Legal

The scandal that keeps on scandalising - LIBOR fines and what to do with them.

03 January 2017

The charitable use of LIBOR-fixing fines continues to attract headlines, but what should they be used for?

ABBA sang about it, as did Lene Lovich, Dire Straits and Pink Floyd. It is said to make the world go round; and even Mr Banks, in Mary Poppins, sings about it, and I quote:

If you invest your tuppence
Wisely in the bank
Safe and sound
Soon that tuppence,
Safely invested in the bank,
Will compound
And you'll achieve that sense of conquest
As your affluence expands
In the hands of the directors
Who invest as propriety demands…. etc.

Which brings me neatly to the propriety of banks. Or not, as the case may be. There hasn’t yet been a song about it (although since news about the West End musical based on the Kids Company scandal broke, it could still happen) but the charitable use of LIBOR-fixing fines continues to attract headlines.

It should be a good news story. As George Osborne once said: “I wanted to take money that was paid in fines by people who, frankly, demonstrated the worst of the values in our society and help support those who demonstrate the very best values in our society”…but others have seen it as nothing less than dirty money laundering by the public sector.

The Libor scandal surfaced in June 2012 when Barclays was fined £290m for fixing the London Inter-Bank Offered Rate. Since then, UK banks have been fined hundreds of millions of pounds for rigging the rate. Over a billion pounds of fines have been applied worldwide.

In February 2013 Osborne first announced that three military charities were to share £1.3m from fines imposed on banks that had rigged interest rates in a long speech to JP Morgan in Bournemouth about resetting the banking sector and having financial institutions we can trust, saying that:

I’ve changed the system I inherited so that fines paid by banks for wrongdoing go to good causes not back to the industry – I have already announced that £35 million pounds of Barclay’s fines will go to British Armed Forces charities to help those who fight on all our behalves. George Osborne, Chancellor of the Exchequer, February 2013

There followed a flurry of ‘good news’ announcements from the Government at each Budget and Autumn Statement:

In fact so many announcements and so much money was being gleefully handed out that people started asking some questions about transparency - not unreasonably, given the murky machinations of the banks which had produced this fine money in the first place and which the Chancellor had sworn to rectify.

How are decisions made about who gets LIBOR funding? Why were the Armed Forces and emergency services chosen above other causes?

Are there grant-making controls in place to weight up the relative merit of different charities and projects or is it the pet projects of those with influence or those who shout the loudest? Or is it at the whim of the Chancellor[2]?

Commentators found that: “repeated questions to the Treasury about these processes and how these charities are judged have received little response”. The Treasury has not helped by refusing to explain its decisions beyond issuing a short statement assuring us that all charities receive “a thorough assessment”.

The Chancellor of the Exchequer, George Osborne, repeated his earlier assertions that:

I am delighted that we have been able to provide this support to the armed forces charities, those that demonstrate the best of British values. It is right that these fines, levied on banks for manipulating the LIBOR rates, will be used to provide those serving, veterans and their families with the support they need.

An inflammatory article in The Sunday Times by a journalist who is no stranger to controversy suggested that it was the charities’ fault that money was being ‘misspent’; although the byline did point a finger at The Treasury who, it was alleged, “gave away millions ‘without checking’”. The article suggested an inquiry was called for:

Senior figures in the charity world, the armed forces and the medical profession are calling for an inquiry into the “scandal” of the £35m Libor fund, set up by the then chancellor George Osborne to support veterans from the proceeds of fines levied on banks for rigging the Libor lending rate. Andrew Gilligan, The Sunday Times, 18 September 2016

The Public Administration and Constitutional Affairs Committee (PACAC) has also joined those who have raised concerns, questioning whether there were “sufficient safeguards” in place for the Libor fund in its report on Kids Company.

There are certainly some real concerns to be addressed…

In an online fundraising forum I found this comment by a successful applicant for Libor funding: “My experience of securing funding from the LIBOR funds is that the process is not fair, but you need to be astute to secure it. The link with veterans has to be clear. The application itself was a letter to the local (Conservative) MP asking for support for the project, plus a two page summary of the project, and asking him to kindly raise the matter on behalf of the charity with George Osborne and HM Treasury. It helped our cause that said MP was in danger of losing his small majority at the next general election and needed a good news story, which the charity could (and did) provide.

