Oral Answers to Questions

Kirsten Oswald Excerpts

Thursday 13th February 2020 Commons Chamber

[The Solicitor General]

Yes, it is very important that they have the maximum support. Delay is always undesirable. I might add that, in an inspection into domestic abuse cases that was published only a few weeks ago, inspectors noted that CPS prosecutors had applied the code correctly in 100% of cases they examined.

[Kirsten Oswald (East Renfrewshire) (SNP)]

The recent criminal justice joint inspection report noted that

“the domestic abuse caseload for both the CPS and the police has increased by 88% against the backdrop of a 25% reduction in police and CPS funding.”

This is leaving staff stretched and facing difficult decisions. Will the Solicitor General pursue the Chancellor for the resources necessary so that decisions are made according to public interest, rather than budgetary pressures?

[The Solicitor General]

These decisions are always made according to public interest and not to budgetary pressures. As I have mentioned before, the Treasury has already supplied £85 million more to the CPS, which is a very welcome sum and will be well spent.

Serious Fraud Office

Kirsten Oswald Excerpts

Tuesday 18th April 2017 Westminster Hall

[Kirsten Oswald (East Renfrewshire) (SNP)]

I beg to move,

That this House has considered the relationship between the Serious Fraud Office and other agencies.

It is a pleasure to serve under your chairmanship, Mr Paisley. I sought this debate because of concerns about investment losses suffered by my constituents, and because of my related work as chair of the all-party parliamentary group for the Connaught Income Fund. As a newer Member of the House, I am coming fresh to an issue that many longer-standing Members may have considered previously. I make no apology for that. I am also not a lawyer, so I do not intend to get into the legal principles underlying the work of the Serious Fraud Office. However, having participated in a debate in February on SFO funding, I was interested to hear talk of the need to make changes to the legal framework.

I thank the Library for its support. I found its summary hugely helpful in confirming that there is a problem—certainly of perception and possibly also with the balance of the law being wrong. The Library note states:

“The enforcement of law in the field of financial services is surprisingly complicated. It involves a matrix of law and rules overseen by different bodies, agencies or regulators. It often contradicts a ‘common sense view’ of what actually is a crime.”

In preparing for that February debate, I was amazed to learn of what I considered to be the under-resourcing of the Serious Fraud Office. Is £60 million the budget we should be devoting to tackling the most serious acts of fraud, or should there be a significant increase in SFO capacity? In a recent speech, Megan Butler of the Financial Conduct Authority identified that the banking sector alone estimates its financial crime compliance costs at some £5 billion a year. In that context, the annual cost of the SFO seems remarkably low and increasing it seems to be a worthwhile investment.

Some hon. Members here may have helped to put in place the legislative and organisational framework that appears to have so badly failed my constituents and others caught up in the Connaught and other financial services scandals. A debate on the relationship between the SFO and other agencies may help them to consider whether they view the current situation as satisfactory.

When we look at the matter in detail, we must look at issues in sequence. We must decide the balance we want to see between the criminal law and the regulatory framework. Only when that is clear can we allocate responsibility to the relevant agency. I would cite two examples of where the balance is perceived to be wrong.

First, despite the banking sector bringing the UK economy to the brink of collapse, very few individuals have faced sanctions, regulatory or criminal, following the 2008 financial crisis. Secondly, the manipulation of financial benchmarks such as LIBOR, on which billions of pounds depend, was not a specific offence until recently. By contrast, an inaccurate mortgage application has long been classified as mortgage fraud, and many applicants and their advisors have faced prosecution for such a crime. If law enforcement was similarly lax in response to any other explosion of what most of us regard as crime, there would be outrage. Instead, what we see is an increasing cynicism and a view that “There is one law for them, and another law for us.” We need to address that cynicism.

The late Tam Dalyell, former Father of the House, did not always see eye to eye with my party. However, he left a great legacy as a parliamentarian. During his campaign on the sinking of the Belgrano, he highlighted the principle that small inconsistencies tend to be part of larger inconsistencies and that seemingly small untruths are often part of larger untruths. Thinking about that issue, it struck me that if this House could not understand why such a fraudulent enterprise as Connaught was able to operate and the perpetrators able to go undetected for so long, we could have little confidence that the systems for regulating financial services in the UK are generally fit for purpose.

I make no pretence of having an answer. By holding this debate, I am providing the Minister with an opportunity to reassure the House that the Government think they understand—and that they propose to take steps to prevent a recurrence. An FCA investigation into the Connaught fund is under way and I look forward to the outcome. However, much information is already in the public domain.

