Website updated to 20 November 2007 (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 and Chairman of the Audit Committee 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 Mr. Scrivens had failed to properly investigate my concerns about the Scottish Widows demutualization 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 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) 31. Public Concern at Work 32. Private Eye 33. Personal consequences 34. Looking ahead 35. And you? What will you do?
17. Referral to Chairman, Chief Executive, Director of Group Risk Management and Chairman of the Audit Committee (Top of page)
On my suspension 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 manager, and the Chairman of the Audit Committee of Lloyds TSB (Professor Ewan Brown), all of whom declined to look into the matter. When Peter Ellwood and Michael Green brushed me off (these sorts of people have staff who are adept at keeping customers and other annoying people well away from them), I pursued the matter with Professor 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.
Professor 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:
- I had supplied him with clear evidence that the bank's procedures were being used maliciously to victimize and harass a whistleblower. This evidence was a). the preposterous nature of some of the allegations made against me, which were patently not against company rules, e.g. 'being unwilling to go on a course', b). the fact that the people who suspended me (my own management) were the same people who had refused to investigate my concerns in the first place and c). the fact that I was suspended so shortly after raising those concerns with the external auditors.
- Audit Committees have a very definite responsibility to follow up concerns raised by whistleblowers, to ensure that proper whistleblowing procedures are in place and to ensure that such procedures are not abused, as detailed in The Combined Code on Corporate Governance which states (p. 46) that 'the Audit Committee must intervene if there are signs that something is seriously amiss' (perhaps Professor Brown considers GBP1.5 billion and a possible criminal offence by the directors not to be serious) and that the Financial Reporting Council's website states that 'Listed companies are required to report on how they have applied the principles of the Code, and either to confirm that they have complied with the Code's provisions or - where they have not - to provide an explanation'.
- Further, the ICAEW's booklet 'Guidance for Audit Committees - Whistleblowing arrangements' states (p. 3) that 'audit committees may wish to allow whistleblowers to contact the audit committee chairman directly as an effective method of demonstrating the board's commitment to the success of the [whistleblowing] process'. Clearly the authors of the Guide did not envisage that an audit committee chairman would refuse to investigate a matter reported to him on the basis that the whistleblower was subject to investigation because this would mean that intervention by the chairman of the audit committee could always be prevented by the simple expedient of starting an investigation. Whoops!
- It is also interesting to note that the internal procedures of other companies (e.g. Aon Corporation - see section III.2 of their whistleblowing procedure) actually require the Audit Committee to become involved in whistleblowing cases - so who is right?
- Note, in this context, that section C.3.1 of the Combined Code requires the board to appoint an audit committee 'who should all be independent non-executive directors'. Professor Brown, as Chairman of Lloyds TSB Scotland, a subsidiary company of Lloyds TSB, cannot possibly be described as independent. Lloyds TSB is therefore in clear breach of the Combined Code in having a non-independent Chairman of the Audit Committee.
- In telling me to 'comply with the LTSB internal procedures relating to whistleblowing' Professor Brown was telling me to refer the matter to my own line management, to whom I had in fact first reported the matter, who were the very people who had suspended me. Further, in reporting the matter to the external auditors, after my own management refused to act, I was following the advice of the Ethics Advisory Service of the ICAEW, whose opinions carry rather more weight than those of Professor Brown.
- I had, in fact, by sending Professor Brown a copy of my letter of 19th January 2003 to the FSA (Financial Services Authority) already provided him with evidence of the clearest kind relating to the Scottish Widows demutualization, namely:
- the ESTABLISHED FACT that a contingent liability of GBP1.5 billion had existed at the time of the Scottish Widows demutualization;
- the ESTABLISHED FACT that this contingent liability later crystallized;
- the ESTABLISHED FACT that the Directors of both Lloyds TSB and Scottish Widows knew about this contingent liability;
- the ESTABLISHED FACT that the existence of this contingent liability was not disclosed to Scottish Widows policyholders at the time of the demutualization;
- the UNAVOIDABLE CONCLUSION therefore that the Directors of Lloyds TSB and Scottish Widows MUST have knowingly failed to disclose the existence of this contingent liability to Scottish Widows policyholders at the time of the demutualization.
- It is most definitely NOT the duty a whistleblower to carry out an investigation (which they usually have no authority to do anyway) but it is their duty to raise their concerns. 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.' Clearly, Professor Brown's demand that I produce further evidence was both unreasonable and wrong.
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 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).
- On 10 October 2005 I faxed the Chairman of Lloyds TSB, Maarten van den Bergh, enclosing an earlier copy of this paper. I also wrote by E-Mail and postal mail just to make sure that he received my letter. To date I have received no reply.
- On 19 October 2005 I faxed Professor Brown re-iterating the evidence outlined above and asking him to let me know what further evidence he required. To date I have received no reply. (Section 27 below gives details of my subsequent complaint against Professor Brown to the Institute of Chartered Accountants of Scotland, of which Professor Brown is a member.)
