David Davis backed a City high-flyer’s appeal against a huge fine for insider dealing a month after accepting a lucrative position at one of his companies, the Observer has established.
The Brexit secretary has been a staunch ally of star banker Ian Hannam for many years. Both men were members of 21 SAS Reserve Regiment and Hannam donated £2,000 to Davis’s Tory leadership campaign in 2005.
But their relationship deepened in 2012 when Davis criticised the Financial Services Authority in its pursuit of the City’s leading dealmaker, who was forced to leave his job with JP Morgan after being found guilty of market abuse.
The £450,000 fine imposed by the FSA (replaced by the Financial Conduct Authority or FCA in 2013) was one of the largest handed down to an individual and was considered a major coup for the authority. But Davis described its action as unBritish. He said at the time:
This is an incredible extension of what constitutes insider trading by the FSA. It’s quite an astounding pattern of behaviour by the FSA.
Ian Hannam, former global chairman of equity capital markets at JP Morgan, was fined £450,000 by what was then the Financial Services Authority.
When the authority first brought the case against Hannam, Davis had no financial relationship with his friend, who was considered one of the most powerful people in the Square Mile for his ability to make deals happen.
But this was to change a year later when Davis was appointed to the supervisory board of a German company, Mansfelder Kupfer und Messing (MKM), which describes itself as the leading European manufacturer of primary and semi-finished products made of copper and copper alloy.
Davis listed his position – for which he “anticipated remuneration of approximately £34,000 per annum” – in the register of MPs’ interests on 10 June 2013 and disclosed that the role was for six days work a year. The disclosure was made a month after Hannam bought MKM via a company called Copper 1909. MKM confirms on its website that it is owned by Hannam & Partners.
In further updates to the register of interests, Davis acknowledged that he received a series of payments from Copper 1909 each for around £7,000 – until he stood down from the company on becoming Brexit secretary last year. The Observer estimates that he may have earned more than £100,000 from the arrangement, based on his anticipated remuneration of £34,000 a year.
In July 2013, a month after he accepted the position at MKM, Davis made a very public show of support for Hannam when the banker sought to have the FSA’s decision overturned. The former shadow home secretary sat behind his friend, formerly JP Morgan’s global co-head of UK capital markets, when his appeal was heard.
The FSA’s decision to fine Hannam was upheld in 2014 by the upper tribunal, the ultimate arbiter of authority decisions. There was no suggestion that Hannam was acting for private gain and he was granted a licence to continue operating in the Square Mile after the decision was handed down.
The FSA’s case against Hannam was based on two emails in which he revealed that his client, Heritage Oil, had struck oil before the discovery had been announced publicly, and that it was a potential bid target.
Commenting after the appeal was dismissed, Tracey McDermott, then director of enforcement and financial crime at the FCA, said: This has been a long and complex case but the tribunal’s substantial judgment is a landmark.
It should leave market participants in no doubt that casual and uncontrolled distribution of inside information is not acceptable in today’s markets. Controlling the flow of inside information is a key way of preventing market abuse and we would urge all market participants to pay close attention to the judgment.
Davis was one of several people Hannam thanked for their support after the tribunal’s ruling.
The Observer put a series of questions to Davis, including requests for him to confirm how much he had been paid by Hannam’s company, what the work entailed and whether he believed the position had opened him up to any conflicts of interest.
Davis declined to comment. However, his friends said he has made no attempt to hide his friendship with Hannam and that all his appointments, and income received, have been declared in accordance with MPs’ rules.
The Observer approached the Committee on Standards in Public Life. A spokeswoman said it would not comment on individual cases but confirmed that the committee was exercised by the issue of MPs holding second jobs.
The spokeswoman said: We are currently collecting evidence and will feed our findings into the review of the MPs’ code of conduct in due course.