INDEX

Website updated to 20 January 2009 (including full transcripts of interviews with Group Fraud & Security here and here and letter of dismissal)

Part 1 - Uncovering a scandal (Equitable Life, Lloyds TSB, Scottish Widows and the Financial Services Authority)
   
Part 2 - The turn of the screw (Reporting to management, suspension, investigation, dismissal)
   
Part 3 (this page) - A banner with a strange device (Follow-up actions)

Part 3 explains what I have done since I was dismissed to follow up:

  • the original whistleblowing matter;
  • the victimization by my management resulting from the whistleblowing;
  • the failure of Scottish Widows' auditors (PricewaterhouseCoopers) to qualify the 1998 accounts of that company on account of the whistleblowing matter.
   
17. Referral to Chairman, Chief Executive, Director of Group Risk Management, Chairman of the Audit Committee and Company Secretary, together with commencement of legal proceedings.
18. Referral to City of London Police, Independent Police Complaints Commission, Professional Standards Unit and the Information Commissioner
19. Referral to Financial Services Authority, Members of Parliament, the Treasury Select Committee and the Parliamentary and Health Service Ombudsman
20. Referral to Institute of Chartered Accountants in England & Wales (ICAEW)
20.1 My complaint of victimization
20.2 My complaint that Martyn Scrivens had failed to properly investigate my concerns about the Scottish Widows demutualization
20.3 Complaint to the ICAEW against PricewaterhouseCoopers
21. Skeletons (or the ghost of Enron)
22. Conduct unbecoming
23. The Daily Telegraph
24. The BBC
25. Freedom to Care
26. The Institute of Internal Auditors
27. The Institute of Chartered Accountants of Scotland and the Bar Council
28. Lothian & Borders Police and the Procurator Fiscal
29. The Accountancy Investigation & Discipline Board
30. The European Parliament (The Committee on Petitions and the Committee of Enquiry into the Crisis of the Equitable Life Assurance Society), Norman Baker MP
31. Public Concern at Work
32. Private Eye
33. Personal consequences
34. Looking ahead
35. And you? What will you do?
   
 
The sections below have two parts, a 'Section summary' and a 'Section detail'. You can read through the summaries only to get an overview of the follow-up action I have taken, and refer to the detail sections where you would like further information. Where the detail section is very short the section summary simply says 'See section detail'.
 

17. Referral to Chairman, Chief Executive, Director of Group Risk Management, Chairman of the Audit Committee and Company Secretary, together with commencement of legal proceedings (Top of page)

Section summary: Next summary

When I was suspended in December 2002 I referred the matter to the most senior management in Lloyds TSB on the basis (a) that harassment of a whistleblower was a serious matter which they had a duty to act on and (b) that the issue of the Scottish Widows demutualisation was significant, involving GBP1.5 billion and possible civil and criminal offences by directors. They refused to act. In particular, the Chairman of the Audit Committee refused to act on grounds that were quite clearly spurious, as I explain below. He said, for instance, that I should provide more evidence, knowing full well that I had no authority to carry out an investigation (a bit difficult to do this when you have been suspended!) and that the general advice to whistleblowers is 'Don't investigate the matter. You may make matters worse if you do. It's your job to raise the concern, not prove it.' (this is quoted from an official publication). The rest of the section details my correspondence with senior management and the path to litigation, which I started on 11 December 2008, being an action against the bank for harassment.

Next summary

Section detail:

Ewan Brown, Chairman of the Audit Committee of Lloyds TSB

When I was suspended in December 2002 I referred this matter to the Chief Executive of Lloyds TSB (Peter Ellwood), the Director of Group Risk Management of Lloyds TSB (Michael Green), who was Alan Hubbard's (Director of Group Audit) manager, and the Chairman of the Audit Committee of Lloyds TSB (Ewan Brown), all of whom declined to look into the matter. When Peter Ellwood and Michael Green brushed me off I pursued the matter with Ewan Brown, since it was clear to me that as a Chartered Accountant and as Chairman of the Audit Committee he at least had a clear duty to act.

Ewan Brown - a man of iron integrity - I don't think.

Ewan Brown refused to intervene on the grounds that it would be inappropriate for him to become involved in the bank's investigatory or disciplinary procedures and that I should provide further evidence relating to the Scottish Widows demutualization. This was in spite of the fact that:

You will notice a curious (or perhaps not so curious) double standard here. The bank pursues preposterous allegations (eventually found to be unsubstantiated) made against a relatively junior member of staff (myself) with alacrity by initiating an investigation by Group Fraud & Security, yet absolutely refuses to lift a finger to investigate extremely serious allegations made against its directors, supported by clear facts and made by a Chartered Accountant in their own internal audit department who was acting on the advice of the Ethics Advisory Service of the Institute of Chartered Accountants (ICAEW).

Peter Ellwood, Chief Executive of Lloyds TSB - Another moral coward who ran a mile when the going got tough!

'On the 11th November and on the specific advice of the Ethical Advisory Service of the ICAEW, I reported certain concerns of mine to the bank’s external auditors, PricewaterhouseCoopers (PwC), relating to the demutualisation of Scottish Widows; namely, that the directors of Scottish Widows, and possibly also the directors of Lloyds TSB, might have made misleading statements/inadequate disclosures at the time of the demutualisation of Scottish Widows concerning a contingent liability in respect of Guaranteed Annuity Rate (GAR) policies and the availability of the £1.5bn ‘Additional Account’ to non-GAR policyholders. I was also concerned, given that (as I understand it) the demutualisation arrangements had been approved by a Court of Law, that, if any misleading statements/inadequate disclosures had been made with an intention to mislead or an intention to not properly disclose information, then the directors referred to may have committed perjury. While I had not carried out a full enquiry into this matter, I believed that the facts were sufficient to put a reasonable person on enquiry and that I had a clear duty to report my concerns. Although I followed the ICAEW’s advice in reporting the matter to PwC, I had some reservations about doing this, which I expressed, since it occurred to me that PwC had probably been closely involved in the demutualisation process and, on this basis, could not necessarily be relied upon to give an independent view. I should say that I had notified my line management of my intention to refer this matter to PwC and asked for the name of a partner to contact. My line management declined to provide me with this information.

PwC discussed this matter with Alan Hubbard, Group Audit Director, on, I believe, 12th/13th November. One of their partners (a Mr. Keers I believe) then telephoned me on the 14th November to tell me that PwC were satisfied that there had been nothing wrong with the demutualisation process. He suggested that I might like to contact Client Services at Scottish Widows, who he thought might have a list of stock answers to queries from policyholders. Alan Hubbard subsequently wrote to me to the effect that he intended to rely on assurances given to him by PwC. I drafted a reply to Alan Hubbard saying that I did not think it was prudent to rely on unsupported verbal representations made by a party who, if there had been anything wrong with the demutualisation process, might have reasons for concealing that fact. The sending of this reply was overtaken by events.

On the 12th December I was suspended from my job. Of some 31 allegations made against me (including one allegation of ‘altering the design of the holiday spreadsheet’, another of ‘criticising the use of a report template’, another of being ‘unwilling to attend a course’ and another of being ‘unwilling to comply with standard SW audit working paper file requirements’), 10 derive (apparently) from my being ‘unwilling’ to do certain things. Now, you will not need to consult the Lloyds TSB Staff Manual to know that there is no offence in that document of being unwilling to do anything and this fact alone should be sufficient to confirm the malicious intent behind my suspension and to dismiss the entire document accordingly. A further 5 allegations derive (apparently) from ‘abuse of working from home privilege’, dating back to March this year, and a further 4 relate to matters that I referred to PwC on the specific advice of the Ethical Advisory Service of the ICAEW (which the ICAEW are writing to me to confirm). Other offences apparently include ‘threatening senior line management with legal action’, which is not true (although I did consider using the bank’s grievance process). The context of this was that my annual bonus was cut this year from £1000 to £500 (by 50%) because, according to Howard Monks, Head of IT Audit, I had been off work for three months (25% of the year) following a heart attack in September 2001. I suspect that another member of Group Audit (Andrew Billinge), who has also had a heart attack and been off work as a result, has not been treated in this manner.

I immediately referred my suspension to Michael Green, Director of Group Risk Management, and asked him (via John Troon of Group Fraud & Security) to suspend the disciplinary proceedings against me pending an independent enquiry into the full circumstances surrounding my suspension, including the allegations made against me. I also asked him to refer this matter to you. I had received no response by close of business on Friday.

'I am writing in response to a letter from your Executive Assistant, Andrew Gunn, dated 17th December. I must be frank and say that I found this letter to be extraordinarily complacent; it appeared to me to be simply an excuse for a). doing nothing and b). avoiding blame. In this sense the letter was typical of what I can only call the ‘smooth problem avoidance culture’ that it the cancer within Group Audit which has been the primary cause of the present situation.

I have received a reply from Professor Brown to my fax to him dated 15th December. His reply was completely unsatisfactory and I shall be writing to him to this effect shortly. This will cover, inter alia, the matters of the Scottish Widows demutualisation, the website audit report and Group Audit’s failure to report the lack of encryption of the E-Mail link between Scottish Widows and the bank. The matter that I am referring to you now is the disciplinary process that has been initiated against me. Let me get to straight to the point.

If you can understand why a disciplinary process has been initiated against me for, amongst other things, altering the design of a holiday spreadsheet and being unwilling to go on a course, while, at the same time, no action of any kind has been initiated (by the same people – my line management) against the person who knowingly and deliberately withheld critical audit evidence from me during the same period (this amounts to severe obstruction of the audit process and the fact that it happened is provable being any doubt), then you will begin to understand the nature of the cancer I have referred to above. Similarly, if you can understand why a disciplinary process has been initiated against me for these reasons while, at the same time, an entire business unit (Scottish Widows) has been allowed (by the same people – my line management) to ignore large sections of the ITEC Rules (which are mandatory, retrospective and immediate in effect) for several years then, again, you will begin to understand the nature of the cancer I have referred to above. In these circumstances, taking no action is not an option.

I have already stated the view (and it should be quite obvious to anyone reading the list of allegations against me) that this disciplinary process has been initiated by my line management with malicious intent. On this basis and on the basis that I had previously made it known, or it had become obvious, that I was likely to initiate harassment and/or grievance proceedings against Roger Cooper (Senior Manager, Group Audit), Howard Monks (Head of IT Audit, Group Audit) and Alan Hubbard (Group Audit Director) and (in addition and for separate reasons) to report them to the Institute of Internal Auditors (IIA) for what I believe are breaches of the IIA ethical rules, it is clearly inappropriate that these people or any of their colleagues (who may not be fully independent in this matter) should be involved in the disciplinary process in any way, since they have a clear interest in trying to get me dismissed. I am therefore asking you to take steps personally to ensure that no-one from Group Audit is involved in the disciplinary process...'

'It is not inappropriate for you to get involved in procedures under the bank’s disciplinary process where prima facie such procedures have been maliciously initiated in an attempt to prevent an individual from following up matters which are of valid concern to the Audit Committee. On the contrary, this is precisely the sort of situation that should ‘have the alarm bells ringing’. Furthermore, it should be obvious that people are very likely to resort to character assassination in such circumstances. You should be aware of this and make sure of the facts.

With regard to the demutualisation, I spoke to John Troon twice on the telephone. On neither occasion did I offer any evidence. Indeed, although he was trying to wheedle information out of me, I declined to discuss the matter (other than to make some very general comments) because I thought it would not be appropriate. If you are under the impression that ‘could offer no evidence’ then you have been misled – another matter which you should investigate. I have now written to the FSA and attach a copy of my letter to them. It should also be quite clear that it is not my duty to carry out an investigation into this matter, it is yours. I have no authority to carry out an investigation , you do. On this basis it would not be reasonable to expect me to produce a complete and indexed body of evidence. My duty is to report my valid concerns once I have been put on enquiry and to see that these concerns are properly investigated, which I am doing.'

'1. I refer to your letter of 30th December.

2. You claim to have clarified your position. As the recipient of this ‘clarification’ I must say that it clarifies nothing at all. You have simply stated that I will ‘be given a fair hearing’. There is absolutely nothing to support or explain this statement and it simply flies in the face of what I said on this point in my previous faxes. It is patently obvious, for the reasons I have already stated, that the Audit Department is not the ‘appropriate department’. Since you give no reason or explanation for your statements, I think it is fair to assume you have none. You are simply making an unsupported assertion.

3. While providing an unsatisfactory response in relation to the procedures under the bank’s disciplinary process (above), you have completely ignored other matters that should be of concern to you, namely the failure of Group Audit management to take any effective action in response to severe obstruction of the audit process, the failures of Group Audit (and indeed Scottish Widows) management in relation to ITEC compliance and Alan Hubbard’s and Howard Monks’s bullying of a member of staff who had just suffered a heart attack. Are you intending to simply ignore these issues?

4. It is my duty to point out to you that I believe that the bank’s actions towards me are a criminal offence under section 2 of the Protection from Harassment Act 1997 and that by failing to act in this matter you are party to this offence.

5. I would like to thank you for giving me the opportunity to clarify the position.'

18. Referral to City of London Police, Independent Police Complaints Commission, Professional Standards Unit of the City of London Police and the Information Commissioner (Top of page)

Section summary: Next summary Previous summary

Harassment is a criminal offence under the Protection from Harassment Act, so I reported the matter to the City of London Police (Lloyds TSB's headquarters are in the City of London). They refused to act, alleging that the Act only covered harassment caused by stalking and similar anti-social conduct. This is clearly untrue because the Act makes no mention at all of stalking and defines harassment as 'conduct' (i.e. any conduct) which a reasonable person thinks amounts to harassment; no mention of stalking. The police also argued that employment situations are covered by employment laws, so the matter should be dealt with by a civil tribunal or court. This would mean, of course, that any harassment of an employee by an employer would not be treated as harassment under the Act. This ridiculous assertion was comprehensively trashed by the House of Lords in Majrowski v. Guy's and St. Thomas' NHS Trust. I complained to the City of London Police's Professional Conduct Directorate. They refused to pursue the matter on the basis of legal advice given to them to the effect that the 'final act' of dismissing me was not harassment. This was a clever dodge because the Act says that harassment must be a 'course of conduct' involving two or more occasions, so one act (such as an act of dismissal) can never amount to harassment! All of this is irrelevant because what I had complained of to the Police was a campaign of harassment lasting over a year, not an 'act of dismissal'. Naturally, I asked to see the legal advice under the Freedom of Information Act, but the Police refused on the grounds of legal professional privilege. I applied to the Information Commissioner, who upheld the Police's assertion that the legal advice was subject to a general exemption of legal professional privilege, ignoring the Information Commissioner's own rule that the legal professional privilege exemption is subject to a public interest test which means that all requests must be judged on their own merits i.e. there is no general exemption on the basis of legal professional privilege. So the Information Commissioner simply rode roughshod over his own rules.

Next summary Previous summary

Section detail:

'Detective Chief Inspector Morgan of Bishopsgate Police Station, London

I wish to make a formal complaint concerning the above officer and a sergeant at the same station. I do not have a record of the sergeant’s name but he is the Crime Desk Sergeant on 0207 601 2653. I do have a tape recording of my telephone conversations with both of these officers but I have not prepared a transcript. DCI Morgan told me that the conversation was recorded from his end.

I spoke first to the Crime Desk Sergeant on 14th January. I reported what I believe to be a criminal offence committed against me by my employers, Lloyds TSB, under section 2 of the Protection from Harassment Act 1997. Basically, the sergeant declined to take any action on the basis that disciplinary action taken against an employee by an employer was exempt under section 4.3.b. I believe this to be untrue. I believe that employers can and do use disciplinary procedures against employees for malicious reasons and I believe that such action falls within the scope of the Act. The sergeant did agree to refer the matter to DCI Morgan who later phoned me back. He also maintained that disciplinary action taken by an employer against and employee was exempt.

My complaint is that the police officers concerned have refused to follow up a criminal offence on what I believe to be patently spurious grounds. One of these officers told me that the Act was intended to deal only with sexual harassment. I believe this to be untrue. I will be grateful if you could investigate this matter and ensure that if there is a prima facie case under the Act that the matter is properly pursued.'

'I refer to your letter of 4th April. You state that 'the intention of the act is to prevent 'stalking' and other similar unsocial conduct'. There is absolutely nothing in the Protection from Harassment Act to support this view - quite the opposite in fact. The act states:-

'1. (1) A person must not pursue a course of conduct-
(a) which amounts to harassment of another, and
(b) which he knows or ought to know amounts to harassment of the other.
(2) For the purposes of this section, the person whose course of conduct is in question ought to know that it amounts to harassment of another if a reasonable person in possession of the same information would think the course of conduct amounted to harassment of the other.'

Harassment is therefore defined by the Act as any behaviour which a 'reasonable person' considers to be harassment – no limits or qualifications. It's as simple as that. Your statement is quite simply nonsense.

Your statement that the act was not intended to address harassment by a company is a red herring, even if true. Where did you get the impression that I am a complaining about harassment by a company, as opposed to individuals? Did you actually listen to the tape of the telephone calls? I certainly believe that I am being subjected to harassment by specific individuals. I haven't been given the opportunity to report the names of these individuals because you, the police, are refusing to investigate the matter (crime).

I wish to complain about what I believe is deliberate lying on your part during an investigation and will be grateful if you could advise me how I should proceed. I shall refer this matter to my MP in any event. I would be grateful for a prompt reply.'

'I refer to the statement that I sent to you via recorded delivery on 12th July. I wish to add the following to that statement:

When an employer initiates an investigation against an employee into alleged acts by the employee that are patently not against the company's own rules then there must be a prima facie case that the motive of the individuals behind the investigation is to harass the employee, particularly where, as in this case, the investigation is carried out by Group Fraud & Security. This is, in my view, sufficient grounds for the police to investigate the matter under the Protection from Harassment Act – there is a prima facie case of harassment.'