Connaught was an investment vehicle launched in 2008 under the title “Guaranteed Low Risk Income Fund”. Members of a certain vintage, like myself, might recall the Wile E. Coyote cartoons, in which a hapless coyote bought devices from Acme Trading in a desperate effort to catch the elusive Road Runner. The devices inevitably misfired or backfired. Calling a fund that promised a high rate of return “guaranteed low risk” might raise suspicions that it was similar to the sort of product sold by Acme Trading. But the fund did not come from Acme Trading; the “guaranteed low risk” fund came fully signed-off with the Capita brand.

Capita describes itself as the UK’s leading customer, business and professional support services organisation. Indeed, a few years ago, the Ministry of Justice brought Capita in to operate a contract after concerns were raised about the original operators. Capita is known to sit close to the heart—if such a thing exists—of the UK’s financial services sector. Investors would rightly expect officers authorising use of the brand to have a high aversion to reputational risk. They would not expect the name to be allied with an obvious scam.

Unfortunately for investors, the supposedly “guaranteed low risk” fund proved no better a performer than an Acme Trading rocket and it careered right out of control from day one. Four years later, the fund, now rebranded as the Connaught Income Fund, hit the wall, taking the savings of more than 1,000 investors with it, with losses of more than £100 million pounds—less than a third of which has ever been recovered.

We know the Connaught fund careered out of control from day one, because one of the participants said so in the case of Connaught Income Fund, Series 1 v. Hewetts Solicitors. Mark Cawson QC, sitting as a Deputy Judge of the High Court, stated that in his view passages within the fund’s information memorandum

“were suggestive of an intention that the Fund would lend directly to the ultimate borrower requiring the bridging loan.”

However, the evidence given in court by Michael Davies, who had been at the centre of the fund throughout its life, was that that was never the intention,

“however the IM might have been expressed.”

From the start, the funds went to a single group of companies—Tiuta plc and its subsidiaries. Immediately, Tiuta used some of the funds to replace the group’s past dodgy investments. I hope that the origin of that dysfunctional fund as the product of a highly regulated financial services firm is central to the FCA inquiry. I believe it should also be of interest to the Serious Fraud Office. If it is not, there must be something seriously wrong with the body of law underpinning the financial services sector. Without Capita acting as an operator that boosted the fund’s credibility, it may, like an Acme Trading rocket, never have got off the ground—saving a lot of people a great deal of money and distress.

We know a lot about the operation of Tiuta because of a whistleblower, George Patellis. In early 2011, shortly after becoming its chief executive, he approached the FSA with what he called clear evidence of Tiuta defrauding the Connaught fund. In a recent finding, the Complaints Commissioner expressed doubt about whether at the time the FSA seriously considered whether fraud had occurred. Indeed, the FSA delayed acting on or sharing Mr Patellis’s allegations for approximately 18 months, allowing Connaught to rake in millions of pounds more from investors and to pass them to Tiuta to disappear. The companies in the Tiuta Group entered administration in 2012 and then went into insolvent liquidation.

When the information given by Mr Patellis was finally passed on, despite the scale of the losses identified by that time, it was not passed to the SFO—it was passed to the City of London Police. It seems that the FSA was very reluctant to do anything that flagged up the case as one of fraud, especially as it had been allowed to continue for so long on its watch. It is now six years since Mr Patellis made his report to the FSA. In those circumstances, the likelihood of any court action against participants in the Connaught scandal being challenged on the grounds of delay must be very high.

When I looked for the detail of the agreements between the SFO and the FCA to cover such circumstances, I was very disappointed at what I found. The SFO website contains a range of codes and protocols with other agencies governing its responsibilities. An agreement with the FCA is not listed. The FCA’s own enforcement information guide makes no reference to fraud or to a relationship with the SFO.

In 2014, two of the directors of Connaught were disqualified for a combined total of 16 years. The Insolvency Service cited their failure to manage Connaught’s relationship with Tiuta as the key factor in the failure of the fund. I am not sure what conclusion one can draw other than that the nature of that relationship, which was fundamental to the Connaught and Tiuta operation and had functioned for nearly four years, was not an accident. Again, there appears to be no published agreement between the Insolvency Service and the SFO—at least, there is not one on either agency’s website. There is a reference in the Insolvency Service’s guidance to the possibility that, if an offence has been committed, it may result in a report to the appropriate investigating or prosecuting authority.