- On 20 April 2006 I wrote again to Professor Brown to inform him that I had referred the question of the FSA's supervision of the Scottish Widows demutualisation to the Treasury Select Committee.
- On 5 May 2006 Professor Brown wrote to me to say that 'nothing I have read in those attachments [to my E-Mail of 20 April 2006] causes me to alter in any way what was stated in my letters [of 17 December 2002 and 4 February 2004]. We regard this matter as closed and, therefore, I do not propose to comment further.'
- On 11 August 2006 I wrote to Professor Brown and referred him to this website. To date I have received no reply.
- On 14 August 2006 I wrote to Professor Brown and informed him that I had submitted a petition concerning the FSA's supervision of the Scottish Widows demutualisation to the European Parliament on 12 May 2006 and that this petition had been ruled admissible by the Committee on Petitions of the European Parliament on 12 July 2006, that is the Committee had ruled that they would consider my petition. To date I have received no reply.
- On 28th September 2006 I wrote to Professor Brown to inform him that I had updated this website. To date I have received no reply.
- On 21st October 2006 I wrote to the Chairman of Lloyds TSB and to Professor Brown to inform them that the European Commission had begun a preliminary investigation into my petition to the European Parliament. To date I have received no reply.
18. Referral to City of London Police, Independent Police Complaints Commission, Professional Standards Unit and the Information Commissioner (Top of page)
In early 2003 I also reported this matter to the City of London Police since it seemed to me that Alan Rennie, Roger Cooper, Howard Monks and Alan Hubbard had committed a criminal offence under the Protection from Harassment Act (the Act is very short and the definition of 'harassment' is crystal clear - see sections 1 and 2) in that false allegations had been against me in the knowledge that I was recovering from a heart attack and was suffering from stress, that these allegations had been pursued for almost a year (through two further suspected heart attacks and an angioplasty) and that I had eventually been sacked in clear breach of the bank's own rules (this was at a later stage of course). The police refused to act on the grounds that the Harassment Act applied only to stalking, an assertion that is patent nonsense (as confirmed by the decision of the House of Lords, the highest court in the UK, in Majrowski v. Guy's and St. Thomas' NHS Trust on 12 July 2006 - in addition, two local councillors were arrested under the Act by the police at around this time for interrupting a council meeting) - see also here. I referred the matter to the Police Complaints Authority and the matter ended up in the hands of Superintendent Peter Moore of the Professional Standards Unit of the City of London Police. He refused to pursue the matter citing legal advice* which he refused to show to me. I applied for access to this legal advice under the Freedom of Information Act. This request was refused by the police and I appealed to the Information Commissioner in May 2005.
- On 3 October 2005 I phoned the Information Commissioner's Office (ICO) who informed me that it would be about another 8 weeks before my appeal was even assigned to someone to investigate.
- On 1 December 2005 the Information Commissioner's Office wrote to me and apologised for the delay but gave no indication of when my appeal would be dealt with.
- On 7 April 2006 I phoned the Information Commissioner's Office who informed me that no action had yet been taken and that they had no idea when any action would be taken.
- On 21 November 2005 I wrote to Dr. James Hart, Commissioner of the City of London Police, to make a complaint against Superintendent Peter Moore, on the basis that Peter Moore knew or ought to have known that 'the fact that the final act of dismissing me (see * below) was not an offence under the Act was irrelevant because I had actually reported to the police something completely different, namely a sustained campaign of harassment against me, and that this is most definitely an offence under the Act.'
- On 22 December 2005 Kieron Sharp, Detective Chief Superintendent, City of London Police, wrote to me rejecting my complaint on the basis that Superintendent Moore had done a considerable amount of work, the fact that he had sought advice and the fact that he had provided me with comprehensive information.
- I appealed against this decision to the Independent Police Complaints Commission (IPCC) on the basis that Kieron Sharp had not considered at all whether the advice that Superintendent Peter Moore had given was actually correct (which it wasn't) or whether he should have known that it was incorrect - which was what I had complained about (in other words Kieron Sharp hadn't in fact considered my complaint at all).
- On 12 January 2006 the IPCC wrote to acknowledge receipt of my appeal (Ref: 2006/0001397) and stated that 'we will be writing to you about your application shortly'.
- On 15 June 2006 the Information Commissioner's Office wrote to me to apologize for the delay and to inform me that they were 'carrying out a complete reorganisation of our FOI complaints division which I hope will allow us to deal with cases like yours more quickly that we can do at present. We will start work on your case as soon as we can, when this happens the case officer responsible for it will contact you.'
- On 5 July 2006 John Moss of the Information Commissioner's Office wrote to me to say that my case had been assigned to him and that he had written to the Police on that day to ask for further information. He asked me to provide a synopsis of the case.