'I refer to your letter of 2nd December. You must think me naive in the extreme if you thought that I would not notice that your response was limited to 'the final act of terminating your employment'. Why have you not considered all the other 'acts' of the persons concerned e.g. knowingly making false or unfounded allegations against me and initiating an investigation with the view to harassing me out of the company? The fact that the investigation concluded that there were no grounds for disciplinary action against me, together with the other circumstances (of which you are aware), constitute a strong prima facie case of harassment. I intend to refer this matter to my MP with a view to him referring the matter to the Ombudsman. In the meantime I will be grateful if you would answer the points I have raised. I will also be grateful if you could send me a copy of the legal opinion you have obtained. In this context I would draw your attention to the following case with respect to what constitutes harassment.

In Esther Thomas v Newsgroup Newspapers Limited Neutral Citation number [2001] EWCA CIV 1233, the Court of Appeal considered the meaning of 'harassment' under the 1997 Act. In giving the judgment of the court Lord Phillips MR said -

"29. Section 7 of the 1997 Act does not purport to provide a comprehensive definition of harassment. There are many actions that foreseeably alarm or cause a person distress that could not possibly be described as harassment. It seems to me that section 7 is dealing with that element of the offence which is constituted by the effect of conduct rather than with the types of conduct that produce that effect.

30. The Act does not attempt to define the type of conduct that is capable of constituting harassment. "Harassment" is, however, a word which has a meaning that is generally understood. It describes conduct targeted at an individual a which is calculated to produce the consequences described in section 7 and which is oppressive and unreasonable.

You need not bother writing to me again to the effect that this matter is closed. It will be closed when (and only when) you do your job properly.

I will be grateful for a timely reply to this letter.'

'I refer to your letter dated 31st January. I am writing to ask for an internal review of the case to be carried out in accordance with the Act.

In the first place you state that my request 'has been dealt with in accordance with the provisions of the Freedom of Information Act 2000.' This is not true since my request was not dealt with within the time limit of 20 days. I wrote to you on 1/1/2005 and you replied on 31/1/2005, 11 days late.

The factors favouring non-disclosure you cite in your letter are all general points that do not relate to the specific case in question.

The 'Freedom of Information Act Awareness Guidance No 4 states in Section 42 (Legal Professional Privilege) that 'The legal professional privilege is class based. Therefore, for the exemption to apply, it is not necessary to demonstrate that any 'prejudice' may occur to the professional legal adviser/client relationship if information is disclosed. Rather, it is assumed that the disclosure of even quite trivial information might undermine the relationship of the lawyer and the client. Nevertheless, the exemption from the right to know is conditional and can only be relied upon where the public interest in maintaining the exemption outweighs the public interest in disclosing the information. Issues concerning the public interest are discussed below.'

Section D ('The Public Interest Test') states that 'The Act broadens the scope of consideration of the public interest beyond preventing that which is unlawful to weighing the public interest in disclosing information and not disclosing them. The Act can, however, be used to oblige an authority with a claim to legal professional privilege to review its decision to maintain the privilege on public interest grounds. ALL REQUESTS MUST BE JUDGED ON THEIR OWN MERITS.'

This makes it quite clear that IT IS NOT SUFFICIENT FOR AN AUTHORITY TO ATTEMPT TO RELY ON A GENERAL PRINCIPLE OF EXEMPTION AND THAT EACH CASE MUST BE JUDGED ON ITS OWN INDIVIDUAL MERITS, THAT IS FACTORS THAT RELATE TO THE PARTICULAR CASE IN QUESTION. Since Superintendent Moore has not raised ANY factors that relate to the particular case in question and since he has only sought to rely on a general principle of exemption (see his points 1,2 and 3 under the heading 'Factors favouring non-disclosure'), it is clear that there are no such specific factors. Superintendent Moore has therefore failed to provide the justification for exemption required by the Guide and his case must fail accordingly.

The main purpose of the legal adviser/client exemption is clearly to prevent one party in a litigation from obtaining information from the other party in a litigation. If we consider the facts of this particular case it becomes clear that this is a very different situation, namely one where the police obtained legal advice effectively ON MY BEHALF AND BASED ON INFORMATION THAT I PROVIDED. What possible justification can there be for not disclosing the legal advice obtained, particularly since any lawyer would presumably give the same advice on the basis of the same facts, provided by me? It is my view that to attempt to rely on the exemption in such a situation is nothing less than a perversion and distortion of the principle.'

'City of London Police – Information Request No: COL/05/5

I wish to refer the above request to you for review. The ground for my complaint is that the booklet 'Freedom of Information Act – Awareness Guidance No 4' states under the heading 'The Public Interest Test' (p.7) that 'All requests must be judged on their own merits' and that the City of London Police have failed to assess my request on its own merits either in their original response to my request (their letter dated 31st January) or in the subsequent Internal Review (their letter dated 18th April). In neither case have the particular merits/demerits of my request been detailed. In their letter dated 31st January the 'factors favouring non-disclosure' mentioned are all general points that are not specific to my case. For instance, their point that 'confidentiality between lawyer and client promotes respect for the rule of law by encouraging clients to seek legal advice and allowing for full and frank exchange between clients and their lawyers' is a general point which could be said of any legal advice; no reasons are given as to why in this particular case the disclosure of the requested information to me would prevent a 'full and frank exchange between clients and their lawyers' or how it would result in disrespect for the rule of law (a preposterous reason in my view). Their letter of 18th April simply says that my request was 'judged on its merits' but doesn't say how.'

19. Referral to Financial Services Authority (FSA), Members of Parliament (MPs), the Treasury Select Committee and the Parliamentary and Health Service Ombudsman (Top of page)

Section summary: Next summary Previous summary

The Financial Services Authority (FSA), Members of Parliament and the Treasury Select Committee

I naturally referred my concerns about the Scottish Widows demutualisation to the FSA at an early stage (January 2003), since they are the regulators of the financial services industry and are the proper people to handle such matters. In other words, I initially complained to the FSA about Scottish Widows. When the FSA persistently refused to deal with my complaint properly (even, at one point, refusing to correspond further, although all I wanted was a simple answer to a simple question which could have cleared the whole thing up, as explained below), I complained about the FSA to the Treasury Select Committee, who oversee the FSA, via my MP: I did this initially through Sir Archy Kirkwood (Liberal) and then, when I moved to another constituency, through Alan Beith (also Liberal). Over a period of nearly 5 years both MPs persistently refused to take a stand on the issue; that is, to make a moral judgement and act accordingly. They quite literally just acted as post-boxes, simply forwarding letters (without comment) between myself and the FSA and myself and the Treasury Select Committee. Of course, this conduct on their part sent a clear message to the FSA and the Treasury Select Committee that they could act as they pleased and that nothing would be done about it. Alan Beith even reached the point where he said (in essence) that the Treasury Select Committee were entitled to make their own minds up on the matter, even though he was fully aware that the Committee had never considered my complaint as a committee; it was the Chairman of the Committee (John McFall MP) who was stonewalling me. Thus Alan Beith moved from moral cowardice to plain dishonesty. As for John McFall, he declined to pursue my complaint on the basis that the Treasury Select Committee had decided not to investigate individual cases (a self-made rule - one wonders why - which they break when it suits them - see Farepak and Northern Rock). He maintained this argument even though (1) I made it quite clear that my complaint was not an 'individual case' in the sense that it related to one organisation, since the FSA's supervision of the GAR issue was clearly an industry-wide issue and the Committee could have investigated the Scottish Widows demutualisation in the context of an industry-wide enquiry into that issue, (2) I made it clear that my complaint was not an 'individual case' in the sense that it only concerned a wrong done to one person (the complainer)*, since it affected hundreds of thousands, and possibly millions, of people (which, funnily enough, was the precise reason given by the Committee for setting up its own 2001 enquiry into Equitable Life) and (3) John McFall was fully aware at the time that the Treasury Select Committee were investigating two 'individual cases', those of Farepak and Northern Rock. John McFall was dishonest from the beginning.

* Note that John McFall used different definitions of the phrase 'individual case' as it suited him, claiming, on the one hand, that it referred to an individual organisation and then, on the other hand, that it referred to a complaint by an individual person in respect of a wrong done to them.

The Parliamentary and Health Service Ombudsman

In October 2006 I wrote to the Parliamentary and Health Service Ombudsman, asking her to investigate the FSA's supervision of the Scottish Widows demutualisation. My reasons were two fold; firstly, because, as far as I was aware, the FSA was within the jurisdiction of the Ombudsman and, secondly, because the Ombudsman was then in the middle of an enquiry into the FSA's supervision of the GAR liabilities of Equitable Life (report issued in July 2008). Since both matters concerned failures in the FSA's regulation of the GAR liabilities of life companies within a common timescale, it seemed to me that there were very strong grounds for referring the Scottish Widows demutualisation to the Ombudsman. How wrong I was! The Ombudsman's office basically 'moved heaven and earth' NOT to investigate my complaint. Three times they claimed that I had complained outside the time limit, and three times I explained to them why I had quite clearly complained within the time limit. They eventually dropped that argument. They argued that the Ombudsman had absolute discretion in deciding what to investigate. I replied that I assumed that they applied a set of principles or criteria to all complaints, so that they would investigate a complaint if it was made on similar grounds to a previous complaint that they had investigated. They twice tried to 'close my file', knowing that they had no authority to do so. They twice claimed (including a Director) that my complaint was outside the Ombudsman's jurisdiction because it concerned 'conduct of business regulation' (which is outside the Ombudsman's jurisdiction) rather than 'prudential regulation' (which is within the Ombudsman's jurisdiction). This is a straight lie, as I demonstrate below; either that or it shows a level of negligence so consciously reckless as to require immediate dismissal on the grounds of incompetence (otherwise they can literally say what they like without fear of effective sanction). After they made this false claim I sought to amend my complaint but they argued that my 'new' complaint was too far removed from my old complaint and so had to considered as a new complaint, even though, as I explained to them, both my complaints concerned the FSA's supervision of the GAR liabilities of Scottish Widows; the only difference being one of timing (i.e. during the demutualisation in the original complaint as opposed to before and during the demutualisation in the new complaint). Their response to this was a short E-Mail from an Executive Assistant to the effect that my comments had been noted. The whole argument about 'new' and 'old' complaints is, of course, completely meaningless if, as they claimed, my complaint was outside the Ombudsman's jurisdiction anyway on the grounds that it related to conduct of business regulation as opposed to prudential regulation. Presumably, if I had made a new complaint they would simply have said 'Thanks for that. But, sorry, it's outside our jurisdiction.' As of January 2009 (more than 2 years after my original complaint) I am about to go back to them concerning their false claim (read 'lie') concerning jurisdiction over my original complaint (prudential regulation as opposed to conduct of business regulation). Seriously, these people must take training courses in 'Going round in circles' (and we pay their bloody gold-plated pensions!).

Next summary Previous summary

Section detail:

Alan Beith, MP for Berwick-upon-Tweed - Dodger of the Decade.

John McFall MP (Labour), Chairman of the Treasury Select Committee - This picture doesn't show his underpants because they are on fire.

The Financial Services Authority (FSA), Members of Parliament and the Treasury Select Committee

'Dear Mr. Tanner,

Thank you for your E-Mail. I have a professional duty as an auditor and a public duty as a citizen to make sure that this matter is properly handled. How can I ensure that you are handling the matter properly if you will not provide me with any feedback? You must appreciate that in the absence of such feedback I will have no option but to pursue the matter further, in short to make it public.

I look forward to hearing from you.

Yours sincerely,

Graham Milne'

'Sir,

Thank you for your e-mail below, I apologise for not replying sooner.

As I explained to you in my original acknowledgement letter, disclosure restrictions imposed on the FSA by the Financial Services and Markets Act 2000* prevents me from giving you feedback unless the result of our enquiries is put into the public domain.

However, I can reveal that FSA has previously looked at Scottish Widows demutualisation scheme and we do not believe that the additional information you have supplied gives FSA any further cause for concern.

The FSA continues to have an interest in this issue, so it may be necessary for either myself or a colleague to contact you in the future regarding the concerns you have raised. Likewise if you become aware of any other relevant information relating to this matter, please do not hesitate to contact me.

Regards,

Colin Tanner'

*I believe that this is just a blind. I have had a fairly thorough look at the Act I can see nothing that prevents them from providing feedback, subject to normal restrictions on confidentiality. A typical bureaucrat's excuse I would say.

Let's just get these events in order:

  • As a whistleblower I make a complaint to the FSA which includes allegations of criminal misconduct on the part of directors of Lloyds TSB (and remember that these are not vague allegations but clear breaches of specified statutes based on clear evidence).
  • Shortly afterwards those directors of Lloyds TSB approach the Managing Director of the FSA responsible for handling the complaint and offer her a senior position (newly created!) on a salary package which appears to be more than double her existing salary (If the Director was not responsible then why did she deal with my complaint? That would be even more serious.).
  • That Managing Director then deals with that complaint by actively misleading the complainant.
  • That Managing Director then leaves the FSA and joins Lloyds TSB having made a public statement to the effect that she was not involved in any matter within the FSA which involved Lloyds TSB.
  • That Managing Director is then appointed as a trustee of the UK's leading whistleblower organisation.

Carol Sergeant.

'Dear Sir Archy,

Thank you for your letter of 3rd October. Yes, I would like to comment. I would like to know by what standard the FSA deemed the disclosure to policyholders of the contingent GAR liability adequate. In my original letter to John Tiner I quoted the relevant FRS on contingent liabilities. This does provide a standard as to what should be disclosed and, as I said, I can see no good reason why this standard should not have been applied in the circumstances - if Carol Sergeant has such a reason perhaps she would be good enough to give it. How can disclosure be deemed adequate when it does not explain the nature and extent of the contingency and the circumstances in which the directors believe that contingency might materialise? The simple answer is that it can't.

I would be grateful if you could put these points to the FSA.

Yours sincerely,

Graham Milne'

'Dear Sir Archy,

Thank you for your recent letter. If you read the letter from the FSA, it will be obvious to you that they no longer even bother to make a pretence of answering my points. You will forgive me for saying so but I am beginning to wonder if at any point in this process you will get off the fence and take a moral stance on this issue. It seems to me (and, again, I am sure you will forgive me for saying so) that you are simply forwarding correspondence back and forth. This must make you the most expensive postbox in history.

Yours sincerely,

Graham Milne'

'I enclose the reply I have now received from the FSA about the wording of the demutualization document.

I received your E-Mail of 16th March. You are quite at liberty to write to the Clerk of the Treasury Committee pressing the Committee to carry out an enquiry into this matter. The Committee are already aware of my request that they should do so.

Yours sincerely,

Alan Beith'

The reply that Alan Beith referred to is a letter dated 29 March from Clive Briault, Managing Director, Retail Markets, FSA, which states as follows:

'In my letter of 26 July 2005, I referred you to Scottish Widows' Demutualisation and Transfer Policyholder Circular (Part IV), published on 19 November 1999, several months before the final Equitable ruling. The document sets out the details of the demutualisation and transfer, including the terms for the Additional Account. Page 23 (under the heading 'Contingencies') says:

"The contingencies allocated to the With Profits Fund are any additional costs of meeting guaranteed benefits on Transferred Policies allocated to the With Profits Fund and any unexpected liabilities which arise in the future but relate (with certain exceptions) to the operation of the Society and its subsidiaries prior to the Effective Date, including those arising as a result of the SIB pensions review and tax liabilities on pre-Transfer transactions."

I hope that this is helpful.'

Well, this was helpful in the sense that we had finally (after 3 years) pinned the FSA down on the precise wording which they claimed 'generally made clear' to policyholders the existence of a GBP1.5 billion contingent liability in respect of GAR policies at the time of demutualization. The question was, of course, whether the statement on page 23 did actually make clear, in accordance with relevant accounting standards (i.e. FRS 12*), the nature and extent of the contingent liability and the director's assessment as to the likelihood that the contingency would crystallize; in other words, having read the statement would a policyholder understand:

  • that Scottish Widows had a contingent liability of GBP1.5 billion in respect of GAR policies at that time?
  • that if the Equitable Life case, then before the Court of Appeal, went against Equitable Life then the GBP1.5 billion put aside by Scottish Widows in the 'Additional Account' would not be paid to ordinary policyholders as stated on page 23 of the Demutualization and Transfer Policyholder Circular of 19 November 1999 but would be paid to GAR policyholders instead?
  • what the assessment of the directors of Scottish Widows was as to the likelihood of the liability crystallizing?

The answer to these questions is, of course, a resounding 'No'. As I had already pointed out to Alan Beith, and as the FSA themselves are well aware, the wording on page 23 falls so far short of adequate disclosure that it amounts to positive concealment. No reasonable person would or could dispute this point.

*Note that FRS 12 applies to financial statements, that is sets of accounts. Nonetheless, financial statements are designed to present a true and fair view and it therefore follows that any financial-type document which is supposed to present a true and fair view should comply with Financial Reporting Standards (FRS). It is for those who seek not to comply with FRS who need to justify their position. FRS 12 is therefore the 'yardstick' by which the adequacy of the disclosure of the contingent liability in respect of GAR policies should be judged.

