Abstract
This chapter outlines some of the most significant acts of financial fraud that took place in the British banking sector during the interwar years. In academic terms, this is an area that has generally received scant attention from historians. This chapter starts to fill this gap in the literature by providing an in-depth insight into the main perpetration strategies and the chief motivating factors that were involved in these acts of fraud. Ultimately, what it shows is that despite some notable improvements in auditing and training, the threat of mismanagement and embezzlement still continued to remain a very real one for British depositors during this period.
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Notes
See, ‘Banksters’, The Economist (7 July 2012)
Matt Taibbi, ‘Gangster Bankers: Too Big to Jail’. Rolling Stone (14 February 2013).
‘Another Mis-Selling Scandal Rocks UK Banks’ Reputation’, Financial Times (23 August 2013).
Heather Landy, ‘American Banker’s 2013 Survey of Bank Reputations’, American Banker (25 June 2013).
Numerous explanations have been put forward to explain this decline, including: improvements in bookkeeping and accounting practices; changes in the law relating to joint-stock companies; greater levels of professional training amongst bankers; and an increased political will to punish those who committed fraudulent crimes (see Robb, 2002; Taylor, 2013; Williams, 2013).
Carpenter had previously been in charge of a small organisation called the ‘Charing Cross Advance and Deposit Bank’ (founded in 1879), but this collapsed in 1878 due to a series of bad investments: ‘Alfred William Carpenter: Bankrupt’, Public Record Office (PRO), MEPO 3/161.
The Times (26 April 1911), p. 7.
Ibid. (27 January 1911), p. 9.
‘Proceedings against Charing Cross Bank’ (3 January 1911), PRO, B 9/676.
The Economist (29 October 1910), pp. 851–852.
The Times (10 August 1909), p. 2.
Ibid. (12 August 1909), p. 2.
Although, unlike many other savings banks, it allowed depositors to withdraw their money without any prior notice. It also offered unusually generous interest rates of 3 per-cent (as opposed to the 2.5 per-cent on offer at the Post Office Savings Bank).
The Economist (26 December 1914), p. 1111.
‘Civil Service Bank: Liquidator’s Report’ (22 December 1914), PRO, BT 34/2639/35843.
The Times (29 April 1915), p. 5.
Ibid. (28 July 1915), p. 4.
Similar concealment techniques were also used by the senior management at the Northern and Central Bank, the Tipperary Joint Stock Bank, and the Western Bank of Scotland (Williams, 2013).
Indeed, as Ackrill and Hannah (2001: 79) suggest, it still tended to be the case that the most important positions at the ‘Big Five’ were filled by relatives and acquaintances of the various partners in these organisations.
Kalgoorlie Miner (27 January 1921), p. 3.
Examiner (14 December 1920), p. 5.
One contemporary even went so far as to label it ‘the most shocking fraud perpetrated on the public within living memory’ (Nicholls, 1935: 126).
The Times (15 June 1921), p. 19.
Thomas Farrow, The Moneylender Unmasked (London, 1895), pp. 186–188.
see also Thomas Farrow, Shylock at the Bar (London: Yeoman, 1898).
House of Commons: Select Committee on Money Lending. Report from the Select Committee on Money Lending; Together with the Proceedings of the Committee, Minutes of Evidence, Appendix, and Index, HC 260 (London: HMSO, 1897).
Farrow, The Moneylender Unmasked, p. 196.
‘Statement of Mr Cecil Whiteley’ (15 June 1921), PRO, DPP 1/55.
Account Book (1917–1920), Leicestershire Record Office, Misc. 1015.
New York Times (21 December 1921), p. 15.
‘Evidence of Frank Richard Sellers’ (31 January 1921), PRO, DPP 1/55.
J.M. Henderson, ‘The Joint-Stock Companies Acts 1862–1900 in Relation to Banking’, Journal of Institute of Bankers (Spring 1906), pp. 63–64.
Farrow’s Bank Gazette (July 1915), p. 82. (July 1915), p. 82.
Ibid. (July 1915), p. 66.
‘Report by Sir Laurence Halsey’ (1921), PRO, DPP 1/55.
‘Testimony of William Albert Read’ (n.d.), PRO, DPP 1/55.
‘Agreement between Farrow’s Bank Ltd and William Albert Read’ (6 August 1920), PRO, DPP 1/55.
‘Testimony of William Albert Read’ (n.d.), PRO, DPP 1/55.
Following the initial inquiry, Read called in Henry Morgan – a Senior Accountant in the firm of Morgan Brothers & Co. — to conduct a full investigation of the accounts at Farrow’s Bank.
‘Exhibit 22’ (1921), PRO, DPP 1/55.
‘Advances and Loans to Customers’ (1921), PRO, DPP 1/55.
‘Report by E. Freeman’ (16 July 1912), PRO, DPP 1/55.
