The origins of modern financial crime historical foundations and current problems in britain

‘In this scrupulously researched book, Sarah Wilson brilliantly exposes the
historical roots and contemporary consequences of financial crime, tracing the
evolution of legal, popular and social scientific understandings of financial fraud
over the past two centuries, and provides an important corrective to the mistaken
idea that white-collar crime is a product of the twentieth century and its various
technological revolutions. The story of the long-running battle between the forces
of fairness and transparency versus those of fraud and exploitation has rarely been
so trenchantly told.’
Michael L. Benson, Professor, School of Criminal Justice,
University of Cincinnati, USA
‘This is an impressive study of how we think about what constitutes the boundary of legitimate business activity. Rarely can a history have been so important
in understanding the present and Sarah Wilson’s book frames current financial
regulation within the context of not just historical narrative, but a historiographical appreciation of past and present. This should inspire and encourage other
scholars to investigate how legal ideas relate to the social and economic history
of business.’
Roy Edwards, Management School, University of Southampton, UK
‘This excellent book is a “must-read” for anybody working in the field of financial crime, practitioner or academic lawyer. Financial crime has contributed
to the global financial crisis and remains endemic in some business circles. In
explaining how we have arrived at this position, Dr Wilson is able to offer readers
some extremely important thoughts as to how the future response should best be
framed.’
Jonathan Fisher QC, practising barrister and Visiting Professor at the
London School of Economics, UK
‘Dr Sarah Wilson has produced an excellent commentary on the evolution and
development of financial crime in the United Kingdom. The monograph is timely,
unique and a very significant piece of work and Dr Wilson must be commended
for producing an intriguing and thought-provoking commentary on a significant
multidisciplinary topic.’
Nicholas Ryder, Professor in Financial Crime,
University of the West of England, Bristol, UK

This page intentionally left blank


The Origins of Modern
Financial Crime

The recent global financial crisis has been characterised as a turning point in
the way we respond to financial crime. Focusing on this change and ‘crime in
the commercial sphere’, this text considers the legal and economic dimensions
of financial crime and its significance in societal consciousness in twenty-firstcentury Britain. Considering how strongly criminal enforcement specifically
features in identifying the post-crisis years as a ‘turning point’, it argues that
nineteenth-century encounters with financial crime were transformative for
contemporary British societal perceptions of ‘crime’ and its perpetrators, and
have lasting resonance for legal responses and societal reactions today.
The analysis in this text focuses primarily on how Victorian society perceived
and responded to crime and its perpetrators, with its reactions to financial crime
specifically couched within this. It is proposed that examining how financial
misconduct became recognised as crime during Victorian times makes this an
important contribution to nineteenth-century history. Beyond this, the analysis
underlines that a historical perspective is essential for comprehending current
issues raised by the ‘fight’ against financial crime, represented and analysed in
law and criminology as matters of enormous intellectual and practical significance, even helping to illuminate the benefits and potential pitfalls which can
be encountered in current moves for extending the reach of criminal liability for
financial misconduct.
Sarah Wilson’s text on this highly topical issue will be essential reading for
criminologists, legal scholars and historians alike. It will also be of great interest
to the general reader.
Sarah Wilson is an academic lawyer with a background in history. She has

worked on financial crime, both as it affects society today and in its historical
origins, for the last ten years. A full-time academic, she has worked at Leeds,
Keele and Manchester Universities and is currently at York Law School, the
University of York.


Routledge SOLON Explorations in Crime and Criminal
Justice Histories
Edited by Kim Stevenson, University of Plymouth,
Judith Rowbotham, Nottingham Trent University and
David Nash, Oxford Brookes University

This series is a collaboration between Routledge and the SOLON consortium (promoting studies in law, crime and history), to present cutting-edge interdisciplinary
research in crime and criminal justice history, through monographs and thematic
collected editions which reflect on key issues and dilemmas in criminology and
socio-legal studies by locating them within a historical dimension. The emphasis here is on inspiring use of historical and historiographical methodological
approaches to the contextualising and understanding of current priorities and problems. This series aims to highlight the best, most innovative interdisciplinary work
from both new and established scholars in the field, through focusing on the enduring historical resonances to current core criminological and socio-legal issues.
Shame, Blame and Culpability
Crime and violence in the modern state
Edited by Judith Rowbotham, Marianna Muravyeva and David Nash
Policing Twentieth Century Ireland
A history of An Garda Síochána
Vicky Conway
Capital Punishment in Twentieth-Century Britain
Audience, justice, memory
Lizzie Seal
The Origins of Modern Financial Crime
Historical foundations and current problems in Britain
Sarah Wilson

The Origins of Modern
Financial Crime
Historical foundations and current
problems in Britain

Sarah Wilson


First published 2014
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2014 Sarah Wilson
The right of Sarah Wilson to be identified as author of this work has been
asserted by her in accordance with sections 77 and 78 of the Copyright,
Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data
Wilson, Sarah, 1971The origins of modern financial crime in Britain : historical foundations
and current problems / Sarah Wilson. -- First Edition.
pages cm. -- (Routledge SOLON exploration in crime and criminal justice
histories ; 4)
Includes bibliographical references and index.
ISBN 978-0-415-62763-4 (hardback) -- ISBN 978-0-203-10193-3 (ebook)
1. Commercial crimes--Great Britain--History. I. Title.
HV6771.G7W55 2014
364.16’80941--dc23
2013046881
ISBN: 978-0-415-62763-4 (hbk)
ISBN: 978-0-203-10193-3 (ebk)
Typeset in Times New Roman
by GreenGate Publishing Services, Tonbridge, Kent


