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BRIT. J. CRIMINOL. (2006) 46, 10731090 Advance Access publication 7 September 2006 REGULATING THE MORAL ECONOMY

LAW, MORALITY AND REGULATION Victorian Experiences of Financial Crime

SARAH WILSON* This paper examines Britains experiences of financial crimes during the second half of the nineteenth century, but it focuses on the actual processes of criminalizing business activity which have been largely neglected by scholars. Through reference to three key criminal trials dating from 1850 to 1880, observations are made on the ways in which Victorian concerns about business activity translated into responses to financial crime. In doing so, the paper considers how the directions taken in these earliest proceedings can cast light on Victorian understandings of the problem of financial crime.
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The study of fraud has fascinated scholars in the late twentieth century. In many respects, its essence is difficult to pin down, but it has become a byword for financial dishonesty and its associated rhetoric of deceit and seeking gain, in the discourses of scholars and policy makers alike, and also in more popular lay understandings of crime. While fraud is committed throughout socio-economic groupings across society (Levi 2002: 149; Karstedt and Farrall 2004), this paper is concerned with financial dishonesty which occurs within the area of corporate malefaction (Levi 2002: 149), and in circumstances under which the deceit perpetrated is most commonly attached to alleged misappropriation of business assets or false representations of them. This can be illustrated by reference to high-profile scandals such as Enron and WorldCom, and the affairs of disgraced media tycoon Conrad Black, with these examples also pointing to the topicality of fraud and to its global significance (see also McBarnet in this issue). Equally, there is much concern in British legal circles about the ability of the criminal justice system to deal with crimes committed in the commercial sphere (Law Commission 1999). In academic study, the interest shown in what has been proclaimed the modern crime par excellence (Levi 1987: 1) has given rise to a body of scholarship which is richly textured from contributions across numerous social science disciplines. Insight into why fraud might be considered the modern crime par excellence can be gleaned from the way in which, actually, it is a mistake to view it [fraud] as a new phenomena, on account that frauds that would be considered substantial had they occurred today were carried out in the nineteenth century (Levi 1987: 1). This is because, notwithstanding, for many, the special risk of fraud arises from the combination of its base elements of deceit and securing of advantage or causing loss (Kirk and Woodcock 1997: 1) with the social and economic conditions of the late twentieth century. This is particularly so on account of technological developments which bring with them not only the scope to invite new types of crime, but which can make old kinds of crime more freely available (Levi 1987: 3).
* School of Law, Keele University; s.j.wilson@law.keele.ac.uk.

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An appreciation of fraud as the modern crime par excellence also appears from examining key policy movements in relation to financial crime. As part of an extensive enquiry into the criminal law relating to fraud, culminating in the Fraud Bill 200506, the Law Commissions 1999 Consultation Paper Fraud and Deception emphasized frauds ability to evolve, quickly and in a fast-changing world, and the difficulties that this presents for the law to be able to keep up, let alone stay one step ahead (Law Commission 1999: 1). Moreover, the Law Commissions remit was actually framed closely in reference to the impact of technological advances which have ensured the acceptance of electronic means of communication and commercial transaction as commonplace (Law Commission 1999: 2). Indeed, the Law Commission communicated the consequences of failing to address the problem of fraud in light of this through reference to the assessment that business fraud is a growing problem that affects everyone . . . . The cost to the country is huge in terms of those who have to pay for it and the loss of reputation as a safe place to do business.1 The Law Commission also made reference to reflections on why the ability to respond effectively to major fraud is a priority of the highest to the current New Labour Government. This included former Lord Chancellor Lord Irvines lament that in recent years the public has at times felt that those responsible for major crimes in the commercial sphere have managed to avoid justice. Even when the fraud is detected, the present procedures are often cumbersome and difficult to prosecute effectively (Law Commission 1999: 2). This comment reveals sensitivity to beliefs that successful prosecution is being marred by perceptions that there is one way of dealing with blue-collar crimethe burglars, the car thieves and the armed robbersand another, much softer option, for the more sophisticated suits who . . . get away with millions (Wright 2000). Mirroring these concerns, academic scholarship suggests that while fraud spans the activities of blue collar credit card fraudsters to elite insider dealers, and victimizes the poor and elderly [and] wealthy institutions (Levi 2002: 149), it is the respectable offender who provides the most interesting illustration of why and how fraudsters frequently are not perceived as real criminals (Ashe and Counsell 1993: 178) and who demonstrates the difficulty of mapping financial crimes onto law and wider regulatory frameworks. This paper argues that while the workings of late twentieth-century social and economic conditions may well have transformed fraud into the modern crime par excellence, that Britain became acquainted with financial crime in its true modern sense during the nineteenth century. There is much persuasive evidence within established historiography, and especially contemporary accounts, which documents recognition of financial activities that caused discomfort in a manner which was modern inasmuch as unease generated appears very similar to concerns of today. Through analysing three key Victorian fraud trials, this paper identifies concerns relating to scale and extent of perpetration believed possible, alongside understandings of the considerable capacity financial crime has for inflicting societal damage, both economic and social in nature (see Bequai 1978). In respect of the former, this paper explains how the nineteenthcentury rise of industrial capitalismwhich brought about earliest mass market opportunities for making money through private investment2also encouraged
News Release (2 February 1998) of the Institute of Chartered Accountants cited in Law Commission 1999. What distinguished the middle years of the nineteenth century from the earlier canal-building projects of the eighteenth and early nineteenth centuries (see Perkin 1971) and even the infamous South Sea Bubble scandal of 1719/20 was that the midnineteenth-century growth of capitalism was crucially dependent upon purveying investment opportunities to a much expanded shareholding class. This opened up opportunities to make money further across society than had been the case up to that point.
2 1

