Icelandic Investment Scandal Update

Yesterday Barnet Council finally confessed to having lied to residents about its Icelandic investments and, consequently, a treasury management officer has resigned.

Council Leader Mike Freer claims that he was misled and has commissioned an external investigation. Until the findings of that investigation are complete, Barnet Council Watch calls for Chief Finance Officer Clive Medlam to be suspended.

For the time being, some Cabinet Members remain implicated in this scandal. The Council’s Constitution (Financial Regulations, Part 1 Section 7) states:

• Cabinet Resources Committee will create and maintain a Treasury Management Policy Statement (TMPS), stating the policies and objectives of its treasury management activities.

• The Chief Finance Officer will create and maintain suitable Treasury Management Practices (TMPs), setting out the manner in which the Authority will seek to achieve those policies and objectives, and prescribing how it will manage and control those activities.

• Cabinet Resources Committee will receive reports on its treasury management policies, practices and activities, including an annual strategy and plan in advance of the year, and an annual report after its close in the form prescribed in the TMPs. These reports will incorporate the prudential borrowing limits and performance indicators.

Or, as Margaret Thatcher would have put it, Advisers advise. Ministers decide.

The external investigation must take a very close look at the reports given to the Cabinet Resources Committee to establish whether Mike Freer and his colleagues were lied to by officers, or whether they should have realised that the rules had been broken. As a banker, Mike Freer would have understood the reports better than most so his testimony will be crucial.

But the most shocking aspect about yesterday’s revelations is not that the council broke its own investment rules, but that for five months it consistently denied any wrongdoing when all along officers knew differently.

Clive Medlam is the officer who signed off several reports in 2006 authorising the council to borrow a massive £70 million. Some of this money was intended for the schools rebuilding programme but the money was not immediately needed and we now know that £27.4million was invested in Iceland.

However, following the Western Isles Council / BCCI scandal in 1991, the law was changed. Whilst council are allowed to borrow money and then put it on deposit until it is needed, they can only do so on a temporary basis. Some of the Icelandic money was deposited for terms of up to 5 years. That is not temporary.

The council spotted an opportunity to borrow cheaply from the Public Works Loan Board and then deposit the money at a higher rate in Iceland. In the real world that is called speculation. Barnet council gambled with our money and lost.

Clive Medlam clearly has many questions to answer about his knowledge of events. But who else knew what was going on? The council was borrowing huge amounts of money that was not immediately needed. Can it really be that the Cabinet Resources Committee didn’t ask any questions? If they didn’t, isn’t that a dereliction of duty? New Chief Executive Nick Walkley was Executive Director for Resources at the time the loans were taken out. What did he know?

On the face of it, it appears that there has been a significant cover up by officers. Clive Medlam was the man in charge of the money and he should be suspended forthwith until it can be proven beyond reasonable doubt that he did not know that officers under his control had broken the rules. It is no longer appropriate for him to continue negotiating with Administrators in Iceland on behalf of the council.

If Mr Medlam is implicated then the council will have only itself to blame. He should have been sacked after he was caught failing to declare a personal pecuniary interest when the Underhill indemnities were granted.