- On 5 July 2006 the Owain Taylor, Casework Manager of the Independent Police Complaints Commission (the IPCC), wrote to inform me that the IPCC were not going to investigate my complaint. The reason given for this was that 'the legal advice given to Superintendent Moore and ensuing letter to you was predicated on the consideration of your dismissal from Lloyds TSB in the context of the background to your complaint' (this is meaningless bureaucratic gobbledygook of course). The fact is that the legal opinion stated that my dismissal on its own did not amount to harassment (since a single act cannot under the Act amount to harassment) and ignored the campaign of harassment waged against me for over a year before my dismissal. If the campaign of harassment (which is what I complained about) had been considered, as the IPCC claim, then why did the legal advice not say that the campaign of harassment (rather than just my dismissal) did not amount to harassment? What the IPCC are effectively saying is that the legal advice considered one thing (my complaint about the campaign of harassment) but gave an opinion concerning another (my dismissal). This is complete rubbish of course.
- On 7 July 2006 I sent a synopsis of the case to John Moss as he had requested.
- On 11 August 2006 I wrote to John Moss asking whether he had made any progress.
- On 17 October 2006 I sent further reminders to John Moss.
- On 18 October 2006 John Moss wrote to inform me that he had completed a Decision Notice and would send it to me in the next few weeks.
- I subsequently received a Decision Notice from John Moss dated 21 September 2006 rejecting my appeal on the grounds of legal professional privilege (i.e. that the information I wanted to gain access to was a privileged communication between a lawyer and his client, the police). The main reason for reaching their decision was that there is a general principle that communications between a lawyer and his client should remain confidential. They said 'the complainant maintains that it is not sufficient for the public authority to rely upon the general principle of exemption'. This is wrong. It was not a case of the claimant (me) maintaining that a public authority should not rely on a general principle of exemption, it was the case that the Information Commissioner's own booklet 'Freedom of Information Act Awareness Guidance No 4 - Legal Professional Privilege' states under the heading 'The Public Interest Test' (p.7) that (a) 'the legal professional privilege exemption is subject to the public interest test' and (b) that 'all requests must be judged on their own merits' (i.e. it must be assessed, in each case, whether the public interest justifies non-disclosure of the information). In other words, the Information Commissioner applied a general principle and completely overlooked their own requirement that public authorities should justify the exemption in each case. The Decision Notice even said 'the legal professional privilege is class based and accordingly it is not necessary to consider whether any harm would be caused'. In other words, they applied the general principle and ignored the specific facts of the case, which meant that they failed to follow their own 'Public Interest Test'. Good one!
*This legal advice was apparently to the effect that the 'final act' of dismissing me did not amount to harassment. This statement is a cunning way of avoiding the issue since the Protection from Harassment Act, section 7(3), defines harassment as a 'course of conduct' involving at least two occasions. Therefore one 'occasion', including an act of dismissal, can NEVER be harassment! The statement that the 'final act' of dismissing me did not amount to harassment is therefore (legally) correct but ignores the fact that the harassment I complained of continued for over a year, as stated above. Snakey!
19. Referral to Financial Services Authority, Members of Parliament, the Treasury Select Committee and the Parliamentary and Health Service Ombudsman (Top of page)
The Financial Services Authority, Members of Parliament and the Treasury Select Committee
In early 2003 (letter dated 19 January) I also reported the matter to the FSA and when this produced no result (or rather mere evasion) I referred the matter to my then local MP (Member of Parliament), Sir Archie Kirkwood, a Liberal. He forwarded letters to and from the FSA but studiously avoided taking a stand on the issue. I eventually wrote to him saying he was 'the most expensive postbox in history' and gave up as I was clearly making no progress. In early 2004 I moved to another parliamentary constituency.
- At a meeting on 19 March 2005 (following an initial E-Mail to him dated 10 January 2005) I referred the matter to my new MP, Alan Beith (also a Liberal), who agreed to write to the FSA.
- On 26 July 2005 (4 months later, although I will concede that this delay was partly due to the General Election) the FSA wrote to Alan Beith maintaining, in clear defiance of the evidence, that the existence of the contingent liability of GBP1.5 billion in respect of GAR policies had been made clear to the policyholders of Scottish Widows at the time of the demutualization.
- On 2 August 2005 Alan Beith forwarded the FSA's letter of 26 July to me.
- On 10 August 2005 (reminders sent 25 August, 15 September and 26 September) I wrote to Alan Beith pointing out to him that the FSA had failed to refer him to the specific wording in the policyholder circular dated 19 November 1999 which they claim had made clear to policyholders the existence of the contingent liability of GBP1.5 billion in respect of GAR policies.
- On 28 September 2005 Alan Beith wrote to me agreeing to go back to the FSA and also to refer the matter to the Chairman of the Treasury Select Committee.
- On 20 October 2005 Alan Beith wrote to me forwarding, without comment, a reply from the FSA dated 13 October 2005 in which Clive Briault, Managing Director, Retail Markets, FSA, re-iterated their assertion that the contingent liability in respect of GAR policies had been 'generally made clear' to policyholders. Of course Mr. Briault did not refer to any actual wording in the policyholder circular of 19 November 1999 because he could not, he just made an unsupported assertion.