One of the key events in the life of the Connaught fund came in September 2009—a year after it was opened. Capita stepped down as operator and was replaced by Blue Gate Capital. Surprisingly, the change triggered no requirement for due diligence, and no warranty or indemnity in respect of the operation of the fund to that date. The departure of the fund from its information memorandum and the conflicts of interest on the Tiuta side of the operation must have been well known by that time, because one of Blue Gate’s early acts was to issue a new information memorandum, which apparently brought the terms of the fund’s information memorandum and its operation into closer alignment. One might have expected that the discovery of that discrepancy would have resulted in some action, other than for Blue Gate to seek to align the paperwork with the practice it had inherited.

I note that, in some areas of financial services, a system of suspicious activity reports has been established. In 2014-15, more than 300,000 reports were submitted. That volume of reporting is underpinned by the clear identification that it is a criminal offence to fail to report knowledge or concerns about money laundering or that someone may be gathering money to fund terrorism.

It seems that the Connaught operation became practised in using investors’ funds to meet running costs, and elements of the Tiuta group accounts were falsified to overstate the value of assets underpinning the fund. As chief executive, Mr Patellis initiated a process of reviewing the group, including whether it should declare insolvency. In his report to the FSA, he highlights that the directors continued to draw high salaries and benefits, and that consultants established regular fee lines, despite the fact that they were all aware that new funds were being attracted and consumed with no plan in place for returning the group to financial stability.

Surely, given the FSA’s principles of business, the participants in that process should have been obliged to report their knowledge and concerns. By departing so markedly from the information memorandum, they had collectively fallen into the way of publishing false information. I can think of no reason why the people who were aware of that fraud should not have been under an obligation to report to the FCA or the SFO that investors’ funds were being handled in a way that did not match up with the prospectus or the information memorandum. Rather than being met with confusion, as Mr Patellis’ report was, the introduction of a formal mechanism, such as an SAR, may provide the clarity the system needs.

If an ordinary citizen had committed a comparable level of dishonesty in completing a mortgage application, they would immediately face investigation with a view to a criminal prosecution. Is it right that those embedded in our financial services sector should be protected from such investigations? Should we ensure earlier involvement of the SFO or the police when an apparently rogue fund is uncovered?

In previous debates, I have heard the senior managers regime cited as a solution to many of the problems in the sector over recent years. Having looked at some of the consultation materials issued as part of putting the senior managers regime in place, I have doubts if that will be the case. The consultation paper on duty of responsibility for senior managers appears to contain no reference to fraud or to the SFO. If I have missed it, or if it is buried in some other paper, I would be happy if that were highlighted to me. If I have not missed it and it is not there, that strikes me as an omission that must be corrected.

I found the discussion paper on the legal function even more concerning, because it opens the prospect of excluding the firms’ heads of legal function from the SMR. In terms of issues such as the design of investment opportunities and their operation, regulated entities should not have any closed books from the regulatory and enforcement agencies.

It strikes me that we still have some way to go to properly embed a fraud-aware approach into the regulatory framework of the financial services sector. Two ways in which that can be done—I would love to hear the Minister’s opinion on this—are to properly resource the SFO and to create much stronger links between the FCA’s staff and the SFO’s work. I look forward to hearing the Minister’s comments on all those points.

Serious Fraud Office

Kirsten Oswald Excerpts

Tuesday 7th February 2017 Westminster Hall

[Kirsten Oswald (East Renfrewshire) (SNP)]

I thank the right hon. Member for East Ham (Stephen Timms) for securing the debate and for the very considered way in which he approached the topic. In fact, all the speeches we have heard have been considered and thoughtful on the question of how we should move things forward.

The right hon. Gentleman highlighted the complexity and depth of the work of the Serious Fraud Office, and I was pleased that he highlighted the prosecutions for LIBOR rigging. I was also interested in his comments and those of other Members on whether the funding mechanisms allow for the best recruitment of appropriate staff. The right hon. and learned Member for Harborough (Sir Edward Garnier) made a number of useful points relating to that, as did the hon. Member for Strangford (Jim Shannon) and the right hon. Member for Cities of London and Westminster (Mark Field), who made me smile by admitting to a love of glam rock. I entirely agree with him on that. I hope he will agree with me that the SFO has a vital role in prosecuting complex fraud and tackling corruption. I hope he will also join me and the Scottish National party in calling on the Government to increase funding to the SFO to show their commitment to fighting fraud and corruption—adding clout, as he would have it.

