Alun Richards and Kashif Shabir: SFO

Huw Irranca-Davies Excerpts

Wednesday 16th September 2015 Westminster Hall

[Huw Irranca-Davies (Ogmore) (Lab)]

It is a pleasure, as always, to serve under your stewardship, Mrs Main. I thank my hon. Friend the Member for Cardiff Central (Jo Stevens) for securing this debate and for laying on the record a comprehensive and detailed view of how her constituent has been affected. That is what I intend to do for my constituent, Mr Alun Richards, regarding a related issue. The story, the allegations it contains and the impact that it has had on him and his family are shocking. At best, there is a conflict of interest, with evidence of duplicity; at worst, there is evidence of collusion and real criminality that could go beyond these two cases. The points that my hon. Friend has put to the Solicitor General will help to establish the scale of the problem.

Alun Richards comes from a well-established and successful farming family of long pedigree in the Amman valley in west Wales. He is an award-winning farmer and former Wales young farmer of the year, representing the UK at European levels. His farming business expanded over years, but he knew, as many farmers do, that he had to diversify to grow further. Milk quota changes, mad cow disease, foot and mouth, milk prices and global dairy competition forced Alun to move out of milk production. Farmland was turned to crop production and farm buildings freed for other uses, initially largely funded by family money. It was successful, and the business grew and prospered. While the family had been long-term customers of NatWest RBS, other banks were keen to secure Alun’s growing business, among them Lloyds TSB.

To secure Alun’s custom, Lloyds gave him an attractive offer of the type reserved for the very best businesses: 1% over base rate. That, combined with further family money, allowed Alun to convert farm buildings and the original farmhouse into offices and meeting rooms to be let out. Further expansion included a conference centre. The original farmyard became the Tycroes business park, a beacon for employment in the area that was opened by His Royal Highness Prince Charles. Over time, the business expanded into other property, including an office block in Swansea. It was based on solid foundations and steady growth. It was successful, solvent and profitable every step of the way. The office block was financed through Lloyds, a link that originally came through Alun’s successful business being identified and snapped up by local and regional agricultural managers at Lloyds. Alun’s accounts had now been transferred to Lloyds and all was going well. Tenants were queuing up for the business park and Alun was being introduced as Lloyd’s best customer at the Royal Welsh show.

At the same time, however, the regional manager had identified a failure by the local manager, who should, the regional manager said, have consolidated seven existing loan accounts into one and should have created an overdraft as part of those consolidated loans. Despite the issue being identified, the consolidation and overdraft rearrangement never happened. That failure became the reason that Lloyds used as the justification for Alun’s booming business—to which Lloyds was lending at premium rates for trusted and successful customers--being transferred into recoveries. To be clear, the lender, Lloyds, had identified that a consolidated loan was needed, but it was not arranged, which subsequently became the reason for the business being transferred to recoveries. That itself seems remarkable, but it was in recoveries that my constituent alleges that the real abuses took place. Let us look in detail at how the transfer to recoveries of a successful business happened.

In 2008, Alun was telephoned and told that his account was being taken over by a new manager. Alun believed that his Lloyds account was progressing to a higher level of management—it was a successful business. After two weeks, Alun had heard nothing from his new manager, so he decided to telephone his original manager to ask who his new manager was. The manager informed Alun that he had been transferred to the recoveries department at Bristol. That was a complete shock. Alun then made contact with recoveries, which asked Alun if he could enlighten them as to why his account had been sent there. Alun was told that recoveries only dealt with dead and dying accounts, not accounts that were alive and kicking like Alun’s. Recoveries duly sent Alun’s files back to Alun’s manager and his regional agricultural manager. Recoveries were amazed when Alun’s manager and regional agricultural manager quickly returned Alun’s files. Recoveries told Alun that his files could be parked on a desk for three months and that he would be able to find a new bank or a new Lloyds manager. However, Alun quickly found that, behind the scenes, the banking sector was in meltdown and that that was affecting decisions.

