Do we have an honesty problem?

The LIBOR scandal has got everyone thinking about honesty. Bob Diamond denies he knew about attempts at LIBOR manipulation. Then he rails against the Bank of England’s involvement and “senior Whitehall figures” (see the FT here (£)) by suggesting they may have known of – and even condoned – the bank’s repeated “lowballing” of LIBOR submissions during the financial crisis. There is no apparent irony intended by Mr Diamond in acknowledging that this claim is based on a call between himself and Paul Tucker, deputy BoE governor or that the call was (again according to the FT) “one of only three “notes to file” he has written in his career – in which he wrote that Mr Tucker had passed on concerns from Whitehall about Barclays’ Libor submissions, adding that “it did not always need to be the case that we appeared as high as we have recently”.”
So they knew, but he didn’t must be his position. The BoE’s initial position is that they, Diamond and the FSA agree that they did not “instruct” Barclays to lower their LIBOR rate. The reality appears, on the face of it – and in the absence of further explanation – that they dropped a pretty big hint. And a hint that Mr Diamond took the trouble to write down. A more kind, perhaps too kind, view would be that they urged Barclays to test their own judgments more sternly. Whatever, the effect was plain: “The day after the conversation, the Libor borrowing rates submitted by Barclays fell sharply.”
For the BoE, a critical question will be whether the difference between an instruction and a hint is an important one. Clearly the FSA thought it important. For Mr Diamond, the question is how to square an implication of BoE aquiescence in LIBOR manipulation with prior denials of ignorance. He will, I would guess, have chosen the words of his prior denials carefully.
And this is where my point turns to lawyers. We will see immediately that both Diamond and Tucker can claim that an “instruction” was neither given nor received. That denial directs us towards the thinking no wrongdoing has occurred. But it may also (and we need to await more evidence before being sure) mislead us. Now Diamond reveals something else: it looks like pressure was applied to lower LIBOR rates. It looks like Barclays succumbed (rather willingly one imagines) to that pressure. No doubt how it looks will change over the coming days and weeks.
This kind of misdirection is a not unused part of the lawyer’s toolkit. The question is: is it ethical? In representing, or negotiating for a client, is it okay to misdirect if one does not lie? The rules are rather silent on this. Lawyers are supposed to act with integrity. It is reasonably assumed that this implies a duty to act honestly , but what does such a duty entail? It is plainly not acceptable to say something which is known to be untrue. White lies or puffs might be acceptable, at least in some contexts. “My client intends to take this all the way to trial” may be more often said than meant. Certain untruths are said to be part of the rules of the game; though who knows what those rules are and if those lies are understood to have no meaning, why bother? A wider approach is to say any statement (or omission) which is made with the intention of creating a belief in another at variance one’s own belief is misleading. Quite a lot of the intellectual gymnastics of lawyers involved in the Hacking scandal may have been prevented by such a test. It is a wide approach, perhaps not always easy to apply, but perhaps more consistent with the pre-eminent duty of a lawyer to act in the public interest in the administration of justice.
In terms of the actual rules, the trouble is there are both too few rules and too many when it comes to misleading. So for example a solicitor, when litigating or acting as an advocate, must not knowingly or recklessly mislead the court. When constructing facts supporting a client’s case or drafting documents relating to any proceedings any contention in those documents must be considered properly arguable by the advocate. If there is an allegation of fraud, the honesty test is higher. The solicitor has to have material which they reasonably believe shows a case of fraud. They can allege other crimes or misconduct if the matter is material to the client’s case and the allegations are supported by reasonable grounds. By my reckoning that is at least four different tests by which the honesty of statements made by lawyers in litigation or advocacy can be judged. Outside of those litigation there are no specific professional rules beyond the integrity principle and an obligation not to take unfair advantage of third parties. Fair advantage is okay. Got it? It is not anything goes, but it is also not clear what does go.
The issues about what is right, or what is in the public interest in the administration of justice, are not uncomplicated. A lawyer sometimes faces the difficulty of misleading someone in a negotiation or breaching confidentiality. Imagine an insurance company lawyer is rung up by a claimant lawyer who says, I know you always settle whiplash claims for £2,000. Now imagine the actual figure is £4,000. What should the lawyer do? Say, “I have no idea where you got that figure”? What if the claimant lawyer then says, “I knew it!” Should the misunderstanding be corrected?
The Diamond-LIBOR saga is also a reminder us not only that these things are not uncomplicated they are sometimes played for high stakes. Confidentiality, commercial interest and institutional pressure were all, it appears, brought to bear. Diamond would have and concerns for his obligations to the Company. The BoE and “Whitehall” pressure came, if it did come, out well-founded fears about banking stability. Trouble is Barclays appeared also to make money out of it and, if dishonesty can be proved, a supernova of a fraud may have been the result. Short term gain and long term trouble is one lesson that often appears to arise out of limited honesty. At least if one gets found out.

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About Richard Moorhead

Director of the Centre for Ethics and Law and Professor of Law and Professional Ethics at the Faculty of Laws, University College London with an interest in teaching and research on the legal ethics, the professions, legal aid, access to justice and the courts.
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One Response to Do we have an honesty problem?

  1. David Rosen says:

    An excellent post Richard – not only does the Barclays debacle show how witnesses in these kinds of enquiries are highly coached as to what to say, perhaps these scandals and all the publicity around personal injury fraud etc show a wider societal problem – lying seems to have become acceptable. Is the moral indignation shown partly a case of many feeling somewhat uneasy about what this might say about their own behaviour or a breakdown in societal standards ?

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