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financial crimes to be perpetrated on a scale of considerable potential reward, as a widely expanded share market allowed dishonesty to flourish across a number of new financial interests. It also points to concerns that such occurrences could threaten consolidation of the City of Londons reputation as the pre-eminent international financial centre (Kynaston 1994: 23). There is evidence, too, of discomfort relating to the equal application of the criminal law, and the need to ensure that a mans wealth and power do not put him beyond punishment (Levi 1991: 268). The thesis of George Robb (1992) that financial fraud in Victorian Britain arrived with big business is an obvious starting point for this paper. Robb suggested that the arrival of the railway company transformed the importance of the joint-stock company (the earliest modern company) within the economy in such a way that it allowed financial fraud to thrive. This was partly on account of the growth of corporate business within the economy alone, but it also arose from the changing nature of company structures themselves within this context. As corporate business itself proliferated, businesses became larger, and this placed ever greater distance between investors providing capital and those managing business decision making. Monitoring directors became increasingly difficult, while reduced opportunity for detecting derelictions of duties allowed incompetence to flourish, and, in some cases, actually provided incentive to partake in fraud (Robb 1992: 3). Robb was inspired by Harold Perkins earlier proposition that [f]rom the railway mania of 184647 onwards the investing public was compulsorily educated in a whole new world and vocabulary of ingenious crime, which could only be perpetrated by business men and by large, prominent, wealthy or at least credit-worthy business men at that (Perkin 1969: 442). However, very little attention has been paid by scholars to the actual processes of criminalizing business behaviour. In response, by examining key indices of Britains economic history from the 1840s and fraud trials dating from the 1850s, this paper proposes that earliest responses to financial crime reflected two key factors which characterized its occurrence. It is suggested that responses became shaped by the way in which acts of financial dishonesty were occurring within the environs of a transformed, and increasingly liberalized and yet under-regulated economy, while the perpetrators of these activities were largely drawn from the cream of a very tightly configured social structure which was regulated by morality and class. The Victorian Discovery of Financial Crime Witnessing the rise of the railway company, The Times financial journalist, D. M. Evans, observed alongside this increasing dishonesty in commercial practices. In suggesting that this phase represented the discovery of high art crime, which Evans himself also called financial crime (Evans 1859: 5), his work also pointed to contemporary appreciation that crimes of deceit were deeply embedded within British society. Evans asserted that [f]rom time immemorial clerks have been discovered embezzling the property of their employers. He also explained that forgery had been one of the most vigorously enforced capital crimes of the eighteenth century, and that societal adulation at the arrival of a more liberalized penal regime in light of declining capital punishment was more than a little qualified by the increase of dishonesty that has followed the mitigation of the law (Evans 1859: 1). Furthermore, his appreciation of the South Sea Crisis of 1719/20 is implied in his reference to the endurance of bubble 1075

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companies (Evans 1859: 12). Notwithstanding, Evans insisted that for contemporary society, the 1840s had given rise to something quite new and unprecedented. Writing retrospectively in 1848 and 1859, and narrating the rise of the railway company, and the increasingly visible appearance of Britains railways, Evans suggested that the age of modern speculation had truly begun in the 1840s. However, according to Evans, the very same motivations of the modern speculator (to make money easily and in a hurry (Evans 1859: 1)) would also ensure the inauguration, development and rapid progress of high art crime (Evans 1859) through the activities of those keen to exploit such exciting times. It was the joint-stock company which provided the legal choice of form through which the big business of the railways was pursued. For capitalists, the issue of shares for a small deposit, and gradually calling up the remainder of the value of the share as the companys progress demanded (Reed 1969: 164) provided a system of available credit and capital for financing projects. But the purchase of shares was also very attractive for investors, and a fully paid-up share was a natural means of investment for a person wishing to earn a regular return on his capital (Reed 1969: 164). Equally, a newly issued share with no immediate prospect of a dividend attracted speculators anxious to make quick gains as the shares fluctuated in price with external pressures (Reed 1969: 164). For the Victorians, construction of Britains railways was the most ambitious capitalist project ever but, with no state funding, the unprecedented financial costs had to be met entirely by private investment. This would require investment to reach a much expanded, and thus entirely new, target audience. Railway companies were able to achieve this by offering higher returns than alternative counterpart government bonds, and also through emphasizing possibilities for considerable personal wealth (Evans 1859: 2; Pollins 1954: 233), thus providing opportunity capable of turning even obscure individuals without trouble, and as if by magic, into millionaires (Evans 1859: 2). Central to the 1840s booms financial success was that a sequence of good harvests had flooded the market with surplus capital. This combination of financial optimism with promised high returns from railway companies ensured that promotions of new companies were received enthusiastically, and, accordingly, the price of subscriptions rose steeply in 1844. However, those who sensed the excitement of this intense stock market activity, and the desperation of investors to make money, promoted empty and asset-less bubble companies alongside legitimate rail schemes. These structures fraudulently mimicked the bona fide projects (Kostal 1994: 4852) and had been a notorious but effective device for gulling and cheating since the South Sea Bubble Scandal. In turn, this encouraged the spread of the evil and plethoric speculative mania (Evans 1848: 12) which ultimately precipitated the 1845 share market panic. In September 1845, The Bankers Magazine warned that as many as three-quarters of investment opportunities were not intended to devise good lines of railway, and, instead, sought to rob and delude the public . . . and swindle their subscribers . . . by squandering and embezzling their deposit-money (Evans 1848: 14). This warning also intimated that distinguishing fraudulent schemes from genuine opportunities would not be easy because the involvement of professional engineers and lawyers in the former made them appear very convincing. There were also reports that the appetite for speculation was placing considerable pressure upon legitimate and appropriately capitalized schemes. In this latter situation, there was suggestion that faced with intense competition in attracting investors and also the huge capital consumption of their own 1076

