability," said Judith Seddon, director in law firm
Clifford Chance's business crime and regulatory enforcement unit
in London. "When you're pursuing an individual, if they've
delegated responsibilities ... it's much more difficult in a big
Regulators the world over stepped up their scrutiny of banks
and cracked down on financial crime in the wake of public anger
over costly bailouts and subsequent scandals. But that has so
far translated into relatively few attempts to bring charges
against those in the highest echelons of banking.
In the United States, home to Lehman Brothers, no top
executives at large Wall Street or commercial banks have been
convicted of criminal charges relating to the 2008 crisis.
Across Europe, the implosion of Iceland's financial sector
five years ago has resulted in some of the most prominent
convictions so far, with the former chief executive of failed
lender Glitnir among those sentenced to jail time.
In Germany and the Netherlands there have also been isolated
high-level convictions, and some landmark cases could yet
materialise. The entire former executive board of German lender
HSH Nordbank is being put on trial over actions taken
in the run-up to the crisis.
But in Britain, where Royal Bank of Scotland and
Lloyds were bailed out to the tune of 66 billion pounds
($104.37 billion), no senior bankers faced criminal charges.
Three executives at Ireland's failed Anglo Irish Bank face
trial in 2014, five years after the probe into the lender began,
while in Spain, around 100 people are being investigated by
courts over failings at banks devastated by a property market
crash, though none have gone on trial.
The low rate of convictions partly stems from the fact that
in some countries laws which could have addressed the way that
banks were run simply did not exist.
Britain's Finance Minister George Osborne said in July he
would adopt recommendations made by an influential body of
lawmakers that bankers should face jail for a new offence of
"reckless misconduct in the management of a bank".
"The regulator has got to be holding people personally
accountable for their actions. They need to be frightened of the
regulator, which certainly wasn't true in the past," said Mark
Garnier, a Conservative member of the Parliamentary Commission
on Banking Standards.
In the United States, federal prosecutors are still
exploring new strategies for criminally charging Wall Street
bankers who packaged and sold the bad mortgage loans behind the
financial crisis, including using an old law intended to punish
individuals for scamming commercial banks.
Britain's push to create a "recklessness" offence could in
theory make it possible to punish senior executives for taking
misguided decisions. But proving that such decisions were made
recklessly at the time could still be tough.
"Board level meetings are carefully minuted and you might
therefore have detailed evidence, but however reckless someone
appears with the benefit of hindsight, will it stand up in
court?" said Gregg Beechey, a London-based partner at law firm
SJ Berwin. "You wouldn't get the whole board to vote for an
acquisition if the case wasn't reasonably convincing at the
U.S. regulators' approach since the crisis has reflected
some of these challenges. Although the Securities and Exchange
Commission has charged over 150 firms and individuals in
relation to the financial crisis, critics have still said it has
not done enough to go after high-level bank executives.
"We go where the evidence leads," former SEC enforcement
director Robert Khuzami has said in the past, noting that cases
could not be brought against people merely for "bad judgment".
A perceived lack of political will in some countries to
pursue senior bankers and firms could also cloud future cases.
Despite costly state rescues in Spain for example,
mainstream politicians have shied away from calling for
investigations into various failures in the same way as British
ones, after the UK government came under pressure from an
intense public backlash in the wake of the crisis.
"(In Spain) it's more an absence of any willingness to pursue
the cases than because of a lack of tools, as some cases could
be proved without much difficulty," said Juan Torres, an
economics professor at the University of Seville, adding that
some related to clear instances of fraud.
Claims from customers and activist groups have instead led
Spain's High Court to investigate several high-profile failures,
including that of Bankia, which was bailed out in 2012
less than a year after listing on the stock market.
Frustrations over the slow progress of legal probes in Spain
is even leading some activist groups to consider lobbying the
United Nations to list economic crimes as a crime against
humanity, even though they admit it is unlikely to happen.
If the scope for legal prosecutions of senior bankers has
not broadened drastically in the past five years, however, some
argue that life at the top is much harder than it used to be, in
part as countries pursue other lines of action.
"Regulatory tools can be more powerful than criminal law,
although whether or not it's what the public want to see is
another question," Beechey at SJ Berwin said.
"There's more of a sense with regulators that they can do
things without fulfilling the burden of proof, and they are
definitely working to try and pursue senior management more and
For a story on what has happened to risk in banking five
years on from the Lehman collapse, click on