SFO charges Barclays a second time over fraudulent $3B Qatar loan

The Serious Fraud Office (SFO) has charged Barclays for a second time over a U.S.$3bn loan the bank made to Qatar when Middle East investors bought shares in the bank to prop it up at the peak of the financial crisis.

The U.K. enforcement agency has extended its case so that Barclays Bank PLC, the lender’s operating company, now also faces a charge of providing “unlawful financial assistance” alongside Barclays’ holding company, Barclays PLC, which the SFO charged with the same offence last year.

In a statement issued on 12 February the SFO said that it was charging Barclays Bank with unlawful financial assistance contrary to Sections 151(1) and (3) of the Companies Act 1985.

The SFO added: “The charges relate to financial assistance Barclays Bank gave to Qatar Holding LLC between 1 October and 30 November 2008, which was in the form of a U.S.$3 billion loan for the purpose of directly or indirectly acquiring shares in Barclays.”

The latest charge follows those brought against Barclays PLC and four high-ranking individuals—including its former chief executive, John Varley—in June 2017 for fraud and unlawful financial assistance. They are the first criminal charges to be brought in the United Kingdom against a bank and its former executives for activities during the financial crisis.

The SFO’s decision to charge the bank, as well as the holding company, is significant, and adds to Barclays’ woes (regulators are also weighing up how to respond to attempts by Barclays’ current CEO Jes Staley to unmask a whistleblower). Banking licences and regulatory approvals are held at the operating level. Prosecuting Barclays Bank means that, if found guilty, the bank could face regulatory penalties, including withdrawal of its banking licences in the United Kingdom and other countries.

While Barclays’ high street operations in the United Kingdom would not be affected by a withdrawal of the banking licence—they will be transferred this year to a new company under plans to ring-fence retail banking—its investment banking, corporate lending, and international operations could be affected.

“If the charges against the corporates succeed, then I think it is highly likely that at least one of the individuals will also be found guilty. But if the charges against the corporates collapse, I can't see any of the individuals being convicted either.”
Michael Potts, Managing Partner, Byrne and Partners

Barclays’ Qatar dealings have been under SFO scrutiny since August 2012. The case was deemed so serious that HM Treasury, the U.K. government’s economic and finance ministry, gave the agency special funding to continue pursuing it. The SFO dubbed its investigation “Mirror.” Barclays refers to it as “Cadmium,” named—perhaps ironically—after the toxic chemical element that can produce adverse health effects following chronic exposure.

In a statement, the bank said that “Barclays PLC and Barclays Bank PLC intend to defend the respective charges brought against them. Barclays does not expect there to be an impact on its ability to serve its customers and clients as a consequence of the charge having been brought.”

Background of the case. The background to the case is simple enough. Barclays approached Qatari investors—namely Qatar Holding and Challenger Universal, which have links to the royal families of Qatar and Abu Dhabi, as well as Qatar’s then prime minister—in June and October 2008 to raise funds to secure the bank’s future as the financial crisis took hold. The fundraising was controversial because it looked to outside investors rather than giving existing shareholders priority.

From these two cash-calls, Barclays received £11.8bn (U.S.$15bn), which allowed the bank to avoid a government bailout at a time when rivals Lloyds Banking Group and Royal Bank of Scotland were forced to rely on a taxpayer rescue.

Barclays, however, also conducted side-deals with these investors that were only partially disclosed to the market at the time. And it is the nature of these deals that has prompted investigations from both the SFO and the U.K.’s financial regulator, the Financial Conduct Authority (FCA).

Summary of charges

On 20 June 2017 the U.K.’s corporate crime agency, the Serious Fraud Office (SFO), charged Barclays PLC—the parent company of Barclays Bank—and four former executives with conspiracy to commit fraud, as well as providing unlawful financial assistance over the bank’s dealings with Qatar at the height of the financial crisis.
Those charged are: Former Barclays CEO John Varley; Roger Jenkins, former executive chairman of investment banking and investment management in the Middle East and North Africa for Barclays Capital; Thomas Kalaris, a former CEO of Barclays Wealth and Investment Management division; and Richard Boath, Barclays’ former European head of financial institutions group.
All four are charged with conspiracy to commit fraud regarding capital raising in June 2008. Varley and Jenkins face another fraud conspiracy charge relating to capital raising in October 2008, as well as a charge of providing unlawful financial assistance in violation of the U.K. Companies Act. Barclays PLC faces all three charges.
On 12 February 2018 the SFO said that it was charging Barclays Bank with unlawful financial assistance too.
Barclays Bank, Barclays, and the individuals will contest the charges.
–Neil Hodge

Barclays is alleged to have secretly lent £2.3bn (U.S.$3bn) back to Qatar Holdings to buy shares in the bank. Former CEO Varley and Roger Jenkins, former executive chairman of investment banking and investment management in the Middle East and North Africa for Barclays Capital, are also alleged to have arranged payments totalling £332m (U.S.$423m) to Qatar Holdings for “advisory services” with regard to the deals.