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projects, investment prospects were frequently over-valued in order to entice investors. Whether this was actually the case (and, indeed, whether such a high proportion of schemes were bogus) is virtually impossible to ascertain, but for an excited and yet desperate, and also increasingly unsettled, investing public, such claims would add further to the vagaries of stock-market participation. By October 1845, panic ensued, and the crisis loomed (Kostal 1994: 289). The Legal Aftermath of the 1840s Railway Boom and the Birth of Modern Fraud The panic which preceded the crash in the market was characterized initially by desires on the part of investors to get out of investments already made, but this quickly spread, and serious concerns about the future of capitalism and capitalist investment started to reveal themselves. Even promising new undertakings commanded little premium and very quickly became discounted, and, at one point, the registration of new projects was actually suspended altogether for a period (Evans 1848: 20). The panic generated a hurricane of litigation (Kostal 1994: 53109) which was most clearly characterized by disputes between company directors and disgruntled shareholders for whom promised returns had not materialized. However, investors in genuine undertakings which were still potentially profitable also became anxious and initiated actions to withdraw from their shareholdings. Thus, this period was dominated by issues arising from the legal position of investment and attendant ones of ownership of and liability for shares, and decisions both in favour and against shareholders resulted in desperate confusion (Evans 1848: 27) which destabilized the market still further.3 It was becoming increasingly apparent that the whole fabric of speculation found itself shaken to its very centre (Evans 1848: 21). The discovery of conduct which had created serious alarm for the future (Evans 1848: 18) in the City was crucial for placing pressure upon the criminal law to protrude into business and commercial activity. It helped to shape perceptual appreciation of business activity as being capable of amounting to criminal activity, and even growing belief that some business activities should be criminal. This is what constituted the Victorian discovery of financial crime, with impetus also arising from repugnance that such activities implicated the respectable in ways which traditional crimes rarely had (Wiener 1990: 244). Although the immediate aftermath of the crisis gradually subsided towards the late 1840s, business crime trials started to materialize during the 1850s, perhaps altering peoples perceptions of the ambit of the law, particularly the criminal law, in relation to business activities. Earliest manifestations of the perceived need for criminal liability became apparent from 1846, when some company directors became the subjects of criminal investigation on account of their activities during the boom (Evans 1848: 33). These formal enquiries into directorial conduct were important demonstrations of intrusion into business dealings, and into the traditionally private province of the gentlemans agreement. Contemporary accounts reveal that the forum for these crucial first steps towards criminal proceedings was most commonly shareholders meetings. While the proposition of shareholders as criminal investigators does not resonate with current
3 The most comprehensive account of the nature of railway litigation can be found in Kostal (1994). This explains and illuminates the key cases and the significance of their outcomes in detail which is not possible in this paper.

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understandings of criminal procedure, the private system of prosecution in nineteenth-century Britain left victims of crime to pursue criminal proceedings. In the corporate context, victims were likely to be aggrieved shareholders (whom company law would increasingly regard as a companys owners) and possibly creditors. It would take many years (coinciding with an increasingly public system of prosecution) for policing resources for fraud investigation to reach requisite numbers and expertise. However, within this private context, there is evidence pointing to involvement from City interests4 of a collective nature, which appear to have been very powerful influencing forces in determining the shape of responses to financial crime, and even actual cases themselves. Beyond the Immediate 1840s Crisis, and the Shape of Responses to Fraud The Railway King, George Hudson, who famously held substantial interests in many of Britains railway schemes (Simmons 1961: 19), was one of the earliest subjects of official investigation. Hudsons reign had collapsed following repeated exposures of his shortcomings in his railway company dealings, and although he was never criminally charged, in 1846, calls were made in Parliament for his reckless speculations to be brought to an end. Hudson responded to his critics by proclaiming that the system of which he saw himself a product wasin his own wordswithout rule, without order, without even a definite morality, and was one which implicated manyand especially greedyshareholders (Mountfield 1979: 678). Notwithstanding this defence of operating within a context lacking rules, order and even morality, by the end of the 1840s, many prominent businessmen were forced to explain and even justify their actions before official committees, and this was a crucial development in exposing enterprise to ever greater scrutiny. During the 1840s and 1850s, company business was starting to attract an increasingly public profile more generally. The development of capitalism required company formation to be encouraged and the legal processes to be facilitative, but there was also appreciation that facilitation would increase scope for abuse, such as by encouraging easier bubble formation. Thus, the Joint Stock Companies Act 1844 facilitated incorporation by introducing a simpler process of registration (to replace in many cases the traditional methods of grant of Special Act of incorporation or Royal Charter), while it sought to protect against abuse via disclosure requirements5 and some degree of regulation. This was a very important policy change because company formation had effectively been outlawed for over 100 years until 1825, following the South Sea Bubble scandal of 1719/20. As part of its regulatory remit, the 1844 Act even recognized opportunities for fraud directly through provisions which rendered a misdemeanour the commission of wrongful acts or omissions intended to defraud the
4 This term is meant to mirror the emergence of the City of London as the pre-eminent international financial centre by the close of the eighteenth century, and the developments beyond the great surge of British commerce which helped to define this City power. Here, the City emerged as a formidable economic but also increasingly political powerbase and A World of its Own (Kynaston 1994) through the compact of landed aristocracy with capitalists. This articulation of City power examines how this might have operated in earliest responses to financial crime during the nineteenth-century rise of industrial capitalismlong before the City was A Club No More (Kynaston 2001). 5 The Act created the office of Registrar of Companies with whom particulars relating to a companys constitution and annual returns of information (including a balance sheet statement of assets and liability) had to be lodged.