- On 20 October 2005 I wrote to Alan Beith saying that we were just going round in circles, as I had predicted, and asked him what he proposed to do.
- On 5 November 2005 I wrote to Alan Beith informing him that 'a major media company' (in fact the BBC's 'File on 4' programme) had given editorial approval for the production of a documentary on the GAR/FSA/Scottish Widows issue.
- On 8 November 2005 Alan Beith wrote to me saying that he proposed to wait on the planned documentary before referring the matter to the Treasury Select Committee.
- On 10 November 2005 I wrote to Alan Beith saying that I did not think this was a good idea because the documentary might be delayed or even cancelled (in the nature of things) and that, in any event, the Treasury Select Committee should assess the matter on its merits rather than react to outside events.
- On 12 November 2005 I wrote to Clive Briault, Managing Director, Retail Markets, FSA, asking him to refer me to the specific wording in the demutualization circular of 19 November 1999 where, as he claimed, the existence of the contingent liability of GBP 1.5bn in respect of GAR liabilities had been 'generally made clear' to policyholders.
- On 15 November 2005 Alan Beith wrote to me saying that he remained of the view that the Treasury Select Committee 'may be more likely to take an interest in the matter if it is attracting widespread attention'.
- On 18 November 2005 I wrote to Alan Beith saying that I would expect the Committee 'to act with the utmost probity and solely on the basis of the merits of the case. They should be entirely uninfluenced (like a jury) by outside events, particularly the actions of the media.' I also gave him details of a meeting I had had with the Lothian and Borders Police on 7 November 2005.
- On 23 November 2005 Alan Beith wrote to me saying that he had already given details of my case to the Chairman of the Treasury Select Committee but said that he remained of the view that 'pressing him further would be assisted if the issue was shown to have attracted wider interest'. He wrote that he would write to me further when he had received a response from the Chairman of the Treasury Select Committee.
- On 23 November 2005 I wrote to Alan Beith asking him to write to the FSA, who had not responded to a letter from me of 12 November 2005 (above).
- On 5 December 2005 Alan Beith wrote to me saying that he was taking up my point with the FSA.
- On 6 January 2006 I wrote to Alan Beith to tell him that the BBC's 'File on 4' programme had decided not to go ahead with a documentary.
- On 9 January 2006 Alan Beith wrote to me enclosing a letter from Clive Briault, Managing Director, Retail Markets, FSA, dated 22 December 2005, referring him (Alan Beith) back to their letter of 26 July 2005 (see above) and saying that they considered the matter to be closed.
- On 6 February 2006 (reminder sent 20 February) I wrote to Alan Beith asking him whether he had received a reply from the Chairman of the Treasury Select Committee.
- On 1 March 2006 Alan Beith wrote to me enclosing a letter to him from the Chairman of the Treasury Select Committee (John McFall MP) dated 27 February 2006 in which he (the Chairman) stated (broadly) that it was not within the Committee's remit to investigate whether or not Scottish Widows had failed to make clear to its policyholders the existence of the contingent liability of GBP1.5 billion in respect of GAR policies.
- On 3 March 2006 I wrote to Alan Beith saying that I was amazed that someone (the Chairman of the Treasury Select Committee no less) could have apparently failed to grasp the essential issues so comprehensively. I pointed out that, as far as the Committee was concerned, the issue was not whether proper disclosure had been made by Scottish Widows of the fact that they had a GBP1.5bn contingent in respect of GAR liabilities at the time of the demutualization, the issue was the role and conduct of the FSA in the demutualization process, their apparent role in concealing from the public the existence of huge GAR liabilities (possibly amounting to tens of billions of pounds) across the industry and their repeated failure (refusal) to answer proper and valid questions from an MP, namely himself (Alan Beith). I pointed out that this is something that is very much within the remit of the Treasury Select Committee, indeed oversight of the FSA is their specific responsibility.
- On 13 March 2006 Alan Beith wrote to me to say that he had decided to 'pursue with the FSA their failure to produce the actual wording which led to their conclusion that there had been adequate disclosure' and to say that 'he did not think that a useful purpose would be served by protracted correspondence with the Chairman of the Treasury Select Committee'.
- On 16 March 2006 (reminder 7 April 2006) I wrote to Alan Beith that 'I am disturbed by the turn of events. You say you have decided the pursue the matter with the FSA but they have already made it quite clear that they regard the matter as closed and, on this basis, will presumably decline to correspond further on the matter. In such circumstances I believe it is clearly appropriate to refer the matter to the Treasury Select Committee, who have specific responsibility for oversight of the FSA. I take it you agree with this since you have already approached the Treasury Select Committee. The point is I think that since you have decided not to take the matter further with the Treasury Select Committee, what will you do when you make no progress with the FSA? You appear to have cut off the proper route by which this matter should be pursued.' I also wrote that 'You refer to a 'protracted correspondence' but, as far as I can see, this consists of one letter from you to the Chairman of the Committee and one letter in reply from him. In any event, whether the issue is protracted or not is surely beside the point, what matters is that there is an issue here that needs to be pursued until it is properly resolved; if that makes the matter protracted then so be it. If we all gave up pursuing issues on such a basis no-one would ever achieve anything. Churchill did not say we should give up in 1940 because the war would be protracted; he said we will fight on with all our power until we achieve the end we know to be right. It is a matter of moral conviction and, in fact, moral obligation to the people you represent.'