Dear Mr. Lee,

I refer to your letter dated 13 September. You say in that letter that 'the Treasury Committee made a decision at its first meeting that it would not investigate individual cases'. May I refer you to:

http://www.publications.parliament.uk/pa/cm200001/cmselect/cmtreasy/272/27206.htm

where you will find a report titled 'Select Committee on Treasury Tenth Report, Equitable Life and the life assurance industry: An interim report'. Paragraph k) of the 'Summary of Conclusions and Recommendations' states that 'Equitable Life failed to explain to their policyholders the full implication of Lord Woolf's judgment. The FSA should therefore consider whether the assessment made by Equitable Life, and indeed by themselves, of whether the eventual House of Lords ruling could have been predicted, was justified, especially given Lord Woolf's judgment (paragraph 37).' This paragraph, as well as others, make it quite clear that the Committee did investigate the Equitable Life affair, in the context of the life assurance industry, and in fact the conduct of the FSA in relation to the Equitable Life affair, and that there is therefore no reason whatsoever why the Committee cannot also investigate the Scottish Widows demutualisation, in the context of the life assurance industry, and particularly the question of whether Scottish Widows failed to properly explain the nature of its GAR liability to policyholders (or the Court of Session) during the demutualisation process, as well as the conduct of the FSA in relation to the Scottish Widows demutualisation and other demutualisations as well. In short your reply is either deliberately misleading or a bare-faced lie.

I intend to pursue this matter either via the appropriate ombudsman or via judicial review or both. I will be grateful if you could copy this E-Mail to the Chairman of the Committee and ask him to respond.

May I draw your attention to:

http://www.cps.gov.uk/legal/section22/chapter_c.html

[now moved to http://www.cps.gov.uk/legal/l_to_o/misconduct_in_public_office/index.html]

where you will find some relevant information on misconduct in public office. I would classify deliberately lying to a member of the public (who has referred the matter to the Committee on the recommendation of his M.P.) on your part in the context of such a serious matter to be misconduct in public office.

You will find a copy of your letter of 13 September and of this E-Mail on:

http://www.happywarrior.org

Yours sincerely,

Graham Senior-Milne

Note: What has actually happened here is, as far I can see, as follows. It appears that at the beginning of every new parliament each committee decides on the scope of its activities. The Treasury Select Committee, it appears, did indeed make a decision not to investigate individual cases, even though it had done exactly that in the past (such as in the Equitable Life case referred to above for instance). So why on earth would they make such a decision? How can they possibly decide that no individual case that might come before them in the future would justify investigation? In fact, as I explain below, the Committee ignores this rule when it feels like it, as is illustrated by the well-known Farepak and Northern Rock cases.

'The fact of the matter is that I am not asking and have never asked the committee to investigate the Scottish Widows demutualisation as the case of an individual person. John McFall raised the same point about 'individual cases' in his letter of 27th February 2006 and in my letter to Alan Beith of 3rd March 2006 I made it quite clear what the basis of my complaint to the committee was. In that letter I wrote 'I will be grateful if you could write again to John McFall asking him to respond to these points.' Did Mr. Beith do this? How is it possible that in spite of the papers that I have submitted and in spite of the correspondence on this matter that John McFall apparently still does not understand the situation?

John McFall is, I believe, fully aware that my complaint is not an 'individual matter' but that it concerns a very serious issue to do with the FSA's supervision of GAR liabilities; he is, I believe, fully aware that the committee has full powers to investigate the affairs of individual companies (e.g. Farepak and Northern Rock) as part of enquiries into broader issues; he is, I believe, fully aware that possible failures by the FSA in their supervision of the Scottish Widows demutualisation are part of a much larger problem concerning the FSA's supervision of the GAR liabilities across the industry. Nobody who had actually read my papers and the correspondence could possibly misunderstand the matter in the way that John McFall makes out.

Mr. Beith first approached John McFall in September 2005 (Mr. Beith's letter to me of 28th September 2005). It is now over 2 YEARS later. The situation is absolutely unacceptable, given that this is an extremely serious matter that has been properly referred to the committee by an MP and yet it is quite clear that the committee has not actually discussed the matter as a committee at all (Mr. Beith's letter to me of 10th April 2006 refers). How is it possible that Mr. Beith can allow such a situation to continue?

I will be grateful if Mr. Beith could write to John McFall in the strongest possible terms (with a copy to myself). Further, rather than simply passing on my views on the matter, it is incumbent on Mr. Beith to take a moral stand. I have come to the conclusion that John McFall is stalling and will continue to stall indefinitely unless Mr. Beith makes an issue of this. It is absolutely unacceptable, indeed an outrage, that such a matter can be deliberately delayed in such a manner (though I suspect it is for you a wearily familiar aspect of the political scene).'

'John McFall's decision not to pursue the matter was based on the assertion that it was an individual case. It is not an individual case but a serious issue relating to the conduct of the FSA, which is very much within the remit of the Committee, and he ought to reconsider it on that basis. I am not asking you to dictate to the Committee but to point out that the basis on which they rejected my complaint was wrong. I say 'they' but the matter had never actually been considered by the Committee as a whole, as you know.

I am asking you to refer the matter again to John McFall on this basis.'

and

'I have John McFall's letter of 13th November to hand. This states that the Committee does not examine individual cases but the whole point of my letter to you of 25th September was to point out to you (and to ask you to point out to John McFall) that my complaint is not an individual complaint.'

'I refer to your letter of 24th January enclosing John McFall's 'reply' of 15th January. His 'reply' is not a reply at all; it is a one-line letter of acknowledgement of receipt. A proper reply addresses and responds to the issues raised by the sender. The reason John McFall treats both you and I with such contempt is that you have consistently failed to take a stand on the issue. He KNOWS you will do nothing. It is a sad reflection on you that you should be treated in this way. You are letting John McFall walk all over you - and your response is to meekly pass on his 'reply'. This is also an insult to me by you, since you clearly couldn't care less what I do about it. I would like to give you one further opportunity to take a moral stand on this issue and to do what you know to be right. You have had the choice right from the beginning to say to me 'Mr. Milne, I disagree with your point of view and I will not pursue the matter further (for x, y and z reasons).' The fact that you have not done this proves the merit of my case, but you have not been prepared to stick your neck out. You have chosen the most cowardly route.'

'I write with reference to your letter of 5th February. You refer me to your letter of 5th December 2007 and to the fact that you saw no prospect of John McFall changing his mind. You also say that you were willing to submit MY arguments. These two things are directly related, of course, because it is entirely due to the fact that you decline to put forward any views OF YOUR OWN that John McFall feels free to act as he does. Your message to him, in failing to voice your support, is effectively 'I am sending this on to you but if you refuse to do anything about it, I am not going to do anything about it.' No wonder he acts as he does. The fundamental point here is that you have a moral duty to decide whether or not you agree with what I say. You have declined to do this - because I presume you wish to avoid any risk to yourself. I am sorry of you find this offensive but it is the truth. You must be prepared to face the truth.

Now that it is evident that the Parliamentary Ombudsman's office will use every trick in the book NOT to look into my complaint (are you surprised?), it is clear that you need to go back to John McFall with forceful arguments of your own - one's that make it clear to him that this is an issue that you are not prepared to give up and will pursue as necessary. If this upsets your relationship with him, well that is unfortunate but your duty comes first.'

'I am writing with reference to your letter of 19th February. You say that you know of no further arguments beyond what I have already submitted. This is not the point. It is not WHAT is said, it is WHO says it that matters. John McFall will not listen to ANY argument I put forward or which you put forward on my behalf (as he has clearly demonstrated). He will only listen when he understands that you consider the matter to be important and will personally (not on my behalf) pursue the matter until it is properly dealt with. In order for him to understand this you have to tell it to him in no uncertain terms; in other words that you have no intention of letting the matter go and that if he doesn't pursue the matter properly YOU will make a fuss about it. It is pretty clear that, at the moment, he is confident that you will do nothing about it.

I will be grateful if you could write to John McFall and make this clear to him.'

'You say that 'the Chairman and Members of the Treasury Committee are capable of assessing arguments on their merits'. In the first place, the Committee has not considered my submission as a Committee at all, as you know. In the second place, the fact that someone is capable of doing something does not mean that they will do it. Mr. Blair was capable of telling the truth about the intelligence assessment of WMD in Iraq before taking this country to war. He didn't do it; he didn't do it for political reasons. He didn't do it because although capable, he made a conscious decision to lie. MPs are capable of being honest about their expenses, but they aren't. You are capable of making a moral decision about this issue and taking a stand on it but you absolutely decline to do so. You weave, you duck, you do anything to avoid taking any action that remotely constitutes a risk to you in your cosy little sinecure. You are prepared to continue doing this for years, literally until you drop dead. In fact, you have made a profession of avoiding risk to yourself; it is a measure of your life that this is what you have become best at. [...]'

The Parliamentary and Health Service Ombudsman

'With respect to time limits, you mention the date of January 2003 when I first contacted the FSA. However, the complaint I am making is AGAINST the FSA; when I contacted the FSA in January 2003 my complaint was TO the FSA against Scottish Widows. It took until 29 March 2006 for me to get an answer from the FSA which provides the basis of my complaint, namely the letter from Clive Briault of that date (see my website), since it was this letter that confirmed to me that the FSA had no reasonable grounds for saying that the existence of the £1.5 billion GAR liability was 'generally made clear' to policyholders at the relevant time. My complaint is therefore within time.

'It should be clear to you that Scottish Widows was and remained a regulated body throughout that period, in the same way as Equitable Life, and that the FSA's responsibilities continued, as they did with regard to Equitable Life, regardless of the sale of Scottish Widows to Lloyds TSB. There is no practical difference between the FSA's failure to ensure that Scottish Widows made adequate provision for its liabilities and made its policyholders aware of its liabilities before the sale and its failure to ensure these things during the sale, but since you choose the make a distinction it is necessary for me to amend my complaint accordingly. It should be clear to you that Scottish Widows must have failed to make adequate provision for its GAR liabilities because if they had made adequate provision it would not have been necessary for the company to put £1.5 billion aside in the 'Additional Account' during the sale.

I will be grateful if you could provide me with a copy of the relevant statutory or regulatory material which clarifies the distinction between prudential regulation and business regulation. The definition you provided implies that 'conduct of a business' does not include ensuring that a business is solvent. As a Chartered Accountant and having worked as an Internal Auditor in the banking sector for many years, it will not surprise you that I consider this to be such a nonsensical definition that I wish to clarify the matter for myself. I will also need copies of documentation which explain the changes in supervisory responsibility described in your letter and which provides details of the statutory or regulatory basis for these changes.

You will forgive my scepticism but this is the third time your office has attempted to avoid investigating my complaint on technical grounds and the grounds you raise now were not raised on either of the two preceding occasions. It has become quite clear that your office is simply looking for any excuse not to investigate my complaint - I know it, you know it. Mr. Beith knows it.'

'Having now given careful consideration to your email of 10 February, I have to tell you that I remain of the view that the Ombudsman cannot investigate your complaint, at least at present.

The complaint that Mr Beith referred on your behalf was specifically concerned with the FSA's supervision of the Scottish Widows demutualisation, and alleged that they had failed to ensure that policyholders were adequately informed of the significance of liabilities arising from previous annuity guarantees. The complaint that you now wish the Ombudsman to investigate alleges that the FSA failed to ensure that Scottish Widows had adequate reserves in place to meet those liabilities. That is too far removed from your original complaint to be regarded as a mere amendment, and so falls to be considered as an entirely new complaint. Since the Ombudsman cannot investigate any complaint unless it has been referred to her by a Member of the House of Commons, you would need to ask a Member of Parliament to refer this new complaint if you wish the Ombudsman to consider it.

I should point out, however, that even were you to do so, I consider it unlikely that the Ombudsman would intervene. You are already aware of the requirement that a complaint should be made to a Member of Parliament within 12 months of the date on which the aggrieved person first had knowledge of the matters giving rise to it. It is evident that you knew in early 2002 that the sum set aside for contingent liabilities was to be used to meet the GAR liabilities, and there is nothing in the information you have provided that I believe would persuade the Ombudsman to exercise her discretion to waive the time bar. Further, the Ombudsman will not normally investigate any complaint unless it has first been put to the body concerned, and they have been given an opportunity to respond. While I note that you have complained to the FSA about their supervision of the demutualisation, you would need also to show that you had raised with them the issue that you now ask the Ombudsman to investigate. [Note that I had already twice made clear to them (see my letters of 25 October 2006 and 28 October 2007 above) that my complaint was within the 12 month time limit because I had complained to them on 21 October 2006 against the FSA following the FSA's letter to me of 29 March 2006, which provided the grounds for my complaint - so I made my complaint within 8 months.]

The FSA's powers and responsibilities are set out in the Financial Services and Markets Act 2000. That the Ombudsman cannot investigate complaints against the FSA acting in their own right can be confirmed by reference to schedule 2 to the Parliamentary Commissioner Act 1967. [See my comments above on Andy Comber's letter of 6 February 2008.]

If you remain dissatisfied with the way in which we have dealt with your case, details of the Ombudsman's complaints procedure can be found on our web site at www.ombudsman.org.uk.'

'I wish to complain about the assertion made by Mr. Comber in his E-Mail of 14/2 that my complaint was 'too far removed from your original complaint to be regarded as a mere amendment, and so falls to be considered as an entirely new complaint'. It should be evident that the two issues (the failure of the FSA to ensure that policyholders were notified of GAR liberalities during the demutualisation and the failure of the FSA to ensure that Scottish Widows had adequate provision for GAR liabilities before the demutualisation) are not only directly linked but one failure actually directly caused the other. For Mr. Comber to say that they are 'far removed' from one another is plain nonsense - it is a mere assertion that he does not explain or justify in any way. The question is 'If one directly caused the other, then how can they be 'far removed' from each other?'. You will need to ask Mr. Comber this question. Both issues concern the same thing - the failure of the FSA to monitor and act upon the adequacy of Scottish Widows GAR provisions. In fact the failure of the FSA to ensure that policyholders were informed of the true situation during the demutualisation was actually intended by the FSA to cover up their failure to ensure that Scottish Widows had adequate provisions with respect to GAR liabilities before the demutualisation. Mr. Comber's assertion can be equated to saying that if a man murders someone and then goes on to murder the only witness to the crime, that the second murder is not related to the first - but the second murder would not have taken place if the first murder had not taken place. So, we have two separate crimes (and I believe he FSA has acted criminally) but one causes the other - to say that they are unconnected is sheer nonsense. Mr. Comber's assertion is a lie and mere evasion.'

'Your letter of 23 April says you will provide me with regular updates. You have not done so. I take it that your promise was meaningless and that you had no intention of abiding by it at any stage. It does not exactly fill me with confidence when you cannot get the basics right.'

'I am writing with reference to your letter of 31st July. You have seriously misrepresented my complaint against the FSA. You say that my initial complaint concerned ‘the adequacy of information provided by Scottish Widows’ (with no reference to the FSA). This is false – and if it had been correct my complaint would have been outside the Ombudsman’s remit in any event, since it would have been a complaint against Scottish Widows rather than the FSA. In fact, my complaint concerned the failure of the FSA to ensure that Scottish Widows policyholders were adequately informed of the GAR situation during the demutualisation process; in other words it was a complaint concerned with the FSA’s failure to protect the interests of Scottish Widows policyholders with reference to GAR liabilities. My ‘amended’ complaint was concerned with (Guess what?) the FSA’s failure to protect the interests of Scottish Widows policyholders with reference to GAR liabilities. The only difference between my original complaint and the amended complaint being the timeframe [...], since my original complaint related to the FSA’s supervision of Scottish Widows during the demutualisation process and my amended complaint related to the FSA’s supervision of Scottish Widows generally, but including during the demutualisation process.'

20. Referral to Institute of Chartered Accountants in England & Wales (ICAEW) (Top of page)

Section summary: Next summary Previous summary

Complaint against Martyn Scrivens

The person who dismissed me in December 2003 was Martyn Scrivens, Director of Group Audit, Lloyds TSB, who is a Chartered Accountant (i.e. a member of the ICAEW). Chartered Accountants are bound by the standards (rules of professional conduct) of their professional body (the ICAEW in this case) and are subject to disciplinary proceedings by their professional body if they fail to observe those standards. The ICAEW has 5 fundamental principles of professional ethics, which are integrity, objectivity, competence, performance (i.e. due skill and care) and courtesy, although there are also, of course, voluminous rules covering specific areas of conduct. There is no doubt that a member who deliberately victimizes a whistleblower, because he is a whistleblower, is breaking the most important principle, integrity, apart from anything else. There is no doubt that someone who is prepared to sack a whistleblower on account of their whistleblowing is unfit to be a member. Anyone considering the detailed evidence that I have put forward in this paper can have no doubt that I was victimised an account of whistleblowing; the reasons including (1) the fact that my management refused to investigate my concerns, (2) the fact that the bank's disciplinary procedures were wilfully ignored both before my suspension or afterwards, (3) the fact that I was suspended on the basis of a series of allegations (some clearly preposterous) which were later proved to be unfounded by the bank's own investigation (including the fact that I had reported the matter to the external auditors) and (4) the fact that I was suspended so soon after I had reported my concerns to the external auditors. More than that, the prima facie evidence (the seriousness of the matter, the nature of the allegations, the failure to follow the bank's disciplinary procedures) should have 'sounded alarm bells' to anyone aware of the basic facts - certainly sufficient to make someone say 'Hold on a minute! I need to get to the bottom of this.' before they actually sack someone. The truth is therefore clear. Martyn Scrivens sacked a whistleblower because, when it came to the point, he not only lacked the moral courage (i.e. integrity) to do what he knew to be right (that is, to protect a whistleblower who was being victimised), but he also chose to protect the company (and therefore his own interests) rather than do what he knew to be right; so greed (self-interest) AND cowardice. The fact that I am also a Chartered Accountant makes the crime doubly worse. The fact that I had become a whistleblower on the advice of the ICAEW's own Ethics Advisory Service makes it triply worse.

I complained to the ICAEW on the basis that Martyn Scrivens had (1) victimised a whistleblower and that he had (2) failed to investigate my concerns about Scottish Widows properly.