Contents

General series introduction
Acknowledgements

ix
xi

Introduction

1

1 The search for the ‘lexicon’ of financial crime:

‘business crime’ in legal definition and societal
consciousness

18

2 The ‘problem’ of financial crime:
interdisciplinary perspectives on historiographical
representations

48

3 Business, crime and ‘status’:
what is missing from current understanding?

73

4 Locating Victorian experiences of financial crime
in a ‘trajectory’: forwards and backwards

101

5 Victorian responses to financial crime:
illustrating ‘transformative understandings’ of crime

128

6 The rhetoric of capitalism and the language of
criminal proceedings: a ‘different’ type of deviance
and the search for the ‘lexicon’ of financial crime

157

7 Anxiety, determination and businessmen
as [criminal] policymakers

188


viii

Contents

8 The ‘lexicon’ of financial crime in the twenty-first century
understood as a complex legacy of Victorian experiences
Bibliography
Index

210
233
250


General series introduction

The volumes in this series contribute to the unashamedly interdisciplinary
exercise in which SOLON has engaged since its inception in 2000: something
now enhanced by the collaboration with Routledge to present cutting-edge
interdisciplinary research in crime and criminal justice history. The focus is on
issues which, while rooted in the past, also have a crucial current resonance,
and so the volumes reflect on key issues and dilemmas which persist in terms of

contemporary priorities.
*****
This volume, on financial crime and the vocabulary, or lexicon, used to delineate
it and so define how it is comprehended, is highly topical. Since 2007–8, the language of financial crisis and of criminality associated with that crisis, has been a
consistently dominant story in the media globally, as the scale of individual harm
associated initially with the US sub-prime mortgage scandal remains newsworthy. Revelations of financial unsoundness and concerns about mismanagement
would then generate a number of institutional scandals in the UK banking sector,
concerning most centrally Northern Rock, Royal Bank of Scotland (RBS) and
Halifax Bank of Scotland (HBOS), with these and scandals surrounding the misselling of a range of financial products shocking many on account of the risks
involved, and also the magnitude of apparent deception. It has been felt to be a
betrayal by institutions that have been considered to be the engines of modernity
– driving nations around the world to socio-cultural improvements based on the
economic successes guaranteed by such institutions. Financial crime was not new
in 2008, but governments had assured their populations that these institutions
were now properly regulated and could be trusted – that while (sadly and inevitably) individual ‘rogues’ would slip through the net, mass criminality was a thing
of the past. When criminality such as that of Robert Maxwell was uncovered,
therefore, it was shocking – but in a normative way. We expect to be shocked
when someone misuses their position in society to behave inappropriately, especially when that improper conduct actually becomes criminal. Such events force
us to concentrate on the issue which has caused the shock, and to enquire into
it – but not necessarily to question the mechanisms identifying it as shocking to


x

General series introduction

the extent of criminality. This did happen to some considerable extent in the US
in the wake of the ‘corporate governance’ scandals of Enron and World Com. But
what appears to be happening post-2008, as revelations of misconduct continue
and its persistent nature is being highlighted in the media as well as within regulatory and wider policy discourses, is an enforced reassessment of the normative

shock associated with financial crime. This is a key ingredient of how it will be
shortly proposed that the financial crisis has marked a ‘turning point’ for responding to financial crime. Associated with the tropes of rehabilitation and deterrence
surrounding criminal justice strategies (including penal ones) is the concept of
remorse and repentance for wrong-doing. Yet, as this work most cogently reveals,
the ‘respectable’ criminal who is responsible for large-scale financial crime, does
not fit easily into this trope. It is likely that the revelation of penalties for wrongdoing will have some deterrent effect, but even this is complex, and it is clearly
the case that prosecutions for financial misconduct, such as these have transpired
thus far, and the policy initiatives and legal reforms intended to add safeguards
continue to be assailed and undermined by new incidents of misconduct and the
policy initiatives and legal reforms intended to add further safeguards have continuously been undermined by new incidents of misconduct, most recently, by the
revelations about the fixing of the Libor rate. The importance of this volume for
the series is through the contributions it makes to the literature from how it underlies that a historical perspective is essential to a comprehension of current issues
in law and criminology, both intellectual and practical. It is a reminder that the
issue of what constitutes appropriate punishment for misconduct is constricted by
our long-standing lexicon of criminality in general. This volume reveals that the
concept of ‘punishment enough’ is not easy to decipher or apply.
Judith Rowbotham, Kim Stevenson, David Nash


Acknowledgements

From my Swansea days, thanks to my dear friend David Howell for his generous support and friendship over many years, a perfect complement to David
Eastwood’s inspiring supervision, and Muriel Chamberlain’s even earlier influences. Thanks also to long-term SOLON stalwarts Kim Stevenson and David
Nash, and also Shani D’Cruze and Lorie Charlesworth.
Having worked in a number of institutions, thanks for support and friendship
are due to several colleagues, including Michael Cardwell, Martin Wasik, Tony
Dugdale, Lieve Gies, David Booton, Hannah Quirk, Kirsty Keywood, Gillian
Ulph and especially Margot Brazier. Most recently at York, thanks to Jenny
Steele for her support during this project, and to Richard Grimes for his zeal and
enthusiasm, and for cherished friendship, with this also so very much is due to