As this was happening, Alun’s business was slowly grinding to a halt, so he engaged his then MP, my hon. Friend the Member for Llanelli (Nia Griffith), who wrote to the chairman of Lloyds bank. Alun then had a visit from a Mr Holliday and Mr Miles, who introduced themselves and presented business cards showing that they were managers in the Bristol recoveries department of Lloyds bank. Mr Miles assured Alun that everything would be resolved. In the presence of two qualified accountants, Mr Miles was asked about his background at Lloyds, because they had not met before. He went to great lengths to provide a history of his employment at Lloyds. He stated that his career had been in the branch network and that he had only recently transferred to recoveries. He produced business cards stating he was a Lloyds manager and carried on stating that he was Alun’s manager on Lloyds-headed notepaper and in emails from his Lloyds address for the next two and a half years.

It was only by pure chance that Alun later discovered that Mr Miles was in fact a qualified chartered surveyor and member of the Royal Institute of Chartered Surveyors —RICS—and also an equity partner in Alder King, which was never officially disclosed to Alun at the time. All correspondence to Alun from Mr Miles was signed in his capacity as a Lloyds manager. It was not stated that Mr Miles was on secondment from Alder King to Lloyds, and Alun has an internal emails, obtained by a subject access request to Lloyds, confirming that no secondment agreement exists between Alder King and Lloyds. Mr Holliday then insisted that Alun’s debt to Lloyds had to be repaid within 10 years, not the 20 years that was in the original loan agreement. Soon after, Alder King was appointed as LPA receivers over Alun’s business.

Alun was shocked to find out that Alder King was previously owned by Lloyds and contacted the receiver, a Mr Hughes. Mr Hughes had previously been a managing director at Alder King and past chairman of the Association of Property and Fixed Charge Receivers, or Nara. He was also a chartered surveyor and member of RICS, so he was well-qualified to understand the Law and Property Act 1925. Alun attended a meeting at Alder King’s offices in Bristol with Mr Hughes and Mr Holliday and Mr Miles from Lloyds. Alun was supported by his accountant, who took minutes. At no point was it made clear that Mr Miles was a chartered surveyor, a RICS member or an equity partner at Alder King. He was always introduced as a Lloyds bank manager. Mr Hughes should have made Mr Miles’ position and the potential conflict of interest quite clear.

On hearing Alun’s story, Mr Hughes immediately resigned his position as receiver, despite discussions with Mr Holliday, who insisted that Mr Hughes remain appointed. It was clear that Mr Hughes was aware of not only the conflict of interest, but potential criminal fraud and the misrepresentation of his business partner Mr Miles. There was financial profit in this situation. Another three months passed with little activity from Lloyds recoveries. Mr Smith from Alder King was appointed as LPA receiver, along with the reappointment of Mr Hughes.

By March 2011, two years on from the shock meeting with Mr Holliday and Mr Miles from Lloyds recoveries, Alun’s life and business were grinding to a halt. As a result, Alun, along with his MP, went to the main Lloyds offices in Gresham Street, London. Alun’s then MP presented a letter to request a meeting with António Horta Osório, Lloyds’ new chief executive officer. A Mr Young met them and listened to the story and stated that there

“had to be a resolution”.

By now, Alun was dealing daily with Mr Young, who had given him direct access via landline, email and mobile. Mr Young gave an ultimatum to recoveries to resolve matters with Alun or the case would be taken over by Mr Cumming, the global managing director, with overall responsibility of Bristol recoveries. After that, however, Alun was locked out of his business park, with Lloyds having sold the property as mortgagee not in possession.

Two of the tenants of the Tycroes business park bought the property for £70,000. Although Alun Richards had in his possession a valuation for the same business park of more than £2 million, carried out by surveyors Lambert Smith Hampton only two years previously, LSH had reportedly provided Lloyds with a zero valuation of the same premises. The business park had 12 units, two office blocks, a large conference centre and 5 acres of future development land—but a zero valuation.

Notification to Alun of the sale came via solicitors TLT. It transpired that TLT was acting for Lloyds bank, Alder King, Mr Smith and Mr Hughes. Is that not a conflict of interest? Alun’s then MP, my hon. Friend the Member for Llanelli, arranged a meeting with Mr Young and Mr Cumming at Lloyds headquarters in London. Subsequently, Mr Cumming took sole responsibility for Lloyds’ actions and agreed to visit the farm to see at first hand the damage that had been caused to Alun and his family.

