Is there a more cynical creature on this earth than a banker?
Royal Bank of Scotland aka RBS aka that sorry-ass bank British taxpayers had to save from self-inflicted doom was at the centre of a scandal two years ago.
RBS had pretended to help businesses in trouble like a Good Samaritan. Little did they know the bank had ulterior motives…
Instead of lending a hand to firms struggling to stay afloat, RBS made sure they would drown.
Making sure these businesses would fail was a way to buy up assets cheaply and boost its own profits.
Employees could raise their bonuses by singling out businesses that may be squeezed in what it called “Project Dash for Cash”.
These practices were ramped up after the financial crisis of 2008. That’s after the government got a majority stake to keep it from failing.
Over 12,000 companies would fall victim to the “turnaround” division. How cynical can you get?
Now it turns out this was just the tip of the iceberg.
What does it take for governments to start acting more decisively against the ever relapsing banking industry?
The cum-ex files
If we ever had any illusions about the intentions of the banking industry, they must have been dashed by now.
The global financial crisis opened our eyes. Bankers had been gambling with OPM – other people’s money.
The two-headed coin was their mascot. “Heads I win, tails you lose” was their battle cry.
We can now add a new chapter to the long list of bankers’ wrongdoings and name it The Great Dividend Heist.
Last week, 19 media organisations across 12 different countries started publishing the “cum-ex files”.
This somewhat awkwardly named exposé is the work of a cross-border network of investigative journalists that includes Reuters.
They uncovered that banks had been duping governments out of billions of tax money for years on end.
Between 2001 and 2016, bankers, brokers and other financial rain men robbed European governments of tens of billions.
Conservative estimates made by tax experts put the spoils at about £50 billion.
How did this collusion of bankers and brokers manage to scam European tax authorities out of all that money?
They participated in something called “dividend stripping” and used two strategies, “cum-ex” and “cum-cum”.
They’re both quite complicated but I’ll just give you the gist.
Cum-ex is a form of tax fraud. Banks (and other fraudsters) reclaim dividend tax multiple times when it was paid only once. That’s illegal.
Cum-cum is more of a loophole. Banks use ingenious financial constructions to avoid paying dividend tax. Not strictly illegal, even if it is shady.
The main victims of this fraud were the governments of Germany (€32bn), France (€17bn), Italy (€4.5bn), and Denmark (€1.7bn).
All the big investment banks participated in this extraordinary swindle.
On the black list we see the usual suspects: Banco Santander, Barclays, BNP Paribas, Deutsche Bank, JP Morgan, Meryll Lynch, Morgan Stanley, UBS. Those familiar names we already read about in 2008.
“The notion of ‘arbitraging’ tax laws in various countries is one of business as usual for banks,” says financial author and former investment banker Nomi Prins.
“The line between exploiting loopholes and coordinated tax fraud, amongst the banks in question, is slim. If governments want to protect themselves, they need to be sharper about regulating these things.”
Banks rescued by the taxpayer shamelessly committed this fraud.
Banks that wouldn’t exist anymore if it weren’t for this involuntary donation by the taxpayer…
And they repaid the taxpayer by scamming governments out of billions of taxes.
I repeat – is there such a cynical person as a banker?
In a recent BBC interview, RBS boss Ross McEwan guessed it would take another decade to rebuild trust in his bank.
I think that’s an optimistic estimate. It assumes banks can play by the book for a full 10 years.
Banks mess up all the time, and with the spotlight on them more than ever, there’s always a scandal looming. The Great Dividend Heist is no isolated incident.
After plunging society into crisis and sentencing the people who rescued them to years of austerity, bailed-out banks kept paying billions in bankers’ bonuses in 2008…
Then there was the London Interbank Offered Rate (Libor) scandal in which banks manipulated the benchmark lending rate for financial institutions…
And as recently as last month ING and Danske Bank were fined for violating money laundering laws, something Standard Chartered got fined for in 2012…
The banking system breeds trouble, writes Joris Luyendijk in his book Swimming with Sharks for which he went undercover in the London banking scene.
“Despite talk of ‘cultural change’ the underlying structure of the financial world has largely stayed intact.
“I am convinced that were we to pack off all the employees in the City to a deserted island and replace them with a quarter of a million new people, we would see in no time the same kind of abuse and dysfunctionality.
“The problem is the system, and rather than angrily blaming individual bankers for acting on their perverse incentives we should put our energies into removing these incentives.”
Right, so perhaps bankers aren’t the world’s most cynical people. Banking is just the most cynical industry that makes bankers do cynical things.
But if it’s the system, why aren’t governments doing more to restrain these businesses and make it harder for them to reoffend?
If there’s one industry that’s proved time and again it keeps backsliding when it isn’t properly regulated, it’s the banking world.
“In order for governments to deal with the tax shortfall that cum-ex, and similar types of practices, produces, they must be prepared to adopt the same taxation practices for, at the very least, publicly traded securities,” argues Prins.
“For this example, that would mean, for the buying and selling of shares, the payment of dividends, and the manner and timing in which they are taxed. Anything short of that allows for finding ways to circumvent the system.”
The gloves need to come off if governments want to see structural change.
In the UK, where the financial sector plays an important part in the economy, adequate regulation and oversight are not luxuries. They are necessities.