former York colleagues Stefan Enchelmaier and TT Arvind.
This project also owes a great deal to the influence and support from historians Harold Perkin, George Robb and Clive Emsley, as well as those whose
work mine has grown up around, especially James Taylor and John Locker. From
within Criminology, I am particularly grateful to Mike Levi, Susanne Karstedt
and David Friedrichs. There has also been a great deal of support from the burgeoning financial crime community, notably from Nic Ryder and Jonathan Fisher
QC, as well as the wider financial regulation community, especially Joanna Gray.
I have also to thank my growing circle of valued colleagues in ‘Business’ and
‘Business History’ including Robert Hudson and Roy Edwards, and the wonderful
Bank of England archivists – Mike Anson, Ben White and Lorna Williams – for
their tireless support and assistance.
Thanks, too, to my academic editor for this series, Judith Rowbotham for her
just wonderful contributions to this book, and, at Routledge, to Heidi Lee and
Tom Sutton for supporting the proposal, and also to Lyndsey Dodd.
The person to whom most is owed is my husband and colleague Gary Wilson,
for friendship, support and intellectual stimulation across our personal and professional spheres is both inspirational and peerless.
The cover image was taken from the author’s copy of the Report of the Trial of the
Directors of the City Glasgow Bank before the High Court of Justiciary Edinburgh
from Monday, January 20, to Saturday, February 1, 1879. Second Edition, published
by the Edinburgh Publishing Company (London: Simpkin, Marshall, & Co., 1879).


This page intentionally left blank


Introduction

This analysis of financial crime is mainly one of how it is perceived in the twentyfirst century, but it is also very much an account of Britain’s earliest experiences
of what would today be recognised as ‘financial crime’ or ‘business crime’ dating
from the 1840s. It is focused in this way to offer insights into the impact of financial crime upon British society which are new on account of bringing together
different disciplinary perspectives on financial crime. With its focus on financial

crime as ‘large-scale illegality that occurs in the world of finance and financial
institutions’ – often referenced as ‘business fraud’ – the narrative now offered is
an innovative study of the relationships between business, society and law.1 This
requires exploring perceptual appreciation of financial business crimes in Britain,
achieving this through analysing the social processes which have informed this,
and through considering how legal responses have been configured in this light.
Centrally the study shows how the way that financial crime impacted upon
Victorian society is essential for gaining true appreciation of the ‘fight against fraud’
in twenty-first-century Britain.2 In turn, this is crafted around extensive archival
study of fraud trials from the nineteenth century, where these events are presented
as iconic ones in charting the emergence of current responses to financial crime.
These Victorian ‘business crime’ trials are presented as a vital source of insight into
the problem of financial crime in the twenty-first century. Their exposure here is
achieved through an interdisciplinary analysis of them, drawing on literature and
methodologies from criminology, history and law.

Financial crisis 2007–8: a turning point for ‘financial crime’
In terms of identifying the significance of financial crime for society in early
twenty-first century Britain, the financial crisis of 2007–8 is regarded by many
as a very important touchstone. In response to the current global financial

1 D. O. Friedrichs, Trusted Criminals: White Collar Crime in Contemporary Society, Belmont:
Thomson Wadsworth, 1996, p.156.
2 See D. Kirk and A. Woodcock, Serious Fraud: Investigation and Trial, London: Butterworth, 1996,
p.4.


2

Introduction

crisis much attention is currently focused on banking, and specifically upon
rethinking core elements of its regulation. This is on account of the apparent
role played by banking practices in causing the crisis, and also the nature of
the consequences of loss of confidence within financial systems. Thus, much
emphasis is on the importance of reducing systemic risk, and restoring and
maintaining capital liquidity within the UK financial system, and preventing the need in future for associated ‘rescue’ strategies of quantitative easing
and particularly temporary public ownership for certain institutions deemed
‘too big to fail’.3 Much of this regulatory conversation is dominated by perceptions that interactions between risk-taking and responsibility (and, in the
opinion of many, also remuneration) require realignment thereby addressing perceived misalignments widely believed to have precipitated the onset
of the crisis. Clearly this ‘first crisis of globalisation’ has ensured that the
dominant discourse in its aftermath is the need for profound alteration of the
architecture for regulating financial systems worldwide.4 However, exposures
of misconduct occurring during it have also generated interest in allegations of
‘large-scale illegality that occurs in the world of finance and financial institutions’. Moreover these latter discourses are actually emphasising the crisis as a
turning point for the enforcement of financial crime specifically.5 For Roman
Tomasic, revelations of ‘potentially criminal behaviour’ will ensure that the
crisis is likely to carry longstanding associations with the revelation of ‘massive financial fraud’.6 This narrative is developed by Tomasic for locating his
hypothesis that the financial crisis is likely to mark the departure of the ‘haphazard pursuit of financial crime’ characterising financial crime enforcement
prior to it.7 Whilst for Tomasic, this movement towards a more concentrated
and thereby less haphazard approach to enforcing financial crime is a global
trend, for this study acknowledging this helps to frame the significance of
financial crime for Britain in the twenty-first century.
This scholarly interest in exploring the connections subsisting between the
financial crisis and exposure of white collar crime illustrated by Tomasic’s
work, and also evident in the work of Nic Ryder, reflects events which started
to become apparent in the earliest aftermath of the crisis.8 This became apparent first in the US (not Britain) where the collapse of investment giant Bear

3 See FSA Press Notice PN/142/2009, 22 October 2009, relating to ‘systemical banks’; also Lord
Adair Turner, Mansion House Speech, 22 September 2009, Prospect Magazine, 23 October 2009,

/>accessed 4 April 2014.
4 G. Brown, Beyond the Crash: Overcoming the First Crisis of Globalisation, London: Simon and
Schuster, 2010.
5 R. Tomasic, ‘The financial crisis and the haphazard pursuit of financial crime’, Journal of Financial
Crime, 2011,18(1), p.7.
6 Ibid.
7 Ibid.
8 N. Ryder, Financial Crime in the 21st century: Principles and Policies, Cheltenham: Edward Elgar,
2011; Financial Crisis and White Collar Crime: The Perfect Storm, Cheltenham: Edward Elgar, 2014.