An auction of the remaining farmland had been planned for that evening, but was cancelled by Mr Cumming. That was strange, as Lloyds had appointed an LPA receiver to take charge of all the properties. A further property, Mansel house in Swansea, which Alun had purchased as his pension fund, had a valuation of £600,000 and a loan of £480,000 secured with Lloyds. The LPA receiver sold it at auction in London for £125,000, two years after it had been bought by Alun. Of the £125,000 realised for the property, Alder King took a commission of £50,000, realising a loss of £405,000 to taxpayer-owned Lloyds bank.

Mr Cumming kept his word and visited Alun’s farm to see the damage. Again he took full responsibility, and he declared that he would be back within a week to return Alun’s business to the position it was in before this fraud began. Alun had now had a high-profile managing director in Lloyds bank travel to his farm in rural west Wales and state that he would return Alun’s business to its original position, but the next week came and went. After three weeks, Mr Cumming wrote to state that he had decided on an independent investigation into his department’s action.

Mr Cumming appointed solicitors Hogan Lovells to lead the investigation, but over the next year Hogan Lovells parked it in the long grass. Lloyds then decided to sell the rest of Alun’s portfolio by auction—the fourth attempt to sell the properties, as the previous three had been cancelled. Alun’s father bought all the lots, but Bristol recoveries, Alder King and the other RICS auctioneers who were now involved were furious and used an opt-out clause in the small print to cancel the sale. They then sold the farmland on a first come, first served basis at a knockdown price. Shortly afterwards, Alder King resigned as receivers. Alun had started out with a portfolio valued at £5 million and a successful business, with borrowings of £1.3 million; he has ended up bankrupt and with nothing.

Where is Alun’s case now? Alun Richards and Kashif Shabir had their first meeting with the Serious Fraud Office on 11 November 2013, when they presented what they believe to be overwhelming evidence of criminal fraud. Another meeting was held one year later. I understand the file to be open and awaiting progress—that is what we are seeking. Alun made separate but identical complaints to RICS—as did Kashif Shabir—regarding his personal circumstances, which involved an additional set of regulated members. RICS refused to take the bundles of evidence from Mr Richards, but then somehow concluded that there were no breaches of its code. RICS relied solely upon the representations of its members. It would therefore not be unfair to assume that it is offering a degree of protection to its fee-paying members. Where is the professed protection for the customer?

The Select Committee on Business, Innovation and Skills looked at the case on 4 March 2015, under the chairmanship of my hon. Friend the Member for West Bromwich West (Mr Bailey). In attendance were principals from five independent industry regulators, including Eve Salomon, chair of the regulatory board of RICS, Graham Stockey, principal surveyor for RICS, Julian Healey, chief executive officer of Nara, and Daniel Hardy, chairman of Nara.

I echo the comments made by my hon. Friend the Member for Cardiff Central, who referred to the evidence given at the hearing being entirely in opposition to the practices adopted by Lloyds and Alder King working in unison, giving the appearance of collusion. Furthermore, when parties with a mutual financial interest are working in conjunction with each other, there are obvious opportunities for abuse. It is just such an abuse that I wish to highlight and that I believe my constituent Mr Richards is the victim of. In addition, it is known that Alder King, as I touched on, was the recipient of substantial fees, amounting to hundreds of thousands of pounds in this case. The incentive is obvious. In Alun’s case alone, Alder King was able to charge more than £400,000 in total fees for acting as receiver.

What about the Solicitors Regulation Authority? The general case is further exemplified by the fact that both Alder King and the bank were utilising the services of not only one law firm, but specifically Mr Hayllar of TLT solicitors, who was representing both the bank and the receiver simultaneously. What chance does the customer have when facing a united front from a tripartite relationship and he is not even invited to the party? In fact, his exclusion is what makes the party happen. The consequences of the alleged criminal fraud of Lloyds recoveries in Bristol, along with Alder King, are far reaching, because more than 3,000 customers were with the Bristol recoveries at one time. Such fraud could have cost the British taxpayer hundreds of millions of pounds of the bail-out money that was available to Lloyds bank.