The ICAEW dismissed my complaint of victimisation on the basis that it was a matter reserved to employment tribunals or the courts; that is, they were UNABLE to investigate (i.e. legally prevented from investigating) my complaint because it was outside their jurisdiction. When I asked them to explain how the matter was reserved to employment tribunals or the courts, a simple and reasonable question, they refused to explain and then, shortly afterwards, refused to correspond further on the matter. All one can say is that this is utter nonsense and they know it. If an accountant murders a business colleague he will be tried for murder in the courts, and, clearly, it is not within the ICAEW's jurisdiction to try someone for murder - but they most certainly could expel a murderer from membership on the basis of a breach of fundamental ethical principles. Of course, the same applies to any conduct which is a breach of fundamental ethical principles, regardless of whether that conduct amounts to a crime tryable in a court or not. Frankly, it is ridiculous that one should have to point this out.

With regard to my complaint that Martyn Scrivens failed to investigate my concerns properly, the internal investigator, Ray Farren of the Professional Conduct Directorate, initially said 'the question of whether the conduct of Mr. Scrivens is wanting in the handling of this issue is a matter for the board of directors to consider', except that, in this case, the directors themselves appeared to have committed a criminal offence - so would they insist that Martyn Scrivens investigate their own misdemeanours? But even if the directors themselves were not involved the ICAEW cannot absolve itself of its responsibility to investigate a prima facie breach of its own rules. Really, the nonsense, the puerility of it! When the matter was eventually considered by the Investigation Committee (18 months after my initial complaint), they concluded that 'Mr. Scrivens made every reasonable effort to satisfy himself that your concerns had been investigated and also as to whether or not they could be substantiated'. This means that the Investigation Committee considers it reasonable to fire one of your own staff where (1) an internal investigation has found that there were no grounds for disciplinary proceedings, (2) the company rules specifically forbid sacking someone in such circumstances, (3) you have not talked to the employee concerned, (4) you have allowed management to act as accuser, judge and jury and (5) you have relied on statements from the auditors, who, as any half-competent accountant or auditor should have seen, had every motive to conceal their failure to qualify the accounts of Scottish Widows on the basis of a huge financial black hole in their books, which we know for a fact existed and which we know for a fact that they didn't mention in their audit report.

Complaint against PricewaterhouseCoopers

On 23 November 2007 I made a complaint to the ICAEW against PricewaterhouseCoopers on the basis that (1) PwC acted as auditors of Scottish Widows for the year ended 31 December 1998 and 31 December 1999, (2) Scottish Widows had a contingent liability of about GBP1.5 billion in respect of GAR policies at those dates,(3) PwC either were or should have been aware of the existence of that contingent liability and, if they were not aware, were negligent in that regard, (4) the contingent liability was material in the context of the accounts and was not a remote contingency. and (5) PwC failed to ensure that this contingent liability was properly disclosed in the Accounts of the company. I later extended my complaint to cover PwC's failure to qualify the accounts of Lloyds TSB for 1999, 2000 and 2001 in respect of this GAR liability. The ICAEW dismissed my complaint on various grounds, described below (the arguments are too detailed to describe here), overlooking the rather obvious point that their own Joint Disciplinary Scheme (JDS) were in the middle of investigating Ernst & Young's failure to qualify the accounts of Equitable Life for, inter alia, the years 1998 and 1999, and that the prima facie cases against both Ernst & Young and PricewaterhouseCoopers were IDENTICAL (failure to qualify the accounts of a life company for 1998 and 1999 in respect of GAR liabilities); it is impossible to justify not investigating one where you have accepted that there are grounds for investigating the other (but the ICAEW will give it a go!). So, all their squirming and evasion, half-truths and down right lies are exposed as such.

Note that the reasons given by the ICAEW for dismissing my complaint were totally different from the reasons given by the AIDB for dismissing the SAME complaint made to them.

Next summary Previous summary

Section detail:

On 6 September 2004 I made a formal complaint (ICAEW ref: 66818) against Martyn Scrivens, Director of Group Audit, to the Professional Conduct Directorate of the Institute of Chartered Accountants (ICAEW), of which Martyn Scrivens is a member. There were two elements to my complaint:

a). Martyn Scrivens never asked to talk to me directly;

b). Martyn Scrivens cannot have obtained a sufficient explanation of my concerns from my management (for the purposes of sacking someone - but management were aware of the nature and seriousness of my concerns) because the only time that I had discussed my concerns with my management was at the initial meeting with Roger Cooper in 2002 (see section 9. above) when I had only explained my concerns in outline and had not referred to detailed evidence, such as the Demutualization and Transfer Policyholder Circular of 19 November 1999;

c). Martyn Scrivens relied on the unsupported verbal assertions of the external auditors, PricewaterhouseCoopers, when he should have considered the fact that PricewaterhouseCoopers had issued an unqualified audit report on the accounts of Scottish Widows for the year ended 31 December 1998 (i.e. it made no mention of the contingent liability of GBP1.5 billion) and that this was in spite of the fact:

i). that Equitable Life had announced its plans to cut bonuses on GAR policies in January 1998;

ii). that on 9 September 1998 Ernst & Young (Equitable Life's auditors) had discussed the implications of this decision at a meeting with Equitable Life and that a potential exposure in respect of GAR policies of up to GBP1.5 billion had been identified at that meeting;

iii). that if Ernst & Young were aware of a contingent liability on the part of their audit client, Equitable Life, in September 1998 then PricewaterhouseCoopers should also have been aware of a contingent liability of a similar nature on the part of their audit client, Scottish Widows, at the same time. Note, in this context, that the Penrose Report revealed that the GAR issue was an industry-wide problem by November 1997 (Penrose Report, Part 4, Ch. 12, para. 8, p. 380);

iv). that the Equitable Life court case started with an originating summons in the High Court on 15 January 1999 before PricewaterhouseCoopers' audit of the 1998 accounts of Scottish Widows can possibly have been concluded (in fact the audit opinion in the 1998 accounts is dated 2 March 1999, almost two months later), meaning that the GAR issue was in the public domain before PricewaterhouseCoopers 'signed off the accounts'. Note also that the audit report on the 1999 accounts is dated 16 February 2000, the month after the Court of Appeal ruling in the Equitable Life case, at which point, according to the ruling, the GBP1.5 billion GAR liability crystallised into an actual liability (but, incredibly, still no mention in the accounts);

v). that the fact that the directors of Equitable Life considered it necessary for the GAR issue to be determined by the courts clearly demonstrates that they did not consider the likelihood of the crystallization of that liability to be 'remote' (logically if they had obtained legal advice to the effect that the crystallization of the liability was a remote possibility, which is the only situation when material contingent liabilities do not have to be disclosed in the accounts, then the matter would not have been taken to court);

vi) that, in any event, the fundamental accounting principle of prudence (combined with the significance of the matter i.e. in plain language, if the liability crystallised then Scottish Widows was bust) should have led PricewaterhouseCoopers to ensure that the existence of this GBP1.5 billion contingent liability was brought to the attention of policyholders in the 1998 accounts. The critical question here is whether the policyholders, as owners of the business, would have been happy for the auditors not to tell them of such a thing (would you, as the owner of a business run by others, a board of directors, be happy if the auditors did not tell you of the possible bankruptcy of that business? It's a simple question - with a simple answer. More worrying, would you be concerned if, in spite of the myriad of standards and rules churned out by the accounting/auditing profession, the auditors can not tell you about such a matter and get away with it?);

vii). that in view of the above and the fact that these contingent liabilities later crystallised, there were (and are) possible grounds for a legal claim against PricewaterhouseCoopers on the basis that they should have qualified the 1998 accounts (and the 1999 accounts of course, but that's another issue) of Scottish Widows (Equitable Life actually sued Ernst & Young over the GAR issue in February 2003, some 4 months after I first reported the matter to PricewaterhouseCoopers and fully 10 months before I was sacked; thus Martyn Scrivens should have been 'put on enquiry' by the fact that Equitable Life were suing Ernst & Young over the GAR issue - but the 'little grey cells' moved not a millimetre - apparently) and that, for this reason, Martyn Scrivens should have considered the possibility that PricewaterhouseCoopers were unlikely to say anything that could be taken as an admission of liability on their part. On this basis it was incumbent on Martyn Scrivens to obtain further evidence from other sources.

viii). That if the facts were sufficient to cause concern on my part as to PricewaterhouseCoopers' independence then they were certainly sufficient to do the same for Martyn Scrivens.

20.1 My complaint of victimization (Top of page)

With respect to my complaint of victimization, the Investigation Committee (who eventually considered the matter on 5 July 2005, some 10 months later) declined to pursue my complaint on the grounds that it was effectively an allegation of unfair dismissal and that such matters are 'reserved' to Employment Tribunals or the Courts, that is outside the ICAEW's jurisdiction, that is the ICAEW cannot investigate such matters. What I actually complained of was that Martyn Scrivens conduct amounted to 'victimization of another Chartered Accountant who had raised valid concerns in a proper manner as recommended by the Ethics Advisory Service [of the ICAEW]'; there was no mention of unfair dismissal though I did say that I had been sacked in clear breach of the bank's own rules. The Investigation Committee's argument runs (if you can follow the 'hall of mirrors' logic) that if the matter is outside the ICAEW's jurisdiction then Martyn Scrivens is not liable to disciplinary action under ICAEW rules. If Martyn Scrivens is not liable to disciplinary action under the ICAEW rules then this means that there is no indication that Martyn Scrivens 'may have become liable to disciplinary action' under section 9.3 of the ICAEW's Disciplinary Bye-laws* and so the Investigation Committee ruled that my complaint was technically not a complaint at all! This neatly prevents my complaint being referred to the independent Reviewer of Complaints, for example, since if something is not a complaint it cannot be referred to the Reviewer of Complaints!

The question, as far as I can see, is a very simple one, namely 'Is it against ICAEW ethical principles to victimize a whistleblower? Yes or No?' If the answer is 'Yes' then the ICAEW should investigate the matter.

*Bye-law 9(3) states that 'In these bye-laws any facts or matters which -

(a) have come to the attention of the head of staff under paragraph (1) or otherwise and

(b) indicate that a member, a firm or a provisional member may have become liable to disciplinary action under these bye-laws or the Investigation and Discipline Scheme or the Joint Disciplinary Scheme,

are referred to as a "complaint".'

20.2 My complaint that Martyn Scrivens had failed to properly investigate my concerns about the Scottish Widows demutualization (Top of page)

With respect to my complaint that Martyn Scrivens had failed to properly investigate my concerns about the Scottish Widows demutualization, Ray Farren, of the Professional Conduct Directorate, wrote to me on 21 September 2004 that 'the question of whether the conduct of Martyn Scrivens is wanting in the handling of this issue is a matter for the board of directors to consider'. I replied in an E-Mail dated 10 February 2005 that:

'Your second point that 'the question of whether the conduct of Martyn Scrivens is wanting in the handling of this issue is a matter for the board of directors to consider' is nothing short of preposterous since the matter which Martyn Scrivens failed to investigate is a misdemeanour (and possible criminal offence) by the directors themselves. The directors are hardly likely to insist that Martyn Scrivens investigate their own misdemeanours!'

The matter was not considered by the Investigation Committee at their meeting on 5 July 2005 but was withdrawn due to 'clarification of a procedural issue'. After I had made further submissions I was eventually informed in a letter dated 21 March 2006 (18 months after my initial complaint) that the papers were about to be prepared for submission to the Investigation Committee.

20.3 Complaint to the ICAEW against PricewaterhouseCoopers (Top of page)

Scottish Widows 1998 accounts

Ray Farren pointed out that the accounts had been signed off on 2 March 1999, 'only six weeks after the originating summons [in the Equitable Life case]' and that 'as the action was in a very early stage I do not believe that without hindsight there was a sufficient basis to compel the company to conclude that a contingency note about the guaranteed annuity return exposure was necessary.'

[See my letter of reply dated 2 February 2000 below.]

Scottish Widows 1999 accounts

'The 1999 accounts show that the audit report was signed on 16 February 2000 and, as you state in your email, the Court of Appeal ruled on the Equitable Life case on 22 January 2000. Whilst you believe there should have been a contingency note, having read the financial statements for the year ended 31 December 1999, then it would appear that although the words 'guaranteed annuity' have not been used, provision appears to have been made for the liability.

[If the GAR liability had been provided for as at 31 December 1999 then there would have been no need to set up the Additional Account at all. In other words, if Scottish Widows HAD provided for the GAR liability as at 31 December 1999, why did they need to get court approval for setting up the GBP1.5 billion 'Additional Account' in February 2000? And if the GAR liability had been provided for as at 31 December 1999, then Lloyds TSB had no reason to later use the Additional Account to cover the GAR liability. So, if what Ray Farren says was true then Lloyds TSB STOLE the Additional Account from the policyholders because they used the Additional Account to meet the GAR liability when they had already provided for that liability by 31 December 1999! Now we have determined that the GAR liability was NOT provided for as at 31 December 1999, we get back to the question of whether it should have been provided for and, if not, whether the GAR liability should have been disclosed as a contingent liability, which question Ray Farren did not address (because he had concluded that it was provided for). This just demonstrates the utter rubbish that the ICAEW will produce in order not to investigate a very serious matter. See also my letter of reply dated 2 February 2000 below.]

[NOTE ALSO THAT RAY FARREN'S CLAIM THAT THE GAR LIABILITY WAS PROVIDED FOR AS AT 31 DECEMBER 1999 IS CONTRADICTED BY THE ICAEW'S OWN ASSESSOR - SEE LETTER OF 4 MARCH 2008 BELOW.]

I base this conclusion on the following.

1. On page 10 of the annual report within the Chairman's Statement there is a comment on guaranteed annuities and towards the end of the second paragraph I read:

'We are satisfied that our position on guaranteed annuities is fully in accordance with the contract terms of these policies.

All of the guarantees, whether pension or cash, give rise to liabilities which increase from year to year as bonuses are added. It is, therefore, critical that a company has the assets to meet its liabilities. Scottish Widows clearly has the assets to meet all its liabilities, including those in respect of guaranteed annuities. Furthermore, assets are held in such a way that they are well matched to the underlying annuity guarantees.'

2. Accounting policies, page 37.

'Fund for future appropriations.

The fund for future appropriations comprises assets which are in excess of the levels allowed for in the technical provisions.'

Technical account, page 38.

'The transfer to the fund for future appropriations is £1.9 billion, a marked increase over the previous year of £361 million.'

On that basis, therefore, I am unclear as to why a contingency note on the guaranteed annuities would be required as there appears to be sufficient information to indicate that the current obligation under the GARS is provided for. I, therefore, do not agree that a contingent liability note is required.'

Lloyds TSB 2000 accounts

'Following the acquisition by Lloyds TSB of Scottish Widows, note 49 on pages 74 and 75 deals with the acquisition of Scottish Widows and it would appear that the provisions for future appropriations are reversed as part of the fair value adjustments. However, in the final paragraph of column 1 it states:

'Under the terms of the transfer of Scottish Widows' business, as set out in the policy holder circular dated 19 November 1999, a separate memorandum account was created within the With Profits Fund on 3 March 2000 called the additional account with a balance of £1.7 billion. This account included £1.3 billion which is available to meet any additional costs of meeting guaranteed benefits including annuity benefits on transfer policies allocated to the With Profits Fund and any unexpected liabilities which arise in the future but relate (with certain exceptions) to the operations of Scottish Widows and its subsidiaries prior to 3 March. The assets allocated to the additional account includes certain hedged assets which are intended to protect the With Profits Fund against the consequences of a future fall in interest rates, including increases in the costs of meeting policy guarantees.'

[Saying that an amount is available to meet a contingency does not equate to saying that there is a contingency. Note the use of the word 'any'. Was there a contingent liability or wasn't there? It's rather like saying 'I am wearing this bullet-proof jacket in case someone fires a gun at me.' IMPORTANT QUESTION! 'Is someone pointing a gun at you?']

Again, it would appear that the potential liability is provided for within the accounts and, therefore, I do not believe a separate contingency note is appropriate.

Conclusion

Overall. therefore, I do not believe there is sufficient evidence to indicate that the audit reports issued by PricewaterhouseCoopers on these financial statements is inherently incorrect in failing to qualify the opinion for lack of disclosure of a contingency for the GAR.

'I have been asked to review the assessment made by Mr Farren regarding the complaint received from Mr G Senior-Milne against PricewaterhouseCoopers who acted as auditors of Scottish Widows for the years ended 31 December 1998 and 31 December 1999 and produced group accounts for Lloyds TSB for the year ended 31 December 2000. Mr Senior-Milne's complaint is that PwC should have been aware of the contingent liability in respect of guaranteed annuity returns; that the contingent liability is material, not remote, and a note should have been made in the accounts. Unqualified audit opinions have been given in respect of Scottish Widows' audit and in respect of Lloyds TSB group accounts Mr Senior-Milne believes that a separate contingency note should be disclosed in the accounts.

Mr Senior-Milne relies upon the fact that Ernst & Young and the directors of Equitable Life were 'aware' of the problem in 1998 and, therefore, the directors of Scottish Widows and, therefore, PricewaterhouseCoopers should also have been aware of Scottish Widows' exposure at that time.

Furthermore, the EL court case should have 'set alarm bells ringing' for PwC and SW. Mr Senior-Milne says the EL directors would not have taken their case to court if they thought the chance of the contingency crystallising was remote.

I understand from Mr Senior-Milne's website that the EL court case was determined on 20 July 2000 when EL was told to meet the liabilities of the GAR holders in full.

The argument therefore seems to hinge on when SW's liability became more than 'remote'. If, at each year-end, there was only a less than remote probability that SW would have to transfer economic benefits to the GAR holders then no disclosure is required.

1998 accounts

FRS 12 came into effect for periods ended on or after 23 March 1999, and it does not appear from the 1998 accounts that SW adopted it early.

The only evidence put forward is that the EL originating summons to the High Court was dated 15 January 1999, and therefore, per Mr Senior-Milne, there was more than a remote chance that both EL and SW would have to pay the shortfall on their GAR policies.

