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Lloyds Bank fined £45.5m over HBOS Reading fraud scandal

By Frank Prenesti

Date: Friday 21 Jun 2019

(Sharecast News) - Bank of Scotland was on Friday fined £45.5m by the Financial Conduct Authority for failing to disclose information on the £245m fraud scandal at the its Reading branch.
The regulator said Halifax Bank of Scotland (HBOS) had withheld information on the fraud for two years before alerting authorities which "risked substantial prejudice to the interests of justice, delaying scrutiny of the fraud by regulators, the start of criminal proceedings as well as the payment of compensation to customers".

HBOS, rescued in a government-organised takeover by Lloyds in 2009 after the 2008 financial crisis, managed to get the original fine of £65m reduced after agreeing to resolve the case.

The FCA also banned four individuals from working in financial services - Lynden Scourfield, Mark Dobson, Alison Mills and David Mills. All four were sent to jail in 2017 for the fraud along with two others involved.

Mark Steward, the regulator's executive director of enforcement and market oversight said HBOS's failures "caused delays to the investigations by both the FCA and Thames Valley Police".

"There is no evidence anyone properly addressed their mind to this matter or its consequences."

HBOS identified suspicious conduct in the Reading-based impaired assets team in early 2007. Scourfield, the team's director, "had been sanctioning limits and additional lending facilities beyond the scope of his authority undetected for at least three years".

The bank knew by May 2007 that the impact of these breaches "would result in substantial losses".

"Over the next two years, on numerous occasions, Bank of Scotland failed properly to understand and appreciate the significance of the information that it had identified despite clear warning signs that fraud might have occurred. There was insufficient challenge, scrutiny or inquiry across the organisation and from top to bottom," the FCA said.

It was not until July 2009 that HBOS provided the regulator at the time, the Financial Services Authority, with full disclosure in relation to its suspicions, including the report of the investigation it had conducted in 2007. The bank also failed to report to any other law enforcement agency.

The FSA reported the matter to the National Crime Agency (then the Serious Organised Crime Agency) in June 2009.

In 2017 Lloyds Bank said it would set aside £100m to compensate victims of the scam that destroyed hundreds of small businesses.

The fraud began in 2003 when Scourfield forced small firms that needed loans to use a turnaround consultancy led by his associate Mills.

Cash was then sucked out of those businesses in fees by Mills and three others, including his wife Alison. If owners refused to comply they were told the bank would pull the plug on funding.

The trial heard how, in return for the business referrals, Scourfield and another HBOS banker, Mark Dobson, enjoyed luxury holidays in Barbados and Thailand, trips in the Mediterranean on the Mills's £2m yacht and sex parties.

Scourfield was sentenced to 11 years and three months in jail. Mills received 15 years and his wife three-and-a-half years.

Judge Martin Beddoe described David Mills as the "devil to whom you (Scourfield) sold your soul. For sex, for luxury trips with and without your wife; for bling and for swank".

He said David Mills was a "thoroughly corrupt and devious man, adept at exploiting the weaknesses of others, particularly where that weakness is money, and adept too in getting others to do your dirty work for you".

Dobson was sentenced to four-and-a-half years, while Mills's associate Michael Bancroft was jailed for 10 years. A sixth man, John Cartwright, 72, was given three-and-a-half years for money laundering.

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