Introduction

3

Stearns, which resulted in the prosecution of two key executives, was destined, as far as those US authorities were concerned, to become a test for the
‘ability to make successful prosecutions of highly complex financial transactions’.9 In terms of connecting this benchmark for criminal enforcement of
highly complex financial transactions with the financial crisis, Bear Stearns
was an early casualty of the global financial crisis which was set in motion by
the US sub-prime mortgage crisis and thereby constitutes an early post-crisis
exemplar for the ways in which that crisis was linked with the commission of
financial crime. Subsequently, it seemed possible that criminal charges might
be brought in the UK. A report ordered by the court overseeing bankruptcy
proceedings for Lehman Bros criticised the role played by auditors Ernst and
Young and ‘magic circle’ law firm Linklaters when exploring how it had been
possible for $50bn of debts to be concealed from regulators.10 But no criminal
charges transpired from these investigations and the Goldman Sachs civil suit
for fraud relating to sub-prime mortgage misconduct was controversially settled. This seemed to suggest that criminal convictions for banker misconduct
during the crisis were likely to remain elusive, notwithstanding the widespread
perceptions that harms emanating from high finance could be found reflected

in ‘millions of lost homes, jobs and savings, along with broad and devastating
effects on the physical and mental well-being of millions of people’.11
The alignment of the financial crisis with financial crime that was exposed
by the Libor-fixing revelations in June 2012 vindicated scholars’ laments
about the failure to assign criminal liability to financial sector misconduct
during the financial crisis. It also silenced suggestions that the financial crisis
was most accurately configured as an ‘ethical crisis’. The argument had been
it reflected practices which were certainly aggressive and inappropriate for
financial system governance to foster, but these were ones which fell short
of being actually unlawful.12 The Libor revelations rocked insistence from
key financial sector participants that they had engaged in ‘remorse and apology’ in the aftermath of the crisis.13 It undermined claims that their focus
was on assisting economic recovery and becoming ‘better citizens’ in line
with the spirit of new regulatory initiatives designed to promote increased
financial system stability and resilience, as well as ensuring better supervision

9 L. Thomas Jr, ‘Former Bear Stearns executives to face criminal charges in hedge fund collapse’,
New York Times, 19 June 2008.
10 P. Inman, ‘Auditors face inquiry call after Lehman revelations’, The Guardian, 14 March 2010.
11 D. O. Friedrichs, ‘Wall Street: Crime Never Sleeps’, in S. Will et al. (eds), How They Got Away
With It: White-Collar Criminals and the Financial Meltdown, New York: Columbia University
Press, 2012, p.20.
12 J. O’Brien, ‘The Facade of Enforcement: Goldman Sachs, Negotiated Prosecution, and the Politics
of Blame’, in S. Will et al. (eds), How They Got Away With It: White-Collar Criminals and the
Financial Meltdown, New York: Columbia University Press, 2012, pp.178–9.
13 See Oral Evidence taken by the Treasury Select Committee, 11 January 2011, to be published as
HC 612-vi, specifically question Q.535, questioning then Barclays CEO Bob Diamond.


4

Introduction

of financial services participants, with particular emphasis on the banking
sector.14
In the UK, the Libor revelations initially unleashed a scathing attack on ‘banking culture’ from then Bank of England Governor Sir Mervyn King.15 Subsequently
they led to the inception of the Parliamentary Commission on Banking Standards
(PCBS), instituted to consider and report on ‘professional standards and culture of
the UK banking sector … and to make recommendations for legislative and other
action.16 The Libor revelations intensified concerns expressed in the FSA’s Report
on the Failure of Royal Bank of Scotland (RBS) several months earlier. These had
clustered around how banking sector impropriety ‘can result in bank failure, taxpayer losses, and wider economic harm’.17 Another concern highlighted was that
as no individual had been found legally responsible for that particular institutional
failure, it could be concluded that ‘action cannot be taken under existing rules’;
meaning that rules for the future needed to be changed.18
Shortly after the inception of the PCBS was announced, a Treasury Consultation
commencing in July 2012 laid out the government reaction to recommendations for
strengthening the framework for individual banker liability through non-criminal regulatory reform.19 This consultation also identified that this ‘regulatory sanctions and
measures’ focus of the RBS Report had also ‘stimulated interest in the possible introduction of new criminal sanctions for misconduct in bank management as another way
of shifting the balance between risk and reward for bank directors’.20 The Consultation
confirmed Government interest in introducing criminal sanctions for serious misconduct in the management of a bank which had been widely reported in the public arena,
including the press in the immediate aftermath of the RBS Report’s publication.21

14 Bob Diamond, ‘First Radio 4 Today Business Lecture’, BBC, 3 November 2011, .
co.uk/mediacentre/latestnews/041111diamondlecture.html; Andrew Haldane, ‘Small Lessons From
a Big Crisis’, Speech, 45th Annual Conference, Federal Reserve Bank of Chicago, 8 May 2009,
/>See also The Role of Macroprudential Policy: A Discussion Paper, London: Bank of England,
2009, especially p.3.
15 Sir Mervyn King, ‘The Today Lecture 2012’, 2 May 2012; also P. Aldrick, ‘King Attacks
“Deceitful” Banking Culture’, Daily Telegraph, 29 June 2012.
16 Parliamentary Commission on Banking Standards (PCBS): In summer 2013 the PCBS published its Final Report Changing Banking For Good,

London, 2013,
17 FSA Board, The Failure of the Royal Bank of Scotland, RBS Report, London, 2011, p.9.
18 Ibid, p.6.
19 Sanctions For the Directors of Failed Banks, HM Treasury, 2012, />pdf, accessed 4 April 2014.
20 Ibid, para. 4.1.
21 Matthew Hancock MP, ‘The right are right to challenge rewards for failure’, Speech, 12 January
2012, For example ‘Reckless Bank Chiefs Could Be Sent To Jail’, Sky News,
accessed 4 April
2014.