Other questions which arise include:

What is the total amount of fines garnered by the Treasury[3] from LIBOR-fixing by the banks? Is it all destined to be donated to ‘good causes’ or is any being spent on other things? From what can be gathered in the press, at least £886.8 million[4] has already been paid in LIBOR fines, of which the approximately £550 million[5] committed by the Treasury to ‘good causes’ constitutes 69%.

Is the distribution being properly and fairly managed? What are the consequences of uneven distribution? In 2012 the income of all Armed Forces charities in the UK was £872 million, so LIBOR funding has already increased this small sector’s income by 56% (although this is still less than the income received by Cancer Research UK in one year). In March 2016 a small Welsh mentoring and advice service for military veterans was saved from closure by a Libor funding announced in the budget, despite applying unsuccessfully for other Libor funding.

Quite sensibly, some of the LIBOR money has gone into new grant-making funds for more sustainable maintenance of the sector’s work. £35 million (plus £10 million per year) was put into the Armed Forces Covenant LIBOR fund overseen by the Covenant Reference Group[6], and another £25 million into the Aged Veterans’ Fund[7] (also (probably) overseen by Covenant Reference Group)). Grant-making from these two new funds needs to be as transparent as possible to avoid claims of unfair distribution.

As another sector commentator recently stated:

The longer the Treasury declines to outline a detailed decision-making process for these grants, the more we will have to infer that there simply isn’t one.

We are left to conclude that Osborne is operating a system of personal patronage rather than one of rigorous and effective grantmaking, which in the light of the collapse of Kids Company, ought to be at the forefront of his mind. Gareth Jones, Civil Society Voices

The Treasury also does seem to be tightening up its Libor grant funding to an extent. In late August 2016 it announced that it was inviting military and emergency service charities to apply for the funding. Charities were given less than one month (until Thursday 15 September) to apply so that The Treasury could consider all bids ahead of the Autumn Statement!

With money a rarer commodity these days for most people, including charities, methinks the Fidelity Fiduciary Bank that is The Treasury needs to look after the pennies in a way which demonstrates best practice in propriety and transparency and fairness.

 

[1] This brings the total to £25 million… https://www.gov.uk/government/collections/aged-veterans-fund

[2] Civil Society News reported that: Iain Duncan-Smith claimed that “New community facilities in Helensburgh and Royal Navy personnel at Faslane received awards “in response to the powerful case made to me by Ruth Davidson” (leader of the Conservative Party in Scotland). Meanwhile, funding for child hospital services in Manchester, Sheffield, Birmingham and Southampton has been awarded because “members from across the House” asked for them, rather than due to a rigorous assessment of areas most in need or of the suitability of recipients. Also, the Change Step service had been awarded £500,000 outside of the Armed Forces Community Covenant fund to which it had originally applied – the charity’s director Geraint Jones said the funding “can only have arisen through the good offices of friends capable of bringing such influence to bear” https://www.civilsociety.co.uk/voices/george-osborne-s-libor-grantmaking-continues-to-raise-questions.html#sthash.aNHOQpAB.dpuf

[3] All money collected in fines by the FCA goes to the Treasury, apart from a small percentage used to administer charges.

[4] Barclays (£290m), Deutsche Bank (£226.8m), UBS (£160m), Lloyds (£105m), and Rabobank (£105m).

[5] £450 million to Service charities by 2015, plus the £161 million announced in 2016 … (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/491590/20160112-AFC_AR__2015_Ver_12_WEB_VER2.pdf)

[6] Largely made up of Government department representatives, devolved Government representatives and six Armed Forces charity representatives (https://www.theyworkforyou.com/wrans/?id=2013-05-20a.29.0).

[7] This additional funding stream has £25 million available over 5 years. Grants of up to £5 million are available. https://www.gov.uk/government/collections/aged-veterans-fund

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Cat Walker

Dr Cat Walker has worked in the UK voluntary sector for the last 17 years, including Charities Aid Foundation where she was Head of Research from 1999-2006, and Directory of Social Change where she was Head of STEAM (Sector Trends Evidence Analysis Metrics) from 2010-2015.

Cat now works as a freelance consultant and is the founder of The Researchery – a policy-focussed, strategic research surgery for those who want to get more out of data for evidence-led social change we can all believe in.

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