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company or any shareholder, and the falsification of or erasure from, or mutilation of, corporate documents. This policy was extended to Trustees, Bankers, and other Persons entrusted with property by the provisions of the Punishment of Frauds Act 1857. This was designed to catch the activities of those who were beyond the reach of the 1844 Act; in the corporate context, this included officers of railway companies and banks, because these businesses were not permitted to incorporate under the 1844 Act. For railway companies themselves, their formation was ostensibly very strictly regulated by the requirement of a Special Act of Incorporation for each new proposed scheme. This process was extremely slow, requiring petitions to detail clearly every aspect of the intended construction project to the satisfaction of numerous Parliamentary Committees, to ensure that the undertaking would actually meet a public demand. For those who flocked to invest in the railways during the 1840s, this process could well have (mistakenly in many cases) appeared as a safety check upon potential undertakings (see Wilson 2003), but, by 1846, the enactment of the Railway Companies Dissolution Act reflected the changed focus upon railway companies from promotions to liquidations (Davies 1997: 38) following the crisis. For investment confidence more broadly, exposures from the boom were key to acceptance of financial crime within Victorian consciousness, pursued through criminal proceedings dating from the 1850s. At one level, the origin of these business crime trials lies within a culture of private prosecution which ostensibly left the pursuit of criminal proceedings to victims of crime. This is far removed from current understandings of the role of the state in protecting citizens from harm, which defines the unique character of the criminal law, and helps to distinguish it from civil wrongs such as commission of a tort or breach of contract. Furthermore, there is some evidence that decisions to bring cases to trial did not always actually lie in the hands of individual victims, and a number of key trials appear to have been originated by and thereafter overseen by some kind of collective City operation. By the nineteenth century, collective approaches to prosecution were well established accompaniments of the private system, and the collective dimensions of apparent City involvement in the fraud trials shared certain similarities with prosecution associations of the eighteenth century. Prosecution associations allowed the costs of prosecution to be shared by a community rather than borne by an individual victim,6 thus recognizing the wider impact of crime. In this spirit, the City involvement apparent in the fraud trials suggests motivating forces of exposing and castigating conduct which was capable of adversely affecting a number of interests (Wilson 2003). Notwithstanding the influences which interests from outside the criminal process (individual or collective) might have been able to bring to bear, there was express endorsement from within the fraud trials themselves of numerous and very clear public interest dimensions of business crime. All three trials examined reveal endorsement for the use of the public space provided by the criminal court for deliberating degrees of unacceptability and unlawfulness in company promotion and management as important matters of public concern. With very clear resonance with the aftermath of the railway boom, the trials addressed many questions concerning financial marketplace values. This was pursued through discussions on the integrity of structures (especially the corporate form) and
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See, e.g. Hay and Snyder (1989).

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financing (principally investment with limited risk controversially achieved pursuant to the Limited Liability Act 1855), and also the conduct of company officers. Here, the trials sought to identify commercial behaviour and practices which were not acceptable in modern capitalist Britain, and which should incur liability in (civil) law,7 and others which were so hostile to its emerging business culture and ethos that they should actually attract criminal liability. The Earliest Modern Fraud Trials: The Influence of the Railways in Shaping Earliest Responses The three trials examined all date from between 1850 and 1880 (with this period of earliest responses also including the case of John Sadlier MP, whose frauds brought down the Tipperary Bank in 1855, and the Great Northern Railway frauds perpetrated by Leopold Redpath, resulting in his trial in 1857). The trials examined all arose from banking scandals, and they illustrate the emphasis placed upon financial crimes public dimensions and its perceived capacity for societal destructiveness. Their appearance and directions also illustrate the different ways in which criminalizing business would present a number of difficulties. The first trial dates from 1855, when three London bankersStrahan, Bates and Paul8were tried and convicted for the embezzlement of monies entrusted to them as bankers, and sentenced to 14 years transportation accordingly. This trial illustrates responses to capitalist crime utilizing the most conventional and uncontentious use of the criminal law, because embezzlement had been comparatively well established in criminal law since the 1820s. Two later trials illustrate the way in which, to be effective, the criminal law would have to extend its ambit to innovations in deceit which did not always involve actual (mis)appropriations of property. The Royal British Bank trial in 18589 and the City of Glasgow Bank trial in 18787910 are highly significant in a number of ways, and illustrate the creative nature of legal responses across Britains legal cultures, drawn from English law and Scottish law, respectively. Closely connected with this, they also bear a number of similarities to one another, including the circumstances surrounding the two institutions cession of payment in 1856 and 1878, respectively, amidst concerns about mismanagement. In both cases, there were rumours and speculation that the directors had made inappropriate and unsecured advances and loans using business assets, and then sought to cover this by making falsifications on published balance sheets. Accordingly, the very similar charges on which both sets of directors were indicted reflected alleged intention to misrepresent the true financial health of the institutions. All directors were convicted, which, in the Royal British Bank trial, resulted in sentences of imprisonment of between three and 12 months,
7 The most obvious form of civil liability was contractual arising from the rights and obligations attendant of shareholdings or from being a (banks) customer, etc., while liability in equity was also becoming highly influential in nineteenth-century constructions of directorial responsibility. There was also potentially liability in tort, but its development was staunchly resisted in early company law (with this position also appearing to be reinforced in the criminal trials). 8 All quotations are from the trial of Strahan, Bates and Paul (1855) at the Central Criminal Court London on charges relating to their embezzlement of moneys entrusted to them as bankers, as fully transcribed in Evans (1859: 12545). 9 All quotations are from the trial of the Directors of the Royal British Bank on charges of conspiracy and intention to misrepresent and to deceive the true state of the banks financial health to its customers and to its shareholders, and the public at large, before the Central Criminal Court London, 1858, as fully transcribed in Evans (1859: 280390). 10 All quotations are from the trial of John Stewart and others (directors and manager of the City of Glasgow Bank) at the High Court of Justiciary, Edinburgh, January 1879, archived in the Glasgow Business Archive Centre, Classification UGD 108.

