Poor regulation is the result of a broken political culture.

Prem Sikka is Emeritus Professor of Accounting at the University of Essex, a member of the House of Lords, and a Contributing Editor to Left Foot Forward.

Considerable attention is focused upon sleaze revealed by the collapse of Greensill and the corrosive links between politicians, regulators and corporations. But the issues are much broader and relate to the colonisation of the entire political system. Wherever you look, one finds woeful regulation, accountability and regulatory enforcement, whether by design or otherwise.

There is a huge gap between regulation on the books and regulation in practice. Here are some examples:

To make prosecutions easier, the Bribery Act 2010 introduced an offence of ‘failing to prevent bribery’. Companies and their directors can be criminally prosecuted. As for enforcement, one conviction was secured in 2015 and in 2018 and six Deferred Prosecution Agreements were secured between 2015 and 2020.

The Criminal Justice Act 1993 and the Financial Services Act 2012 were supposed to deal with white-collar crime, especially insider trading and the rigging of interest and foreign exchange rates. The number of prosecutions is miniscule.  Between 2013 and 2019, no one was prosecuted where the principal offence fell under the Financial Services Act 2012. For the same period 13 individuals were sentenced – three with suspended and ten with custodial sentences. Notably, no major bank or corporation or their directors have been touched.

In 2018, the House of Commons Treasury Committee released a report into RBS’ treatment of small business customers in its Global Restructuring Group (GRG) and described the abuse as “disgraceful”. It said that “the overarching priority at all levels of GRG was not the health and strength of customers, but the generation of income for RBS, through made-up fees, high interest rates, and the acquisition of equity and property”. So I asked the government “how many directors and employees of the Royal Bank of Scotland have been (1) interviewed by the police, (2) charged, (3) convicted, (4) fined, and (5) banned from holding corporate directorships”. The answer is none though the government says said that RBS has “apologised” and set-up a compensation scheme.

According to TaxWatch, over the past 11 years there have been 86,000 criminal prosecutions for benefits crimes, compared to 3,665 prosecutions for tax crimes. Tax fraud for 2018/19 is estimated to be £20bn compared to benefits fraud of £2.2bn. The Criminal Finances Act 2017 introduced the charge of failing to prevent tax evasion so that corporations and their directors can be criminally prosecuted. No corporate body has been prosecuted. The government is unable even to specify the number of companies who fail to file tax returns or the amount of penalties collected for late filing.

In 2016, the Panama Papers leak of 11.5 million leaked documents exposed organised tax abuses relating to 214,488 offshore entities in more than 200 countries. Nearly 113,000 were registered in the British Virgin Island, a British Overseas Territory; 15,000 in the Bahamas and a number were also registered in Jersey, Guernsey and the Isle of Man. Some 1,924 UK-based banks, accountants, lawyers and other intermediaries helped to process illicit financial flows. Five years later, the outcome is four arrests, six interviews and no prosecutions.

Despite promises, the tax avoidance industry hardly faces any retribution. A Deloitte designed scheme was found to be unlawful by the Court of Appeal in the 2018 case of Travel Document Service & Ladbroke Group International v Revenue & Customs. Court judgment in the case of GDF Suez Teesside Led v Revenue and Customs [2018] declared an Ernst & Young designed avoidance scheme to be unlawful. In the case of Her Majesty’s Revenue and Customs v Pendragon plc and others [2015], five Supreme Court judges found a KPMG tax avoidance scheme to be unlawful and said that it “was an abuse of law.” Big accounting firms face no sanctions but continue to receive taxpayer funded contracts.

Insolvency practitioners feed on the carcass of bankrupt businesses and are under no pressure to complete insolvencies diligently. Prolonged insolvencies result in higher fees to the detriment of supply chain creditors, employees, taxpayers and local councils. In October 2020, the number of company liquidations which remained incomplete after 5 years, 10 years, and 15 years were as follows:

Between 5 and 9 Years	Between 10 and 14 Years	15 Years and More
7,962	3,642	14,328

Regulators ask no questions.

In the past decade, 950,000 workers have been denied the statutory minimum wage. If caught, defaulting employers must pay the wages withheld and possible penalties of up to 200% of the arrears and a prosecution. HMRC has recovered significant sums but prosecutions are miniscule. There were no prosecutions in 2015/16, 4 in 2016/17, one in 2017/18, none on 2018/19 and 1 in 2019/10. The most common outcome was a puny fine. Did these penalties act as a deterrent? Last year, 408,000 workers did not receive the statutory minimum wage.

The above is the tip of an iceberg and draws attention to the role of wealth, political patronage and neglect in law enforcement. A network of nearly 700 regulators is ineffective. Parliament and media are struggling to hold governments to account. There is an urgent need to scrutinise a political culture that is enriching a few and harming many.

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