Financial scandal is a persistent problem that undermines investor confidence and trust in the financial system. Its perpetrators often exploit loopholes in accounting regulations and vulnerabilities within financial systems, costing investors billions annually. These incidents tarnish the UK’s reputation as a global finance hub and can cost people their jobs and their life savings. They also erode public confidence and damage the integrity of the economy. The scope of financial scandal varies over time, reflecting the nature of economic policy and institutional arrangements, including economic repression, international capital mobility and secrecy, and banking stability.
Some of the largest financial scandals involve large companies. For example, the infamous Enron scandal involved the Texas energy company hiding billions in debt, leading to its collapse and bankruptcies that left shareholders, employees, and pensioners without their retirement funds or stock prices. Another prominent case involves Bernie Madoff’s Ponzi scheme, which bilked investors of more than $65 billion and caused many philanthropic organisations to lose their money, including the Picower Foundation, the Chais Family Foundation, and the Betty and Norman Levy Foundation.
In smaller cases, fraudsters target individuals and small businesses, resulting in a range of consequences from fines to prison terms. The scandals in high street fashion chain Ted Baker and accounting firm KPMG were both based on false financial statements. In KPMG’s case, a series of alleged bribery payments by the auditors led to the company being fined PS2.1 million in 2018.