22 June 2017 — TRNN
Bill Black, author of The Best Way to Rob a Bank is to Own One says don’t expect much – sadly, the British Serious ‘Farce’ Office that brought about the charges may not have the wits to carry out the prosecution (inc. transcript)
William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. Black was a central figure in exposing Congressional corruption during the Savings and Loan Crisis.
S. Peries: It’s the Real News Network. I’m Sharmini Pieries coming to you from Baltimore. In the UK on Tuesday Barkley’s Bank and four former CNA executives have been criminally charged following a five year investigation by the British Serious Fraud Office. On to talk about this with me is Bill Black. Bill is the author of The Best Way to Rob a Bank is to Own One. Thanks for joining me, Bill.
Bill Black: Thank you.
S. Peries: Bill, in a sense this is your dream come true. We finally have senior executives of a bank and the bank charged after an investigation. What is this all about?
Bill Black: Okay, so this in the United Kingdom. It’s about a bank that is considered a British bank though it’s massively international. It claims to have assets of right around 1.5 trillion dollars, a trillion is a thousand billion. This is one of the largest financial institutions in the world and it’s a bank that if there were any justice a decade ago would have been put out of business as a serial felon. Instead of course it is one of the largest banks in the world. This relates to an alleged fraud scheme, it’s case is a criminal case as you said brought by the Serious Frauds Office in the United Kingdom which the UK satirical private eye has long referred to as The Serious Farce Office and has a record of not winning many cases so don’t get your hopes up too much.
This case is not about the underlying frauds that produced the crisis but the coverup from them. This takes us back to 2008 but first a little historical perspective way back to the Savings and Loan debacle where almost all of these fraud schemes were optimized, including the one Barclays is charged with committing.
S. Peries: Bill, not to preempt what you’re going to say but what are they exactly charged with and what do the investigations reveal?
Bill Black: What they’re charged with is a scam I was about to describe in which they lend money and the people that they lend the money to buy shares in Barclays. Then Barclays appears like it’s healthy and well capitalized. Then some additional fees go out to the people that got the loans and bought the stock as well, and then you add in false reporting where you don’t disclose what’s really happening. Indeed, you didn’t disclose the fees entirely for quite some time if you were Barclays.
Again, this is designed to make an institution that is deeply troubled, probably insolvent, appear like it’s such a vibrant institution that people want to buy stock in it, sophisticated people want to buy stock in it. Sophisticated people want to buy stock. The leading chumps, but not so much chumps because if the allegations are true, they were actually bribed, are the folks that are in the news recently. This is Gutter, the Arab state that has a lot of oil and a lot of neighbors that are very happy with it. It’s their investment office so basic scam. You got huge losses, you don’t want to reveal your losses. You want to make your bank appear healthy so the best way to do that is if other people who seemingly have no connection with you want to buy stock, which is after all the riskiest way to invest in your bank. That must indicate that you’re safe and sound.
This is part of the coverup mechanism of which an even bigger part was LIBOR. There were two LIBOR cartels, that’s the London Bank offering rate. The particular variant of this cartel that I’m referring to was designed to hold down the interest rate at which you appeared as a big London bank to be able to borrow funds. Again, the idea was, “Well gosh, if people are willing to lend you money that is not insured …” so this is a loan to a bank with no protection from deposit insurance. If they’re willing to make that loan at a seemingly pretty low interest rate and they’re the smart guys, the financially sophisticated folks, you must be in good shape or they wouldn’t have made the loan.
Well, except that’s not what was really happening. They, big banks including Barclays, were manipulating LIBOR to look safer. Well, this is another scam by Barclays to appear safer. They want to get money and because they have very large losses that they haven’t recognized and they realize that when the losses do get recognized they’ll be insolvent. Who to go to? Well, the gulf states with all of this oil money going, “What do we do with it, hey, here’s a great investment. We will pay you roughly …” The who, the you is a matter of still some speculation, “Roughly 400 million dollars as middlemen to arrange this loan.”
Now, another word for middlemen arranging the loan are the folks you’re paying the bribes to. Those folks arranged to get a big stock purchase done by Gutters Public Investment Fund. I’m talking about a really big purchase of stock, roughly 15 billion dollars in Barclay shares and twice in 2008, the first one in connection with Bear Stearns failure where everybody is now looking at the banks very suspiciously and Barclays wants to appear, “No, no, no, we’re not like other banks, we’re very safe. People want to buy stock in us.”
They arranged the first big sale in that connection with Gutter and then the second one when Lehman goes down which, by the way, in the movie about The Big Short there’s talk about how Barclays is going to come in and acquire Lehman Brothers because Barclays was safe and healthy.
S. Peries: Their scam essentially worked because I actually remember that period in which even [inaudible 00:07:43] newspapers ends up investing in Barclays.
