The Bank of Friends and Family

by | 1 Nov 2023

The Scottish National Investment Bank continues to give loans to businesses with which its own staff and directors have a very clear conflict of interests. Is anyone going to stop this in a Scotland where 'dodgy' is now normal?

Well I guess that whatever reason the current Chief Executive of the Scottish National Investment Bank was appointed, it wasn’t his communication skills. Al Denholm’s performance in front of the Standards, Procedures and Public Appointments Committee of the Scottish Government was certainly no masterclass.

Of course, the reason that he was appointed isn’t clear either because we still don’t know why the last chief resigned. The reason was probably in a WhatsApp message somewhere but someone deleted it.

But an unconvincing leader isn’t anything like the SNIB’s biggest problems. It’s real problem is that it is poorly governed, as we can infer from what looks like a series of investment decisions which continue to raise concerns about propriety.

Before I continue, I should probably once again point out that something doesn’t have to be illegal to be ‘corrupt’. As I explained on Monday, corruption can mean the corruption of the rules (twisting or rewriting the rules to suit you in a way that is against the public interest), the corruption of the expectations of acceptable behaviours (‘everyone else is doing it and it’s no big deal really’), or the breaking of rules.

So while I am not making any allegations of illegality in this article, I’m going to make a strong case that some of the actions taking by SNIB simply aren’t right. They do not meet the standards an ordinary person would expect of a pubic entity in terms of transparency and the management of conflicts of interests.

To give you a primer, I’ve been over some of this already in this article. The Scottish National Investment Bank looks like a rather small network of people co-investing in projects they themselves or people they are closely involved with are also investing in. This looks like they are de-risking their own investments using public money.

But if you thought that might stop, you’d be wrong. In August this year it was revealed that the bank had invested in a company part-owned by one of its Directors. That is a massive conflict of interests. I can’t see the circumstances in which that is appropriate. There is no degree of recusal which would give the public confidence that this isn’t the action of a pals network using public money for their own benefit.

If someone can explain to me how giving £20 million of public money to a wealthy private equity firm can be considered even tangentially associated with the public good I’d be grateful

The company is called Forrit and a woman called Carolyn Jamieson (she also uses Hay as a second name) was appointed as a Director, and then shortly afterwards she was appointed as a Non-Executive Director of SNIB. She resigned as a Director of Forrit earlier this year – but only a few weeks before SNIB made a £5 million investment.

Every single one of the current Directors of Forrit share the same address as SNIB. They are all in the same building in Edinburgh. She worked for many years with Mark Logan at SkyScanner, and of course Logan is a Director of a company called TravelNest which got £3 million from SNIB. He has a number of relationships which are all very much adjacent to investments SNIB makes.

But the relationships are more direct, because TravelNest has other conflicts of interest – it is run by the brother of a senior analyst at SNIB. And the co-investment issue just keeps coming back up. In that previous article I explained the dense network of relationships between private investment firms Par Equity and Scottish Equity Partners and the Scottish National Investment Bank and how they seemed to keep co-investing in the same project.

Well let’s take a look at Verlume. Last year Par Equity invested in them. A year later SNIB chips in £6.6 million of it’s own for Verlume’s coffers. This is a cracking investment for Par Equity. If the investment patterns got any closer you’d imagine that would be cause for concern.

Apparently not, because this month SNIB seems to have cut out the middle man and given £20 million to Par Equity directly. That’s right, an ‘investment bank’ gave £20 million to someone else to invest. Par Equity gets cheap capital and will presumably keep all the profit from the onward investment of public money.

And then you’ve got the pattern of ‘any business leader who is appointed to a Scottish Government taskforce gets a giant loan from SNIB’. The boss of Verlume was appointed to a trade board by the Scottish Government and got the loan within a year. CEO of biopharmaceutical firm Elasmogen goes on a Scottish Government enterprise board and gets £3.5 million three months later. Tidal energy company Nova Innovation gets £6.4 million with its previous director on a board who is then replaced by the new director just months after the loan. You can read all this and more here.

So let’s look at what is getting the money here. If someone can explain to me how giving £20 million of public money to a wealthy private equity firm can be considered even tangentially associated with the public good I’d be grateful. Until they do I will consider it absolutely outrageous.