In conclusion, there is more to these cases than my hon. Friend and I have said today. Allegations have been made against individuals and organisations such as the Association of Chartered Certified Accountants, which appears complicit because of its failure to step in and act when concerns and allegations against its members were raised. ACCA will now only communicate with my constituent via a solicitor.

Surely now is the time for the Serious Fraud Office to take action. Now is the time to shine a spotlight on the allegations of criminality, collusion and corruption. What the two cases illustrate might be the tip of the iceberg. The SFO surely has a duty to pursue the matter, to see whether the allegations are substantiated and, crucially, whether there are more cases like this out there—we have heard that there are, with more victims suffering in silence and believing themselves helpless after their profitable businesses have been destroyed. The SFO has the power, authority and remit to do something—to make inquiries of the regulator, Alder King and the bank, and to quantify the extent of the situation. We could be talking about millions of pounds, but only the SFO can uncover this. Far from being responsible banking practice, this looks like daylight robbery. A thorough investigation is needed and it is needed now.

--- Later in debate ---

[The Solicitor General (Robert Buckland)]

It is a great pleasure to serve under your chairmanship, Mrs Main. I pay warm tribute to the hon. Members for Cardiff Central (Jo Stevens) and for Ogmore (Huw Irranca-Davies) for bringing this important debate to the Chamber and for having not only the courtesy but the sense of co-operation to approach me before it so that I could clearly understand the cases that would be raised. I hope, in the light of that, to offer an appropriate response. My response has to be calibrated bearing in mind the nature of the office I hold and the importance of having an independent prosecutorial service, and I know that Members on both sides of the House understand that.

I also pay tribute to the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) and welcome her to her post as shadow Attorney General. I was delighted to hear her remarks. Although no doubt we will disagree about some issues, I am sure we will be able to work constructively together in the finest traditions of the Law Officers and shadow Law Officers, and their unique role within Government.

The issues that have been raised—it is almost axiomatic, but it is important to say it—are important. They are wide-ranging and the presence of the hon. Member for West Bromwich West (Mr Bailey) has been helpful, because, as he reminded us, he was the Chair of the Business, Innovation and Skills Committee that took oral evidence in March. I am grateful to him for coming to the debate. He will appreciate that issues of regulation are for other arms of Government, but one function of debates such as this is for the House to hear the bigger picture, so that all arms of Government are fully aware of Members’ concerns.

The hon. Member for Cardiff Central asked for a general review. As she will know, there have been a number of reports and reviews on specific aspects of this type of alleged misconduct. We heard reference to the Tomlinson report, which, in itself, gave rise to what is termed the skilled persons report under section 166 of the Financial Services and Markets Act 2000. That report is due to be produced at the end of the year. It relates to another bank, but the type of alleged activity is highly germane to the issues that we have been discussing.

I hope that hon. Members will forgive me for confining myself to the debate’s terms of reference. What I aim to do, first, is to offer strong reassurance to hon. Members about the importance with which the SFO regards all allegations and the threshold test that it must apply.

I listened to the shadow Attorney General’s remarks with great interest. I disagree with her about the very nature of what is a demand-led service and the importance of having blockbuster funding to allow for the flexibility that the SFO needs, in terms of hiring or engaging staff, and larger numbers of staff at different times, particularly to deal with finite inquiries. There is also the impracticability of maintaining very large staffing numbers at all times because of the inevitable pressures that will exist upon its budgets, whatever the economic weather. With respect, the point that the hon. Lady was missing was the terms of reference within which the SFO was set up, and it is important to remind the House about those, because they are highly germane to the test that has to be applied to all allegations of fraud.

Those of us with a long memory will remember the Roskill report of 1986. It was groundbreaking because it made important recommendations about the investigation of serious fraud that gave rise to the Criminal Justice Act 1987. The Roskill model, which was the embedding of investigators and prosecutors together in one group, gave rise to the Act and setting up the Serious Fraud Office.

The sort of cases that the SFO deals with are what I, and I think all of us, would regard as the very high-profile, big-risk cases involving huge sums of money, large numbers of victims or new types of fraud, whether the manipulation of LIBOR rates, or allegations involving major companies such as GlaxoSmithKline, Barclays, Tesco and Rolls-Royce. This is a particular type of serious fraud for which the threshold has to be high and, in fact, it is set out in the Act. We therefore have to recognise that, sadly, not all cases of alleged fraud are going to fall to the SFO to investigate. As I said, it can only formally commence investigation if the criteria and circumstances set out in legislation are met.