- On 10 April 2006 Alan Beith wrote to me as follows:
'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 is helpful in the sense that we have finally (after 3 years) pinned the FSA down on the precise wording which they claim '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 is, of course, whether the statement on page 23 does 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.
- On 14 March 2006 I telephoned the Treasury Select Committee and was informed by James Clarke, an official, that if I wrote to the Treasury Select Committee my letter 'would be seen by all members [of the Committee]'.
- On 13 April 2006 I wrote to Mr. Clarke explaining my concern that the FSA appear to have committed a criminal offence under section 71 of the Insurance Companies Act 1982 and that they appear to have failed to have properly protected consumers' interests in the Scottish Widows demutualization process and in relation to the GAR liabilities of other companies as well. I enclosed an earlier copy of this paper.
- On 19th May 2006 Mr. Clarke wrote to me, after several reminders, that 'I have made your correspondence available to the Committee but the Committee has not considered the matter specifically.'
- On 19th May 2006 I wrote to Mr. Clarke and asked him to clarify whether the Committee had considered my paper as a Committee or not and if not, why not.
- On 24 May 2006 Mr. Clarke responded 'To clarify, I have made the Committee aware of your correspondence and the issues to which you refer. It is for the Committee to decide which inquiries it undertakes. The Committee has a very full programme at present and I do not envisage the Committee undertaking a new inquiry into the issues you raise.'
- On 24 May 2006 I wrote to Mr. Clarke and asked him to tell me who did consider my submission, namely whether it was a Committee member, more than one Committee member or someone else.
- On 8 August 2006 I wrote to all members of the Treasury Select Committee, excluding the Chairman, detailing my correspondence with Mr. Clarke, as described above, and saying 'You will appreciate that for an official to refuse to answer such a question from a member of the public is a serious matter, especially where the matter has been referred to the Committee on the advice of and with the support of an MP. It is even more serious that the Committee should, apparently, not even consider as a Committee a matter referred to them on this basis. I am writing to ask that you, with other members of the Committee to whom I have also written, ensure that my paper on the Scottish Widows Demutualization is properly considered by the Committee, that their decision and their reasons are properly minuted and this decision and the reasons are communicated to me. This matter is now also the subject of a petition to the European Parliament (Petition No: 303/2006).'
- On 13 September 2006 Colin Lee, Clerk to the Treasury Committee, wrote to me that 'the Committee made a decision at its first meeting that it would not investigate individual cases'. (Question: 'If my complaint constitutes an 'individual case' and if the Committee has already decided that it would not investigate 'individual cases, then why did you make the Committee aware of my complaint at all? Surely, you should have just informed me accordingly back in May?')
- On 9 October 2006 I wrote to Mr. Lee as follows:
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
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:
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? Clearly, what has happened is that the Committee decided (or at least the majority of members - given that the Labour Party has an in-built majority as the ruling party) that the Equitable Life case came close to revealing some very nasty facts indeed, in fact precisely those facts (i.e. the GBP 15 to 20 billion GAR scandal) that are the subject of this paper. We cannot discount the possibility that the decision not to investigate individual cases was made precisely to avoid a possible investigation into this matter. In fact, I believe that this is the case.]
- On 10 October 2006 Colin Lee replied explaining that his letter to me of 13 September 2006 was factually accurate since the decision of the Committee not to investigate individual cases had been made at the Committee's first meeting on 14 July 2005. He concluded that 'as far as Committee proceedings are concerned, under Article IX of the Bill of Rights, proceedings in Parliament (including proceedings of a select committee) may not be questioned in any court.' (So yah, boo, sucks to me then!) You will note, however, that it was Mr. Lee's conduct which I referred to, not the conduct of the Treasury Select Committee, and that Mr. Lee is most certainly not exempt from the scrutiny of the courts (an exemption which does apply to Parliamentary Committees that he is clearly trying to extend to himself).
- In September 2007 the Northern Rock crisis blew up in the UK. The details of this crisis are, briefly, that one of the largest mortgage lenders in the UK got into trouble by financing its mortgage lending by borrowing short term on the money markets. When a global inter-bank credit squeeze occurred as a result of the US sub-prime mortgage lending crisis, Northern Rock had to borrow from the Bank of England as 'lender of last resort'. When this news got out there was a run on the bank (queues of depositors in the streets wanting to withdraw their money), a sight that had not been seen in the UK in many years. This forced the government to guarantee deposits and forced the Treasury/Bank of England to shore up Northern Rock with vast amounts of taxpayers' money (up to GBP40 billion by November 2007).