The Scottish National Investment Bank was set up to do the things private equity and the banks weren’t doing, not subsidise them. So might we might find some mission-orientated merit in the companies that were funded? At least Verlume does battery storage for offshore renewables. I don’t think this is the right approach to offshore energy storage, but at least you could make a case. And Nova Innovation does tidal power.

But Forrit is a company doing content management software (the stuff that populates websites). There are loads of them and if Forrit is competitive in the market it should be able to capitalise itself easily enough. If it isn’t competitive in the market, SNIB shouldn’t be touching it. Elasmogen is probably in the same category.

Travelnest, meanwhile, is a basic AirBnB knock-off. We’re currently trying to restrain the serious damage that AirBnB is doing, not fund more of it. I cannot see any case for real transformative public benefit in putting public money into Travelnest.

SNIB is designed by, run by and works with the people it was supposed to subvert – instead, they subverted the bank

Some of this looks way, way outside the boundaries of acceptable to me. When you are running a public initiative like this it is imperative that you make absolutely sure that you don’t ever give the impression of impropriety. This is not the wild west of the banking sector. This is public money.

SNIB seems to laugh in the face of impropriety. It is a travesty of the bank that Common Weal first designed (we invented this thing, Sturgeon turned it into, well, this). There is far too much focus on the way SNIB acts as a slush fund for Scottish Government projects. That is a concern and I am highly critical of how Circularity Scotland was created and what it’s purpose was.

But you could comfortable make a case that this was a mission-orientated investment. It was the wrong one, but it was legitimate. This stuff does not look legitimate to me. It looks dodgy as fuck. This is £420 million of taxpayer money so far and counting. Given the quality of the decision-making in their investments it isn’t much of a surprise they’re getting a two per cent return. My view is that this bank has made precisely one investment I think is truly justified (into the development of a hemp insulation company).

Why is this happening? All the usual reasons. The Scottish Government never wanted to create SNIB in the first place – I’ve still got a copy of the letter in which Keith Brown dismissed the idea out of hand and wouldn’t even consider a half-hour meeting so we could explain it to him.

It took a number of years of very careful and shrewd campaigning on our part to make it a reality. In fact, it was only because Nicola Sturgeon was desperate after the big loss of seats in the 2017 General Election that she finally realised she was going to have to do something to distract people.

But she never knew nor cared what SNIB was actually for. It was just another announcement to her. And like all her announcements she then followed up by letting the whole thing be designed by one of the four big, corrupt accounting firms in Scotland who are part of the Edinburgh finance set. (Those I don’t need to worry about using the corruption word with given how often they are fined for very major corruption – here’s an example each for Deloitte, KPMG, PwC and EY).

SNIB is designed by, run by and works with the people it was supposed to subvert. Instead, they subverted the bank – and the Scottish Government continues to congratulate itself on its success. Shona Robison, when challenged on this, couldn’t have been more disinterested. None of the above has appeared in Scotland’s mainstream media.

This can all be fixed in two minutes. The problem is, as so often in Scotland, governance. Of course SNIB needed some financial expertise on its Board, but if it is to be a mission-orientated bank then it should also have a mission-orientated Board, with independent, non-financially-entangled experts who know what transformation looks like.

I’d have given core stakeholders a guaranteed place (Cosla, the STUC, the Just Transition Commission or whomever). I’d have had at least half and arguably a majority elected on the basis of public impact knowledge, not financial insider dealing knowledge.

And I know at least four very qualified people who had exactly that profile who applied to be Non-Executive Directors of SNIB. None were even interviewed.

Is this all legal or are there breaches of law or government standards rules here? I don’t know. I can barely keep up. I’ve been sitting on all of this material for a month or two now because so much is going on. I could write this article ten times over about public procurement, lobbying links, revolving doors in the civil service, dodgy relationships around public agencies.

This is only an example of what is normality in Scotland. It stinks. It stinks to high heaven – but this Scottish Government not only doesn’t care, it seems to benefit from all of this. I promise you this is corruption whether there is illegality or not. I can also promise you that, under the current regime, nothing is going to be done about this.

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