The police have the primary responsibility for investigating crime here, and Action Fraud has been established as the national reporting centre to which reports of alleged fraud should be referred in the first instance. The SFO’s role is limited to the investigation and prosecution of cases of serious and complex fraud. However, I can assure the House that when referrals are made to it, a member of the SFO assesses every single one. That task is not to be underestimated. The vast majority of referrals to the SFO are not about matters that it can properly investigate, but it takes every single referral seriously, and it will give each one due consideration and pass on details to other agencies that may be more suited to dealing with it or placing particular cases. It also retains the material that it has been given, using that for intelligence purposes to help inform other agencies and, indeed, sometimes in its own work to identify those top-tier cases that are appropriate for it to investigate.

[Huw Irranca-Davies]

I thank the Minister for the helpful way in which he is laying out his points. He mentioned the threshold test. If evidence was to be gained that this went beyond two individual cases and that there were far more, would it pass the threshold test? If that is the case, rather than relying on the CPS or on individual prosecutions, would it be, in the light of the questions asked by my hon. Friend the Member for Cardiff Central, appropriate—or, in fact, necessary—for the SFO to make inquiries of Lloyds, RICS, and Alder King in relation to how many examples of conflict of interest and potential financial gains along the way this could affect? If we are talking about thousands of people—my apologies for the length of this intervention, Mrs Main—I suspect we are in SFO territory.

[The Solicitor General]

I hope that the hon. Gentleman can be forgiven for the length of his intervention, because he asked a very pertinent question. Although I cannot prejudge the precise parameters of what might happen in the future, circumstances may well change, and the SFO, keeping matters under review as it does, would then have to be guided by that change in circumstances. In other words, we cannot rule that possibility out. It would be wrong of me to do that.

Dealing, then, with the specific allegations, I have to acknowledge that it would be unusual for me to comment in detail about allegations either leading towards an individual or made by an individual or a company, but I am aware of course that Mr Shabir and Mr Richards have raised their allegations with a wide range of people and organisations, and I do not underestimate their importance. The two gentlemen clearly have had a very difficult time. The consequences of what has happened are extremely serious for them. That said, I have to stress that these remain allegations. It is not for me to comment on their merits or whether they are well founded. I have to acknowledge the effect of allegations that are made, and that is an important point when discussing them in a public forum such as this. Those are the constraints within which I think I should operate.

Although Mr Shabir and Mr Richards have presented their cases together, they are making slightly different allegations. It is right to say, as has been said in the debate, that the SFO has met the gentlemen on more than one occasion; the allegations have been considered in great detail; and there has been close liaison with other law enforcement agencies and regulatory bodies to gather any relevant material that they may hold. However, the SFO has explained to both gentlemen that their cases, individually, would not meet the threshold and would not be investigated, because as stand-alone allegations, they do not come into that top tier. That has been made clear. We have already—I am grateful to the hon. Member for Ogmore—started to outline and discuss what might or could happen to change that position, but that is the status quo.

I have said that it is important to recognise that the SFO does not investigate every case of alleged fraud—that is not its purpose—and I know that despite referrals to other organisations, no proceedings have yet been brought. However, the material provided by Mr Richards and Mr Shabir is being kept or has been kept under active consideration by the Serious Fraud Office, and this matter is kept under review as new information may arise. It is not a closed file, but obviously at this stage the threshold has not been reached.

This is exactly what the SFO should be doing. It is seeking to make intelligent and intelligence links to identify cases of serious or complex fraud. To seek to investigate every case would defeat its purpose and overwhelm its resource, and frankly it would have no statutory footing on which to do so. I argue strongly that the current director has demonstrated that he is prepared to take on difficult and high-profile cases. The seriousness of the investigations to which I have referred will, I hope, demonstrate to hon. Members the sort of case that the SFO should be taking on. In other words, the office has a specific role that Parliament has given it. If the SFO can put all these allegations together with other intelligence to establish a case of serious or complex fraud, it will do so, and that is why it has decided to keep this significant matter under review.