- When this crisis blew up, members of the Treasury Select Committee were widely reported in the media saying that they would haul up the directors of Northern Rock and others (including the Governor of the Bank of England) to find out how this mess had arisen. Michael Fallon MP, a member of the Treasury Select Committee, was quoted as saying "We're going to be asking the governor of the Bank of England when he appears before the Treasury Select Committee next week, exactly why taxpayers' funds should be used to bail out a building society that appears to have been borrowing rather differently to lots of other building societies and banks."' This did indeed happen and was televised.
- It should also be noted that the Treasury Select Committee investigated and reported on the collapse of a Christmas savings club, called Farepak, which occurred in October 2006, although as part of a report on a wider subject. This means that at the precise time that the Treasury Select Committee were brushing off my request that they investigate the FSA's supervision of the Scottish Widows demutualisation on the basis that they do not investigate individual cases, Farepak was going into liquidation, an 'individual case' which they did investigate (see John McFall, Chairman of the Treasury Select Committee, on a BBC news report here).
- On 25 September 2007 I wrote to my MP, Alan Beith, as follows:
'I am writing with reference to our earlier correspondence concerning the Scottish Widows demutualisation and my correspondence with the Treasury Select Committee. In a letter dated 10 Oct 2006 the Clerk to the Committee informed me that the matter would not be investigated by the Committee because the Committee had decided on 14 July 2005 not to investigate individual cases, as per the attached. The recent questioning by the Committee of the Governor of the Bank of England in relation to the Northern Rock crisis makes it clear that this policy is no longer being applied. I will be grateful if you could write personally to the Chairman of the Committee to ask him to clarify the position. In particular, I would like to know whether the policy decision of 14 July 2005 has been specifically reversed or whether it simply no longer applies because it has not been re-adopted for the current Parliamentary session. In either case, could you please ask the Chairman whether the reversal or non-renewal of the decision constitutes an acceptance that the policy of not investigating individual cases was wrong in the first place? What other reason can there be? Could you also ask him, given that the Committee is now considering individual cases, to ensure that the Committee considers the Scottish Widows demutualisation on its merits, that it does so as a Committee and that its discussion and decision is properly minuted.'
- On 10 October 2007 Alan Beith wrote to inform me that he had taken the matter up with John McFall MP, Chairman of the Treasury Select Committee, and that he would write to me again as soon as he had a reply.
- On 19 November 2007 I wrote to Alan Beith asking whether he had received a reply from John McFall.
The Parliamentary and Health Service Ombudsman
- On 21 October 2006 I made a formal complaint to the Parliamentary and Health Service Ombudsman concerning the regulatory supervision by the Financial Services Authority of the Scottish Widows demutualisation in 2000. I enclosed a copy of my E-Mail of the same date to the members of the European Parliament's Committee of Enquiry into the Crisis of the Equitable Life Assurance Society (referred to below). I also asked that the formal enquiry then being undertaken by the Ombudsman into the Equitable Life crisis be notified of the details of my complaint. (Note that there were two simultaneous enquiries into the Equitable Life crisis, one by the European Parliament's Committee of Enquiry and another by the Ombudsman.)
- On 23 October 2006 Iain Ogilvie replied to my complaint setting out the conditions that had to be met for the Ombudsman to consider an enquiry, including that the matter had to be referred to the Ombudsman by an MP (i.e. giving lots of reasons for not investigating my complaint).
- On 25 October 2006 I wrote to Iain Ogilvie explaining why my complaint met the conditions.
- On 26 October 2006 Iain Ogilvie responded with further lengthy reasons for not investigating my complaint, including the preposterous notion that since my complaint related to a matter between Scottish Widows and its customers (the sending out of a misleading policyholder circular - the issue is much broader than this of course), 'action in relation to it would have fallen to the FSA under its conduct of business responsibilities' and would therefore, according to him, be outside the Ombudsman's remit entirely. But practically everything companies do is a 'matter between the company and its customers' and it is precisely such matters that are subject to supervision by the authorities. If such matters were excluded then almost nothing would be within the Ombudsman's remit.
- On 26 October 2006 I wrote to Ian Ogilvie responding to his arguments. In relation to his argument that the matter was outside the Ombudsman's remit I wrote: 'The nature of the functions that I allege that the FSA failed to exercise properly [in respect to Scottish Widows] are the same functions which they allegedly failed to exercise in respect of Equitable Life, that is supervision of the GAR liabilities of a life company. In other words, since you are investigating that case it follows that you should also investigate the FSA's supervision of Scottish Widows. The cases are pretty much parallel I think.'
- On 26 October 2006 Iain Ogilvie responded that 'the Ombudsman retains absolute discretion, pursuant to section 5(5) of the Parliamentary Commissioner Act 1967, as to whether to conduct any complaint. That we are conducting one investigation into Equitable Life is not a sufficient reason to conduct investigations into all other complaints made to us about similar subjects. Each case must be considered on its own merits.' Yes, but if the Ombudsman investigates a certain matter on the basis of certain facts then he must, in all justice, carry out an investigation whenever the same or similar conditions arise. So much (one would have thought) is plain common sense.