However, the action did not come to trial until 5 - 7 July 1999, and EL won the first stage of the action. It was only on appeal that the policyholders won, leading to the House of Lords decision, in July 2000, to make the £1.5bn payout.

At the time of approving the1998 accounts (2 March 1999) the EL case was at an early stage, and had not yet gone to Court. There is insufficient evidence to compel the directors to disclose the issue, and, using the FRS 12 terminology, the probability of 'transfer of economic benefit' was remote; the EL action had not come to trial on 2 March 1999, and the court summons was only six weeks old.

[The point here is that the matter would have not gone to court at all if the directors of Equitable Life had been advised by their legal advisors that there was only a remote possibility that the company would have to meet its GAR liabilities in full, which means, in turn, that the fact that the matter did go to court meant that the directors and their legal advisors considered that there was more than a remote possibility that the liability would crystallise. And if the directors of Equitable Life considered that there was more than a remote possibility that the liability would crystallise then they were required (under Financial Reporting Standards] to disclose the contingent liability in the accounts. And what applied to Equitable Life also applied to Scottish Widows. Ergo, Scottish Widows should have disclosed the contingent liability in their 1998 accounts and PricewaterhouseCoopers should have qualified those accounts when they didn't. So all this nonsense about the Equitable Life case being at an early stage is irrelevant; the critical thing was that the case had been started at all. That was enough. More rubbish from the ICAEW.]

1999 accounts

By 31 December 1999 the court had found in favour of EL, but on 20 January 2000 the court of appeal reversed the decision. EL appealed to the House of Lords, but the Court of Appeal decision was upheld on 20 July 2000. SW's 1999 accounts were approved on 16 February 2000.

SW could easily have taken the view that the outcome of the EL case was far from certain as the Court of Appeal had overturned the original decision, and that was all still subject to the House of Lords hearing.

The 1999 accounts include, on page 10, a paragraph entitled 'guaranteed annuities'. This paragraph does not include numerical disclosures and states that all the guarantees give rise to liabilities which increase from year-to-year and therefore it is critical that SW has enough assets to meet its liabilities. The statement also states that SW does have sufficient assets. Mr Senior-Milne argues that this disclosure is meaningless and makes no mention of the quantum of the alleged contingent liability. Under FRS 12 it is permissible to disclose details of contingencies without mentioning the quantum if the quantum cannot be measured.

I also note that on pages 3 and 4, under the heading of 'bonuses' it states that under the terms of the merger with Lloyds TSB, the holders of the 'with profits' policies would be receiving higher terminal bonuses than would have been the case had the merger not happened. Based on estimated values at 31 December 1998, this amount would have been £1.3 billion. This appears to be the 'additional account' referred to in Mr Senior-Milne's correspondence. The additional account includes the additional costs of meeting guaranteed benefits and any unexpected liabilities which may arise in the future.

There was still sufficient uncertainty and confusion at the time (with the original Court finding in EL's favour, and the Court of Appeal finding against EL) for SW to have been compelled to make any greater reference to this issue than that on pages 3-4 and 10 of the 1999 accounts. I do not believe that, at the time the 1999 accounts were approved, there was a requirement to provide for this amount because the final judgment on the EL case had not been made.

[Note that this directly contradicts what Ray Farren said in his letter of 28 December 2007, where he asserted that the GAR liability had been provided for. The assertion that there was 'sufficient uncertainty and confusion' about the Equitable Life case at the time for Scottish Widows NOT to either provide for the GAR liability or disclose it as a contingent liability is sheer nonsense. When the second highest court in the land has ruled that a liability exists, the fundamental accounting convention of prudence DICTATES that you provide for it. Has the ICAEW heard of prudence? More rubbish from the ICAEW.]

2000 accounts

By the end of 2000 the liability had been provided for, and therefore the item is no longer a 'contingency'.

Note 49 on page 75 states that the Additional Account, with a balance £1.9bn was created on the acquisition of SW by Lloyds TSB. Of this balance, £1.3bn relates to any additional costs of meeting guaranteed benefits, including annuity benefits on transferred policies and for any unexpected liabilities which arise in the future.

In my opinion it is clear that the Group expects the £1.3bn will be the estimate, at 31 December 2000, of the cost of meeting these additional liabilities and no additional contingency note is required in 2000.

Additionally, I do not believe the figure of £1.5bn is material to the assets/liabilities of Lloyds TSB (of £218bn at 31 December 2000).

I should be grateful if you would advise Mr Senior-Milne of my opinion, by way of supplying him with a copy of this memorandum should you so wish.'

[Saying that GBP1.3 billion 'relates' to GAR liabilities is misleading. What the note actually said was that the GBP1.3 billion was 'available' to meet any additional costs of meeting guaranteed benefits. 'Relates' implies that the amount has been specifically set aside to meet the liability; 'available' does not mean that at all (Boy! You have to be careful with these people!). And, as I have said above, saying that an amount is available to meet a contingency does not equate to saying that there is a contingency. Note the use of the word 'any'. Was there a contingent liability or wasn't there? Put simply, by reading these accounts you don't know. How can that amount to adequate disclosure? More rubbish from the ICAEW.]

[With regard to the question of materiality, the point here is that Scottish Widows/Lloyds TSB misled the policyholders into believing that the GBP1.5 billion in the 'Additional Account' would be paid to them and the policyholders approved the demutualisation on that basis. Therefore, Scottish Widows/Lloyds TSB owes the policyholders the GBP1.5 billion it led them to believe it would pay to them; this would be a charge in the profit and loss account, so the materiality of the GBP 1.5 billion needs to be considered in the context of the profit before tax for the year of GBP3.5 billion and not the balance sheet total of GBP219 billion. More rubbish from the ICAEW.]

21. Skeletons (or the ghost of Enron) (Top of page)

Section summary: Next summary Previous summary

It turned out that the man who sacked me (Martyn Scrivens, Director of Group Audit, Lloyds TSB and a Chartered Accountant) had been a partner in Andersens (the auditors of Enron) in Australia and had been directly involved in a huge financial scandal in which an Australian insurance company collapsed with liabilities of A$5.3 billion. The collapse was investigated by a Royal Commission which specifically stated that the 1999 and 2000 audits of HIH had been "insufficiently rigorous to engender confidence as to the reliability of HIH's financial statements" and specifically criticised Martyn Scrivens for not seeking legal advice when he knew he should have done so. I made a complaint to the Institute of Chartered Accountants in England and Wales (ICAEW) on the basis that principle 3 of the ICAEW's fundamental ethical principles ('Competence') states that 'A member should undertake professional work only where he has the necessary competence required to carry out that work, supplemented where necessary by appropriate assistance or consultation' and that this obliged Martyn Scrivens to seek legal advice where he knew his own knowledge or expertise was lacking. The ICAEW's Investigation Committee said that Martyn Scrivens was under no duty to consult a lawyer (in direct contradiction of their own fundamental ethical principles and the words of the Royal Commission) and that there was no indication that Martyn Scrivens was liable to disciplinary action. Tell that to the shareholders! They will be so pleased to know that they can rely on the ICAEW to rigorously uphold its own professional standards!

I wonder whether Martyn Scrivens told Lloyds TSB about all this when he was interviewed for the position of Director of Group Audit. Perhaps they hired him for this very reason! A useful man who can always be relied on not to tell the truth!

Next summary Previous summary

Enron and Andersen - together for the rest of time in the dustbin of history...

Section detail:

On 28 July 2005 I made a further complaint to the ICAEW relating to Martyn Scrivens's involvement, as a partner of Andersens (of Enron fame), in a major financial scandal in Australia, the HIH Insurance Group scandal. Andersen were auditors of the accounts of HIH for 2000, which showed that HIH had A$939 million in assets, five months before it collapsed with an estimated shortfall of A$5.3 billion. It was estimated that the loss resulting from the takeover of FAI, where Martyn Scrivens was engagement partner, amounted to at least A$591 million, which loss was suffered directly by policyholders, that is ordinary people. The HIH scandal resulted in a public enquiry during which Martyn Scrivens's conduct was criticised in no uncertain terms by the judge, as the following article reveals:

Andersen was misled, but sloppy work didn't help
By Elisabeth Sexton
April 17 2003

The auditors of HIH and FAI were misled by company executives, but also made mistakes and did insufficient work before signing the accounts, according to the final report of the royal commission.

Justice Neville Owen said he did not subscribe to the theory that "whenever a company fails its auditor must have been at fault".

However, the commission's detailed examination of the way Arthur Andersen dealt with selected accounting issues revealed occasions where the firm "did not obtain sufficient audit evidence to support its conclusions", the judge said.

"In many instances I found that adjustments ought to have been made to the accounts in relation to matters that were the subject of inquiry."

Andersen's approach to the audit in 1999 and 2000 was "insufficiently rigorous to engender confidence as to the reliability of HIH's financial statements".

The judge said there was a perception Andersen was not independent of HIH. This arose because three former Andersen partners sat on HIH's board, because an audit partner was removed after meeting directors without management's knowledge and because there was pressure on the Andersen partners to maximise fees from non-audit work.

But he found no reason to conclude that the firm's independence was "in fact" compromised.

He made a similar finding in relation to external actuary David Slee, who advised HIH on the funds it needed to set aside to meet future claims.

While Mr Slee's work "produced results that were less than optimal" and some of his dealings with HIH were "less than satisfactory", the actuary "struck me as a strong-willed person who was unlikely to succumb to pressure", the judge said.

In relation to reinsurance contracts used by FAI to overstate its profits in June 1998, the judge said Andersen was misled by executives of FAI and its reinsurers.

But Andersen was aware that FAI had previously engaged in controversial one-off transactions to boost profits. Analysis by two Andersen auditors, Martyn Scrivens and Daniel Vanderkemp, "cried out for legal advice or at least discussion with FAI management", the judge said. "They did not take either step."

On HIH's failure to set aside sufficient funds to meet future claims, the judge said: "In my view, Andersen knew that HIH's provision for liability as at December 31, 1999 and June 30, 2000 was problematic."

The firm knew HIH was exposed to claims which were not booked as liabilities in the accounts and "it would have been better had Andersen taken steps to ensure that the unbooked exposure was booked.

"At the very least, the process of setting provisions would have been advanced had the existence, size and significance of these exposures been brought clearly to the attention of the audit committee. Andersen did neither."

In 2000, when FAI was wholly owned by HIH, its financial statements falsely boosted its capital by $200 million, the report said.

This was achieved by following a suggestion made by Andersen partner John Buttle. The judge found Mr Buttle did not contribute to the way the $200 million was described in the accounts and thus was not involved in any breach of the law.

"Nevertheless the accounting treatment he advised was plainly wrong," the judge said. By actively participating in such endeavours, he "allowed himself to be drawn deeper into the company's affairs than was wise in the circumstances".

This story was found at: http://www.smh.com.au/articles/2003/04/16/1050172656698.html.See also Vol. 2 Chapter 14 of the report at http://www.hihroyalcom.gov.au/finalreport/Chapter%2014.HTML.

'The following reasons were given by the Committee:

1. The report makes clear that the judgement of Mr. Scrivens was not unreasonable given that he was not a lawyer, and that there was no duty upon him to consult a lawyer.
2. The 'criticism' was not part of the findings but a passing comment in the body of the report and, therefore, according to the report Mr. Scrivens "emerges entirely free of any adverse implications".
3. No adverse finding has to date been given by the Companies Auditors and Liquidators Disciplinary Board.'

My response to this is as follows:

1. The ICAEW's 'Guide to Professional Ethics' (the single most important document produced by the ICAEW) lays down 5 fundamental ethical principles. Fundamental principle 3 – 'Competence' states that 'A member should undertake professional work only where he has the necessary competence required to carry out that work, supplemented where necessary by appropriate assistance or consultation'. This lays a specific duty on members to seek appropriate assistance (e.g. legal advice) where they do not have the appropriate degree of competence. Clearly, members are expected to know when they do not have the appropriate degree of competence.

It is quite clear, on this basis, that either the Investigation Committee do not know the fundamental ethical principles of their own institute, in which case they are incompetent, or they do know the fundamental ethical principles of their own institute, in which case they are lying.

Here as a reminder for the Investigation Committee are the Fundamental Principles of the ICAEW:

Fundamental principle 1 – “Integrity”

A member should behave with integrity in all professional and business relationships. Integrity implies not merely honesty but fair dealing and truthfulness. A member’s advice and work must be uncorrupted by self-interest and not be influenced by the interests of other parties.

Fundamental principle 2 – “Objectivity”

A member should strive for objectivity in all professional and business judgements. Objectivity is the state of mind which has regard to all considerations relevant to the task in hand but no other.

Fundamental principle 3 – “Competence”

A member should undertake professional work only where he has the necessary competence required to carry out that work, supplemented where necessary by appropriate assistance or consultation.

Fundamental principle 4 – “Performance”

A member should carry out his professional work with due skill, care, diligence and expedition and with proper regard for the technical and professional standards expected of him as a member.

Fundamental principle 5 – “Courtesy”

A member should conduct himself with courtesy and consideration towards all with whom he comes into contact during the course of performing his work.

Note also that section 6.2 of the ICAEW's 'Additional Guidance on Ethical Matters for Members in Business' states that 'Circumstances that may threaten the ability of members to perform their duties with the appropriate degree of competence and performance include... insufficient experience, training and/or education'. Section 6.3 states that 'The significance of the threats should be evaluated and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to reduce them to an acceptable level. Safeguards that may be considered include... consulting, where appropriate, with... independent experts'.

2. With regard to the statement that Martyn Scrivens 'emerges entirely free from any adverse implications', this is taken from a passage in the official report on the HIH scandal as follows:

'The findings presented in this report represent the entirety of the findings that are, or could be regarded as, adverse to the interests or reputations of an individual or entity. If, during the course of the hearings, publicity was given to an allegation against or about a person or company and there is no express finding against that individual or entity in the report, then it is to be taken that I have made no such finding. This is the case regardless of what may have been written or said about the person or company, in evidence, in submissions or in publicity about the proceedings. Where there is no finding in this report against the person or company, the reputation of that person or company emerges entirely free of any adverse implications. It must be seen and judged accordingly.'

In Vol. 2 Chapter 14 of the report ('The impact of the FAI acquisition'), which contains the statement that analysis by Martyn Scrivens 'cried out for legal advice', section 14.8 ('Possible contraventions and referrals') states:

'In this section I set out the findings that I have made about matters that might have been a breach of the law in relation to the subjects considered in this chapter. I also note those matters that, in my opinion, should be referred to ASIC for further consideration.'

This makes it quite clear that the judge was only concerned about whether Martyn Scrivens's conduct amounted to a breach of Australian law or whether his conduct should be referred to the ASIC (Australian Securities and Investment Commission). The judge was not concerned whether Martyn Scrivens's conduct amounted to a breach of the ethical or professional standards of the ICAEW and the ICAEW is not entitled to assume that each and every breach of its own standards will also amount either to a breach of Australian law or ASIC regulations and would have been followed up on this basis. Such an assumption is clearly preposterous.

By the way, the Investigation Committee's assertion that the judges remarks were 'a passing comment' is a simple lie; the judges remarks form part of the main body of the report (Vol. 2 Chapter 14) in which Martyn Scrivens is mentioned 99 times (I have counted them - but perhaps the Investigation Committee considers anything less than 100 mentions to be 'passing comment') in a detailed analysis of Andersens' involvement in the audit of FAI's accounts. Hardly a 'passing comment'.

3. With regard to the Investigation Committee's statement that 'no adverse finding has to date been given by the Companies Auditors and Liquidators Disciplinary Board' (CALDB), this simply begs the question of who is responsible for enforcing the ICAEW's ethical and professional standards. I rather think it isn't the CALDB and the ICAEW has no right to absolve itself its responsibilities in such a manner. One may add that if the ICAEW can rely on the CALDB to enforce the ICAEW's standards, then what is to stop the CALDB relying on the ICAEW to enforce its standards? In other words you complain about someone to the ICAEW and they say 'But he was working in Australia at the time and the CALDB haven't done anything about it', so you go to the CALDB and they say 'But he is a member of the ICAEW and they haven't done anything about it'. Clearly, the Investigation Committee's argument is without merit. Worse, it clearly demonstrates a 'go away, we can't be bothered to enforce our own rules' attitude. What is indisputable is that the ICAEW has no right to rely on other bodies to enforce its own ethical and professional standards; in other words it must investigate all cases where there is prima facie evidence of a breach of its own standards (see paragraph 1 above) regardless of whether or not the matter has already been investigated by another body. This may seem clear to you and me but apparently it is beyond the mental powers of the Investigation Committee to arrive at this simple and obvious conclusion.

22. The ICAEW - Conduct unbecoming (Top of page)

Section summary: Next summary Previous summary

See section detail.

Next summary Previous summary

Section detail:

It is important to understand, in this context, that, as a member of the ICAEW, I became a whistleblower on the specific (written) advice of the ICAEW itself (effectively an instruction since, I believe, a member could be subject to disciplinary action for not complying with the advice of the Ethics Advisory Service), that I was victimized and harassed on this account, that I was subsequently sacked by, of all things, another member of the ICAEW in clear breach not only of Lloyds TSB's own rules (see section 15) but also the ethical and professional standards of the ICAEW itself and that the ICAEW refused to properly investigate the matter, claiming that my complaint is 'reserved', in some way they refused to specify, to Employment Tribunals or the Courts and therefore not technically a 'complaint' at all under ICAEW rules. Put simply, their evasions are a disgrace.

23. The Daily Telegraph (Top of page)

Section summary: Next summary Previous summary

See section detail.

Next summary Previous summary

Section detail:

In September 2003 I contacted Grant Ringshaw of the Daily Telegraph following an article that he had written about Lloyds TSB in that paper (28 September 2003). He said that he needed 'something to hang this issue on' (the facts seemed to me to speak pretty clearly for themselves), or words to that effect, and nothing came of it. I contacted him once or twice but eventually gave up. My view is quite simply that the Daily Telegraph were frightened of being sued by Lloyds TSB. I suspect that this is the reason why many scandals never see the light of day.

