THE LAW establishing the SNIB requires an advisory board to be established to provide “advice on the Bank’s objects, conduct and performance”. More than two years after the bank’s launch, the board still does not exist. Why is there no mention in the SNIB’s investment strategy concerning how it handles potential conflicts of interest? Taxpayer money is at stake and transparency is urgently required.
For those who don’t know, the Scottish National Investment Bank (SNIB) is a state-owned investment and national development bank. It doesn’t operate as a normal commercial bank nor does it accept deposits. The purpose is to use public money as ‘seed capital’ to help kick off private investment funding for commercial projects across Scotland that help “develop a fairer, more sustainable economy”.
There are, however, grounds to question whether or not the SNIB is operating lawfully. The Scottish National Investment Bank Act 2020 establishing the SNIB received royal assent, passing into law on 25th February 2020. And since that date certain sections of the act of the Scottish parliament have still not been honoured.
And the section in question (section 29) lays out the sorts of provisions which – if not respected – could potentially cast a shadow over the lawfulness of the SNIB’s operations to date in regards to dispensing public cash as seed capital.
“29 Advisory group
(1) The Scottish Ministers must establish and maintain an advisory group to provide them with advice on the Bank’s objects, conduct and performance.
(2) The advisory group is to —
(a) be provided with sufficient resources by the Scottish Ministers to carry out its functions under this section,
(b) include at least 1 member appointed to represent the interests of trade unions.”
As of my writing this article the Scottish Government has not fulfilled the obligations of this section. Put simply, there is no advisory group in existence which would provide the Government (and thus the taxpayers) with expert advice as to SNIB operations, conduct or performance. So the SNP government has failed to establish an advisory board for the Bank, contrary to the legal obligations of a Holyrood act of parliament.
I have not been the only person to spot this incongruous problem. When Disruption Banking approached the SNP government for comment they (as I have) found an administration refusing to be drawn on why the board has not been established. Nor could I (or the people at Disruption Banking) ascertain what the Scottish Government’s views of the legality of SNIB activities in the absence of the Advisory Board.
The Holyrood administration merely commented “the Scottish National Investment Bank Act 2020 committed ministers to the establishment of an advisory group. Now that the Bank is fully operational, work is underway to meet this requirement.”
I will point out that “work is underway” provides taxpayers with no insight as to what this work actually materially consists of.
This all becomes more interesting when we consider the SNIB has provided seed capital (taxpayer money) to companies where senior figures have also served – by ministerial appointment – on Scottish Government advisory boards.
One example would be the CEO of biopharmaceutical firm Elasmogen, Ms Caroline Barelle , who was appointed to a Scottish government enterprise and skills strategic board by the SNP administration in January 2020. She continues to be a member of the board. While serving on this advisory board, the firm she was CEO of would receive in May 2022 £3.5 million in taxpayer dosh from the SNIB.
For those interested, the Scottish government enterprise and skills strategic board expenses billed to taxpayers for 2020/21 was £2,517.50; despite it being the year of lockdown and work from home. So, while these advisory boards are important to grant expert insight and advice to government officials and ministers, they are not free. Some boards grant remuneration for members and expenses can be incurred. In the case of the Scottish government enterprise and skills strategic board, prior to Covid there were £34,541.20 expenses charged to taxpayers (2018-19)
Naturally it is important highlight that Elasmogen and the other firms in question deny that the investment involved any conflicts of interest. And this could easily be true, but given the SNIB’s investment strategy concerning diligence practices makes zero mention of how the SNIB handles potential conflicts of interest, it is relevant to raise the issue .
All the more so in the context where the SNIB is operating while section 29 of the Holyrood act giving it legality remains unfulfilled. There is no advisory board in existence giving the Scottish Government “advice on the Bank’s objects, conduct and performance”. Equally there is no mention in the SNIBs investment strategy concerning how it handles potential conflicts of interest.
When I first wrote about this on June 12th it was because the ruling SNP simply refused to address the matter when put to them. Things took on a different hue when on June 22nd Scottish Conservative MSP Douglas Lumsden asked in parliament whether the SNIB was operating illegally – and answers there were none. Mr Lumsden took to twitter saying
“It is frankly shocking that the Minister couldn’t tell me if that was the case. With so much taxpayer’s money being invested by the SNIB this is very worrying.”
Ignoring little old me is one thing, but when the ruling SNP are disinclined to answer opposition MSPs in parliament, that’s different. If the SNP felt confident the absence of the advisory group didn’t risk unlawfulness for SNIB investing, they’d just tell us. The fact that they can’t (or won’t) raises serious questions.
Perhaps the reluctance of SNP government officials to answer the growing number of questions concerning SNIB is understandable in light of what the SNIB executives are now saying. At Holyrood in June this year the new SNIB Chief Executive Al Denholm (pictured above) admitted his organisation should no longer trust Scottish Government legislation as a “reliable” mitigant to investment risk. Or in plain English, the SNIB should no longer assume the Scottish Government has checked whether its own legislation is within legal competencies.
This all arises due to the absolute debacle vis-a-vis the Deposit Return Scheme (DRS) scheme’s disintegration, which has exposed the SNIB as having failed to obtain their own legal opinion as to whether legislation proposed or passed was within the competence of Holyrood under the Scotland Act 2016.
An obvious point raised here is just how much damage this Scottish Government is inflicting to the credibility of Holyrood. Acts of parliament are no longer “reliable” mitigants to risk!
That the SNIB cannot realistically assume a Holyrood Act constitutes something businesses can take seriously when undertaking risk assessments prior to investment is depressing. Not least as it further diminishes the investment opportunities in Scotland by increasing risk when you have a government unable to ascertain its rear from its own elbow.
Due to the SNIB’s somewhat understandable naivety of thinking Scottish Government legislation is a mitigant to risk when investing, the SNIB may lose millions of pounds of your money. The DRS debacle alone could cost taxpayers £9m of losses resulting from the SNIB’s financial support, alongside tainting the well of investment in Scotland. SNIB Chair Willie Watt has admitted taxpayers will almost certainly lose 50% of an SNIB loan to Circularity Scotland of £9m – but worry not, Mr Watt assures us there is “hope that they [taxpayer losses] are less than 100%.”
Hope? We’re reduced to hoping that the SNIB – which could potentially be operating unlawfully (something the SNP refuse to address) – might not haemorrhage its full loan to near-collapse Circularity Scotland… whatever happened to value for taxpayer money?
Realistically the SNIB leadership now faces the issue of why they failed to obtain the necessary independent legal opinion assessing whether legislation proposed or passed is within competency of Holyrood.
Just why did the executives assume a parliamentary act in of itself was a mitigant to risks faced? Some observers might suggest obtaining independent legal opinion prior to investing the taxpayer funds they were charged with ought to have been a pre-requisite of careful risk-assessment management. If we’re being generous, we can say SNIB bosses are guilty of an understandable naivety in assuming you can simply rely on legislation (proposed or passed) to automatically represent a “reliable” mitigant to risk; but it has proven a costly lesson for taxpayers to swallow.
Sadly, nobody inside this SNP-led Scottish Government seems to care, despite this all involving huge amounts of your taxpayer money. £2.2 billion of taxpayer funds pledged to the SNIB within the first ten years of its existence, to be precise. A national investment bank to provide seed capital to kickstart private sector investment could be a solid idea, but as with most things the SNP-Green partnership touches, it’s rapidly turning into an absolute riot.
If you appreciated this article please share and follow us on Twitter here – and like and comment on facebook here. Help support ThinkScotland publishing these articles by making a donation here.