The Polly Peck boss is another charming financial-sector rogue exposed by the underfinanced SFO. The Square Mile has a clear interest in its survival and success
Asil Nadir is marking the end of his first weekend at Her Majesty’s pleasure in Belmarsh prison. It is the first of 260 weekends the 71-year-old must spend behind bars before he can be released on licence to serve out the rest of his 10-year sentence for stealing £29m from the company he ran.
The former boss of Polly Peck, the electricals and citrus fruit conglomerate that failed in 1990, became a household name 19 years ago when, facing 76 charges of theft and false accounting, he skipped bail and fled to Turkish-occupied northern Cyprus.
For 17 years the former FTSE 100 chairman basked in the Mediterranean sun and the triumph of his dramatic escape. Then, two years ago, for reasons still unclear, he elected to return and face the music. It was a gamble that did not pay off.
It is worth remembering that, long before his flight from justice, Nadir had been the name on everybody’s lips in the City, creating one of the fastest-growing listed business in booming 1980s Britain. Charming but ruthless, risk-loving but controlling, generous but egotistical, he never courted the old guard, whose grip on the world of finance Thatcher was dismantling. For that – and for a £440,000 donation to Tory coffers – he was adored.
Many were seduced. Retail and institutional investors rushed in to Polly Peck in their droves, driving the share price ever higher. When they bought shares they weren’t just buying Polly Peck’s projected earnings: they were buying into the story of a swashbuckling entrepreneur with global ambitions and the Midas touch.
Nadir now takes his place among the Serious Fraud Office’s biggest scalps. There haven’t been a lot, but it is remarkable how so many, at the height of their powers, shared a peculiarly autocratic style, able to switch in a split second between charm offensive and ruthless tirade. Michael Bright, founder of Independent Insurance, Carl Cushnie, founder of Versailles Group, and Stephen Hinchliffe, founder of shoe shop group Facia, were all rock stars of the corporate world who made millions upon millions for their shareholders. Each one, the SFO would prove, defrauded the supporters who had backed them so passionately. Their discovery led to some of the biggest stock market failures in recent decades.
In the City, however, by the time such figures are brought to book they have long been airbrushed out of the pantheon – embarrassing reminders of how credulous investment professionals can be. Many in the Square Mile, and the financial media, prefer to entertain themselves by trashing the slow and seemingly bungling SFO. And, it must be said, the past year and a half has seen a great deal of bungling.
Nevertheless, the role the agency plays in maintaining the credibility of the London markets is vital. Only belatedly has the government thrown the SFO a modest, one-off budget increase of £3m to conduct an investigation into the Libor-fixing scandal. That money comes against a backdrop of funding cuts that will see SFO spending sink from above £50m three years go to below £30m in two years’ time.
Putting that in context, the Financial Services Authority’s financial conduct unit is budgeting to spend £22m on an IT upgrade alone. Its spending on efforts to fight wrongdoing is more than double that of the SFO and an average FSA lawyer earns much more than his counterpart at the fraud office.
The reason, of course, is that the SFO is funded by the taxpayer while the FSA’s cheques are effectively written by wealthy City institutions. Nadir’s prosecution is a timely reminder of the important work the SFO does in defending London’s financial probity: why not ask these institutions to contribute towards its work?
Note to Cameron: the global tax war needs you
Lawmakers on both sides of the Atlantic gave activists reason to cheer last week – while some multinationals have more to worry about.
In Washington, the securities and exchange commission unveiled new rules requiring oil, gas and mining companies to reveal their payments to governments in a bid to curb corruption and tax-dodging. Certain firms will also have to disclose if their products contain “conflict minerals”.
In London meanwhile, parliament’s international development committee came out firmly in favour of reforms to help poor countries collect more of the billions they are owed. Tax, they rightly said, is a vital part of the solution to global poverty and aid dependency.
The MPs told the government to stop making excuses and unilaterally require UK-based multinationals to report their accounts on a country-by-country basis. This would help tax authorities to detect the dodgy accounting that shifts profits out of the countries where they are made and into tax havens. They also called on ministers to work towards governments sharing information about who owns what within their borders. This would eliminate many available hiding places and dent the estimated £13 trillion in tax havens.
The Department for International Development is right behind the MPs’ calls for reform, but the Treasury and the business department are more powerful and know that many big businesses oppose country-by-country accounting.
Ministers also know that public opinion is increasingly intolerant of the unwillingness of some companies and wealthy individuals to contribute their fair share to the nation’s finances. A recent poll for Christian Aid found three-quarters of respondents believed it was too easy for multinationals to avoid tax, while the same proportion wanted David Cameron to demand global action on tax evasion and avoidance. The UK is well-placed to galvanise this mood, because in 2013 it will hold the presidency of the G8. But will Cameron be willing to fight the good fight?
Santander’s record as a caring bank is looking a little variable
Santander must know that it is the most vulnerable customers who suffer from an increase in standard variable mortgage rate (SVR). So last week’s decision to hike the key mortgage rate by a whopping half a percentage point (to 4.74%) looks shoddy. The change hits homeowners unable to secure a new fixed or tracker deal – either because they have too little equity in their home or because they are in negative equity, having bought at the height of the boom.
So, knowing the likely effects, why did the bank go ahead? Santander says it is merely following its high street rivals, which, like it, face soaring funding costs in the money markets and higher regulatory costs in the UK.
Let’s first put aside regulatory costs, which are tiny when stretched over many customers. As far as lending goes, it’s true that funding costs shot through the roof earlier this year when the euro crisis caused panic, but the Libor rate, which indicates how much it costs for a bank to borrow from other banks, has actually been coming down despite the fixing scandal. What is more, the Bank of England has just put £80bn of cheap loans on the table to encourage banks to loosen the purse strings – especially for first-time buyers, who are still frozen out of the market.
Many on Santander’s SVR will have nowhere else to go: turning the screw on “mortgage prisoners” doesn’t sound like progress for an industry supposed to be showing its caring side.