The UK Government have indicated that they seek to move towards more of a tax haven economic model, which rings serious alarm bells for combating fraud. The right hon. and learned Member for Harborough spoke about reputation, which is key here. The SNP calls on the UK Government to respond to the findings in the report by the Crown Prosecution Service inspectorate and ensure that future funding arrangements ensure that the SFO provides the very best value for money. As the right hon. and learned Gentleman pointed out, the Crown Office and Procurator Fiscal Service is Scotland’s sole prosecution service, so the SFO does not have jurisdiction to prosecute in Scotland, although its powers may be used to investigate serious or complex fraud that is prosecutable in England, Wales or Northern Ireland. The SFO works with Scottish authorities on UK-wide fraud. I am interested in this issue because it has relevance for some cases that I am dealing with.

As Members may be aware, I have recently taken on chairmanship of the all-party parliamentary group on the Connaught Income Fund. As happens with many cases of its kind, the Connaught case has disappeared into an extended limbo as investigations take place. To the astonishment of many, those investigations are being conducted by the Financial Conduct Authority and not by the SFO or even by the City of London police. When I read the subject of this debate, it set me wondering about what we should expect from the SFO as part of its core funding. Why was the Connaught case not quickly elevated to the SFO for investigation? Why has it been dealt with as a matter of regulation, rather than of potential criminality from the start?

The Connaught fund was set up in 2008 and collapsed in 2012. A related case, Connaught v. Hewetts, was heard in the High Court in July last year. Evidence in that case indicated that Connaught had all the hallmarks of being a dishonest enterprise from the start. Instead of gathering funds from a range of investors and lending them on to a wide range of borrowers, the fund made all its loans to a single group of companies, the Tiuta Group. Tiuta immediately started to use the Connaught loans to pay off existing loans and to bankroll dubious projects already sitting on its books. Early in 2011, a very clear allegation of fraudulent behaviour was made to the Financial Services Authority by George Patellis, the newly arrived chief executive of the Tiuta Group. Despite that, Connaught and Tiuta were allowed to continue their activities for many more months, before finally going into liquidation in 2012. It is not even clear if the case was raised with the SFO, which raises the question of just what we are funding the SFO for.

Since I arrived in the House, the Connaught case has been raised on a number of occasions, both in debate and in questions. Ministers and the Financial Conduct Authority have given assurances that the police have been informed of the activities around the fund, but to date there have been no prosecutions. I have written to the City of London police’s economic crime unit, seeking assurances that a police investigation is under way. I will let Members know the outcome of that correspondence when I receive a response.

The reason for raising the matter today is that when I looked at the briefing, I decided to return to the question of why the Serious Fraud Office was not at the heart of the Connaught inquiry. The director of the SFO has helpfully provided a statement of principles he uses when considering a case, and I have compared the Connaught case with the factors contained within that statement. If Connaught meets the criteria for cases that the SFO should look into, that suggests that the organisation’s core funding should cover at least exploratory investigations in this situation.

The first criterion the SFO uses is whether the actual or potential financial loss involved is high. With more than £100 million lost by investors, the Connaught case clearly meets that threshold. Is it any surprise that investors are surprised that the Connaught case has languished for so long, instead of quickly being elevated to the SFO?

The second criterion used by the SFO is whether the actual or potential economic harm is significant. In this case, it is. Many Connaught investors were looking for an unexciting but steady rate of return on their capital, with no expectation of risk. Indeed, when the fund was launched, it was called the “Guaranteed Low Risk Income Fund”. Not surprisingly, many of the people attracted were looking for a low-risk income fund. Immense damage was caused to the life plans of many. If the core funding of the SFO is not intended to protect such investors, perhaps the Solicitor General can explain why.

The third criterion for SFO involvement is whether there is significant public interest in a case. Again, with Connaught, for many reasons there has been huge public interest and significant public sympathy for those who have lost money. There is also a great deal of interest in the failure of the regulatory system to prevent harm in response to the whistleblowing by Mr Patellis. The information he provided appears to have been simply ignored by the FSA for many months. In a recent report on a complaint by Mr Patellis, the Complaints Commissioner referred to an internal memo within the FSA, acknowledging that there was an opportunity here to prevent harm, rather than simply clear up afterwards. There is a great deal of public interest in why the FSA failed and whether its replacement, the FCA, is any more likely to succeed and if not, why not. Surely the SFO would not be so ineffective in its handling of this kind of complaint.

The last component of public interest is the role of Capita, which is one of the major players in the UK’s financial services sector and a supplier of services to many levels of Government. As the initial operators of the fund, Capita gave Connaught an aura of credibility that it clearly never deserved. People want to know who in Capita knew what and when about the Connaught fund. Is such post-financial disaster investigation not the role of the SFO?