The FCA said in 2013 that it would fine the bank £50m (U.S.$70m) for improper disclosure to the market, but then stayed its case pending the SFO’s criminal investigation. Barclays has always contested the fine.

The SFO has had the option of bringing a second charge against Barclays since charging the holding company last June. Lawyers believe that the SFO’s decision to bring a second charge now against the bank—some eight months later—means that the agency believes it has enough evidence to successfully bring a prosecution, and that Barclays has not done enough to co-operate.

Michael Potts, managing partner at law firm Byrne and Partners, says that the emphasis on further unlawful financial assistance charges against the bank “signals a belief on the part of the SFO that they can evidence an unlawful intention in the actions of the officers of the bank when they entered into the loan arrangements.”

He adds that the legal defences to this offence are quite narrow—namely to prove a good faith purpose or some specific technicalities—and the SFO may believe that the bank will struggle to identify and prove that. “No doubt there will be considerable argument on these issues,” he adds.

No DPA in the immediate future. Several lawyers have been surprised that the SFO did not offer Barclays a deferred prosecution agreement (DPA) last year when it announced the first set of charges. In other cases, DPAs have been agreed with the company, while the SFO has still pursued individuals (often with the agreement of their former employer). For example, in the case of Rolls-Royce, the company has agreed a DPA while enquiries are still ongoing into the roles of several individuals. And in the case of “XYZ,” the SFO has brought charges against individuals.

The enforcement agency has repeatedly said that DPAs will only be considered if companies “co-operate fully,” which means turning over all documents at an early stage and not “hiding” key evidence as part of legal privilege. Many infer that Barclays was not prepared to go that far.

Aziz Rahman, founder of law firm Rahman Ravelli, says that “while major companies, such as Rolls-Royce and Tesco, were able to negotiate to the point where they obtained a deferred prosecution agreement (DPA) and avoided prosecution, this has not been possible with Barclays. As a result, it has been charged.”

“It would be interesting to know whether Barclays not securing a DPA is because it refuses to admit it did anything wrong or because it did not do enough to prevent wrongdoing being carried out,” he adds.

More generally, lawyers believe that the SFO is keener to bare its teeth against corporate wrongdoing and that its persistence in pursuing Barclays signifies a stronger resolve to get results.

“The SFO is now more aggressive than it has ever been,” says Potts—a view some lawyers share. Ross Dixon, partner at Hickman & Rose solicitors, says that “under David Green’s tenure as director, the SFO has been busy taking on a number of high-profile investigations and the decision to charge Barclays Bank now may be an indication of an intention to grapple with charging decisions in those matters ahead of his departure in a couple of months’ time.”

It is rare for banks to face criminal charges in the United Kingdom, which makes it hard to predict how Barclays could be affected if convicted. In recent years, several banks, such as UBS and Credit Suisse, have entered guilty pleas in the US for illegal activities including manipulating markets, assisting tax evasion and breaching sanctions and none of them have lost their licence to operate (although France’s BNP Paribas had part of its licence suspended for a year for violating U.S. sanctions against Sudan, Cuba and Iran).

And while it is rare for banks to face criminal charges, it is even rarer for them to be found guilty of them. Potts believes that the successful prosecution of the corporates depends on the successful conviction of at least one of the individuals, and vice versa. In his opinion, if the SFO successfully prosecutes the executives for fraud, then it is highly likely that the bank and its holding company will also be found guilty of providing unlawful financial assistance, as the directors are demonstrably the controlling minds of the organisations. Similarly, however, if the case against the executives collapses, so too will the likelihood of any successful conviction against the company.

“If the charges against the corporates succeed, then I think it is highly likely that at least one of the individuals will also be found guilty. But if the charges against the corporates collapse, I can’t see any of the individuals being convicted either,” says Potts.

The trial against the four executives had originally been scheduled for January 2019—some 11 years after the event, four executive management teams later, and seven years after the investigation opened, which has raised some concerns about its timeliness, and appropriateness. But according to a SFO spokesperson, the trials against the individuals and the corporates have now been merged, so the trial date “may be pushed back slightly”, though it is still likely to proceed “early next year.” Whatever date the trial is finally set for, the proceedings will be keenly watched.