25 June 2017 — TRNN
The charges filed by Britain’s Serious Fraud Office against Barclays Bank executives are unprecedented explains Ian Fraser, author of “Shredded: Inside RBS The Bank That Broke Britain”
Ian Fraser is a UK-based journalist and author. His best selling / acclaimed book Shredded: Inside RBS The Bank That Broke Britain tells the story of the global financial crisis through the prism of the collapse of the what was briefly, in 2007-8, the world’s largest bank by assets, The Royal Bank of Scotland Group PLC.
Sharmini Peries: It’s The Real News Network. I’m Sharmini Peries coming to you from Baltimore.
In the UK on Tuesday, the Barclays Bank and four of its former senior executives were criminally charged following a five-year investigation by the British Serious Fraud Office. The charges pertained to undisclosed payments to Qatari investors related to a £12 billion emergency fundraising venture that took place in 2008. The bank itself has been charged with conspiracy to commit fraud by false representation and unlawful financial assistance.
The four senior Barclays executives charged are John Varley, Roger Jenkins, Thomas Kalaris, and Richard Boath. The men are the most senior bankers in Britain to date to be accused by government prosecutors of alleged crimes during the financial crisis, which brought the global financial system to its knees and plunged much of the world into a recession.
Joining us today to discuss what appeared to a historic criminal charges against Barclays and its senior executives is Ian Frasier. Ian is a UK-based journalist and author. His best-selling book is Shredded: Inside RBS, The Bank That Broke Britain tells the story of the global financial crisis through the prism of the collapse of what was briefly in 2007 to 2008 the world’s largest bank by asset holdings. Ian, thank you so much for joining us today.
Ian Frasier: Very good to speak to you.
Sharmini Peries: Good to have you, Ian. Ian, let’s start off with what we know about the investigations, what they were about, what the prosecutors found, and how it all came about.
Ian Frasier: Okay. This dates back to June to October 2008 when Barclays, at that time led by Chief Executive John Varley, was desperate to avoid the clutches of the Labour Government led by Gordon Brown and Alistair Darling. At that particular time, the banking sector was in the state of total crisis, in meltdown, and the UK government was trying to basically see what it could do to rescue the banking system. It wanted to actually provide bailout money to all the British banks in order there was no stigma attached to the banks which did not take state-funded bailouts.
But Barclays actually, it didn’t turn up at one of the critical meetings. They basically cold-shouldered one of the critical meetings that the government was holding at that time, and they told the government that instead they were going to raise money from Middle Eastern investors, notably in Abu Dhabi and Qatar, instead of taking any funding from the UK taxpayer.
The reason why they wanted to do this was they wanted the freedom to pay themselves the same level of bonuses as they had grown accustomed to under private ownership, and they feared that if they were to become state-owned like RBS, HBOS, Lloyds Banking Group, et cetera, they would’ve been constrained in their ability to pay themselves the same level of bonuses to which they were accustomed. Also, they felt that being state-owned or part-state-owned would limit their freedom of maneuver in terms of the sorts of activities they could get up to.
So arguably, they were doing the UK taxpayer a good turn. They were going to alternative sources of funding, and some of the few that were available at that time were located in the oil-rich emirates of the Gulf.
Sharmini Peries: Right. If I remember this period clearly, I actually remember Barclays turning out to be one of the better respected … The fact that they weren’t relying on bailout money and all of that meant more people were interested in buying their shares, and the company actually grew. I remember McClatchey actually bought big shares of Barclays at the time.
Ian Frasier: I think Barclays was regarded in a slightly better light and was regarded as being better-managed and had been less reckless in its lending and in some of its other activities than, say, RBS, which was like the poster child for excess in the UK. But there were lots of hidden problems, which really only emerged afterwards, scandals in which Barclays was subsequently revealed to have been involved including the libel scandal, which emerged in June 2012. So even though at the time it probably did have a slightly better reputation, under the surface there was a lot of bad stuff going on within Barclays.
Sharmini Peries: Let’s be clearer about this, Ian. The charges that these executives are being charged with and the bank is being charged with, they’re related to the criminal activity, and they’re also related to the financial crisis or not?
Ian Frasier: Well, they are related to both. They’re related to the financial crisis in that this was alternative funding it was seeking in order to survive basically. It had to find new capital. So that was directly caused by the financial crisis and the meltdown in asset values that was going on at the time.