Bill Black: Yes, it worked brilliantly. It’s just a small little matter that, a, they didn’t disclose this huge bribe and, b, they didn’t disclose that Barclays actually made a three billion dollar loan to the folks in Gutter so that they could actually purchase the shares and not use mostly their own money. You can leverage when you buy stock so you don’t need the full 15 billion in cash. That’s against the rules in most places. By the way, again, this was the scam optimized in the Savings and Loan debacle by the most notorious fraud, Charles Keating, with a variant of this in which he used a Kuwaiti investment office. There it was only a 300 million dollar project so they only paid a 30 million dollar fee and promptly began researching the foreign corrupt practices act which makes it a crime to bribe foreign officials. Um-va-la, their hotel which was a massive loss supposedly, “Look!”
Outside investors wanted to pay the equivalent of 300 million dollars for it, it must be a really good investment. As I said at the time, “We haven’t discovered the market price of the hotel, we’ve discovered the market price of the Kuwaiti prince controlling the Kuwaiti Investment Office. Okay. In Iceland this is why the heads of the three largest banks that ran their scams have been convicted. Again, it was a play in which the banks would loan the money and then the people would use the money to buy stock in the bank. That would make the bank, a, appear safe but, b, when you increase its capital it can grow massively, and that’s what these scams are all about.
Now, this is one of many, many, many scams. As I said, Barclays is the ace recidivist of the world that has committed literally tens of thousands of felonies and still gets to stay in business.
S. Peries: Bill, is this going to be another one of these situations in which they’ll be able to buy themselves out of the charges by paying some nominal penalty?
Bill Black: Almost certainly from the standpoint of the bank. Let’s be clear, Barclays has actually pled guilty to large numbers of felonies, it’s just that nothing serious happens. There’s the fine and the fine is sufficiently small that the next day the stock price rises. Indeed, the same day if it’s announced early enough, the stock price rises. Now, the individuals of course could be in more trouble. This is, as you said, the greatest hope that they might actually start prosecuting some of the individuals. Although I will tell you, one of the people they’re prosecuting is currently involved in a civil suit against Barclays where he says he was fired in retaliation for blowing the whistle on precisely this scandal.
S. Peries: Who is now complaining that he was the whistleblower who gave the British investigators the information they needed to pursue these cases, now are one of those who are being charged.
Bill Black: Right, but that isn’t the one that’s the absolute most fun. The absolute most fun is there’s also a civil suit by Abu Dhabi, another one of these gulf emirates, in which they basically say, “Hey, we bought stock in Barclays and we didn’t get this scam, it’s not fair, we should have been cut in as well on this deal.”
S. Peries: The victims in this case is definitely not the poor person who lost their home in the 2007-08 crises but really the heavy bank account holders who decided to invest and then also get paid in the process.
Bill Black: Right, and what has Trump just tweeted? He took credit for this gulf nations consortium against Gutter lead by Saudi Arabia and said that Gutter is this great source of funding terrorism. Well, one of the things Barclays has admitted is that it helped violate US sanctions on funding terrorism, sending money to terrorist nations, so why in God’s name does it still exist if Trump supposedly hates Gutter and hates all this support of terrorism? Why do these largest banks get off with an absolute slap on the wrist when they are, according to Trump’s own demonology, the epitome of all evil?
S. Peries: Bill, and on top of that I understand that Theresa May has promised to gut the British Serious Fraud Office, get rid of it. It will add to the fact that they won’t actually have the resources they need in order to prosecute this case anyway.
Bill Black: Yes. As I said, the Serious Fraud Office is not exactly all that Serious. Its first big corruption case it dropped at the insistence of the UK government because it turned out that the bribes went to the Saudi Royal Family. It was too embarrassing to bring the case which involved the sale of British weaponry to Saudi Arabia. Subsequently, there was report, in fairness, commissioned by the Serious Fraud Office to look at problems. They hired an experienced prosecutor who had become a judge in the United States to review. Her report famously said that the Serious Fraud Office had de facto decriminalized serious frauds in the United Kingdom.
Now, with all of that it is still their best hope and their only hope for prosecuting, and they have prosecuted more than the United States. Now, we all know the limits of that statement because the United States has ceased prosecuting senior bankers virtually. In the valley of the blind the SFO is the one eyed king or queen in all of this. You’re quite correct, Theresa May and the Tory’s in general have made clear for years their desire to eliminate The Serious Fraud Office because it keeps on occasionally investigating their friends and greatest campaign supporters. It is only Theresa May’s political weakness that has prevented her from actually plunging the knife finally into the SFO.
If any strong Tory gets into control as prime minister he or she will try to destroy The Serious Fraud Office.
S. Peries: All right, Bill. In case you were wondering any of you out there, that was the black comedy report. I thank you so much for joining us, Bill.
Bill Black: Life has become a tragic comedy.
S. Peries: Thank you for joining on the Real News Network.