24. The BBC (Top of page)

Section summary: Next summary Previous summary

See section detail.

Next summary Previous summary

Section detail:

25. Freedom to Care (Top of page)

Section summary: Next summary Previous summary

Freedom to Care is an organization which helps whistleblowers. I still find their dismissal of my concerns puzzling because even if, as they argued (incredibly), that it was difficult to see how the Scottish Widows policyholders had suffered any loss, I was still a whistleblower (whether I was right or wrong in what I had whistleblown about) who had been seriously victimized by his management and Freedom to Care should have supported me on that basis. Ah well, one of those mysteries (possibly a communist plot). As at January 2009 their website seems to be no longer active, so perhaps they imploded in their own moral vacuum.

Next summary Previous summary

Section detail:

In August 2005 I made contact with Freedom to Care, an organization which helps whistleblowers, and they put me in touch with Angus Stickler, who works for BBC Radio 4's 'File on 4' current affairs programme. On 26 October 2005 he wrote to me saying that editorial approval had been given for the production of a 40 minute documentary, which would probably be broadcast in early 2006. This eventually came to nothing as I have explained in the previous section.

After this I wrote several E-Mails (6 February, 20 February, 25 March 2006) to Professor Geoffrey Hunt (University of Sussex), the founder of Freedom to Care, asking for his advice following the BBC's decision but I received no reply. Eventually, and only following a telephone call to another member, Geoffrey Hunt replied to a further E-Mail of mine of 7 April 2006 as follows:

'Graham

I have withdrawn from FtC for the time being. It seems no one at FtC is able to help you. FtC is at a low ebb at the moment and may fold.

I would advise you to look elsewhere for assistance. Sorry about this.

Wishing you luck.

Regards

Geoff'

The same day (8 April 2006) I received an E-Mail from another member of Freedom to Care, Geoffrey Porter-Williams, entitled 'Scottish Mutual' (the name of the company is actually 'Scottish Widows'). In this E-Mail, which was presumably sent to me at Geoffrey Hunt's request, Geoffrey Porter-Williams explained that he had been asked to assess my case (based on an earlier version of this document). He wrote as follows:

'I have read the memorandum. The key concern is the unacceptable practices of Graham Senior-Milne's employers. This applies regardless of how much substance there is in the suggestion that Scottish Mutual [actually Scottish Widows] and Lloyds TSB acted improperly or without adequate disclosure in dividing the GBP6 billion Lloyds TSB were investing to acquire Scottish Mutual [actually Scottish Widows] so that GBP4.5 billion went to policy-holders and GBP1.5 billion boosted reserves.'

Apparently on the basis of what Geoffrey Porter-Williams wrote to them 'colleagues responded that I [i.e. Geoffrey Porter-Williams] should not concern myself any more with your case'. Later in the same E-Mail he wrote:

'Looking again at the memorandum, I can understand the lack of interest form [from] the media because they would have difficulty (even if they can get compelling documentary evidence) explaining what Scottish Mutual [actually Scottish Widows] had done wrong.'

Well, such a reaction is hardly surprising when Geoffrey Porter-Williams states that the GBP1.5 billion was used to 'boost reserves'; an innocuous sounding phrase. Put simply, what actually happened was that the policyholders of Scottish Widows were led to believe that they would receive GBP6 billion from the sale of Scottish Widows and they actually received GBP4.5 billion, so they lost GBP1.5 billion. It is that simple. Essentially, and as a result of a sleight of hand, Lloyds TSB/Scottish Widows made the policyholders pay for the GAR liabilities when they gave the misleading impression that there were no significant liabilities not included in the purchase price, that is they gave the impression that Lloyds TSB was paying GBP6 billion for the net assets (net of liabilities that is) of Scottish Widows. So any argument that the policyholders lost nothing because 'they would have had to pay for the GAR liabilities anyway' falls to the ground. On the basis of the information provided to them (i.e. the policyholder circular) it was reasonable for the policyholders to believe (and they were led to believe) that Lloyds TSB was buying Scottish Widows for GBP6 billion including all significant liabilities, so that Lloyds TSB, and not the policyholders, would assume the burden of such liabilities, as is normal when a business is sold. On top of that the policyholders had no reason to believe that there were any significant GAR liabilities, contingent or otherwise, because no such liabilities were disclosed to them either in the accounts of Scottish Widows for 1998 (or 1999) or the policyholder circular of November 1999 or, of course, by the Financial Services Authority at any time. Does this make it a bit clearer?

Last but not least, Freedom to Care describes itself on its website as 'the UK's first whistleblower support group'. Now if Freedom to Care are a whistleblower support group then on what basis did they decide not to concern themselves any more with my case, given that Geoffrey Porter-Williams had described the victimisation issue as the 'key concern'? How does this amount to 'support'? A knotty one that.

26. The Institute of Internal Auditors (IIA) (Top of page)

Section summary: Next summary Previous summary

In October 2005 I made a complaint to the Institute of Internal Auditors (IIA) concerning the conduct of Alan Rennie, Roger Cooper, Howard Monks and Martyn Scrivens, who I believed were members (in fact, it transpired that Howard Monks was not a member - he may have resigned in order to avoid investigation). The IIA dismissed my complaint on the basis of lack of evidence, but then they never asked me to present my evidence. A cunning ploy... Of course, the proper procedure is to assess whether there is a prima facie case (having given the complainant a chance to submit their evidence of course). If there is a prima facie case then you ask both sides to submit their evidence to a full investigation; if there is no prima facie case then you say so. The exception to this general rule is, of course, whistleblowers, who cannot be expected to present more than prima facie evidence, as is widely accepted. In fact, a whistleblower is not expected to do more than voice his concerns; it is up to the investigation to actually gather the evidence. The IIA are well aware of all this, but they adopted the 'you prove it and then we'll investigate it' attitude. I didn't take this further because, in the general scheme of things, the IIA are of negligible importance.

Next summary Previous summary

Section detail:

*In this context note that Audit Scotland's (the government auditors in Scotland) guidance note on whistleblowing (ISBN 1 904651 14 3), prepared in association with Public Concern at Work, states 'Don't investigate the matter - You may make matters worse if you do. It's your job to raise the concern, not prove it.'

Note that the IIA's 'Disciplinary Procedures', although crammed with time limits for endless matters (appeals and so on), actually contains no time limits for a). responding to an initial complaint against a member or b). starting an investigation into a complaint against a member. Cunning.

Note that the IIA's 'Code of Ethics', 'Rules of Conduct', '1. Integrity' states that 'Internal auditors shall perform their work with honesty, diligence and responsibility'. One wonders whether the IIA are under the impression that a delay of 5 months constitutes performing their own work with proper diligence?

27. The Institute of Chartered Accountants of Scotland (ICAS) and the Bar Council (Top of page)

Section summary: Next summary Previous summary

Of the three institutes of professional accountants (the ICAEW, the IIA and ICAS) that I complained to, ICAS was the most blatantly and grotesquely dishonest. I complained to them in October 2005 about Ewan Brown, Chairman of the Audit Committee of Lloyds TSB, and an ICAS member. ICAS responded within 2 days that, in their view, Ewan Brown had responded properly to my concerns and that they were 'closing my file' (see Section 17 for Ewan Brown's reaction when I referred the matter to him). When I referred the matter to ICAS's Independent Examiner, Brian Harris QC, a barrister, he told ICAS that their position was untenable (they would not have changed their minds if this had not been the case) and they undertook to hold an investigation. Incredibly (by which I mean gob-smackingly beyond belief), the Investigation Committee asserted that Ewan Brown was not subject to ICAS rules while acting as Chairman of the Audit Committee, an assertion which was described as 'plain wrong' by the Independent Examiner (I would describe it as perverse to the point of lunacy i.e. they must have been mad to think that they could get away with such nonsense).

When I appealed against the Investigation Committee's findings to the Independent Examiner, he basically dismissed my appeal on the basis that I did not prove to Ewan Brown (it's the 'You prove it and then we will investigate it' response again) that I was being victimized on account of whistleblowing; that is, that there was a cause and effect relationship between the whistleblowing and the victimization. The only problem with this (which he overlooked in spite of the fact that the evidence was available to him) was that the allegations which formed the basis for my suspension stated, in writing, that one of the reasons for my suspension (but, of course, in reality the main reason) was that I had reported the matter to the external auditors (i.e. whistleblown); the majority of the rest of the allegations were just mud-slinging and an attempted diversion from what was the real issue, my whistleblowing about the Scottish Widows demutualisation. So the cause and effect relationship (between the whistleblowing and my suspension) was there in writing. Whoops! In addition to this, Brian Harris consciously made insinuations against me of a personal nature which were irrelevant, prejudicial, unnecessary and unfounded in that he said 'It would be tempting to regard someone with his history as one of life's awkward squad, a troublemaker whose suspicions of serious impropriety can be ignored. I am not in a position to judge. What I do know is that his complaint must be assessed on its merits, not his.' The riposte to this is 'You bet I am one of life's awkward squad, but only as a necessary response to people like you, who either on account of moral cowardice or greed (self-interest) fail in their duty to protect the public interest, which duty they have been entrusted with, and who, in this case, have made insinuations of a personal nature which are irrelevant, prejudicial, unnecessary and unfounded. What would you do if you made a perfectly valid complaint and someone responded, as you have done, with insinuations like that? Turn the other cheek? Find me one person who, unlike you, is prepared to do their duty and I will gladly shut up'. Point made I think. You will notice also that having made insinuating remarks, Brian Harris says 'Oh, but ignore those!' Too late, of course, the insinuation has been planted, as intended (Brian Harris is no fool), in the reader's mind and will remain there, as intended.

Naturally, I complained about this outrageous conduct (and Brian Harris' demonstrably wrong conclusion - as explained above) to the General Council of the Bar (The Bar Council). Michael Scott, the Complaints Commissioner, dismissed my complaint on the basis that it was not his function to decide 'whether a barrister's professional opinion on the merits of the case was correct', thus ignoring two of the three things I had complained about (literally, no response at all). Shortly afterwards, he refused to correspond further. My main complaint about Brian Harris had been that his main finding was 'manifestly false', which it clearly was, and, in fact, where a barrister's conclusion is manifestly false, that is a proper basis of a complaint to the Bar Council; this is not about shades of opinion or differing interpretations of the law on the basis of established facts but about a conclusion that is demonstrably wrong. Thus, Michael Scott had quite simply lied; well, no, sorry, he had, like a good lawyer, told the truth, it was not his function to decide 'whether a barrister's professional opinion on the merits of the case was correct', but that was not what my complaint was about - so he was using the lawyer's trick of answering a different question to the one actually asked. Do they teach this on law courses (Week 1 law syllabus- How to lie) or are all lawyers born deceitful?

If you search Google for 'Brian Harris QC', the ICAS website and this website come up next to each other (as at 26 January 2009). Now there's poetic justice!

Next summary Previous summary

Section detail:

On 10 October 2005 I made a formal complaint to the Institute of Chartered Accountants of Scotland (ICAS) against Ewan Brown, Chairman of the Audit Committee of Lloyds TSB, detailing the matters described above (section 17).

It is important to note that ICAS twice tried to claim that Ewan Brown's actions as Chairman of the Lloyds TSB Audit Committee were outside their remit (i.e. that Ewan Brown was not subject to ICAS ethical and professional standards while he was acting as Chairman of the Audit Committee) and that on both occasions they had to be told by the Independent Examiner that this claim was nonsense. How is it possible for experienced professionals (people with so much knowledge and experience - apparently - that they have actually been invited to sit on the Investigation Committee) to make such a simple and fundamental error? Well, it isn't of course; they are simply lying.

28. Lothian & Borders Police and the Procurator Fiscal (Top of page)

Section summary: Next summary Previous summary

In February 2000 the Scottish Widows demutualisation was approved by the Court of Session under s.49 Insurance Companies Act 1982, which requires court approval for transfers of long-term business. The Act also requires that a statement setting out the terms of the scheme (to transfer the long-term business) should be sent to all policyholders and makes it an offence, punishable by a fine or imprisonment, for a person to include or permit someone else to include in any such statement a statement which he knows to be false in a material particular. Legally, this includes an omission as well, so that failure to say something can also constitute an offence. The Directors of Scottish Widows knew, long before the demutualisation (i.e. transfer of the long-term business to Lloyds TSB) of the existence of the GBP1.5 billion GAR liability but they did not disclose the existence of that liability either to the Court of Session in the Scheme document approved by that court or to the policyholders in the key document, the Demutualization and Transfer Policyholder Circular of 19 November 1999 in spite of the fact that the liability had crystallized before the Court of Session approved the Scottish Widows demutualisation following the Court of Appeal ruling in the Equitable Life case (see part 1, para 7 for further information). In addition, the directors of Scottish Widows deliberately gave policyholders the misleading impression that the GBP1.5 billion set aside in the 'Additional Account' would be paid to them over time as terminal bonus. The directors of Scottish Widows therefore committed a criminal offence under s.71 Insurance Companies Act 1982 and committed perjury in that they knowingly made false statements in a court of law. That's the background; not that complicated really.

In November 2005 I reported these offences to the Lothian & Borders Police because Scottish Widows' head office and the Court of Session are within their area.

  • The Police told me to report the matter to the FSA;
  • The FSA told me to report the matter to the Police;
  • The Police told me that the Procurator Fiscal had told them that it was a civil and not a criminal matter (this is in spite of the fact that the Insurance Companies Act 1982 states in black and white that the offence is an imprisonable one!);
  • I told the Police to tell the Procurator Fiscal to stop talking nonsense;
  • The Police told me that the Procurator Fiscal had agreed, after all, that it was a criminal matter;
  • The Police told me that there was not enough evidence to allow them to proceed to an investigation (i.e. we will not start an investigation to find the evidence until we have that evidence; the usual 'you produce the evidence and then we will investigate it' approach), that it was an FSA matter anyway and that the FSA would 'now progress this enquiry'. The claim that there was not enough evidence is a straight lie, of course; all the evidence they needed to provide a strong prima facie case was made available to them;
  • The Police have not responded to subsequent correspondence;
  • I later complained to the FSA on the basis that they had not followed up this matter (which, according to the Police, had been referred to the FSA). The FSA dismissed my complaint on the basis that, in their view, the existence of the GAR liability had been 'generally made clear' to policyholders at the time of the demutualisation, an assertion that I have already proved to be nonsense.

Next summary Previous summary

Section detail:

On 7 November 2005 I made a statement to the Lothian & Borders Police (who cover Edinburgh and the Court of Session) relating to a possible criminal offence by the directors of Scottish Widows in that they appear to have deliberately misled the Court of Session, who approved the demutualization scheme in February 2000.

'With regard to the question of evidence, under section 71 it is an offence to knowingly or recklessly make a material false statement in a statement made under section 49, that is the policyholder circular. It is an established and public FACT that Scottish Widows had a contingent liability of GBP1.5bn at the time of the demutualisation. It is an established and public FACT that this contingent liability was not mentioned in the circular sent to policyholders. It is therefore an established FACT that this omission amounted to a material false statement (in the sense that omission amounts to making a false statement). The only question that remains in order for an offence under section 71 to have been committed is whether this material false statement was made knowingly or recklessly and, by elimination, it is this uncertainty that amounts to the lack of evidence you refer to (i.e. there is no other uncertainty). The only way to obtain the necessary evidence on this question is to carry out an investigation and yet you refuse to carry out an investigation to obtain this evidence. In other words, you appear to be saying 'You prove it and then we will investigate it' but, of course, the only way to prove it is to investigate it. There is a danger that your response could be seen as a classic brush-off. This is even more likely to be the case given that the Procurator Fiscal initially tried to claim that the matter was a civil one (as opposed to criminal), which claim was of course patent nonsense, as he well knew.

With regard to the second point that it is the FSA's responsibility to investigate this matter, there are two points. The first point is that you have not explained why you have come to this view; that is you do not cite the relevant documents (policies, rules, procedures etc.). In view of the confusion that seems to exist on this point (you initially referred me to the FSA, who referred me back to you and you are now referring me back to the FSA), it would be very helpful if you could cite these documents. The second point is that I have already informed you of the likelihood that the FSA are themselves guilty of a criminal offence under section 71 in that they PERMITTED the false statement referred to above to be made. Given the fact that the FSA must have been very closely involved in the demutualisation process and cannot have been unaware of the existence of the contingent liability, there is very little doubt in my mind that this is the case. How can you refer the matter to the FSA in such circumstances is almost beyond belief.

I will be grateful if you could respond to the points I have made.'

Thus the police have, without actually citing the relevant authorities (laws, regulations etc.), referred the matter to the FSA who are themselves possibly guilty of a criminal offence in relation to this matter and who have already attempted to dismiss this matter by claiming that the existence of the GBP1.5 billion contingent liability was 'generally made clear' to policyholders at the time of the demutualization, their claim to this effect being based on a wording which patently does nothing of the sort (see section 19).

'The FSA has failed to properly investigate or reach a decision with respect to the prosecution of an offence committed by the directors of Scottish Widows under s.71 Insurance Companies Act 1982 as referred to them by Detective Inspector Keith Hardie of the Lothian & Borders Police in February 2006. Inspector Hardie's E-Mail to me of 27/02/2006 refers.'

29. The Accountancy Investigation & Discipline Board (AIDB) (Top of page)

Section summary: Next summary Previous summary

The Accountancy Investigation & Discipline Board (AIDB), now the Accountancy & Actuarial Discipline Board (AADB), are the successors to the Joint Disciplinary Committee (JDC) and they investigate allegations of professional misconduct by members of relevant professional bodies, including the main accounting and actuarial professional bodies. Basically, the key thing here is that the JDC is currently in the middle of a disciplinary enquiry (started in 2001!) into allegations that Ernst & Young, the former auditors of Equitable Life, failed to qualify the accounts of that company from 1994 to 2000 on the basis of its GAR liabilities. The reasons for launching the enquiry were quite simple:

  • Equitable Life had huge GAR liabilities during the years in question;
  • Ernst & Young did not qualify Equitable Life's accounts for those years;
  • Therefore an enquiry is required into whether this failure amounts to a disciplinary breach.