Introduction

5

The Treasury explained this proposition as arising from the criminal law’s longstanding role in ‘providing a sanction for improper behaviour in the financial services
sphere’ as much as it did from perceptions of a current lacuna for liability reflecting
impropriety falling short of dishonesty in ‘managerial misconduct’.22 In reconfiguring
financial system regulation broadly, regulators are referencing the 2007–8 crisis as a
‘once-in-a-lifetime’ opportunity to rethink financial system operations.23 There is also
recognition from regulators that this iconic milestone is likely to require regulatory
boldness no less than departing from approaches of the past 50 years, and calling time
on ‘feeding’ the much vaunted ‘complexity’ of high finance in favour of ‘simpler’
rules on what is permitted and what is not.24 This appetite for combining boldness with
simplicity in approach can be seen in a number of directions already signposted by the
then incoming and now current Bank of England Governor Mark Carney. Dr Carney
has also reflected on the challenges for achieving overall financial system robustness
where criminal conduct within financial markets has consequences for achieving their
overall ‘orderliness’ and ultimately resilience and stability.25
The connection made by Dr Carney between system-focused regulation

designed to promote resilience and stability, and conduct which falls outside
this remit, but can detrimentally affect it is highly significant on account of
the ‘twin peaks’ regulatory structure now in place by virtue of the Financial
Services Act 2012, which has disbanded the UK regulator in place since 2000 –
the Financial Services Authority (FSA) – and replaced it with two new bodies.26
It is very significant for this study of financial crime for a different reason. It is
a commentary on financial system function which helps to clarify why financial
misconduct attracts criminal liability at all, and also why the imposition of such
liability can be contentious. This in turn helps to identify the proposition at the
heart of this study. This is that ‘financial crime’ lies on a fault-line in British
societal consciousness. There is thus an operational tension between perceptions that financial misconduct amounting to ‘large-scale illegality that occurs
in the world of finance and financial institutions’ ought to attract criminal liability on account of its potential for harm across a sweep of societal interests, and

22 Sanctions For the Directors of Failed Banks, para. 4.2.
23 A. Haldane and V. Madouros, ‘The Dog and the Frisbee’, Paper, Federal Bank of Kansas Economic
Policy Symposium, Wyoming, 31 August 2012, pp.22–5, />24 Ibid, pp.23–5.
25 In 2013 Dr Carney endorsed the controversial Vickers’ ‘ring-fencing’ recommendations for shielding depositors from investment banking practices, and looks set to continue his predecessor’s
tough line on supervision for large banks. See Oral Evidence taken before the Treasury Committee
relating to Dr Mark Carney’s appointment as Governor of the Bank of England, 7 February 2013;
uncorrected Oral Evidence to be published as HC 944. See />commons-committees/treasury/carney%20pdf%20TC%2007-02-13.pdf; see response to Q111.
26 The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). See
G. Wilson and S. Wilson, ‘The FSA, “credible deterrence”, and criminal enforcement – a
“haphazard pursuit”?’, Journal of Financial Crime, 2014, 21(1), p.4.


6

Introduction

the perceptual ambivalence it attracts.27 This is often articulated in suggestions

that it is different from and indeed ‘less criminal’, which can be found termed
in common parlance and academic and policy discourses as ‘ordinary’ or ‘common crime’.28
This intellectualisation of the ambiguities is explained further shortly. At this
point the illustrations of concerns about under-utilisation of criminal enforcement emerging from the crisis evident in Tomasic’s work, and Dr Carney’s
insistence that individual conduct attracting criminal liability can have severe
consequences for financial system stability and resilience serve a different
purpose. Indeed, a restatement of this essential sentiment more recently made
still helps to explain why financial misconduct attracts criminal liability at all.
Arguably the reflections of MP Andrew Tyrie on the manifest lack of ‘orange
jumpsuits’ being donned by bankers and very real possibility that this will still
transpire from the ‘very serious offences’ committed by bankers are particularly highly profiled given the specific remit of the PCBS operating under his
Chairmanship prior to publication of its Final Report in June 2013.29 Tyrie’s
insistence was that the current absence of ‘orange jumpsuits’ was attributable
to ‘the sheer scale and variety’ of banker malpractice, perpetrated by a very
large number of persons over very long periods of time.30 For him, ‘working
through’ this would take time-consuming and painstaking work from regulators
– who, he insisted, were both willing to do so and also adequately resourced to
be tasked with this.31 Interestingly, Mr Tyrie also suggested that existing criminal law was adequate for directing responses, once the misconduct which had
occurred was better understood.32

Criminal liability in the post-crisis regulatory and political
environment
Government support for extending criminal liability so as to include liability for
reckless risk-taking in the context of institutional failure firstly became concretised in its response to the PCBS Report recommendations, now itself reflected

27 D. O. Friedrichs, see Note 1.
28 D. Nelken, ‘White Collar Crime’, M. Maguire et al. (eds), The Oxford Handbook of Criminology,
Oxford: Oxford University Press, 1st edn, 1994, 355; p.355; S. Shapiro, ‘The Road Not Taken:
The elusive path to criminal prosecution for white collar offenders’, Law and Society Review,
1985, 19(2), pp.179, 181.

29 See S. Rustin, ‘Nerves in the City and No 11 as bankers’ unlikely nemesis readies his next salvo’,
The Guardian, 20 April 2013.
30 Ibid.
31 Ibid.
32 Ibid.