As a prosecuting authority, the SFO clearly has the power to demand papers, but so do the FSA and the FCA. In at least one instance, Connaught’s auditors were asked for papers and responded that it was beyond their remit to produce them. Astonishingly, the regulator simply dropped the request. Would the SFO or the City of London police have reacted in the same way? If there are multiple agencies in the field, yet not one of them seems able to impose on those suspected of economic crimes the level of disclosure that is routine in other kinds of investigation, what are we funding all these agencies for?

The fourth criterion for SFO involvement is whether it is a new species of fraud. Well, I am no expert, but I gather that the rules regarding the promotion of unregulated collective investment schemes, such as Connaught, have been changed. That suggests that some new form of fraud was seen to emerge in this case, and steps were taken to cut it off.

The final criterion used in assessing SFO involvement is whether the apparent criminality undermines UK plc commercial or financial interests in general or the City of London in particular. Now, that is tricky. Many of those involved in the Connaught case are suspicious that the lack of action six years after Mr Patellis blew the whistle is because of the damage that full and early revelation of information in the course of a fraud trial might have done to the reputation of Capita and the wider financial services sector. My point in this debate is that after reviewing the rationale for the SFO’s work, I see Connaught as something that should have been accommodated in the agency’s core funding. I am told that an agreement is in place between the FCA and the police to prevent overlapping investigations. Having looked at the protocol between the Attorney General and the directors of the prosecuting departments, including the SFO, I was surprised to see no reference to that agreement, at least not explicitly, within the protocol.

Many are concerned that the delay in concluding the Connaught investigation will lead to any criminal charges that emerge being challenged on the grounds of delay. I am not sure whose interests are served by having such a wide number of agencies with apparently overlapping and sometimes clashing interests. It would certainly be in the interests of justice to ensure a great deal more clarity and security of funding for whichever agency is on the frontline of trying to protect the public from deceptions, frauds and scams—the kind of thing perpetrated on Connaught investors. I look forward to hearing from the Solicitor General about the issues of the SFO and, in particular, the Connaught fund.

Oral Answers to Questions

Kirsten Oswald Excerpts

Thursday 25th February 2016 Commons Chamber

[Caroline Dinenage]

I absolutely agree with my hon. Friend. Unpaid carers are the unsung heroes of our economy. The value of informal care is about £62 billion a year. For many carers it is literally a labour of love, which is why we have extended the right to request flexible working. A pilot project is considering the best way to support carers, through investment in technology and professional support, to stay in employment.

[Kirsten Oswald (East Renfrewshire) (SNP)]

A constituent visited my surgery last week to seek help. She had planned to retire and care for her elderly mother, but she now finds, unexpectedly, that her retirement date will be significantly later than planned. Does the Minister understand the wide implications of the issue raised by the Women Against State Pension Inequality campaign and the real difficulties that problems with notification of pension date changes are causing for 1950s-born women with caring responsibilities?

[Caroline Dinenage]

The hon. Lady makes a valid point. I understand the concerns, but she must remember that the new state pension will give 650,000 women an average increase of £416 a year on their pension and, in addition, support those who take time out of employment, for example for caring roles, by crediting this very important work.

Oral Answers to Questions

Kirsten Oswald Excerpts

Thursday 15th October 2015 Commons Chamber

[Mr Jones]

As I have said, this is subject to the spending review, but Women’s Aid has warmly welcomed the funding recently announced by the Chancellor. It is important for local authorities to provide such services, and it is also important to note that these services are still being provided up and down the country. We should not talk them down, as Labour Members are doing, because the fact is that if we talk down services and people think they are not available, many women may not come forward and access the important services they need.

[Kirsten Oswald (East Renfrewshire) (SNP)]

19. What recent assessment she has made of the effect on equality of the Government’s policies on child poverty.

[The Minister for Women and Equalities (Nicky Morgan)]

The Government are committed to governing as a one nation Government and achieving true social justice, which is why we want to tackle the root causes of poverty and improve the life chances of all children. Our proposals in the Welfare Reform and Work Bill introduce new measures of worklessness and of educational attainment, which will make the biggest difference to disadvantaged children now and in the future.

[Kirsten Oswald]

Does the Minister agree that the Government’s rebranding of the child poverty commission as a social mobility commission represents a damaging shift in emphasis? The most vulnerable children will be disadvantaged by this change in tack and by a lack of focus on the equality of outcomes for children living in poverty.

[Nicky Morgan]

No, I do not agree with the hon. Lady because this Government’s approach is working. The number of children on relative low incomes has fallen by 300,000 since 2010, and the number of children who grow up in workless households is also at a record low. If she wants to focus on outcomes, I encourage her to focus—as we do, particularly in education—on the outcomes of all children. The gap between the advantaged and the disadvantaged has narrowed since 2010.