Financial Crime and the EU Referendum: Was Brexit a Case of Market Abuse?

left to right: Getty Images, Joan Dymianiw/CBC

Market Abuse is a crime punishable by up to 7 years in prison and steep fines.

Why aren’t Boris Johnson, Michael Gove, David Cameron, and Nigel Farage being investigated by the Financial Conduct Authority for Market Abuse? There is strong evidence that Brexit Campaigners and the Tory Party may have committed Market Abuse Under the Financial Services Act of 2012 and/or the Market Abuse Directive.

The Financial Services Act 2012 makes it illegal to mislead the public in order to manipulate financial markets and instruments — in the case of the Leave campaign, the pound currency.

Two types of Market Abuse stand out as relevant to the campaign for Brexit as it was run in the UK in 2016.

Dissemination: Giving out information that conveys a false or misleading impression about an investment or the issuer of an investment where the person doing this knows the information to be false or misleading.

Leave campaigners have stated on television and via printed materials that £350 million was sent each week as part of British EU membership, a figure that has since been recanted by the Leave campaign.

They have also stated that Turkey is set to join the EU in the near future, a deliberate action in order to incite fear in the public and prompt a Leave vote, despite a 2015 Commission Report on Turkey highlighting serious blocks to the accession of Turkey including a poor human rights record, limits to free expression and administrative issues. As of April 2016 it appears that Turkey hadn’t even begun the Chapters 23 and 24 assessments which would have tested these very issues, a test that at present Turkey would most likely fail. The EU has also said publicly that no new country will join in the next five years. In addition, leaflets were distributed to homes highlighting Syria, implying incorrectly that this was also a future candidate for the EU.

Leave campaigners have also falsely reassured the public that little would change economically and politically for Britain in the event of a Leave vote, dismissing the testimony of multiple financial experts as “project fear”. Leave campaigners were already aware that both the climate in Brussels and the economic realities of an interconnected economy would make the consequences of leaving severe, and that they were knowingly misrepresenting this to the public.

These examples of misleading the public meet the criteria of “misleading impression” , one calculated to prompt the public to vote Leave, which would in turn have a destabilising effect on the already falling pound.

Distortion and misleading behaviour: Behaviour that gives a false or misleading impression of either the supply of, or demand for, an investment; or behaviour that otherwise distorts the market in an investment.

The factually false claim that we send £350 million per week to the NHS been crucial in convincing the public to vote leave. Nigel Farage, immediately after the referendum, publicly announced that £350 million would not be secured for the NHS by leaving the EU. This was not an announcement made after a careful reassessment of the facts — Farage behaved as if he knew this all along.

By creating an illusion of the EU being a direct cause to the NHS cuts recently experienced, the Leave campaign created enough of a link to win public confidence that exiting the EU would save a considerable sum of money. Despite being publicly declared as false, this figure still remained in the minds of referendum voters, with 47% of the public still believing that this figure is true, despite public admissions that this information is false. This deliberate distortion had a direct impact on the Brexit vote, which in turn has an immediate impact on the valuation of the pound currency.

Though he campaigned for remain, Tory PM David Cameron has changed positions on the EU referendum more than once, winning his 2015 election on the basis of calling an EU referendum, but then supporting remain.

David Cameron was well aware that the public do not trust him. In May it was reported that an opinion poll showed only 18% of respondents trusted David Cameron on the EU. Despite this he continued to campaign personally as the face of the Remain campaign with multiple television appearances, knowing that this would push the public further toward the Leave vote that would destabilise the pound currency.

Nigel Farage and other members of the Leave campaign has been spearheading the Leave campaign’s assertions that leaving the EU could “save the NHS”, with paid advertisements proclaiming that the money saved by leaving the EU could be put back into our national health service which has suffered badly under the austerity government. This premise has been proven as completely false. The value of the pound has dropped to 1.39 on the dollar, nullifying any potential for economic savings as a result of Brexit. Only a few months before the referendum, Nigel Farage himself has advocated for the replacement of NHS within a ten year period with a private health service, so this is a blatant misrepresentation of both his views and the possibility of an improved NHS under Brexit.

All of these misrepresentations, whether knowing or recklessly indifferent, were a coordinated effort to destabilise the pound.

Motivation: Why Devalue the Pound?

If you have a rapidly rising sovereign debt, or debt that a nation owes, and it is in the pound, a quick way to make it cheaper to pay it off is to devalue that pound.

The UK currently owe over £1.6 trillion — at least £1,609,355,950,000 at the time of writing this article. If the counter provided by the above link is any indication we appear to be accumulating more debt at the rate of £1000 per second. This is a staggering amount of debt to accumulate in the midst of an austerity government meant to prevent the disintegration of the UK economy. The consequences are dire — not only do they reveal the scale of mismanagement in UK government, but they illustrate that austerity as a model does not work.

The public have bore tremendous public cuts in the name of austerity. Over 60 cities throughout England have had vital hospital services downgraded or closed down completely, and a further £1.1 billion in cuts are planned in 2017. Austerity measures that have punished the NHS and affected the British people have done nothing to balance spending, providing only the illusion of an economic solution while debt continued to spin wildly out of control.

So, the Tory party have much to gain from the event of this Brexit. They have maintained control of the PM position — avoiding the calls for re-election that would have happened had David Cameron not step down. And, they have successfully devalued the pound, making the UK sovereign debt easier to pay off. By calling for a Brexit, succeeding, and devaluing the British pound, it matters less at this point whether or not we actually exit the EU — whoever becomes PM will have benefited from the market manipulation that has already occurred, even it the British people will suffer for years to come. It is also worth investigating which members of the government, party officials, and public figures made investments that would profit from a falling pound, as this would also be in violation of insider trading rules connected with this market abuse.

There is a Precedent for This — The FCA Regulates Currency Trade and Has Already Investigated Foreign Exchange Misconduct

Since investors regularly trade in currency, it is considered a financial instrument. In 2014 the FCA imposed 1.7 billion in fines on major banks for foreign exchange failings, so we already know that the FCA considers currency as as regulated market, and that they are willing to take action where misconduct has occurred. The FCA have already come out and said that the Brexit vote will have “serious implications”, so hopefully an investigation is already on the table.

Under section 89 (“Misleading Statements”) of the Financial Services Act 2012, subsection (2) the following are listed as offenses (paraphrased):

  1. Making a statement known to be false or misleading in a material respect
  2. Making a statement known to be false or misleading, recklessly, without concern for whether it is true to not
  3. Dishonesty concealing material facts in connection with false or misleading statements already made

What this means is that, to commit an offense, you do not need to knowingly and maliciously mislead the public; it is enough to be reckless with the truth, or to be complicit and conceal information that would dispel the wrong impression given to the public. By these tests it there is enough cause for an investigation into whether or not the Leave campaign and Tory government have committed Market Abuse.

In order to apply, the statements have to be made to induce a person to either enter into, or not enter into a financial agreement. In this case, that means affecting the decision of potential investors to either invest in, or not invest in the UK currency: the British pound. The campaign for Brexit definitely dissuaded investors from investing in the pound — enough to downgrade the UK credit rating.

Consequences for Market Abuse under the Financial Services Act 2012 and Market Abuse Directive

Both organisations and individuals are accountable for market abuse, and there are serious consequences for violating the Financial Services Act 2012 and Market Abuse Directive. According to this act, the consequences for the offense of Market Abuse include up to 7 years imprisonment and a fine.

We need to demand that political leaders and public figures are held accountable to the same laws as the people. The FCA need to seriously consider an investigation into whether the Leave campaign and Tory government committed Market Abuse by manipulating the value of the British pound.