The U.K. Financial Conduct Authority (FCA) has fined Bank of Scotland £45.5 million (U.S. $57.8 million) for failing to alert the regulator that the bank suspected fraud at its business turnaround unit and that managers were milking vulnerable companies through excessive fees.

The FCA found that the bank “failed to be open and cooperative” and failed to disclose information appropriately to the then-regulator, the Financial Services Authority (FSA). The fine was reduced from £65 million (U.S. $83M) due to Bank of Scotland’s early decision to cooperate.

The regulator also banned four individuals—former Halifax Bank of Scotland managers Lynden Scourfield and Mark Dobson, and former independent consultants Alison and David Mills—from working in financial services over their role in the fraud at the bank’s Impaired Assets (IAR) unit in Reading, which was supposed to support and turn around at-risk businesses.

The fraud was simple enough: Between 2002 and 2007 Mills’ consultancy, Quayside Corporate Services (QCS), paid bribes to Scourfield and Dobson in return for the former bankers passing them customers to rack up exorbitant fees against. The two bankers used the cash to fund a playboy lifestyle while many of their customers went bust.

All four are currently in prison for money laundering, fraud, and corruption offenses. Sentencing Scourfield, Judge Beddoe called him an “utterly corrupt bank manager” who had “sold [his] soul, for sex, for luxury trips … for bling and for swag.”

Mark Steward, the FCA’s executive director of enforcement and market oversight, said “there is no evidence anyone properly addressed their mind to this matter or its consequences.”

António Horta-Osório, CEO of Lloyds Banking Group (of which Bank of Scotland is now a part following the acquisition of Halifax Bank of Scotland (HBOS) Group in 2009), said in a statement that 2007-2009 was a “dark period in HBOS’ history.”

The FCA found that Bank of Scotland had identified suspicious conduct in the IAR team in early 2007 and that Scourfield had been sanctioning limits and additional lending facilities beyond the scope of his authority for at least three years—without detection.

According to the regulator, over the next two years (and on numerous occasions) the bank “had failed properly to understand and appreciate the significance of the information that it had identified despite clear warning signs that fraud might have occurred.” It added that “there was insufficient challenge, scrutiny, or inquiry across the organization and from top to bottom. At no stage was all the information that had been identified properly considered. There is also no evidence anyone realized, or even thought about, the consequences of not informing the authorities, including how that might delay proper scrutiny of the misconduct and prejudice the interests of justice.”

It was not until July 2009 that Bank of Scotland provided the FSA with full disclosure in relation to its suspicions, including the report of the investigation it had conducted in 2007.

The case also laid bare how ineffectual the United Kingdom’s regulators and enforcement agencies could be.

Commercial lending was and still is largely unregulated in the United Kingdom, which meant that the activities of IAR were not subject to specific rules imposed by the FSA—for example, conduct of business rules and complaints handling rules did not apply. Furthermore, despite the fact that the bank was forced to write off £245m (U.S. $306M) in bad loans as a result of IAR’s practices, the regulator noted that the scam was limited to one bank branch, was not systemic, and did not impact financial markets (unlike LIBOR, for example).

As a result, the FSA reported the matter to the National Crime Agency (then the Serious Organised Crime Agency, SOCA) on June 26, 2009, to deal with, which duly passed the case on to Thames Valley Police (the area that covers Reading) because SOCA’s focus was on high-end bribery and corruption.

In 2017—following a six-year, £7 million (U.S. $9M) investigation—six individuals were jailed for a total of just under 48 years (the four banned by the FCA, plus two of Mills’ associates).