Introduction

7

in provisions within the Financial Services (Banking Reform) Act 2013.33 Prior
to this, whilst also harbouring some differences in perceptions of current issues
in criminal enforcement of business misconduct, both Andrew Tyrie and the earlier Treasury Consultation had correctly identified the longstanding tradition of
utilising criminal enforcement for financial impropriety. In being focused on that
which ‘occurs in the world of finance and financial institutions’, this analysis concentrates on the significance for the present of the longstanding favour in Britain
for criminal law as a tool for delineating the outer limits of acceptable conduct
within business activity. Whilst the Treasury Consultation from 2012 did not
actually acknowledge that this is a tradition dating back to the nineteenth century,
its remark that there subsists in the UK a longstanding ‘interest in … criminal
sanctions … as [a] … way of shifting the balance between risk and reward’ in the
context of business is enormously significant for framing the analysis now undertaken.34 This is an extended study of how strong favour for criminal enforcement
was evident as much as 150 years prior to the current ‘crisis’. At the core of its
analysis is the tradition within British legal culture for using the criminal law not
simply in response to deliberate misuse of business environs for activities which
are ab initio deliberately dishonest, but also in response to misconduct uncovered
in the course of prima facie legitimate business activity.
This is of utmost significance in the context of current policy discourses,
which are very consciously concerned with extending criminal liability currently subsisting for ‘financial misconduct’ so as to embrace managerial
misconduct more generally.35 This is particularly so given the current acknowledged need to target the ‘extremely risky’ activity associated with the crisis.36

This analysis explains that criminal law was being utilised explicitly to promote appropriate co-existences between risk-taking and responsibility during
the middle years of the nineteenth century, as part of what was then emerging
modern ‘business culture’. This approach is not distinctive, simply because
it discusses the present alongside the past. Its distinctiveness lies in how the
analysis suggests past events are highly significant in the light of current
proposals for law reform. The Treasury Consultation recorded Government
favour for a new criminal offence of misconduct in banking management,
and the view that this should be underpinned by the ‘egregious character’ of

33 The Government’s Response to the Parliamentary Commission on Banking Standards, HM
Treasury and Department of Business, Innovation and Skills, July 2013, />government/uploads/system/uploads/attachment_data/file/211047/gov_response_to_the_parliamentary_commission_on_banking_standards.pdf. This advertisedly ‘marks the next step in the
government’s plan to move the UK banking sector from rescue to recovery, and to build a banking
sector that upholds the high standard of ethics and professionalism that society expects and underpins a strong, safe and successful banking system that supports the economy’.
34 Sanctions For the Directors of Failed Banks, Treasury Consultation, London, 2012.
35 This is evident from the general thrust of the Treasury Consultation as well as specific aspects
of it.
36 Sanctions For the Directors of Failed Banks, para. 4.10.


8

Introduction

recklessness.37 This is significant because it is an important departure from
established offences requiring misconduct to be deliberate/intended – by being
premised on knowledge or dishonesty – for criminal liability to arise.38 But
in its allusion to the crisis not engendering sufficient criminal liability in the
light of the serious harm caused to society and economy which is attributed to
banker operation within a financial system that lacks sufficient resilience and
stability, this new reference point helps to orient and articulate this study’s

primary remit. It helps to explain why this particular analysis of financial
crime regards events from the nineteenth century as so significant for discerning attitudinal patterns and ones of response to financial crime in Britain in the
twenty-first century.
In setting out Government favour for this new criminal liability, now borne
out in the Financial Services (Banking Reform) Act 2013 and initially inviting responses accordingly, the Treasury Consultation expressed the view that
surely ‘at the very least … [it would] make bank directors think twice before
taking certain decisions’.39 This closely mirrored the rhetoric of the Government
predating this, evident in the reflections of Chancellor George Osborne.40 His
close ally, Matthew Hancock MP also echoed such rhetoric. For Mr Hancock,
the value in such an initiative lay in the ‘shadow of prosecution’ it would cast
over those entrusted with institutions of ‘vital national importance’, which was
situated alongside his hope that it would not actually be used.41 Both at the time
of consultation and now with the statutory provisions in place the key question
was and remains whether extending criminal liability in this way alters bankers’
risk-taking behaviour. The Treasury Consultation sought to explain how a hypothetical bank board would ‘obtain legal advice about whether a decision could
be considered to be reckless’, but acknowledged that defining risk-taking which
attracts criminal liability will be complex because banking inevitably involves
taking risks. For the Treasury, complexity of a more practical nature could also
arise from the criminal burden of proof, and the legal framework governing investigation and prosecution, and their associated pecuniary costs,42 all of which are
familiar territory for scholars of financial crime.43

37
38
39
40

Ibid, para. 4.11.
Ibid.
Ibid.
George Osborne, Statement on FSA investigation into LIBOR, HM Treasury, 28 June 2012, https://

www.gov.uk/government/speeches/statement-by-the-chancellor-of-the-exchequer-rt-hon-georgeosborne-mp-on-fsa-investigation-into-libor.
41 Matthew Hancock MP, ‘The right are right to challenge rewards for failure’, Speech,
12 January 2012, />42 Sanctions For the Directors of Failed Banks, Treasury Consultation, London, 2012, paras 4.14–4.17.
43 G. Wilson and S. Wilson, ‘Market misconduct, the FSA and creating a system of “city grasses”:
blowing the whistle on whistle-blowing’, Company Lawyer, 2010, 31(3), p.68.