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while the City of Glasgow Bank directors received custodial penalties of between 12 and 18 months. These two latter trials also illustrate the issues for prospective criminal liability raised by business which was conducted on the joint-stock principle, based on shares which were fully transferable. Increasingly, businesses were incorporating so as to be able to raise larger capital funds through investment, whilst it was believed that this arrangement would also promote security through the presence of numerous directors acting as a check upon the activities of one another (Robb 1992: 20). This latter mechanism was seen as an important one to prevent fraud, and, furthermore, actually that divisions of responsibility would encourage good practice. In the banking context, the theoretical benefits conferred by this choice of form are clear when contrasted with the alternative private bank set-up. In this latter arrangement, an owner/manager would have sole control of bank funds, with the affairs of Strahan et al. illustrating the problems which could arise from this position. Thus, the Royal British Bank and City of Glasgow Bank collapses questioned seriously the safety and efficacy of the joint-stock system, and their criminal trials help to explain why vindication of the safety of the capitalist system and its structures became central to Victorian understandings of financial crime. These latter trials also reveal considerable appreciation that the potentially criminal activities brought to court were not necessarily ones deliberately initiated with dishonest design and purpose, like the obvious bubble scheme. The trials had to consider financial dealings which were not necessarily fraudulent themselves but were capable of precipitating a second-order dishonesty whereby [a]ccording to all outward seeming, every ordinary incentive to wrong-doing was wanting (Evans 1859: 111). In such situations, it was often not till the last moment did it appear that there had been either extravagance, ignorance, or mismanagement, in the usual sense of the terms (Evans 1859). Such situations were most common in the context of struggling businesses in which the motivation was often to prevent insolvency rather than to increase directors own shares of profit (Evans 1848: 12). Indeed, whilst the trials did castigate most harshly behaviour with dishonest design and purpose, there was also recognition that all dishonesty could have catastrophic consequences. Crucially, the trials had to approach such situations in the absence of existing legal standards and even benchmarks of codes of conduct. In response, the trials sought to create, and thereafter foster, through the use of criminal law, norms of honesty and also responsibility in business dealings.11 The criminal proceedings suggest realization that this was not going to be straightforward, and recognition that financial crime could be highly complex. In the language of primary and secondary dishonesty (see Nelken 1994), trials from this period did confront alleged frauds arising as a secondary consequence of business decision making which appeared legitimate but which had gone wrong, precipitating the desire to conceal this and to try to save the business. Here, the trials had to manage
11 Even in these circumstances, the standard for criminal liability was to be intention rather than criminal recklessness (which is founded upon the awareness of and running unreasonable risks, and which does allow criminal liability to be incurred in absence of criminal intent). This was consistent with the criminal provisions of the Joint Stock Companies and Punishment of Frauds Acts, which required guilty acts to be committed in the presence of fraudulent intent to incur criminal culpability. Although the relationship between the trials and (particularly the 1857) legislation is not clear, the requirement of fraudulent intent can be tied in with wider contemporary difficulties of mapping criminal law onto business activitiesespecially the essence of risk-taking for enterprise, and also the absence of any clear standards, let alone established ones, in business environs.

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appropriately the (often) unforeseen and indeed unintended consequences of risk-taking, while appreciating its essence. Risk-taking would give rise to the Victorian dynamic entrepreneur (Pettet 2001: 173), which, in turn, would have to be reflected in any declarations that entrepreneurial behaviour was capable of amounting to criminal behaviour. In addressing this, trials from this period show consideration of numerous boundary issues, including ones arising from direct borrowings and, more commonly (particularly in relation to banks), making advances via credit facilities. Equally, there were also questions flowing from investment projects which were irresponsible and from others which were just unlucky. Fraud, the Criminal Law and Business Morality: The Significance of Esteem and Respectability All three trials point to the need to create appropriate discursive and also operational spaces which would celebrate the essential activities of the dynamic entrepreneur but would place limits on legitimate risk-taking in business decision making. Thus, at one level, the realities of criminal proceedings against business defendantsconveying that engagement in business had to be both honest and responsibleensured that it was difficult to avoid exploring occupational shortcomings. However, the manner in which these considerations occurred can also cast important light on earliest understandings of the problem of financial crime. In Strahan, Bates and Pauls trial, the defendants high social status was central to the way in which prosecuting barrister Mr Bodkin opened the committal hearing prior to the trial at the Central Criminal Court, alleging that the prisoners had been reduced to the position of common felons. Reflecting on the appropriateness of the maximum sentence of 14 years transportation carried by the offence alleged, Mr Bodkin insisted that if occurrences this serious were not visited with the greatest severity of punishment, the consequences to society would be too alarming to contemplate (Evans 1859: 117). In this vein, the prosecution alleged that the bankers had engaged in the desperate and guilty expedient of resorting to the securities they held in their hands, belonging to their customers to meet the necessities of the hour. According to the prosecution, this had resulted in those who were held in highest estimation, and who, alongside their own considerable wealth, enjoyed the unlimited confidence of those whose fortunes had been entrusted to their keeping, betraying this elevated position. This trial also alluded to concerns extending beyond the abuse of trust committed by the high-status individuals actually before the court. Numerous references were made to the maturing capitalist economy, through stern messages against over-extension and irresponsible venturing more generally. Thus, the warning given by the prosecution against indulgence in ill-considered enterprises, and to repair losses in the hope of making them good by another venture shows that even clear cases of embezzlement were capable of asserting norms of responsibility as well as honesty. In 1858, the directors of the collapsed Royal British Bank appeared before the Central Criminal Court on charges of conspiracy, and intention to deceive customers, shareholders and the public at large by misrepresenting the true state of the banks financial health. This trial was acknowledged by presiding Lord Campbell as the first . . . of this nature. In opening the case, prosecutor Sir Frederick Thesiger explained how the directors had mismanaged the bank, and brought it to a state of near insolvency, and thereafter, by a series of frauds and misrepresentations, sought to conceal 1082

