2021viii19, Thursday: A failure of trust.

Like many people who’ve spent time in counter-fraud, I have a firm but nuanced view of fraudsters.

Nuanced, because part of the classic fraud triangle is “rationalisation” - the fraudster’s ability to convince themselves that what they’re doing isn’t really wrong. Not really. Not when looked at from the right angle, in the right light. (Albeit possibly only at 4.13pm on the second wet Thursday in October.) And not often, but sometimes, there’s almost genuine pathos in that rationalisation - particularly when it’s linked to a necessity which is caused less by greed than by some personal or family disaster.

But firm, because when you get down to it fraudsters are still essentially stealing someone else’s stuff, usually by lying to them or otherwise betraying their trust. And screwing with the trust someone places in you is, to my mind, one of the worst betrayals there is.

I could go off on a long tangent here about fiduciary obligations - for the non-lawyers, the term for the duties which arise in special kinds of relationship where you’re obliged to put someone else’s interests before your own, and not simply balance yours against theirs. Directors to their companies. Trustees to their beneficiaries. Solicitors to their clients. And so on. The tangent is tempting, not least because of a long talk with a client recently which I spent trying to convince them why what had been done to them, while patently wrong and immoral, wasn’t a breach of a “fiduciary” duty; and that calling it that would hurt their case, rather than helping it.

(We play with words, we lawyers, and forget sometimes that - as with any jargon - legal cant can seem to be a touchstone to the uninitiated, rather than a vessel of specific meaning.)

But I won’t, because what I’m really interested in here is a particular kind of fiduciary obligation: that of a charitable trustee.

Because more than once in my career, I’ve seen charitable organisations - or those which, while not actually a charity, are non-profit and trying to do good - get taken. Badly taken. And while my primary visceral hatred is directed at the crooks (and, I admit, occasionally fools) who took them, there’s a small pipette of bile reserved for the idiots who let them.

Yes. Let them.

One example? A religious charity - an independent pentecostal church - whose affairs I investigated a decade or so ago, after they entrusted their money (that is, the money gifted by the faithful) to a friend of the pastor, who said he could produced a 60% annual return.

The return was indeed about 60%. Minus 60%. More than half the money was lost. Because the trusted idiot - and I think he was a fool, rather than a crook - had convinced himself and the pastor that contracts for difference were the right way to gamble with the church’s money. And because he was the pastor’s mate, none of the church elders lifted much of a finger to stop it happening.

This kind of “we’re religious, so we should trust because our leaders say we should” is dangerous. It’s at the root of affinity fraud, the kind of fraud which rips through a community once the fraudster is inside the circle of trust, and which strikes religious groups particularly hard (but of course isn’t limited to them). And it’s particularly pernicious in the kind of religious groups with charismatic (small-c, I stress) leaders, tithing traditions, and few controls. Yes, ultimately it’s the fraudster’s fault, and yes, perhaps people should caveat the emptor just a bit. But in line with my core belief that certainty is not to be trusted, any leader who gives off a vibe that discourages his (usually his, rather than her) followers from doing their own due diligence is simply dangerous, unprincipled, arrogant and - put simply - in the wrong job.

That particular church case inspired me to put together a one-day course for pastors in training, as part of a ministerial training course run by a friend of mine. I only ran it once, but it centred on the vital importance of audit - and the idea that “trust, but verify” was the exact opposite of unfaithful.

Misplaced trust

All this was a long time ago, but I was reminded of it recently by a brace of Court of Appeal cases involving a genuine financial and legal tragedy. They involved a venerable law firm in Yorkshire, Dixon Coles & Gill, the Bishop and Diocese of Leeds, and four well-known national charities.

And the former senior partner of the law firm, who over the course of a couple of decades stole millions - yes, millions - from the firm and its clients.

To tl;dr the background: the firm, DCG, had been around some 200 years. It was forced to close in 2016 after its two other partners discovered to their horror that Linda Box, their colleague, had systematically been bleeding funds not only from its client account but also from funds she personally held for several charities (including the Church). Unsurprisingly, the Church and the charities sued. Since the firm was an old-fashioned partnership instead of a more modern LLP, the two other partners - who, it should be said, were wholly innocent of deliberate wrongdoing - were in principle on the hook with unlimited liability.

In fact, the Court of Appeal allowed the remaining partners to benefit from the usual six-year limitation period, overturning a ruling in the High Court in Leeds that they should be found to have been “party or privy” to Mrs Box’s fraud under s21 of the Limitation Act 1980 - but it also dismissed an appeal from that same court’s ruling that the firm’s insurers were liable to pay out on all the claims (if the claimants were successful), rather than being able to limit total liability on the grounds that all the claims essentially arose from a single series of related acts.

They’re fascinating cases: in particular the first, for anyone interested in limitation (and that should include all lawyers involved in contentious litigation).

But I mention them in particular for a startling detail in the first-instance claim. At paragraphs 42 and 43, HHJ Saffman notes that the remaining partners suggest Mrs Box - in handling a substantial proportion of the Diocese’s money - was acting on a personal rather than professional basis. And he points to a 1995 letter where a past Bishop of Leeds seems to have allowed Mrs Box to have sole signing authority on a Church fund - a fund in relation to which he was (as Mrs Box wrote to him in 1995) “under no legal duty to divulge the accounts to anyone".

I find this shocking, and frankly disgraceful. As some will know, I come from a Church background. My late father was a vicar, then a canon, then a bishop - retiring in 2011 after 15 years as Bishop of Winchester, one of the largest dioceses in the Church of England. I’ve met plenty of priests and bishops who took a pretty autocratic view of their rights, and of how they should be allowed to fulfil their obligations, although my dad - a believer in sunlight as the best guarantor of probity - wasn’t one of them. (Not for him the clergy equivalent of “I find your lack of faith disturbing,” although I’ve seen variants far too often.)

So I’m sure there are plenty of funds held by priests and bishops in the CofE with similarly - ah - opaque oversight structures.

But to take such a fund, and give a single individual who isn’t even the office-holder the unaudited power invisibly to handle the cash? It’s insane. More than that: given that the funds are charitable, or at least the fruits of faithful labour by many hands and the generosity of many hearts. it’s simply immoral.

This simply shouldn’t be. No more should there be unaudited funds for charities and churches, than that churches should be able to mark their own homework when it comes to safeguarding.

Not because churchpeople are uniquely bad. They’re not. Most are genuinely trying to do the right thing.

But because they’re people. And in my view, it simply isn’t fair to put people in a position where - if they find themselves at risk of yielding to temptation - there’s nothing in place to hold them back.

Trust, but verify. It’s only sensible. But far more importantly, at least for people of faith like me: it’s un-Christian to do otherwise.