Introduction

9

A nineteenth-century turning point for financial crime:
viewing the future through the prism of the past
This analysis of nineteenth-century responses to financial crime reveals not only
the Victorian orientation of criminal law in response to misconduct which ‘occurs
in the world of finance and financial institutions’, but that this was a conscious
reflection of the nature of perceived harm caused, and the acknowledged limitations of other legal responses adequately to suffice in this context, and thereby the
limitations of liability which required ‘a man’ to make good ‘out of his own property’ a wrong committed.44 The narrative identifies the critical time frame for this
as broadly 1835–1880, and within this concentrates on a distinct ‘early phase’ in
mapping Victorian responses to financial crime delineated by the years 1850–1880.
It explains, within the broad parameters provided by Victoria’s reign (and indeed
predating this slightly), how the years 1835–1880 reflect the earliest acknowledgement of financial misconduct crime as activity possibly requiring special responses
within criminal policymaking, occurring during the 1830s. It illuminates how this
time frame also accommodates the very first ‘business crime’ trials during the 1850s
together with the intervening events of the 1840s which actually set this in motion.
It also situates these earlier milestones alongside the reality that by 1880, the City of
London had borne witness to a number of major ‘business crime’ trials. In doing so,
the analysis explains how these reference points have been significant for writings
of ‘financial crime’ history such as those currently existing. And in acknowledging
this, it must be noted that this is not the only work to look at these trials, and its

coverage of the ‘financial scandals’ underpinning them is far less extensive than can
now be found elsewhere in the historiography.45 It focuses instead on how reactions
to financial crime in nineteenth-century Britain can themselves be regarded as a narrative for how contemporaries lived through times of ‘striking change’.46

The pursuit of financial history: its aims, methods
and new directions
From this emerges a narrative of a society embracing its sense of progress and
advancement but possessed of a sense of insecurity and discomfort. In many ways,
acceptance of the nature of changes brought by the onset and progression of industrial

44 As was long-established in the context of a trustee’s breach of trust. See Hansard, series 3, 46,
HC 8 June 1857, Serjeant Kinglake, col 1363; and similarly for breach of contract. This was also
apparent in the law of tort such as it developed during the nineteenth century, with it at this time
having a very strong orientation towards deliberate harm caused to others or where a contractual relationship raised the right to ‘due care’. See S. Wilson, ‘Tort law, actors in the “enterprise
economy”, and articulations of nineteenth-century capitalism with law: The Fraudulent Trustees
Act 1857 in context’, in T. T. Arvind and J. Steele (eds), Tort Law and the Legislature: Common
Law, Statute and the Dynamics of Legal Change, Oxford: Hart, 2012.
45 Notably J. Taylor, Boardroom Scandal: The Criminalization of Company Fraud in NineteenthCentury Britain, Oxford: Oxford University Press, 2013.
46 J. Black and D. MacRaild, Nineteenth-Century Britain, Basingstoke: Palgrave, 2003, p.xvii.


10

Introduction

capitalism, resulted in contemporaries being faced with the challenge of ‘transformative understandings’ of what constituted crime, and what was appropriate in the shape
of responses which reflected its harms.47 A very small cluster of ‘fraud’ trials helps
to bring together a series of ‘core’ issues associated with such Victorian ‘transformative understandings’ of financial crime within a broader analytical frame of Victorian
hopes, ambitions, fears and concerns. Such analysis must concentrate on illuminating
contemporary perceptions of the opportunities provided by the economic transformations of the age, as well as the threats presented by crime in general to this.

From this stance, Tosh argues that for most historians, the aim of their study is
(and has always been) ‘to discover what happened in the past and what it was like
to live in the past’.48 In clarifying this as an aspiration that almost all historians
would accept, Tosh is able to explain how for some historians, there is an endgame beyond this.49 In his influential historiographical work, Tosh also identifies
a different type of historian who regards studies of the past as a useful tool for
working through issues of today. This direction is channelled through three cardinal rules which allow us to see history not as showing ‘progress’ over time but
actually revealing the process of social change.50 For Tosh, three principles of historical enquiry suggest that much can be learned and understood about the present,
and even ‘purchase’ made on the future from looking at the past. The past here is
premised on understanding the present as a point on a trajectory still unfolding,
which Tosh explains alongside key idea of ‘societal evolution’.51 This requires that
historians pay attention to the prevailing conditions or context in which chosen reference points emerged. It also requires a respect for the gulf of time separating past
and present. This thereby identifies in reverse Tosh’s three principles of historical
enquiry – historical difference, historical context and historical process.52 In terms
of how changes in law can be ‘subject matter’ for linking past with present, much of
the significance of Tosh’s representations of historical enquiry as a mechanism for
understating societal status and societal evolution can be seen in the rationale for the
study of legal history within legal scholarship and education.
This is certainly so for the study of so-called external legal history, whereby
the history of law is strongly premised on understanding how law has evolved as
we would recognise and insists that this requires understanding the social, economic and political context, in which key legal developments emerged.53 Even
so-called internal legal history – the study of the law itself, and the way legal

47 D. O. Friedrichs, ‘Wall Street: Crime Never Sleeps’, in S. Will et al. (eds), How They Got Away
With It: White-Collar Criminals and the Financial Meltdown, New York: Columbia University
Press, 2012, p.20.
48 J. Tosh, The Pursuit of History: Aims, methods and new directions in the study of modern history,
Harlow: Longman, 2010, especially pp.45–7.
49 Ibid, pp.1–2, 29–30.
50 Ibid, pp.19, 40–1.
51 Ibid, pp.1–2, 29–30.