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this. Thesiger contrasted illusion and reality and also asserted the very public nature of commercial activity by linking the consequences of the directors conduct with the charges they now faced: [w]ide-spread ruin has been scattered over the whole of the country, houses have been brought to destruction, families have been plunged from affluence into poverty, the hard earnings of industry, collected by long labour, have been entirely lost. The economic consequences of business failure were very prominent, but, in a similar vein to the trial of Strahan et al., they were framed very strongly with reference to reputation and trust and also betrayal. In the Royal British Bank directors case, this arose in the very direct question of [w]hat then, was the conduct of the directors, and how had they fulfilled their trust?. This approach was also adopted by the Lord Advocate in prosecuting the City of Glasgow Bank directors in 1879 at the High Court of Justiciary in Edinburgh on virtually identical charges. It was alleged in this case without precedent in Scottish law that directors entrusted with millions by the public were men of reputation (if a man has a bad reputeyou will never find him in the position of a director of a great bank) who thereby had been able to work that wreck . . . which has befallen the City of Glasgow Bank. References to respectability and reputation were also very important to those who defended and, unsurprisingly, they appear to have been directed towards helping to distance individuals on trial from criminal liability. In Strahan et al., Sir John Pauls defence emphasized his position of unquestioned integrity and honour, and, similarly, John Stewarts defence drew attention to the long, useful and honoured life that he led prior to the City of Glasgow Banks demise. Given the strongly held societal (and, in the age of Lombroso, also criminological) belief of the time that it was from particular classes that common felons were drawn, such an approach would continue to polarize respectability and criminality and maintain the illusion that socially dangerous and unacceptable activity was predominantly the province of the lower orders (Norrie 1993: 856). Unlike prosecutors who sought to link respectability with honest and responsible behaviour (see Wilson and Wilson 2001; Wilson 2003), defence counsel concentrated on coupling respectability with very limited commercial expertise. The defence of Royal British Bank director John Stapleton was tightly crafted around his good family background, and the way in which he was what the jury would well understand was meant by the term a West-end Director,12 and even that at the time of his appointment, he was utterly ignorant in banking. Such allusions to lack of commercial literacy were then grafted onto pleas of momentary rashness and desperation, to undermine any accusations of fraudulent intent, and especially personal gain (see Wilson 2003). For defence counsel, the conduct of a respectable businessman may have been imprudent, irresponsible, naive and even sinful, but it was not, and stopped considerably short of being, criminal. If the jury were to accept the defence account of ignorance, the key issue here would be whether taking money for serving as a director in an arena about which you know nothing could be seen as criminally blameworthy.
12 This was clearly a reference to the culture of corporate window-dressing during this period of industrial capitalism. This ensured that alongside directors who were responsible for business decision making were others whose presence on the board was designed to enhance a companys profile to make it more attractive as an investment prospect. These were people who added (or, in some discourses, lent or even sold) their esteem and repute to a new undertaking to enhance its profile. This reference to the West-end was one of the more diplomatic titles given to such people and, in other discourses, they can equally be seen referred to as guinea-pig directors or even dummies.

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The operation of this proposition is not entirely clear, but, in the Royal British Bank trial, Stapleton was convicted on the basis that he acted with (merely) some knowledge of the institutions imminent insolvency. However, the way in which he was fined and discharged following this (when all others were given custodial sentences) might suggest that the culpability issue did thereafter operate to mitigate sentence. Earliest Criminal Responses and Wider Perspectives on the Significance of Norms of Honesty and Responsibility Prosecutorial focus upon responsibility over and above honesty in attaching criminal liability to business activity was consistent with the gradual realization of the complex relationships between speculation, risk-taking and fraud. This was set in motion by the revelations of the railway boom, which also confirmed that confidence in investment activity was the essence of the capitalist economys success. What is not so clear from the trials is why these messages were channelled so strongly through the language of respectability and esteem, but Parliamentary discussion following the collapse of the Royal British Bank in 1856 does provide some illumination. Clearly, business activity was becoming increasingly exposed to external scrutiny at this time, but debates from 1857 also reveal that establishing criminal liability in the business context was considered far from straightforward. The collapse had caused considerable public clamour and there was intense pressure for the directors to be criminally prosecuted, but the Attorney-General questioned the practicalities and also the morality of prosecutions conducted on the basis of offences likely to be ill defined and elastic in nature.13 The difficulties alluded to by the Attorney-General plausibly mirror the considerable changes brought by capitalism which had also invited new types of crime (Levi 1987: 3). The regulation of the developing economy was in its infancy and without reference points in law or wider governance codes drawn from business morality. Many parameters of acceptable conduct in business did not become apparent until at least the end of the nineteenth century and, in some cases, they remain unclear today (Levi 1987; 1993; Wilson 2006; see also McBarnet in this issue). In a number of cases, there would be extremely close proximity of financial crime with the crucial activities of the dynamic entrepreneur. Thus, couching business crime as a fraud on numerous societal interests would itself depend upon communicating messages of seriousness to which alleged unacceptability in conduct could be attached. In these circumstances, expectations would be most effectively communicated through reference to very clear codes of personal morality governing Victorian societys elite, and articulated through respectability. For those pioneering legal acceptance of commercial crime, the import of respectability and personal repute lay in the high premium placed upon integrity in nineteenthcentury commercial society (see Searle 1998). This approach also reflected contemporary repugnance at the very idea that respectable people were even capable of committing criminal activities (see Wiener 1990: 244; Wilson 2003). These ideas can be seen in the deployment by judges of terminology relating to both business considerations and respectability. The former is evident in Lord Campbells insistence that [i]t would be a disgrace to the law of any country if the infamous crime of the Royal British Bank
13

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Hansards Parliamentary Debates, Vol. 145 (15 May 1857), cols 31011.