Seriously, it is that simple, and, more importantly, this simple logic was accepted by the JDC as a basis for a disciplinary enquiry.

In 2005 I complained to the AIDB about PricewaterhouseCoopers on the basis that they had not qualified the accounts of Scottish Widows for 1998 in respect of the huge GAR liabilities of that company, in exactly parallel circumstances to Ernst & Young and Equitable Life, namely that both companies had huge GAR liabilities and that the auditors of both companies had not qualified their accounts.

Initially, the AIDB dismissed my complaint without giving any reasons, other than saying that my complaint did not meet the complaints scheme criteria (which is a meaningless explanation - rather like a judge saying 'I am finding you guilty because you are guilty'). When I asked them, quite reasonably, to provide reasons they responded with a series of 'reasons' that were quite simply ludicrous, including the assertion that the allegations related to 1998 and 1999 and were therefore too old; this was actually while they were in the middle of an enquiry into Ernst & Young going back to 1994! Enough said, I think.

I did not pursue the matter. Today I would apply for a judicial review, which is the proper course of action (although of limited value in many cases because a judicial review only looks at the way in which a decision was made, not the decision itself), but I did not know about such things at that time. The time limit for seeking a judicial review is 3 months, so that option is no longer available. It is worth noting, in this context, that many bodies that are subject to judicial review* are VERY careful not to inform complainants of that fact; they will quite happily tell you that you can appeal to another internal panel or something (they can handle those) but they are terrified of public scrutiny in the courts (i.e. the public finding out what they get up to). Mind you, if you do go ahead they will try and crush your case on any basis they can other than its merits, such as on time limits, technical grounds, costs and so on. You would be surprised to find out how many cases never actually reach consideration of the substantive issues.

* Generally public bodies (but excluding Parliament or Parliamentary Committees) or private bodies exercising a function which, if they did not carry it out, would be carried out by a public body; this is usually some form of regulatory or supervisory role, as opposed to management or administration. See Swain v The Law Society (1983), R v Disciplinary Committee of the Jockey Club ex parte The Aga Khan (1993), R v Panel on Takeovers and Mergers ex parte Datafinn (1987) and R (Gorlov) v Institute of Chartered Accountants in England and Wales [2003] ACD 1.

Note that the reasons given by the AIDB for dismissing my complaint were totally different from the reasons given by the ICAEW for dismissing the SAME complaint made to them.

Next summary Previous summary

Section detail:

On 17 November 2005 I made a complaint to the AIDB concerning PricewaterhouseCoopers, who had issued an unqualified audit report on the accounts of Scottish Widows for the year ended 31 December 1998. The basis of my complaint was that:

Note that the Joint Disciplinary Scheme (the AIDB's predecessor) are currently investigating the conduct of Ernst & Young in their role as auditors of Equitable Life. The basis of the complaint against Ernst & Young is the same as my complaint against PricewaterhouseCoopers, namely that Ernst & Young failed to ensure that Equitable Life's contingent GAR liability of GBP1.5 billion was properly disclosed in the 1998 accounts of that company. The AIDB specifically told me that I could refer the matter to them.

'Whilst there may be an argument that it was disingenuous to describe the purpose of the Additional Account in the way that it was, it was so described before the House of Lords Judgement in the Equitable case: that case could have had quite a different outcome which would have affected the use of the funds in the Additional Account.
The alleged misconduct had not caused any known loss or damage.
There had been no media reports of the matter.
The allegations relate to a period going back as far as 1998 and 1999. It is likely that many of the relevant audit papers etc would have been destroyed and witness recollection could have been adversely affected with the passage of time.'

'I will deal with your points in order:

You say that 'Whilst there may be an argument that it was disingenuous to describe the purpose of the Additional Account in the way that it was, it was so described before the House of Lords Judgement in the Equitable case: that case could have had quite a different outcome* which would have affected the use of the funds in the Additional Account.' My complaint is against PricewaterhouseCoopers not Scottish Widows. Your point is 100% irrelevant. Well done!

*The point here is whether PwC knew at the time that there was more than a remote possibility that the Equitable case would be decided against that company because in such circumstances they would have been under a clear obligation to ensure that the existence of the contingent liability was disclosed to the Scottish Widows policyholders in the accounts. Under FRS 12 it is only when the likelihood of a contingency crystallizing is considered to be remote that it does not need to be disclosed. In relation to the disclosure of contingencies it is no excuse whatsoever to say 'Well, there was a chance that it might not have happened' (i.e. the fact that there MIGHT have been a different outcome is completely irrelevant, as I state). Of course, the AIDB are well aware of this; they know this argument is fallacious. Remember, these people are experts in these matters; they cannot claim 'Sorry, we didn't know that, your honour'.

You say that 'The alleged misconduct had not caused any known loss or damage.' What a preposterous statement! How many policyholders would have taken action to protect themselves financially if PwC had reported the existence of this potential GAR liability in the 1998 accounts? You don't know but the answer is actually irrelevant since what matters is whether PwC ought to have known about this contingent liability and whether they should have reported the matter in the 1998 accounts. Your point is 100% irrelevant. Well done!

You say that 'There had been no media reports of the matter.' So what? Are you saying that if someone commits a crime but this is not reported in the media then the police shouldn't investigate it? What a preposterous suggestion! Your point is 100% irrelevant. Well done!

You say that 'The allegations relate to a period going back as far as 1998 and 1999. It is likely that many of the relevant audit papers etc would have been destroyed and witness recollection could have been adversely affected with the passage of time.' So what? Are you saying that a crime or misdemeanour should not be investigated if it is difficult to obtain the evidence? What a preposterous suggestion! Your point is 100% irrelevant. Well done!

Patently, the matter is a matter of public concern because of the amount involved (GBP1.4bn). Patently, the matter needs to be investigated to determine whether there has been an act of misconduct. I would refer you to the JDC's current investigation into Ernst and Young's conduct of the Equitable Life audit in 1998 and other years. A fool could see that if the JDC investigation is justified then an investigation by the AIDB into PwC is also justified. Patently the matter meets the criteria you refer to.'

*Paragraph 5.1 of the Scheme states:

'Grounds for Investigation and Disciplinary Proceedings

5(1) A Member or Member Firm shall be liable to investigation under this Scheme only where, in the opinion of the Board:-

(i) (a) the matter raises or appears to raise important issues affecting the public interest in the United Kingdom; and
(b) the matter needs to be investigated to determine whether there may have been an act of misconduct; or
(ii) it appears that the Member or Member Firm has failed to comply with any of its obligations under paragraph 13(2) below.'

30. The European Parliament (The Committee on Petitions and the Committee of Enquiry into the Crisis of the Equitable Life Assurance Society), Norman Baker MP (Top of page)

Section summary: Next summary Previous summary

Committee on Petitions

Basically, any 'citizen of the EU' has the right to petition the European Parliament, which has set up a Committee on Petitions to consider such petitions. A petition can lead to the European Parliament setting up an enquiry but they are relatively toothless, firstly, because they have practically no investigative powers (people can just refuse to even respond to their letters) and, secondly, because although the European Parliament can endorse an enquiry's findings, they have no power to enforce recommendations. So, they're no use at all then? Well, not entirely; enquiries can exert a certain amount of political pressure, which can be safely ignored in most cases, but that is about it. For instance, as at January 2009, the UK government has made no response to the report of the European Parliament's Committee of Enquiry into the Crisis of the Equitable Life Assurance Society issued in July 2007. Disgraceful but there it is.

I submitted a petition to the Committee on Petitions in May 2006. The Committee ruled that my petition was admissible (concerned a matter which was within their jurisdiction) in October 2006. My petition, and a response to it by the European Commission, was considered by the Committee in July 2007. The Commission's response basically stated that, in their view, Lloyds TSB was prudent to set aside the GBP1.5 billion in the 'Additional Account' at the time of the demutualisation in order to cover potential GAR liabilities. This was not the point, of course, which was (a) that Scottish Widows did not tell the policyholders that they were setting aside the GBP1.5 billion for that purpose, and (b) that they misled the policyholders into thinking that they would be paid the GBP 1.5 billion as terminal bonus. In other words, the policyholders thought they were going to receive GBP 6 billion and they only got GBP 4.5 billion. Certainly, Scottish Widows was prudent to set aside the GBP 1.5 billion but it did it with money which they led the policyholders to believe would be paid to them. So the Commission's conclusion is rather like saying that it was prudent for someone to invest money in a pension, ignoring the fact that they stole that money from their grandmother! The Commission's response uses the familiar tactic of making a statement that seems relevant, at first glance, but does not actually address the issue; the question was whether the FSA should have taken steps to ensure that policyholders of Scottish Widows were properly informed of the existence of the GAR liability, not whether Scottish Widows should have provided for that liability. In any event, the Committee decided to keep my petition open until they had received a response from the Commission to certain points raised at the meeting (July 2007).

After many reminders on my part my petition was eventually reconsidered at the Committee on Petitions meeting in Brussels on 25 June 2008, a year later, which I attended and addressed. Following that meeting, Marcin Libicki, Chairman of the Committee, wrote to tell me that the Committee had resolved to raise my petition when the Parliamentary Ombudsman met with Committee to discuss her report into the Equitable Life crisis (which was issued in July 2008), on account of the obvious similarities between Equitable Life and Scottish Widows. In November 2008 I wrote to Marcin Libicki asking him to raise certain points with the Parliamentary Ombudsman. He did not reply. I later found out from the published agenda and minutes of the meeting with the Ombudsman, which took place on 1 December 2008, that my petition had not been included in the agenda and had not been discussed. I then wrote to my MEP (Member of the European Parliament), Martin Callanan, and asked him to ask Martin Libicki to explain what had happened. As at January 2009 no reply has been received from Martin Libicki. So, some 20 months after submitting my petition, as at January 2009, the Committee has not made a decision about what action to take concerning it.

The European Parliament's (EP) Committee of Enquiry into the Crisis of the Equitable Life Assurance Society

Any enquiry of this sort has two objectives; the first is to punish the guilty and compensate the victims and the second, and far more important, is to identify how widespread the problem is; that is, to identify whether the problem was an isolated one or is systematic. The second objective is more important because it is designed to prevent the risk of FUTURE HARM. Whatever damage has been caused, it is in the past and what happened in the past cannot be changed (even if it can be compensated for), but if the problem is a systematic one then there is a potential for it to recur. This is in the future and is therefore preventable, to a greater or lesser degree. If you have an electric pylon near your house and one of the live cables breaks and falls into your garden, you have to deal with that (but it's not a problem because no damage was done), but you will be far more worried about whether the other cables are safe BECAUSE OF THE RISK OF FUTURE HARM (in other words, the next time you might be underneath). Clearly then, the proper response to a problem is to say 'OK, we have a problem. How widespread is it?' Your immediate priority is to PREVENT FURTHER HARM. If follows from this that when an enquiry is set up to look at a regulatory failure which has caused financial loss to people, the most important objective of that enquiry is to identify whether the regulatory failure was an isolated incident or whether it was caused by a systematic problem; if the problem is a systematic one then the risk of further loss exists and needs to be addressed. As a secondary objective the enquiry needs to identify who was responsible for the failure (and punish them accordingly) and to identify who suffered loss (and compensate them). All this is just common sense stuff.

On this basis, the objectives of the EP's Committee of Enquiry should have been (1) to identify what caused the problem (who was to blame) and what losses policyholders had suffered as a result (who to compensate and how much), and (2) to identify whether the regulatory failures which affected Equitable Life were systematic and, if so, what the extent of the problem was. I referred my concerns relating to the Scottish Widows demutualisation to the Committee of Enquiry because I believed that they demonstrated that the regulatory failures that affected Equitable Life were systematic and affected the whole life industry in the UK and that it was therefore not just the Equitable Life policyholders who had suffered as a result but the millions of policyholders of the other UK life companies as well. It appeared to me that the wider regulatory failures were within the Committee of Enquiry's mandate because that mandate stated that the Committee should (1) 'identify whether systematic weaknesses contributed to the situation that has arisen' and (2) 'make ANY proposals that it deems necessary in this matter'.

Basically, in spite of this, Mairead McGuinness, Chairperson of the Committee, argued tooth and nail that the Committee's mandate was restricted to Equitable Life only. That part of their mandate which required them to assess systematic weaknesses she interpreted as relating only to systematic weaknesses in the European Commission's monitoring of the implementation of EU law and including (1) their monitoring of the implementation of EU law in so far as it affected Equitable Life, (2) their monitoring of the implementation of EU law 'in general' (i.e. ALL EU law - see page 319 of the report), but excluding (3) their monitoring of EU law in so far as it affected life companies other than Equitable Life (which is where the real problem lay). Of course, the implementation of EU law 'in general' necessarily includes EU law affecting life companies other than Equitable Life, so although the report (p. 319) clearly says that this area will be included, in practice the Committee refused to investigate it (they even refused to list my evidence as 'evidence received'). The mental juggling required to reach this ludicrous conclusion is explained below, as it the way in which the Committee of Enquiry's mandate was not correctly quoted in the Committee's report, but was dextrously fiddled to restrict it in the manner I have just explained.

Norman Baker MP

Norman Baker MP deserves a special mention. I approached him because he had shown some moral courage in relation to the death of the weapons inspector, Dr. David Kelly. But when I wrote to him about the Scottish Widows demutualisation he responded that 'there is a strict parliamentary protocol that Members of Parliament do not seek to intervene in matters raised by the constituents of other Members'. This is a lie; there is no such 'strict parliamentary protocol' as was confirmed directly to me by the House of Commons Information Office.

Next summary Previous summary

Section detail:

Committee on Petitions

'Thank you for your E-Mail but surely it has now been a considerable time since the meeting at which Sir Robert asked his questions - over 6 months in fact (since 16th July 2007). Presumably, at some stage Sir Robert will want to know why the European Commission has not responded. Has he raised this matter yet? He might also like to raise the point that the Committee does not keep proper minutes since when I asked for some I was (eventually) sent a tape recording. This implies that no paper or electronic copies of minutes are prepared or published. This is hardly acceptable from a parish council let alone a committee of the European Parliament (seriously, my parish council does better than that). Please raise these points with Sir Robert.'

'I have not yet seen your letter to the Chairman. As for EC reply to our request of further information, I could not tell you with certainty when it should arrive. In general, the Commission takes about six month to reply and more if the reply supposes exchanges of information with national authorities. I will send them a reminder. In any case you will be advised about further discussion on your petition.'

'I understand your concern. However, I would like to assure you that the representative of the European Commission in charge with the petition is the best placed to understand the matter and the questions addressed. The debate on the petition also provides Members with the opportunity to comment on the Commission's answers and to clear possible misunderstandings. You will also have the possibility to do so if you attend the meeting. In any case, I will pass on your demand to my Head of Unit, but there is not a practice to doubt the EC representative's ability to understand the questions raised on a file he deals with.'

'I will be grateful if you could inform me of the last communication you had with the Commission on this matter and whether there is any indication of when they will answer the questions raised. I will be grateful if you could let me know who is dealing with this matter at the Commission, together with contact details. In need this information to begin proceedings against the Commission in the European Court.' [I was rather fed up at this stage, given that the Commission had not replied in 10 months!]

'You say you enclose the LATEST communication. The document is dated 25 January 2007, over a year ago. This is their original response. Has there been no communication since then?'

'Good morning,

This is the latest communication received from the EC.

Best Regards,

Alina Vasile

'FOR SUBMISSION TO THE COMMITTEE ON PETITIONS ON 25TH JUNE 2008

Scottish Widows acted wrongly for the simple reason that they mislead their policyholders into believing that the GBP1.5 billion retained in the 'Additional Account' at the time of demutualisation would be paid to them (the policyholders) over time, as stated in the demutualisation circular (p. 18), when they (Scottish Widows) knew that there was a strong possibility (indeed, likelihood) that this would not be the case, as a result of the Equitable Life court case, and that the GBP1.5 billion would be required to meet the GAR liabilities of that company (in the same way as Equitable Life), as subsequently turned out to be the case. The directors of Scottish Widows also committed a criminal offence by failing to properly disclose the GBP 1.5 billion GAR liability to the Court of Session in Edinburgh when that Court approved the demutualisation scheme.

The European Commission says that 'it could be argued that LTSB was prudent in setting aside a sufficient amount to meet the worst-case scenario in the GAR court action' (possibly in the same way that it could be argued that it is prudent for a robber to invest his ill-gotten gains in a pension), but my petition does not relate to the conduct of either Scottish Widows or Lloyds TSB, even though it was criminal, it concerns the conduct of the Financial Services Authority (FSA) in failing to ensure that the policyholders of Scottish Widows were made aware of the existence of the GBP1.5 billion GAR liability (something that the FSA themselves unquestionably knew about) and thereby protect the interests of consumers as required by EU law.

It is this breach of EU law by the FSA, acting as the agent of the British Government, that brings the matter within the scope of the Committee on Petitions. The FSA have tried to argue that the existence of this GBP1.5 billion was 'generally made clear' to policyholders in the demutualisation circular but this assertion is patently false. The statement made in that circular to the effect that 'the contingencies allocated to the With Profits Fund are any additional costs of meeting guaranteed benefits on transferred policies allocated to the With Profits Fund' (p. 23) does not, by any stretch of the imagination, amount to proper disclosure of the existence of a GBP1.5 billion GAR liability (there is no mention of the amount), nor does it disclose the circumstances in which the liability might crystallize. Indeed, these words fall so far short of proper disclosure that they amount to positive concealment, which is what was intended.

