Corporate Advisory

Lloyds – How whistleblower exposed UK regulation failings

A former employee’s evidence suggests the bank frustrated a police investigation into large-scale fraud

In the summer of 2011, an employee of Lloyds Banking Group based in Scotland emailed three senior colleagues about an ongoing police investigation into an alleged fraud at the bank.

Sally Masterton had worked for the lender since 1998, first under HBOS and then Lloyds after the rescue of the foundering Scottish lender during the financial crisis. An accountant and insolvency practitioner, she was part of the bank’s “high risk” unit, which looked after small business customers seen as likely to default.

Conscious that the police inquiry involved her department, she wanted to report a worrying conversation. Ms Masterton told the bankers, senior figures in the commercial lending division how she had been urged by a senior colleague in the high risk unit to shred documents and delete electronic records in an unrelated case involving an HBOS client.

She hadn’t done it, of course, she said, but the colleague had warned her that a “DTI investigation” was imminent and they should cover their tracks.

The story Ms Masterton told shook the bankers. The senior colleague and would-be shredder was also a key police witness in the fraud case. Data about the incident, uncovered by Ms Masterton, showed unauthorised lending and evidence of possible money laundering and theft.

The note of a follow-up conversation with two members of the bank’s legal department took four months to finalise. Ms Masterton claimed her boss later told her that the lawyers hadn’t handed the note to the police because it might damage the would-be shredder’s credibility as a witness in the case.

But that first email and what followed would have far-reaching consequences that are still unfolding. It would lead to claims that Lloyds frustrated a police investigation, flouting its duty to report wrongdoing to the authorities.

See full article here