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directors were unpunished. And alongside offering that [a] greater or more serious offence could hardly be imagined in a great commercial community like this in the conduct of Strahan et al., the judge had further cause for considerable regret. Baron Alderson recollected that prior to the defendants being before him in the prisoners dock, he was actually well acquainted with at least one of them, by his side in high office. For Baron Alderson, this ensured that their punishment (the maximum which was possible) would be much more keenly felt by them than it would probably by persons in a lower condition in life, and was likely to afflict those who were connected with them with great severity. Victorian judges understandings of the problem of financial crime are particularly interesting because, unlike prosecutors and defence counsel, they lacked these respective partisan agendas, and therefore their concern about business morality and respectability might be taken at face value. Many judges freely admitted that they knew little about business, and that they were ill equipped to question the evolving mantra that business knew business best;14 but they would have understood respectability particularly well. Judges assumptions about the divide between the respectable and the unrespectable do appear to have been undermined by these cases of fall from grace, and although how they reasoned such falls is not clear, the proceedings indicate an emotional dimension to their recognition that this could happen to their own kind (Levi 1991: 2578). Criminal Proceedings Dominated by Business Considerations: City Interests and Articulations of Respectability Given the emergence of earliest company law jurisprudence that business knew business best, it is not surprising that those pioneering legal recognition of financial crime perceived that successfully establishing criminal liability within the business context could not happen without close cooperation from business itself. The trial records indicate appreciation that this would involve encouraging the City to acknowledge that elements of its activities and practices required scrutiny, but without alienating it through accusations that crime flourished within its environs. The trial proceedings show that all courtroom actors placed considerable reliance upon businessmen as expert witnesses, and as jurors in testing boundary questions, and that City representatives were accorded considerable deference and gratitude for their specialist inputs. This was evident in the remarks of Lord Campbell to the jury entirely composed of merchants in the Royal British Bank trial, whose character and qualifications had relieved him of much of his considerable anxiety in this important trial. The trials location close to the heart of commercial London (which was also combined with the property qualification then in place for jury membership) ensured that the jury knew more about this subject than Lord Campbell did himself, and that his task was thus the comparatively light one of stating the questions of law which arose from the issues of fact which the jury clearly would understand. The way in which prosecutors and judges alike looked to men of commerce for guidance in the criminalization of business suggests that City interests had a substantial hand in determining what amounted to acceptable (namely honest and responsible)
14 Wilson (2003) considers the famous decision in Foss v. Harbottle (1843, 2 Hare, 461) and the nature of the relationships between business and the courts during this period.

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business conduct for the purposes of imposing criminal liability. This points to an emerging culture of self-regulation, and appreciation that evolving criminal liability would entail considering the conduct of some to be that of outsiders. City cooperation in targeting and exposing outsiders could well have been secured as an inducement to facilitate minimal formal state interference with business activity, notwithstanding that aspects of commercial conduct were causing concern and even serious alarm. Thus, this might be regarded as part of an evolving business culture in which legal rules (e.g. company law) would become enabling rather than prescriptive,15 and within which laissez faire and caveat emptor would thrive. The incentives to shun outsiders and keep its house in order were considerable for the City, and could well have encouraged its participation beyond simply engaging in trials already set in motion. In the nineteenth-century culture of private prosecutions, and in light of anecdotal evidence which does point to collective approaches, it is likely that the self-regulation of financial crime would encourage the City to pursue certain cases, ensuring that they would actually come to trial. In part, the motivation for focusing on the activities of outsiders was likely to have reflected the way in which a greatly expanded sphere of business interests continued rapidly to draw in new players from beyond the traditional commercial elite (Kynaston 1994: 21). This would give rise to significant alteration of commercial environs more generally and within the composition of the City itself. Alongside these uncertainties, this change in culture also encouraged an accompanying one of corporate window dressing (Davies 1997: 642) to emerge, giving rise to the West-end director. Such developments were perhaps especially likely to have heightened awareness of outsiders. Furthermore, all three trials examined in this paper bore all the hallmarks of concerns about marginal practices in banking which became documented in the 1858 Select Committee Report on Commercial Distress. This Report did actually rebuke particular named institutions as outsiders undermining the stability and reputation of the sector as a whole, claiming that it was impossible to attribute the failure of these establishments to any cause other than their own inherent unsoundness, the natural, the inevitable result of their own misconduct.16 But although questions surround the exact nature of initiation and funding of these trials, the proceedings do suggest that those being prosecuted were considered outsiders by their business brethren. In the criminal courts, the proposition that the Royal British Bank directors, and also those of the City of Glasgow Bank, might have been considered outsiders by their commercial peers can be illustrated by the very different outcome of the collapse of Overend and Gurney, [t]he biggest house in the City (Juxon 1983: 82), during the 1860s. Following its collapse, the Overend and Gurney directors were tried in 1868 on charges virtually identical to the ones arising from the collapses of the Royal British and City of Glasgow Banks, and following events which were virtually indistinguishable from these two latter cases. However, the Overend and Gurney directors were acquitted, and one possible factor accounting for this very different outcome was that as part of the background to the criminal trial, informal City chatter had regarded the directors as having been no more than (implicitly, merely) careless, and the collapse of the House
This central tenet of UK company law is considered in G. Wilson (2000). Interestingly, the City of Glasgow Bank was one of the institutions named and shamed in 185820 years prior to the collapse which resulted in the criminal trial. See the 1858 Report, p. xxi.
16 15

