| Activity | The Crown Agents' Office dates from 1833. The Agents were then styled the 'Joint Agents General for Crown Colonies' and though appointed by the Secretary of State, bore responsibility direct to the several territories which they served. In 1833 the office had 13 Principals. The Crown Agents were founded by the British government to bring together agencies set up in the eighteenth century by individual colonial governments to purchase stores and invest funds. Subsequently their role changed and they became the British government body which undertook commissions for any foreign government. From 1967 the Crown Agents, whilst continuing their traditional ongoing business as professional, commercial and financial agents to over 100 countries, also became increasingly involved in providing banking services. Concerned by the lack of capital, beyond a tiny reserve fund, and by the possibility that as colonial territories became independent the Crown Agents’ business might wither away, Sir Stephen Luke, Senior Agent from 1959-1968, inaugurated the policy of going into business on the Crown Agents’ own account, to build up its reserves. From 1967/8- 1974 the Crown Agents borrowed heavily in the London money market and then re-lent at higher interest rates to fringe banks and property developers, without having the necessary skilled staff and expertise to assess the risks of such operations and have a real understanding as to what they were doing. The operations of Finvest (Finance Department Investment Account), the Crown Agents’ own account dealing arm, grew rapidly from £58 million at the end of 1968 to £127 million by the end of 1969 through money market operations and property investment. By the end of 1970, the Crown Agents were running what was in effect a banking operation deploying funds of £403 million. This had grown to £472 million by 1973.[5]
A critical article in The Sunday Times on 19 April 1970 by Charles Raw caught the Bank’s attention and both Hollom and O’Brien voiced their concerns to HM Treasury (HMT) over the nature of the Crown Agents’ operations. But this was as far as the Bank pushed the matter believing that having raised the alarm bells it was the government’s responsibility to take things further. In January 1971 the Minister of Overseas Development Richard Wood considered the possibility of an inquiry into the Crown Agents. The next six months were spent in discussions between the Bank, the Ministry and the Treasury over the composition of the committee. The Bank wanted to see a body composed of a senior Treasury official, an executive director from the Bank and someone from the Crown Agents. However, the Bank’s suggestion was rejected and a committee under Sir Mathew Stevenson, a retired civil servant and former permanent secretary of the Ministry of Housing and local government, was appointed to consider whether there was ‘a need for any changes in the status, functions and financial operations of the Crown Agents’. The Bank was later accused of being un-cooperative with the investigation and blame for the Bank’s lack of involvement fell at the feet of J B Page who ‘failed to consider properly the points which needed to be conveyed to the Committee and did not give it adequate information about the Bank’s own enquiries and resulting anxieties’. Fforde also failed to supervise the evidence given by the Bank. The findings of the report which were completed in 1972 were suppressed by the government and not released until five years later in 1977. The committee concluded that the financial management of Crown Agents was competent and proposed four models for the structure of the Group, none of which in the end were adopted.
When the banking crisis hit in late 1973/early 1974 the Bank lent upon the Crown Agents to give assistance to the problem secondary banks. They agreed to roll over loans totalling £45 million to their customers and were also persuaded to lend £15 million to the authorised bank Keyser Ullman and the merchant bank Sterling Industrial Securities. Furthermore the Crown Agents agreed to make or not to call loans and guarantees totalling £26 million to four other groups aided by the lifeboat: First National Finance Corporation, Triumph Investment Trust, the Burston Group and Northern Commercial Trust, all of which were customers of the Crown Agents.
However, the Crown Agents were not immune to the crisis themselves. On 4 April the Bank became aware of the Crown Agent’s involvement in the Stern Group, a large property group, and realised that if this collapsed it would have severe implications for the Crown Agents. The Bank were also informed that the Crown Agents had other large loans in vulnerable companies but the Bank did not warn the Treasury of the extent of the Crown Agent’s problems until several weeks later. On 13 May 1974 a meeting was held in Whitehall to discuss the Crown Agents and due to the fact that the Crown Agents were not a bank and a government responsibility Hollom made it clear that the Lifeboat could not give aid to the Crown Agents. Furthermore, the size of involvement ensured the Bank could not give help by itself and Hollom therefore suggested that support would have to come from the government. In September 1974 John Cuckney was appointed as the new Chairman and asked Henry Benson of Coopers & Lybrand to carry out a thorough examination of the agents. On 27 November the report was submitted and the government propped the Crown Agents up with an £85 million loan and a Bank standby facility of £50 million on 18 December 1974.
In April 1975 a committee of inquiry, chaired by Judge Edgar Fay, was appointed to investigate the circumstances that led to the Crown Agent’s request for government aid. The Fay report concluded that the Crown Agents’ losses were due to incompetence rather than misconduct. No one escaped criticism, including the Bank. The report argued that the Bank should have played a greater part in the affair than it did. Although it had managed to detect early signs of trouble in 1970, it played only a small part in the deliberations of the 1972 Stevenson Committee. The Fay Committee reported losses in Crown Agents of £195.4 million: $42.8 million on the English and Continental Group, £41.2 million on the Stern Group, £33.1 million on Australian property development, £10 million on Sterling Industrial Securities, £8.6 million on Sassoons Bahamas and £6 million on Triumph Investment Trust and G.T. Whyte.
Following the Fay committee a tribunal headed by Justice Croom-Johnson was appointed in February 1978 to apportion blame for the losses incurred by the Crown Agents. After four years the report was published in May 1982. The Tribunal heard oral testimony for 260 days from 98 witnesses and received written statements from a further 8 witnesses. From the Bank, Barnes, Bennett, Blunden, Brearly, Bridger, Dawkins, Fforde, Galpin. Hollom, Keogh, Marshall, O’Brien, Page, Richardson, Atkinson and Boxer gave evidence. A central issue was whether the Bank had any responsibility for monitoring or controlling the Crown Agents’ activities and why action by the Bank, Treasury and the Ministry of Overseas Development was not taken sooner. Both Richardson and Hollom were adamant that since the Crown Agents were a public sector body responsibility lay with the government. Misunderstandings as to who was responsible for supervising the Crown Agents led to confusion and miscommunication between the three groups. Like the Fay committee the tribunal report argued the Bank should have done more. The tribunal report concluded that the Bank failed to inform adequately both the Treasury and the Stevenson Committee of its concerns over the Crown Agents and after the Stevenson Committee reported the Bank gave less help to the government than it should and could have done. The Tribunal report blamed this on the informal and oral nature in which the Bank conducted its work. The failure of different departments within the bank to effectively communicate all elements of information about the Crown Agents and the Bank’s tendency to send inappropriate and insufficiently briefed spokesmen to important meetings were also factors. In response to the tribunal’s findings Richardson released a memo to senior banking staff (head of departments and divisions) outlining proposals for greater improvements in the Bank’s working methods to ensure appropriate flows of information between Divisions and Departments and also with the Treasury. |