In short, the FSA was unquestionably party (along with the directors of Scottish Widows and of Lloyds TSB) to the deliberate concealment of the existence of the GBP1.5 billion GAR liability from the Scottish Widows policyholders and was therefore in clear breach of its duty under EU law to protect the interests of consumers. It is on this basis that I ask the Committee to establish an enquiry into the conduct of the FSA in relation to the Scottish Widows demutualisation, which closely parallels the Equitable Life debacle, but which was, nonetheless, not investigated by the Committee of Enquiry into Equitable Life.

I therefore ask the Committee to do justice to the Scottish Widows policyholders in exactly the same way that the Committee did justice to the Equitable Life policyholders. If the Equitable Life policyholders were deserving of justice then the Scottish Widows policyholders are no less so; it would be inconsistent and inequitable to deny them this remedy.

In conclusion, the arguments put forward by the European Commission do not hold water:

1. The claim that the conduct of Scottish Widows or Lloyds TSB was 'prudent' is both nonsense and irrelevant, my complaint concerns the conduct of the FSA, not Scottish Widows or Lloyds TSB.
2. The assertion that the existence of the GBP 1.5 billion GAR liability was 'generally made clear' to policyholders is patently false.
3. The Scottish Widows demutualisation and the wider issue of the FSA's supervision of the GAR liabilities of other UK life companies (estimated to have been in the region of GBP 15 billion in total) did NOT, in any way, form part of the enquiry carried out by the Committee of Enquiry into Equitable Life, who specifically declined to investigate these matters, or of any other enquiry conducted in the UK.'

'I am writing with reference to your letter of 29th July 2008, following the Committee meeting of 24th/25th June 2008. It would appear that you regard your letter as effectively bringing an end to my petition, but this is not the case. The fact is that once my petition was ruled as admissible by the Committee, the Committee was then duty bound to make a decision concerning my petition one way or the other; in other words, will the Committee act or won’t it? In addition, if the Committee decides not to act it is duty bound to provide reasons for such a decision. On this basis, I look forward to being notified of the Committee’s decision, together with reasons.

I would ask the Committee to note that although my petition related to Scottish Widows, the Committee is perfectly entitled to decide that the evidence presented to it justifies a wider enquiry; namely an enquiry into the issue of the FSA’s supervision of GAR liabilities and their failure to protect consumer interests in relation to the whole industry in the UK, not just in relation to Scottish Widows. This is what I asked for when I appeared before the Committee earlier this year. In this context I would ask the Committee to note that the Parliamentary Ombudsman, in her recent report on Equitable Life, clearly and unequivocally supports a wide-ranging enquiry of this type, as demonstrated by the following quote from page xi of part 1 that report:

‘I find it hard to accept that the establishment of a comprehensive enquiry was not possible in this case. The situation at Equitable was not unique.’

See: http://www.ombudsman.org.uk/pdfs/equitable_life_part_1_main_report.pdf

The fact that the Parliamentary Ombudsman did not herself carry out such an enquiry means that the Committee is duty bound, in my view, to do so itself. There is now no-one else who can do this and a decision by the Committee not to instigate a wide-ranging enquiry would deny a remedy to millions of policyholders both in the UK across the EU. I hope you will not let them down as this would be, as the Parliamentary Ombudsman herself says on page xii of her report, ‘both iniquitous and unfair’. This is the Committee’s chance to demonstrate its sense of duty and its courage.

I look forward to hearing from you.'

'I understand that the Parliamentary Ombudsman will be meeting the Committee in December. I would like to draw your attention to page 16 of part 1 of the main report (para 74) where she states:

‘The analysis undertaken by GAD [Government Actuaries Dept.] of the results of that survey [of June 1998*] found that, while eight companies gave general cause for concern in terms of the approach adopted by those companies to this question [of reserving for annuity guarantees], Equitable and one other company were notable exceptions to industry practice and were of particular concern.’

*see para 73

See: http://www.ombudsman.org.uk/pdfs/equitable_life_part_1_main_report.pdf

The questions that I would like you to put to the Ombudsman are as follows:

1. ‘In the light of GADs finding that eight companies gave cause for concern in relation to their policies for reserving for guarantees, can the Ombudsman tell the Committee whether she has received any complaints against the FSA in relation to its supervision of life assurance companies other than Equitable Life** and, if so, can she explain why she has not carried out investigations into the supervision of those companies in the same way that she did with regard to Equitable Life?’

2. ‘In the light of GAD’s finding and in the light of the fact that the British press later reported that the total GAR liabilities of the UK industry could amount to £14 billion (Daily Telegraph, 21st July 2000), did the Ombudsman not consider that there might have been a general problem with the FSA’s supervision of the entire life assurance industry in the UK in respect of GAR liabilities and, if so, what prevented her from investigating this matter? In this context, was it not part of her remit in the Equitable Life enquiry to identify whether there were systematic weaknesses in the FSA’s supervisory regime and could she not have investigated this matter on that basis?’

**I made a complaint to the Ombudsman with respect to Scottish Widows on 21st October 2006. The Ombudsman has consistently refused to investigate this complaint.

I look forward to hearing from you.'

'I submitted a petition to the Committee on Petitions on 12 May 2006. Basically, the petition asked for a Committee of Enquiry to be set up to investigate the FSA's supervision of the £6 billion Scottish Widows demutualisation of 2000 (sale to Lloyds TSB), on the basis that, at that time, Scottish Widows had a larger Guaranteed Annuity Rate (GAR) liability than Equitable Life and that the FSA had failed to ensure that the existence of this liability was made known to policyholders at the time and had therefore failed in its duty to protect the interests of consumers. My petition was considered by the Committee but no decision was made on my request. At the Committee's invitation (and at considerable personal expense) I attended the meeting of the Committee in Brussels on 24/25 June 2008. At this meeting I asked for a Committee of Enquiry to be set up to investigate the FSA's supervision of the GAR liabilities of ALL life insurance companies, not just Scottish Widows, on the basis that Equitable Life and Scottish Widows were simply the tip of an iceberg of GAR liabilities amounting to over £14 billion across the industry. On 29 July, the Committee Chairman, Marcin Libicki, wrote to me saying that my petition would be 'included on the agenda' of its discussion with the Parliamentary Ombudsman at the Committee's December meeting (see attached), following the publication of her report into Equitable Life. My petition was NOT included on the agenda of that meeting and was NOT discussed. See:

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+COMPARL+PETI-OJ-20081201-1+01+DOC+PDF+V0//EN&language=EN

for the draft agenda and

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+COMPARL+PE-416.594+01+DOC+PDF+V0//EN&language=EN

for the minutes.

On 7 November I faxed Marcin Libicki asking him to raise certain points with the Parliamentary Ombudsman (see attached). To date I have received no response to my faxes.

The point is that when the Committee accepted my petition they became duty bound to reach a decision with respect to it; this they have not done. Indeed, the fact that the Committee Chairman specifically promised me that my petition would be discussed at the December meeting, and the fact that it was not discussed, together with the fact that he has not even acknowledged receipt of my faxes of 7 November, make it pretty clear that he, and possibly other members of the Committee, are determined to kick my petition into the long grass. The difficulty facing them, I think, is that the situations of Equitable Life and Scottish Widows with respect to GAR liabilities are so similar that it is impossible to hold an enquiry into the former and not hold an enquiry into the latter - but this, it seems, is what they are determined to do.

On this basis, I would be grateful if you could write to the Committee Chairman on my behalf:

a). requesting him to ensure that the Committee reaches a decision on my petition (will they or will they not recommend that a Committee of Enquiry be set up to investigate the FSA's supervision of Scottish Widows or, as I requested at the June meeting, the FSA's supervision of the GAR liabilities of ALL life insurance companies, including Scottish Widows?);
b). asking him to explain why my petition was not discussed at the December meeting as promised;
c). asking him to explain why he has not responded to my faxes of 7 November.

I look forward to hearing from you.

The European Parliament's Committee of Enquiry into the Crisis of the Equitable Life Assurance Society

'I wrote to your previously about the Scottish Widows demutualisation. I notice that you raised the matter at the hearing of oral evidence on 23rd November 2006 but that it does not seem to have been raised again as the Chair said it would in response to your point. Thank you for what you did.

I have looked briefly at the draft report [of the committee] and the two amendment documents and I notice that there is no mention at all of the Scottish Widows demutualisation. Given that the report makes specific reference to the FSA's regulatory regime (which means that the regulatory regime is within the scope of the enquiry), I find it quite extraordinary that no mention has been made at all of evidence that points not just to 'laxity' but to a far more serious (because it was conscious and deliberate) state of affairs, possibly (certainly in my view) involving criminal conduct on the part of the FSA (under s.71 Insurance Companies Act 1982) as described in my E-Mail to you of 21st October 2006 (copy below).

On this basis I am writing to ask if you would be prepared to table an amendment to the report which specifically mentions the Scottish Widows demutualisation and the possible implications, as described in my E-Mail of 21st October 2006. After all, if the report says that the FSA's regime was 'lax' when it was in fact a huge criminal conspiracy, the report of the enquiry would itself be seriously misleading, particularly when the enquiry had evidence which alerted them to the true state of affairs.'

'I am not quite sure what you take the phrase 'for information only' to mean. All evidence that was submitted to you was for your information. How could it have been otherwise? It is irrelevant in any event because I submitted information to the Committee as well and this was most definitely not 'for information only'; I was expecting you to treat the information as admissible evidence to be considered by the Committee. Why was my evidence not considered and why is it not even listed as evidence received by the Committee. It would be an extremely serious matter indeed, which I would pursue in the European Parliament (and outside), if the Committee were to be found to have deliberately suppressed evidence (and particularly evidence of such a nature).

You say that the subject matter (i.e. the regulatory framework of the FSA in general) fell outside the Committee's mandate. If this is the case, why have statements about the general regulatory framework been made in the draft report (statements which, in view of the Scottish Widows matter, are seriously misleading). I would also like to point out that the mandate of the Committee, dated 18 January 2006, states that the enquiry shall, inter alia, 'investigate alleged contraventions or maladministration in the application of Directive 92/96/EEC(2), now codified by Directive 2002/83/EC(3), by the United Kingdom's competent authorities in relation to Equitable Life, notably as regards the regulatory regime and the monitoring of the financial health of insurance undertakings, including their state of solvency, the establishment of adequate technical provisions and the covering of those provisions by matching assets'. Note the reference to 'insurance undertakings' (plural) and 'their state of solvency' (plural). These references are quite specific. Only someone determined NOT to take notice of my evidence would interpret these words as excluding the general regulatory framework (which of course affected Equitable Life - and would therefore be relevant to the enquiry even without specific mention).

I look forward to hearing from you, although, frankly, it looks to me as though you have dug a hole you are going to find it difficult to get out of. Do not think for one second that I am not going to pursue this matter vigourously, because there is nothing worse, or more hypocritical, than people who are entrusted with protecting the public who knowingly and deliberately fail to do so.'

'Has Ms McGuinness had an opportunity to consider this matter yet? You will appreciate that it is very serious, in that the Committee of Enquiry into the Collapse of the Equitable Life Assurance Society has stated that the FSA's role in the Scottish Widows demutualisation is outside the scope of its remit and the European Commission is saying that it is within the scope of that remit. It is clear that the Committee of Enquiry should not conclude its work until such an important uncertainty has been resolved because, if the European Commission is right, then, quite simply, the Committee of Enquiry has not carried out its enquiry in accordance with the remit laid down by the European Parliament. Since the Committee of Enquiry is now aware of this matter, to proceed to draw its enquiry to a close would be to KNOWINGLY fail to carry out its enquiry in accordance with the remit laid down by the European Parliament, which amounts to disobeying Parliament's instructions in the matter.

I await Ms. McGuinness's comments on these points.'

'Dear Mr. Senior-Milne,

The Committee of Inquiry into the crisis of the Equitable Life Assurance Society produced its final report, which was voted on in the European Parliament during Parliament's session in June.

The Committee will not hold any further meetings and the secretariat of the Committee have resumed their previous roles within the European Parliament.

As noted below the Committee of Inquiry was bound by its mandate which it established, and as the mandate did not include an examination of the case of Scottish Widows, the Committee was precluded from examining this
case.

The Committee on Petition's document that you attached notes:

"[...]Whether the UK regulators and supervisors (including the FSA) acted properly and adequately protected policyholders' interests and expectations in the matter of the treatment of the GAR option will be dealt with in the conclusions of the European Parliament Committee of Enquiry into Equitable Life [...]"

This matter was considered in the final report of the Committee of Inquiry but only insofar as it was relevant to the Committee's mandate in relation to the crisis at Equitable Life. The Committee's mandate did not provide for a general examination of UK regulators and supervisors approach in relation to all GAR options available on the market.

Finally, I note that the petition that you attached will be considered at the forthcoming meeting of the Committee on Petitions.

Further information can be found at the following address:

http://www.europarl.europa.eu/meetdocs/2004_2009/organes/peti/peti_20070716_1500.htm

I hope this clarifies this matter.

Yours sincerely,

Mairead McGuinness MEP (p.p. James Sullivan)'

'I refer to your E-Mail to me of 10 July. The committee's mandate stated that the Committee should 'assess, in this respect, whether the Commission has properly fulfilled its duty to monitor the correct and timely transposition of Community law and identify whether systematic weaknesses contributed to the situation that has arisen;'. The phrase 'systematic weaknesses' means weaknesses in the system as a whole, it encompasses more than isolated weaknesses in relation to a single supervised body such as Equitable Life. Weaknesses in relation to the supervision of one body are not systematic weaknesses. The Committee was required to assess whether systematic weaknesses contributed to the situation that had arisen; therefore the Committee was required (specifically required) to assess whether the weakness that affected Equitable Life also affected other supervised bodies, such as Scottish Widows. Last, but not least, the Committee was empowered [by its mandate] to 'make ANY proposals that it deems necessary in this matter', including in relation to systematic weaknesses and therefore including recommending further investigation of the supervision of other bodies, such as Scottish Widows. No-one would have challenged your right to do this. This is simple logic that is not beyond your mental powers. You were and are fully aware of these facts. You deliberately chose to shut your eyes to these facts in the full knowledge that there was strong evidence that serious systematic weaknesses existed resulting in losses of billions of pounds (possibly in the region of 15 billion pounds) to UK and EU consumers and that the FSA had committed a criminal offence under UK law. I know because I submitted that evidence (which you even refused to list as evidence received).'

'As I have noted in our previous correspondence, this committee was established on the basis of a clearly defined mandate. When read in its totality, it is clear that the mandate established clearly defined parameters within which the Committee could conduct its investigation.

The first paragraph of the mandate clearly specifies that the Committee should consider "[..] alleged contraventions or maladministration in the application of Community Law in relation to the collapse of Equitable Life, without prejudice to the jurisdiction of national or Community courts". The subsequent paragraph delineates in greater detail the manner in which the Committee should conduct its investigation into the crisis of the Equitable Life Assurance Society.

In spite of your contention to the contrary this mandate did not empower the Committee to investigate other entities that were subject to supervision by the United Kingdom's competent authorities.'

'assess, in this respect, whether the Commission has properly fulfilled its duty to monitor the correct and timely transposition of Community law and identify whether systematic weaknesses contributed to the situation that has arisen.'

Now the Committee's report (page 11/378 - 'Summary of the mandate' - literally the first page of the report) refers to 'Assessment of the Commission's monitoring of implementation' and there is no mention of 'systematic weaknesses' at all. By the time we get to Part V of the report, the title page of that part (page 311/378) states 'Part V - ROLE OF THE COMMISSION' with the sub-heading:

'on systematic weaknesses in the Commission's monitoring of implementation of EU law in the light of the crisis of the Equitable Life Assurance Society'

You will note that the two parts, (assessment of one thing and identification of another) have become merged into one, so that:

'assessment of the Commission's monitoring and identification of systematic weaknesses'

becomes

'assessment of systematic weaknesses in the Commission's monitoring'.

You will note that the relevant section of the original mandate is in two parts, one relating to the role of the Commission and one relating to systematic weaknesses, which is not restricted to systematic weaknesses in the Commission. This is a matter of simple construction of the words because the mandate specifically states 'assess whether the Commission has...' and then says 'AND identify whether systematic weaknesses...'., so that there are two operative words - 'assess' (in relation to one thing) and 'identify' (in relation to another). A proper construction of these words would be that the identification of systematic weaknesses is not limited to those in the Commission's monitoring process because there are no words of limitation; it says 'systematic weaknesses' without qualification in a part of the sentence which is ADDITIONAL (via the use of the word 'and') to the first part relating to the Commission. Further, the use of the second operative word 'identify' makes it clear that two processes are being referred to. In any event, the phrase has to be interpreted within the context of the European Parliament's overall intention and the idea that the European Parliament intended NOT to identify and assess systematic weakness generally (i.e. including within the UK regulatory authorities and affecting other companies - which can only be assessed by investigating the supervision of those companies) is unsupportable nonsense, as I make clear above.

The author of the report who was responsible for this dextrous juggling with words was Diana Wallis MEP. She managed to NOT say in 378 pages what I would have said in 1 sentence, namely: 'The Equitable Life crisis, in which the policyholders of that company lost GBP 1.5 billion, is the tip of an iceberg, that is a small part of a huge financial crisis which was caused partly by supervisory failings of the UK authorities (including a failure to properly implement EU law) and a failure of the EU Commission to properly monitor the implementation of EU law, but which was caused mainly by the deliberate concealment by the UK authorities of that financial crisis from the public and which appears ultimately to have cost many millions of policyholders in the UK and elsewhere in the region of GBP 14 billion.' There you are, Diana. Not really that difficult at all - but then you aren't a politician for nothing. What is really scary is that you got away with it - well, almost.

Diana Wallis MEP