52 Ibid, especially pp.8–12.
53 G. R. Cornish and G. Clark, Law and Society in England, London: Sweet and Maxwell, 1989.


Introduction

11

categories, concepts and doctrines, the mechanisms used by lawyers to organise
their thoughts, were actually understood by lawyers and jurists at a particular time
– is also strongly premised on understanding change over time.54 In insisting that
the study of legal history remains as important as ever for students of law today,
Sir John Baker has stated that legal history is the ‘study of legal change’, and
claimed that ‘unless we regard law as no more than a body of randomly changing
rules, its history must be an essential dimension in its study’.55
David Ibbetson’s reflections on legal ideas not being ‘natural facts waiting to
be uncovered’ and being ‘indeterminate and flexible, always at least potentially
in a state of flux’ are a precursor to his suggestion that lawyers will commonly
disagree about them, and that there will always be ‘forward-looking individuals proposing different models and structures’.56 This mirrors Tosh’s reflections
on the absence of consensus ‘of expert opinion’: historiography like legal scholarship provides an arena of ‘heated arguments concerning the objectives and
limitations of historical study’.57 In seeking to emphasise the value of legal history for legal scholarship, Ibbetson’s thoughts on its necessity for understanding
the current law and its underpinnings reflect closely those of Baker. However,
in identifying how the ‘structure of modern law is too heavily dependent on the
legacy of the past to be marginalized as something of purely antiquarian interest’, Ibbetson furthermore insists that the understanding of law which can only be
achieved through understanding of its history, is a vital component of the pursuit
of confident law reform.58 In marrying the interest of historians in utilising history for providing a commentary on the present and future, with legal historians’
insistence on the importance of understanding law’s own history, a convincing
case can be made for looking at the past to provide a more comprehensive setting for formulating new ‘rules for the future’. For financial crime specifically,
this was identified intellectually sometime prior to the financial crisis, with this
also strongly grounded in the work of Tosh.59 It was argued in 2003 that utilising

law emerging from c.1750 onwards, and especially dating from the nineteenth
century, can help to construct a commentary on society and social change which
helps us to ‘know ourselves’ as well as we possibly can, and to have as clear a
view on societal status and societal change as we can possibly muster, as we – as
a society – face the future.60 Adopting such an approach in respect of financial
crime helps to illustrate and explain the essence of law for society more generally,
and how law can be most effectively deployed in furtherance of societal interests.

54 D. Ibbetson, A Historical Introduction to the Law of Obligations, Oxford: Clarendon, 1999, p.v.
55 J. H. Baker, ‘Why the History of English Law Has Not Been Finished’, Cambridge Law Journal,
2000, 59(1), p.62.
56 D. Ibbetson, A Historical Introduction to the Law of Obligations, Oxford: Clarendon, 1999, p.v.
57 Ibid. See also Tosh, Pursuit of History, p.ix.
58 D. Ibbetson, A Historical Introduction to the Law of Obligations, Oxford: Clarendon, 1999, p.v–vi.
59 S. Wilson, ‘Invisible Criminals?: Legal, Social and Cultural Perspectives on Financial Crime in
Britain 1800–1930’, unpublished PhD thesis, University of Wales (Swansea), 2003.
60 Tosh, Pursuit of History, pp.1, 8–12, 33; also S. Wilson, see Note 59.


12

Introduction

This analysis is now concerned with explaining why it was during the nineteenth century that these earliest modern responses to business crime appeared,
with this itself reflecting the acknowledged importance of the nineteenth century
for both legal historians and historians of modern Britain alike. The sentiment
that ‘the great improvements which have been made, both to our law and in its
administration’ during the nineteenth century were equally worthy of proclamation as the ‘advancement of science, the wonders of invention, the extension of
trade, the increase in population, and of the country’s material wealth’ complements how the latter are found ubiquitously represented and analysed in the work
of historians.61 Indeed, such representations of the nineteenth century within historiography reflect the ‘sheer exuberance and confidence of the age’ and also

consequent ‘curiosity and dynamism’ noted by legal historians.62 There is also
acknowledgement from both spheres that all points in time represent an interplay
of continuity and change, on account of how these ‘twin forces’ are ‘always at
work in society’.63 Moreover, beyond the shared identification by historians and
legal historians of the nineteenth century as an age unlike anything before it, there
is also a shared broad consensus that whilst the emblem of this time was very
much articulating progress, that much of this became oriented towards governing
the adverse externalities of progress experienced in social, economic and political
spheres. Here legal history has proposed that whilst law clearly became a framework for governing progress and whilst this was a society that was plainly both
that curious and confident in making progress, it was also one very much ill at
ease with itself with the manner of seeking and achieving progress, and even with
the very idea of progress itself.
This sentiment is readily apparent in how modern British history has analysed nineteenth-century changes such as in the administration of poor relief
and the introduction of factories’ legislation, albeit with characteristically less
emphasis on the legal underpinnings of social change. This analysis now shows
how nineteenth-century responses to financial crime reveal these very tensions
of confidence and anxiety extremely effectively, as it meshes together closely
understandings of legal change and social change to remedy how this particular
externality of the emergence of modern capitalism remains under-represented in
the work of historians of crime and also within ‘business history’. The intellectual
case for looking at nineteenth-century reactions to externalities created by the
emergence of capitalism embodied in ‘financial crime’, as it is termed today, was

61 Anonymous, A Century of Law Reform: Twelve Lectures on the Changes in the Law of England
During the Nineteenth Century, London: Council of Legal Education, 1901, p.1; E. Evans, The
Forging of the Modern State: Early Industrial Britain 1783–1870, London: Longman Press, 1983.
62 C. Stebbings, ‘Benefits and barriers: The making of Victorian legal history’, in A. Musson
and C. Stebbings (eds), Making Legal History: Approaches and Methodologies, Cambridge:
Cambridge University Press, 2012, pp.72–3.
63 F. M. L. Thompson, The Rise of Respectable Society: A Social History of Victorian Britain 1830–

1900, London: Fontana, 1988, p.13; Black, J. and MacRaild, D., Nineteenth-Century Britain,
London: Palgrave, 2003, p.xvii.