Alun Richards and Kashif Shabir: SFO

Catherine McKinnell Excerpts

Wednesday 16th September 2015 Westminster Hall

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Main, and I congratulate my hon. Friend the Member for Cardiff Central (Jo Stevens) on securing this afternoon’s extremely important debate on behalf of her constituent, Mr Kashif Shabir, and the constituent of my hon. Friend the Member for Ogmore (Huw Irranca-Davies), Mr Alun Richards. This is my first outing in the role of shadow Attorney General, which I am pleased to be taking on, in particular in a shadow Cabinet that for the first time has a majority of women. I am thoroughly looking forward to holding the Attorney General and the Solicitor General’s feet to the fire, but also working constructively with them when appropriate.

As with all Serious Fraud Office cases, those of Mr Richards and Mr Shabir are complex, but they have been carefully and passionately set out by my hon. Friends. There is much to be passionate about. As many of us know from our constituency postbags and surgeries, there are many more cases such as those we have heard about today throughout the country. Since the financial crisis, small, medium and even large firms have been brought to their knees by the banking system, with serious allegations of malpractice being made. Good and credible businesspeople such as Mr Richards and Mr Shabir have seen their credit ratings destroyed, after having worked hard for years and decades to build up their businesses. We only need to look at the Bully Banks campaign to see just how many firms and individuals have been affected by allegations of malpractice over the past few years.

Indeed, I have a constituency case involving the now acknowledged mis-selling of interest rate hedging products, or swaps; my constituent’s family, and the many who rely on them for good, skilled employment, have been reeling from the consequences of that ever since. We are not discussing the swap mis-selling scandal today, but the activities alleged by Mr Richards and Mr Shabir, and the consequences of those activities, bear a striking resemblance to the situation suffered by my constituent. I have a real fear that that indicates a systemic failure in our banking system across the country.

As my hon. Friends for Cardiff Central and for Ogmore have explained, the cases of Mr Richards and Mr Shabir involve allegations of the deliberate under- valuing by Lloyds of their properties—known as down valuation—in order to put them in breach of their loan-to-value ratios on secured debts, and thereby engineer defaults on their loans. That in itself is an extremely serious allegation. I believe it has been rejected by Lloyds, but was covered in some detail by the 2013 Tomlinson report commissioned by the Business Secretary in the coalition Government, Dr Vince Cable. In his report into banks’ lending practices and treatment of businesses in distress, Lawrence Tomlinson commented:

“This has been one of the most common complaints in the evidence received for this report. Revaluation of assets appears to be used on frequent occasions to put businesses into default of their loan agreements.”

He went on:

“Many businesses have submitted evidence demonstrating what appear to be unquestionable under-valuations of properties. They are so stark compared to original and current values of the property that their accuracy has to be called into question as well as the reason behind such an inaccuracy.”

The report concluded—and this is the crux of the matter, particularly in the cases we are considering:

“Not only is the undervaluation itself a concern, so is the relationship between the bank and the valuers. Often, much of a valuer’s work will come from the banks and there is therefore an inherent conflict of interest as there is a natural incentive for the valuer to act in the interest of the bank.”

In March, the Business, Innovation and Skills Committee took evidence as part of its inquiry into the insolvency industry. Witnesses conceded that it is becoming more common for property receivers to be seconded to banks. Sometimes even surveyors and receivers have been known to be seconded within lenders’ restructuring divisions, therefore working on lenders’ distressed loans books. As even the industry witnesses to that inquiry conceded, in such a situation there is potential for a serious conflict of interest.

In both the cases we have heard about this afternoon, Lloyds bank utilised Alder King LLP for its property valuations. Yet Alder King also had staff seconded to Lloyds, working within the bank’s recoveries department—the very department that was responsible for receivership appointments. As reported by both the Financial Times and The Times, such staff were engaged directly in work on the cases of Mr Shabir and Mr Richards, but allegedly gave the impression that they worked directly for the bank, not Alder King LLP, the firm that was to benefit financially from the businesses going into receivership. It is that alleged conflict of interest, and its very significant consequences, about which Mr Shabir and Mr Richards have lodged their complaints to the Serious Fraud Office.

As we have heard, as no response had been received from Lloyds to the complaints since September 2011, Mr Shabir’s and Mr Richards’s cases were referred to the SFO in September 2013. Two meetings were held with the SFO, during which a substantial amount of evidence was provided to corroborate the allegations, but it was not until 7 November 2014 that the SFO’s director, David Green QC, responded and acknowledged the gravity of the issues raised. I understand that nothing has been heard from the SFO since, some 10 months on from that communication.

Of course, Mr Shabir and Mr Richards are not the only ones making such allegations about the activities of Lloyds bank and Alder King. As my hon. Friend the Member for Cardiff Central mentioned earlier, when my hon. Friend the Member for Islington South and Finsbury (Emily Thornberry) was shadow Attorney General, she wrote to the SFO director about this issue on behalf of two other Labour Members of Parliament and their constituents. In his response, also dated 7 November 2014, David Green stated:

“I can assure you that we are taking appropriate steps to pursue this serious issue.”

Like my hon. Friends the Member for Cardiff Central and for Ogmore, I look forward to receiving an update from the Solicitor General—or, subsequent to the debate, in writing from the Attorney General—on the actual progress that has been made in investigating these serious allegations. We all appreciate their complexity, but it is now two years since the matter was first referred to the SFO.

There is also clearly a significant public interest in the matter, not least because we are, after all, discussing a bank that was bailed out by the British taxpayer and remains part-owned by the public purse. In addition, since 2010, the Serious Fraud Office’s funding has been cut by just over 12%, with potential serious implications for its ability to prosecute serious and complex cases of fraud and bribery effectively and in a timely manner.

In the light of what we have heard this afternoon, hon. Members need urgent reassurances from the Government Law Officers that the SFO does in fact have the resources it needs to investigate such cases. That question is even more pressing given the further £20 billion of cuts to public spending anticipated at the forthcoming spending review, with the Chancellor reportedly requiring Departments to model budget cuts of up to 40% by 2019-20.

Although allegations such as those made by Mr Richards and Mr Shabir may make for uncomfortable listening for the Government, it is deeply concerning that every time the Serious Fraud Office wants to take on a major case—LIBOR rigging being a prime example—it now has to effectively go cap in hand to the Treasury to apply for additional funding, sometimes referred to as blockbuster funding, in order to do the job. That clearly has implications for the vital independence of the SFO, as the Chancellor of the Exchequer potentially has a veto on what is investigated. Indeed, Transparency International has stated its concern about that situation:

“The process for additional budget approval may present a substantial risk of political influence.”

Again, I would appreciate an assurance from the Solicitor General that there is no need for such concerns, in particular with regard to the case we are discussing.

During questions to the Attorney General in July, the Solicitor General stated:

“It is important that we give our full-throated support to the work of the SFO because, as the hon. Gentleman says, if there are doubts about the integrity and efficacy of that important arm of the prosecutorial authorities, we are in serious trouble indeed.”—[Official Report, 2 July 2015; Vol. 597, c. 1611.]

I could not agree more, but when we hear of cases like those of Mr Shabir and Mr Richards, who—like many thousands of businesses across the country—appear to have been badly let down by the system, such statements are understandably thrown into doubt. We need to know that the Serious Fraud Office does not just take such matters seriously but has the will, capacity and resources to investigate and then prosecute where appropriate. I look forward to hearing the Solicitor General’s reassurances in that regard.