One of Britain’s largest frauds, which destroyed hundreds of small businesses that banked with Halifax Bank of Scotland (HBOS), was covered up for nine years, according to an internal report seen by The Sunday Times.
The estimated £1bn scam was “concealed” by several HBOS executives, according to a report by a senior employee at Lloyds, which merged with HBOS months later.
Lloyds has claimed that it “could not determine” whether anything criminal occurred in HBOS’s Reading office until the trial that resulted in the jailing of two of its former bankers and four consultants, for charging small firms illicit fees in order to fund lavish holidays and sex parties with escorts.
Internal emails referred to in the report show senior executives discussed the “fraud” taking place in the Reading division of the bank as far back as February 2008, and that they were anxious “not to disclose” the affair to the bank’s shareholders. The email exchanges took place as the global financial crisis started to bite. HBOS executives discussed the need to “convince the audit committee we should not disclose — something we seriously do not want to do — especially at the moment”.
The emails include a paper prepared for the bank’s executive committee, led by then chief executive Andy Hornby, which referred to a “fraud” in the Reading office that had cost the bank more than £160m at that time.
The corrupt financiers avoided justice until February, when they were jailed for a total of 47 years. The judge described the fraud as a “grotesque” crime that had “ripped apart” small companies.
The fraud began in 2003 when Lynden Scourfield, a senior HBOS banker, forced small firms that needed to borrow money to use a turnaround consultancy led by his corrupt associate, David Mills. The cash was then siphoned off in inappropriate fees by Mills and three associates, including his wife. They would then use threats and extortion to seize control of the businesses.
In return for the help given by Scourfield and another HBOS banker, Mark Dobson, the two men were paid kickbacks, enjoyed luxury holidays in Barbados and Thailand, trips in the Mediterranean on Mills’s yacht and sex parties attended by porn stars. About 200 HBOS business customers were victims of the plot; many subsequently went bankrupt.
This weekend Lloyds is facing new questions over its failure to pay any compensation to the small business owners at the centre of the fraud, many of whom now live below the bread line. Anthony Stansfeld, the police and crime commissioner of Thames Valley police, which investigated the fraud, said: “It is quite clear that both the senior management of HBOS and Lloyds Banking Group have known about this for the last nine years.”
“I have a responsibility to the victims of crime and I am determined to see that they are properly compensated.” It is understood Stansfeld has discussed the report’s implications with senior figures in Downing Street.
Lloyds said the internal report “contains many unsubstantiated allegations” but stressed it had been shared with the police and financial regulators in 2014. The bank said it is “now taking action at pace, to review the cases of all those who may have been affected and, where appropriate, to ensure they are fairly recompensed”.
Author Tom Harper
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