- On 27 October 2006 I wrote to Iain Ogilvie: 'Thank you for your E-Mail. I was of course assuming that you base your decisions on some set of principles (which I am sure is the case) and that if you carry out an investigation in one set of circumstances, you will also carry out an investigation in a very similar set of circumstances. It would be helpful to know what these principles are.'
- On 30 October 2006 Iain Ogilvie responded by re-iterating the grounds on which the Ombudsman can make a complaint and re-iterating the fact that a complaint had to be supported by an MP - so we were just going round in circles.
- On 13 January 2007 I wrote to my MP, Alan Beith, asking him to write to the Ombudsman in support of my complaint.
- On 26 January 2007 Adam Conlan of the Ombudsman's office wrote to inform me that Alan Beith had written to them to ask them to investigate my complaint. Mr. Conlan also asked me to provide further information 'within the next four weeks'.
- On 12 February 2007 Adam Conlan wrote to me that 'if I do not hear from you by 26 February 2007 I will assume that you do not wish to proceed with your complaint and will close your case.'
- On 17 February 1007 I wrote to Adam Conlan in reply to his letter of 26th January 2007: 'I think I have already substantially addressed the points you raise in my previous correspondence with your office, and notably Iain Ogilvie. I attach items that I hope answer your queries but if you need any further information please contact me.'
- On 27 February 2007 Adam Conlan wrote asking me for 'a full history of your contact with the FSA along with supporting documentation'.
- On 13 March 2007 Adam Conlan wrote to me: 'If I do not hear from you by 27 March 2007 I will assume that you do not wish to proceed with your complaint and will close your case.'
- On 24 March 2007 I wrote to Adam Conlan that I was not able to reply by the time he requested and that I would contact him as soon as I was able to put the information together.
- On 26 March 2007 Adam Conlan wrote to me: 'Your case will be closed for the moment, and will be re-opened when we receive further information from you.'
- On 26 March 2007 I wrote to Adam Conlan: 'I wonder if, for my future benefit, you would mind explaining whether the time limit you imposed is a statutory, regulatory or procedural one. If so, please can you cite the relevant statute, regulation or procedure. If not, could you please explain whether this time limit was authorised by a superior or whether you imposed the time limit on your own authority.'
- On 28 March 2007 Adam Conlan wrote to me: 'The formal procedure of this office when receiving a complaint that has been referred by an MP, but which does not include enough information for us to assess, is to write to the complainant and ask them to provide further details. We allow the complainant one month to provide the required information, sending a reminder letter half-way through the period. If we do not receive a response, or if the complainant tells us that they cannot provide the information in the specified timeframe, we will close the skeleton case that we opened when the complaint was first received because we cannot consider the complaint without the requested information. This is an administrative action and the case file will be re-opened if and when the complainant provides further information. The complainant will not need to get their MP to re-refer the complaint.' Note that Adam Conlan twice stated (letters of 12 February 2007 and 13 March 2007) that he would close my case when he clearly knew that he had no authority to do such a thing.
- On 26 September 2007 I wrote to Adam Conlan enclosing copies of relevant correspondence with the FSA, as requested by him in his letter of 27 February 2007.
- On 1 October 2007 I received an acknowledgement slip from the Ombudsman's office.
- On 18 October 2007 Adam Conlan wrote a further letter of acknowledgement.
- On 18 October 2007 Alan Beith wrote to me enclosing a copy of a letter to him from the Ombudsman's office stating that I had provided them with further information and that they would write to him again when they had considered my complaint.
- On 25 October 2007 David Woodward, of Directorate Support in the Ombudsman's office, wrote to me outlining the time limits for complaints to the Ombudsman and asking for an explanation as to why I had made my complaint earlier. This was essentially just a repetition of Iain Ogilvie's letter of 23 October 2006 referred to above (i.e. they were raising the same objections as before).
- On 28 October 2007 I wrote to David Woodward referring him to my Iain Ogilvie's letter of 23 October 2006 and my reply of 25 October 2006 (see above).
- On 5 November 2007 I received an acknowledgement slip from the Ombudsman's office.
20. Referral to Institute of Chartered Accountants in England & Wales (ICAEW) (Top of page)
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 Mr. Scrivens is a member. There were two elements to my complaint:
- that Mr. Scrivens had deliberately victimised and subsequently sacked a whistleblower (in clear breach of the bank's own rules), as described in sections 15 and 16 above, and that this was a breach of the ICAEW's rules of professional ethics, which require, amongst other things, that members should act with integrity. Fundamental Principle 1 states that 'A member should behave with integrity in all professional and business relationships. Integrity implies not merely honesty but fair dealing and truthfulness.'