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unfortunate. And following this acquittal, the criminal proceedings were declared vexatious and inappropriate by the trial judge, who lamented that he could not for the life of him see why this prosecution was ever brought (Juxon 1983: 86). This trial was brought by disgruntled shareholders who (as indicated as early as the 1840s) could be powerful gate-keepers of criminal exposure. However, this trial also indicates that there were more powerful interests still capable of operating, and may point to the significance of a wider City endorsement of bringing criminal proceedings. Given that the presiding judge of the Royal British Bank trial entreated that the directors had been rightfully convicted of infamous crime, and the Lord Justice-Clerks reference in the City of Glasgow Bank trial was to a crime of very great magnitude, Overend and Gurney raises a very interesting proposition. Indeed, if the earliest responses to financial crime reflected the belief that those who were being publicly exposed through prosecution were considered outsiders, Overend and Gurney suggests that others merited more empathy for what was considered unintended and not dishonest failure. The proposition of City involvement requires further investigation, but at a time at which key legal actors freely admitted that they were not well versed in the affairs of business, and it was not for the courts to interfere in business decisions, it would be remarkable if counsel from business interests was not sought. In this climate, business inputs would be vital to ensure that the laws reach would be restricted to matters which should properly be classed as criminal17and would not improperly extend to the activities of those who had been unfortunate notwithstanding acting properly, or who were no more than careless. Following the 1840s, while allowing business considerable scope to self-regulate in questions of criminal liability might appear a considerable concession, it was important to encourage City participation in this crucial stage of formalizing acceptance of high art crime. This can be seen as a discourse of cooperation between business and the criminal process, and one which was deferential to those who understood the subject far more than leading lawyers themselves, as alluded to by Lord Campbell. This possible interaction between law and business was one whereby juries were considered not just factfinders but experts, in fact. It also maps persuasively onto the fraud trials articulation of aspirational business conduct (which was both honest and responsible) through deeply embedded normative frameworks of personal morality, which recognized the Citys foundations as a system of trust based on reputation (Andrew and McGowen 2001: 23). Although City interests and business matters clearly dominated the criminal proceedings, the records of trial establish that in the face of behaviour considered unacceptable, there was no attempt to shy away from exposing respected businessmen as participants in crime of very great magnitude. There appears to have been no difficulty in accepting that a mans wealth and power do not put him beyond punishment (Levi 1991: 268), and also that even the most respected could be reduced to the position of common felons through their professional conduct, leading to their being declared outsiders. The trials also suggest that a fall from grace which was social as well as professional, and accompanied a businessmans transformation into a common felon, would be severe.
17

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Fraud Law Reform: Government Response to Consultations (October 2004), para. 4.

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In the trial of Strahan et al., this was evident in the prosecutions reference to the distressing spectacle of gentlemen, hitherto standing high in the estimation of those who knew them, and from the presiding judges lament of the very different circumstances in which one of the convicted criminals stood beside him in high office. The sentences meted out in the Royal British and City of Glasgow Bank trials reveal that fraud attaching to conduct falling short of actual appropriations of property was regarded as a less serious crime than the offence of Strahan et al., for example. Both these latter cases also reflected differing degrees of culpability, distinguishing between those found guilty of falsifying information and others found guilty of uttering information knowing it to be false, or doing so with some knowledge of the imminent insolvency. But even in these less serious manifestations of fraud, judicial pronouncements of sentence betray understanding of the grave social and professional implications of a fall from grace of persons of great repute. Conclusion The castigation of unacceptable conduct in business articulated through the language of ruin and destruction shows City and legal interests alike striving to unpack the implications of a transformed and dynamic economy. It reveals concerns about the need to keep abreast of its developments, and in attempting to map these onto law and its regulatory frameworks, to promote healthy, wealth-creating risk-taking whilst seeking to stay ahead of innovations for abuse within this culture. These innovations were of course creating vulnerabilities to new types of crime, and also making old kinds of crime more freely available. This delicate balancing of interests to promote wealth creation through risk-taking but also to discourage dishonesty and irresponsibility took place in a state of flux, without established benchmarks in either law or the wider governance system which has become known as business morality. Thus, it was vital for the criminal trials to emphasize the continuation of the Citys tradition as an entire system of trust based on reputation; the trials did so through reference to social norms derived from respectability and esteem which underpinned this. At one level, these trials show how questions of finding the legitimate limits of business decision making dominated the criminal proceedings, in the context of ensuring the nations pre-eminence in commerce and capitalist wealth generation. Equally, the criminal proceedings identified unacceptable conduct with open proclamations that disgraced businessmen were not prisoners such as are usually seen in that position, but gentlemen, hitherto standing high in the estimation of those who knew them. Thus, the social norms of respectability and esteem became as important as considerations of aspirational but acceptable professional conduct, and actually became an integral measure of them. This emphasis was doubtless part of the Citys attempts to guard against external regulation of enterprise, by underscoring the continuation of its traditional bona fides. But, for those pioneering earliest responses to business crime, it also pragmatically reflected the destructive capabilities of dishonest and irresponsible business activity for society as a whole. Thus, this association of commercial integrity with social status and respectability was perhaps especially important in the age of the dynamic entrepreneur. The dynamic entrepreneur brought with him new and exciting possibilities, but this age was also expansionist and signalled new arrivals from beyond the Citys more traditional 1088
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or at least known associates. It is also the case that this much expanded commercial market also sought to secure the services of esteemed but commonly commercially illiterate persons to figure-head undertakings. Significantly, this latter development was designed to replicate established City virtues of authenticity and trust for those acutely aware of their import but also aware that they were in many respects outsiders. These developments will have created a number of unknowns within the cultures and practices of the City, and thus the emphasis given to respectability and esteem in responses to financial crime was in many ways a crucial stabilizing force. It would resonate equally amongst those who had these characteristics and those who were aware that they did not, and this language of universal appreciation would ensure all that captains of industry (Levi 1991: 261) could understand the lasting professional and social consequences of exclusion as an outsider. This anchoring of aspirational commercial morality to personal morality of the highest had utmost significance in distinguishing the right way of doing things from the activities of outsiders who deserved to be social and professional outcasts. Thus, these earliest responses to financial crime reveal how personal moralityarticulated through respectability and esteemalso became the benchmark for proper business credentials. REFERENCES
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