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HSBC and tax: when is the tipping point?

Written by Robert Barrington on Wednesday, 11 February 2015

How many scandals at how many institutions does it take to describe an industry as systemically corrupt?


 

How many scandals at how many institutions does it take to describe an industry as systemically corrupt?

Perhaps the most shocking thing about the latest bout of banking scandals – HSBC, UBS and tax – is how little shock there has been. Outrage, certainly, but little shock. It is almost as though we expect large banks to be behaving badly, and it’s just a slight lottery as to which scandal at which bank is exposed next.

It is HSBC and UBS today, and yesterday it was someone else, and tomorrow it will be someone else again. There will be an investigation, a large fine, a provision made in the accounts, and the bank will move on. Yet we are all left with a bitter taste, a sense that they got away with it and that justice has not been done.

Is this relevant to corruption? Or is it a matter of ethics and integrity, but not outright corruption? The HSBC scandal, for example, is about tax avoidance and possibly evasion; though the market manipulation of FOREX and LIBOR might be deemed corrupt. Within the tax avoidance scheme, once the details come out, there will almost certainly be some elements of corruption; though they may be relatively minor compared to the other aspects of wrong-doing. But the key question is how many scandals at how many institutions does it take in order to describe the entire industry as systemically corrupt?

We must be pretty near that point – in fact, in the shock-immune state induced by so much bad news, we may well have sleep-walked our way past that point. The tag of systemic corruption is important because it implies we need systemic remedies, not just more individual fines and apologies.

What does a systemic remedy look like? That clearly needs some thought, and may or may not involve solutions such as splitting the retail and ‘casino’ operations of banks. The good news is that in some institutions, there have been changes in leadership, and they state that they are keen to prevent such scandals happening again.

Here are three suggestions about how we could begin to address systemic corruption in banking:

1. Admit the problem. The new generation of bank leaders have had some experience in apologising. But perhaps not about the thing we most want to hear: an admission of systemic corruption and the need for drastic remedies, and the commitment to support them however painful they may be. Of course, such pain needs to be felt by all so that governments don’t mindlessly support their national champions and there is a level laying field. Let’s hear our banking leaders make unambiguous confessions of collective failure and commitments to collective change.

2. Punish the guilty. A few individuals have been fined, faced jail, had licences removed. But nothing commensurate with the size of the problem – an even bigger problem if you buy the ‘systemic corruption’ argument. And it does not seem to have touched the really senior bankers. A popular cry has been ‘bankers in jail’, scorned by those in the industry as simplistic and inappropriate. Perhaps society does now need to be appeased.

3. Prepare for ten years of change. This won’t be done quickly. It won’t be easy. There will be distractions and some who support it at the start will have second thoughts. But change needs to start somewhere. And it needs to start now. People, institutions, alliances, funds need to be planned for on the basis that it will take a decade to change.

If the banks accept the argument that their industry is systemically corrupt, then they need to act quickly and radically. If they don’t accept that their industry is systemically corrupt – perhaps the problem really is bigger than suspected, which means that the solution, when it comes, will need to be more radical, more painful, and less inclined to listen to the industry’s own views.

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Read 4458 times Last modified on Wednesday, 11 November 2015 10:07
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Robert Barrington

Robert is TI-UK's Executive Director. You can view his full bio here, and tweet him @TIukED.

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