‘Testimony of Henry Morgan’ (n.d.), PRO, DPP 1/55. Likewise, in 1919, a holding in the Laminated Coal Company costing £35,000 was written up to a value of £160,500 just a few days after purchase on the basis of its potential future profitability: The Times (25 January 1921), p. 5.
‘Report by Sir Laurence Halsey’ (1921), PRO, DPP 1/55.
Ibid.
In fact, it was widely accepted amongst accountants in Britain at this time that Banks should, regardless of any actual or estimated appreciations, always list their non-fixed assets at cost-price, with alterations permissible only if there had been a notable fall in value that required the assets to be written down (Goodhart, 1972: 20–25; Billings and Capie, 2009: 41–43).
In the first few years of its existence, Farrow’s was actually jointly audited by George Hart and F.D. Pepper, both of whom were Chartered Accountants. However, when the Bank was converted into a limited company in 1907, Pepper was dropped and Hart became the Bank’s sole auditor. See ‘William Albert Read Cross-Examined by Mr Vick’ (n.d.), PRO, DPP 1/55.
By 1920, the fee for Hart & Co.’s services stood at £525. In addition, Farrow also paid a great deal extra to Hart & Co. for extra ‘accountancy work’, with the 1920 ledger account showing that a total of £1,977 had been spent on ‘Audit and Accountancy Fees’ in that year alone. See ‘Auditors’ (1921), PRO, DPP 1/55.
Frederick Hart did actually try to suggest to Morgan that this method of auditing was more reliable than using external auditors as ‘a man keeping the books was better able to audit and verify their correctness than an outside auditor!’. ‘Testimony of Henry Morgan’ (n.d.), PRO, DPP 1/55.
‘Evidence of Sidney Barton Frank Witherby’ (20 January 1921), PRO, DPP 1/55.
Ibid.
‘Cross Examination of William Walter Crotch by Sir Richard Muir’ (16 June 1921), U.K. Public Record Office.
His list of publications on Dickens include: Charles Dickens, Social Reformer: The Teachings of England’s Great Novelist (London, 1913); The Soul of Dickens (London, 1916); The Pageant of Dickens (London, 1916); The Secret of Dickens (London, 1919); The Touchstone of Dickens (London, 1920). He was also instrumental in setting-up and running the Dickens Fellowship.
‘Cross Examination of William Walter Crotch by Sir Richard Muir’ (16 June 1921), U.K. Public Record Office.
‘Evidence of Frederick Carter Janvrin’ (31 January 1921), PRO, DPP 1/55.
‘Evidence of Walter Henry Jones’ (20 January 1921), PRO, DPP 1/55.
‘Testimony of Charles Alfred Parsons’ (30 January 1921), PRO, DPP 1/55.
The Times (15 June 1921), p. 19.
Ibid. (18 June 1921), p. 6.
Ibid. (22 June 1921), p. 7.
‘Letter from Farrow to Director of Public Prosecutions’ (22 February 1921), PRO, DPP 1/55.
The Times (16 June 1921), p. 7.
Hart’s defence was led by Mr. G. Russell Vick. See: The Times (7 June 1921), p. 19.
See ‘Evidence of Herbert George Hedges’ (25 January 1921), PRO, DPP 1/55.
Farrow and Crotch were also found guilty of publishing fraudulent balancesheets (Haldane, 1970: 128–129).
These relatively lenient sentences reflect the fact that Mr. Justice Greer, the judge presiding over the trial, took both Farrow’s and Crotch’s past philanthropic works and previous commitments to helping those of limited means into consideration when sentencing the two men (Vallance, 1955: 108).
The Times (22 June 1921), p. 11.
House of Commons Bill, Banks (Official Auditing): A Bill to Deal with the Official Auditing of Banks, 26 (London: HMSO, 1921).
The opposition was based largely on the fact that the Bill’s wording seemed to imply that Forrest was in favour of setting up a new governmental department to control the audit of all bank accounts. See The Times (19 March 1921), p. 10.
The Bankers’ Magazine (March 1921), pp. 502–503.
Ibid. (December 1920), pp. 645–647.
The Times (1 January 1921), p. 15.
The Mercury (3 December 1938), p. 4.
The authorised capital of the new organisation was £5,000, divided into 5,000 ordinary £1 fully paid-up shares. See The Glasgow Herald (28 June 1938), p. 7.
The Times (28 June 1938), p. 16.
It was estimated that, between the auditor’s report on 7 October 1936 and the Bank’s eventual closure in December 1938, Olivieri accepted over £11,000 from the public. See The Mercury (3 December 1938), p. 4.
The Glasgow Herald (28 June 1938), p. 7.
The Mercury (3 December 1938), p. 4.
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© 2015 Matthew Hollow
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Hollow, M. (2015). Pillars of Society? Financial Crime in the British Banking Sector, c. 1919–1939. In: Rogue Banking: A History of Financial Fraud in Interwar Britain. Palgrave Pivot, London. https://doi.org/10.1057/9781137360540_2
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