- that Mr. Scrivens had failed to properly investigate my concerns about the Scottish Widows demutualization. In this context it should be noted that:
a). Mr. Scrivens never asked to talk to me directly;
b). Mr. Scrivens cannot have obtained a sufficient explanation of my concerns from my management 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). Mr. 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;
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 Mr. 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, Mr. 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 Mr. 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 Mr. 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 Mr. 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 Mr. Scrivens is not liable to disciplinary action under ICAEW rules. If Mr. Scrivens is not liable to disciplinary action under the ICAEW rules then this means that there is no indication that Mr. 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!
- On 18 August 2005 I wrote to Sally Hinkley, Executive Director, Professional Standards, and asked her to review the matter but despite repeated requests she refused to explain how the matter is 'reserved' to Employment Tribunals or the Courts i.e. what it is that prevents the ICAEW from enforcing its own professional standards. She did not respond to my last two faxes to her of 13 October 2005 and 20 October 2005 and I was later informed that she had left her job.
- On 7 October 2005 I wrote directly to the President of the ICAEW, Ian Morris. I sent a reminder by fax on 2 December 2005 and had a telephone conversation with Ian Morris's secretary on 5 December 2005.
- On 14 December 2005 Matthew Ives, Director of the Professional Conduct Directorate, wrote to me. He said that 'Mr. Sullivan is investigating the complaint you have made' but Mr. Sullivan, as Matthew Ives well knew, was investigating the second part of my complaint, relating to Mr. Scrivens's failure to investigate my concerns about the Scottish Widows demutualization, and at no stage was Mr. Sullivan involved in investigating my complaint of victimization.
- In subsequent correspondence Mr. Ives refused to explain how the matter is 'reserved' to Employment Tribunals or the Courts and he eventually wrote to me by E-Mail on 11 January 2006 refusing to correspond further.
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 Mr. Scrivens had failed to properly investigate my concerns about the Scottish Widows demutualization (Top of page)
With respect to my complaint that Mr. 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 Mr. 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 Mr. 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 Mr. Scrivens failed to investigate is a misdemeanour (and possible criminal offence) by the directors themselves. The directors are hardly likely to insist that Mr. 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.
- On 15 June 2006 Bob Pinder, Head of Investigation at the ICAEW, wrote to me to say that 'on 6 June 2006, the Investigation Committee considered your complaint against Mr. Scrivens but did not consider that there was a prima facie case for disciplinary action.' The letter explained that 'the Investigation Committee 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 assertion is of course complete nonsense as I explain above. In any event, the following section proves beyond any doubt that the Investigation Committee are liars.
- On 15 June 2006 the ICAEW sent to me a 'Complaints Handling Survey' form to assist with their 'Complaints Handling Customer Satisfaction Monitoring'!
21. Skeletons (or the ghost of Enron) (Top of page)
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 2003The 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.
- On 5 August 2005 Ray Farren, of the Professional Conduct Directorate, wrote to me to say that, in his view, the judges words support Mr. Scrivens's actions.
- On 16 August 2005 I wrote to Ray Farren that 'Your statement that the judges words support Mr. Scrivens actions are patent nonsense. The judges meaning is quite clearly that Mr. Scrivens should have taken legal advice or at least spoken to management and that he did neither of these things. How can that be support? An auditor is not expected to be a legal expert but he is expected to know where his own knowledge is insufficient to allow him to form an opinion and therefore to know when he should seek expert advice. This is where Mr. Scrivens seems to have failed in his professional duty. The fact that there was no specific finding against Mr. Scrivens cannot be taken to mean that in the judge's view Mr. Scrivens has not breached the ICAEW's professional standards. It should be perfectly obvious that such a matter was outside the scope of the commission's enquiry. It is not, however, outside the scope of the Investigation Committee's remit.'
- On 21 September 2005 Ray Farren, of the Professional Conduct Directorate, wrote to me to say that, in his view, since Mr. Scrivens was working in Australia at the time he was not subject to ICAEW rules.
- On 22 September I wrote to Ray Farren that 'As far as I am aware, when a person becomes a member of the ICAEW they become subject to its rules. They remain subject to its rules and liable to investigation and/or disciplinary action under those rules for as long as they remain a member. As far as I am aware there are no exemptions or exceptions for members in relation to work carried out outside this country. You have certainly cited no such exemption or exception. The fact that a member MAY be subject to the jurisdiction of any overseas body, regulatory or otherwise, is absolutely irrelevant; the member remains subject to ICAEW rules in the normal way.' I asked that the matter be referred to the Investigation Committee.
- On 17 March 2006 (6 months later) John Weatherill, of the Professional Conduct Directorate wrote to me to communicate the findings of the Investigation Committee, namely that 'the facts and matters did not fall within paragraph 3(b) of that bye-law'. This refers to Disciplinary Bye-law 9(4), see section 20.1 above, which means that the Investigation Committee had concluded that the facts that I had presented did not indicate in any way that Mr. Scrivens may be liable to disciplinary action (i.e. my complaint is not a complaint at all under ICAEW rules). The letter goes on:
'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 members 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 Mr. Scrivens 'emerges entirely free from any adverse implications', this is taken from a passage in the official report on the HIH scandal