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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is executive director at Spotlight on Corruption
After every corporate scandal, there are loud calls for senior heads on sticks. The UK Post Office scandal is no exception, with demands that senior executives face charges for their role in the prosecutions of more than 700 sub-postmasters in one of the greatest miscarriages of British justice. But after the storm blows over, there is rarely any successful action taken against the executives who ran the company at the time.
Polls and focus groups since the 2008 financial crisis have shown that the public want senior executives to be more accountable. Recent polling by Survation for the UK Anti-Corruption Coalition shows 44 per cent associate corporate executives with economic crime — on a par with oligarchs and kleptocrats. Just 30 per cent trust them to tell the truth, according to Ipsos.
This is not about encouraging witch hunts. Major public figures have highlighted the UK’s corporate accountability gap. Former prime minister Gordon Brown made clear recently he believes that top bankers should have been jailed after the financial crisis to avoid green-lighting “risk-laden behaviour”. The former chair of the Environment Agency called for jail sentences for CEOs of water companies so they cannot “delete illegal environmental damage from their CVs”. Even the IMF has exhorted the UK to use criminal prosecutions against “senior managing officials” to tackle money laundering.
But the UK’s record on holding senior executives to account has been dismal. The Serious Fraud Office has tried. But after 20 criminal enforcement actions against companies, there have been just two individual convictions: one for a minor offence and the other of someone for receiving bribes, not paying them.
The Financial Conduct Authority hasn’t done much better. To describe enforcement of the Senior Managers and Certification Regime introduced after the financial crisis as lacklustre would be an understatement. After more than 70 investigations, the FCA has imposed just two financial penalties. After levying fines worth £777mn on 17 banks for money laundering failures, the FCA took just one regulatory action against an individual. The Competition and Markets Authority has failed to win a single case against a senior executive after 11 prosecutions.
On both sides of the Atlantic, the enforcement and regulatory focus on raking in big corporate fines without senior accountability is leading to “enforcement fatigue”. So much so that the consultancy Comply Advantage found in 2022 that nearly 80 per cent of senior managers were prepared to risk a money-laundering fine.
Individual accountability needs concerted action. By dropping corporate governance reforms, and consulting on easing the senior managers regime rather than tackling the accountability gap, the UK risks going in the opposite direction. Major new corporate liability rules have been introduced, but no action has been taken to update rules for holding directors to account.
A proper review is needed, but there are some quick wins. Ensuring that director disqualification can be used for economic crime would be a major step forward. The regulatory bodies need robust enforcement policies — this is what US prosecutors have, and it works. When the Competition and Markets Authority introduced a deliberate enforcement policy to disqualify directors in 2019 it secured 21 disqualification orders in two years, compared with just three in the previous 17 years.
We must stop pretending that the senior managers regime can raise corporate standards without meaningful enforcement. As a Bank for International Settlements report said last year: “the institutional will to act against senior bank executives is fundamental in enforcing individual accountability rules”.
It is time to ensure that the lessons of the financial crisis are learnt across the board before the next wave of corporate scandals comes crashing down.