Unlike its peers it avoided the need for a UK taxpayer bailout, but now Barclays faces criminal charges for the unlawful way it survived 2008’s financial crisis.
Barclays and four senior employees were all charged on June 20, including John Varley, Barclays chief executive officer (CEO) from 2004 to 2011, and ex-directors Roger Jenkins, Richard Boath and Thomas Kalaris.
The bank originally won plaudits for not resorting to state aid and instead shoring up its finances through two cash calls to Qatari and other private investors in June and October 2008 that raised £11.8bn (US$14.9bn) in total. However, its former executives are being charged with lying or not disclosing to the market the full extent of their dealings with these investors.
Barclays has been charged with two offences of conspiring to commit fraud by false representations relating to two “advisory services agreements” made with Qatar Holding LLC at the time the loan was given. The bank also faces charges for one offence of unlawful financial assistance in relation to a US$3bn loan to the State of Qatar in November 2008.
Barclays is the first UK bank to faces charges for its involvement in the crisis, while Varley is also the first prominent banking executive to face prosecution for his involvement, which could result in a prison sentence of up to 22 years.
In a statement, Barclays said that it is “considering its position in relation to these developments”.
“The charges arise in the context of Barclays’ capital raisings in June and November 2008,” it confirmed.
Barclays is awaiting further details of the charges from the UK’s Serious Fraud Office (SFO). “The SFO has informed Barclays that it has not made a decision as to whether it will also bring charges against Barclays Bank PLC in respect of the loan,” said the bank.
UK industry regulator the Financial Conduct Authority (FCA) has issued warning notices in connection with its investigation into the advisory services agreements and the US Department of Justice (DoJ).
“We are pleased that this matter, which led to the stay of our own case, is now in the public domain,” said the FCA. “We welcome a fair and transparent hearing on the basis of the charges set out today by the SFO.” The US Securities and Exchange Commission (SEC) has also been conducting investigations relating to these same agreements.
“The FCA’s investigation in relation to the advisory services agreements had been stayed in view of the SFO’s investigation but that stay is currently lifted,” said Barclays.
“Also, as previously disclosed, a civil claim has been served on Barclays Bank PLC by PCP Capital Partners LLP and PCP International Finance Limited in relation to the November 2008 capital raising, which Barclays Bank PLC is defending,” the bank continued.
The defendants are due to appear before Westminster Magistrates’ Court on July 3.
Are criminal charges the proper response?
The filing of criminal charges against Barclays’ former executives marks a departure from the penalties imposed on banks for other misdemeanours, such as rate-fixing and the selling of mortgage-backed securities, which have generally been in the form of heavy fines.
However, Dean Nicholls, a partner at London-based law firm Gordon Dadds argues that the “charges are a considered and proper response to the extensive alleged wrongdoing,” and insists that Barclays is not being singled out.
“The recent action taken against Barclays and its four former executives in respect of the bank’s capital raising is one of many recent decisions relating to the conduct of UK financial institutions,” he says.
“In this respect, it is apparent that Barclays has not been singled out for the emergency measures taken to avoid the failing of the bank in 2008. Most banks, including RBS, have similarly been subject to close scrutiny, substantial legal claims and financial penalties arising from their conduct,” he argues.
RBS was subject to scrutiny at a parliamentary level and was criticised for giving ‘incorrect’ evidence to the UK Treasury Committee in 2014 following the publication of the Tomlinson Report. The Scottish bank was made to settle a substantial shareholder claim in May 2017, which arose from the bank’s conduct in its attempts to raise capital during the financial crisis. “It was only as a result of this settlement that former boss Fred Goodwin was spared what would have likely been an extensive and thorough cross –examination in court,” Nicholls argues.
The banking sector’s failings have also led to the implementation of the FCA’s financial redress scheme to compensate customers who were mis-sold interest rate hedging products. To date, the scheme has meant that over £2.2bn has been paid by banks as compensation to those affected.
“The UK banking industry will continue to face rigorous regulation and continuous review. In the meantime, Barclays will no doubt learn its lessons, although it is too soon to say what impact the ongoing criminal proceedings will have in the longer term,” comments Nicholls.
The US Commodity Futures Trading Commission approved LedgerX as the first regulated clearing house for derivatives contracts settling in digital currencies.
The European police agency recorded an 11% increase in incidents worldwide over the 12 months to March this year.
Businesses must have a broad investment portfolio and a range of trading relationships to survive in today's volatile economic climate.
Government intervention means that new regulations pave the way for a competitive regulatory and tax regime.