In terms of criminal behavior, the charges relate to two main strands of alleged criminality by the four executives and by Barclays itself. These are conspiracy to commit fraud by false representation, that relates to the payment of what are sometimes called consultancy fees but actually which some people call kickbacks/a bribe, which was a £322 million payment that was made by Barclays to the Qatari investors in exchange for the money which they were providing. So that is criminal under UK law to provide a financial inducement or a kickback which basically persuades someone to do something which they might not otherwise have done.
The other main area of alleged criminal behavior relates to unlawful financial assistance under Section 51 of the Companies Act 1985. Basically what that means is the allegation is that Barclays and the four individuals were secretly providing a loan of about £3 billion to the Qatari investors in exchange for them providing the funding, which means it was a financial merry-go-round. There was money being lent by Barclays, which was then being pumped back into preference shares by the Qatari investors who, by the way, include Qatar Holding, which is part of the Sovereign Wealth Fund of Qatar, and Challenger Universal, which is a fund of the former prime minister of Qatar, his personal investment fund.
So, yeah, there’s two main allegations. One, that they paid what is essentially a bribe to get the funding, which was £322 million, and secondly, that Barclays and the four executives who’ve been charged yesterday also provided the secret loan or covert loan, which was essentially being recycled back to enable the funding.
Sharmini Peries: Ian, in 2006, the Serious Fraud Office famously terminated an investigation into bribery payments to members of the Saudi royal family involving a multi-billion dollar arms deal. Can you describe to us the potential parallels between that case and maybe this case, and will these charges … I must say the Qataris have a way of flexing their muscles when it comes to the UK. Will these charges involve them in some way or not?
Ian Frasier: They haven’t been charged, but I do think there are a lot of parallels because back in, I think it was 2006, the Saudis basically threatened that all hell would break loose, and they would unleash terrorism within the United Kingdom if the Serious Fraud Office continued to investigate the alleged bribes that the Saudi royal family and other senior Saudis had been paid as part of the Al-Yamamah defense contract or arms contract involving BAE Systems.
This was a huge scandal in Britain at the time. The Serious Fraud Office is meant to be an independent agency, but unfortunately they were pressurized by the government of Tony Blair at that time to basically relinquish their probe. That is even though the Saudis weren’t being investigated. The investigation, I think, involved mainly the actors in that scandal who weren’t necessarily Saudi themselves. But I think they were worried that it was going to taint the image of their country, and it was going to have a damaging effect on their reputation as a country and as a ruling family. So that particular thing was basically stopped.
With this one, there are loads of parallels, but I don’t think the Qataris have the same clout or they don’t have the same political clout as the Saudi Arabians have over the UK government. So it’s less likely in my … I’m not an expert on geopolitics, but it’s perhaps less likely that they would be able to shut this one down.
Sharmini Peries: Right. Ian, as I said in the intro, this is unprecedented to have charges brought against the senior members, executives of a bank like this. Who are the victims in this case? Why are these charges being brought about? Because usually when the victims are actually homeowners or people losing their savings and so on, it is unlikely these kinds of charges are usually brought on the senior executives of a bank, but the victims here must have something to do with this particular set of charges.
Ian Frasier: The victims are not so obvious in this case. It’s not clear exactly who suffered as a result of the alleged crimes, but arguably the ordinary shareholders of Barclays did suffer a bit because they were having to pay over the odds for the funding which the bank occurred.
But arguably, they also benefited because it enabled the bank to escape the clutches of the British government, and it enabled Barclays to avoid being a state-owned bank, which is what happened to Royal Bank of Scotland, HBOS, and Lloyds. So to some extent, they got more of an upside because the share price of Barclays and the performance of Barclays did recover much better than those of the banks which were nationalized or part-nationalized.
There’s no other obvious victims. There’s no homeowner or there’s no small business or there’s no other third parties that I can think of who have lost out as a result of the alleged crimes.
Sharmini Peries: Right. Ian, I understand that Theresa May has pledged to abolish the Serious Fraud Office and empower the National Crime Agency instead. Tell us about the thinking behind this and what it means.
Ian Frasier: It would be a very unwise move on her part to close down the Serious Fraud Office because the Serious Fraud Office is far from perfect, and it’s repeatedly been called the “Serious Farce Office” by a satirical magazine called Private Eye because it makes so many mistakes, and it screws up so many investigations, but overall, it’s healthy to have an independent body looking into high-level, serious financial crime and fraud. If it were to come under National Crime Agency, which is what Theresa May proposed in her election manifesto, it would be more subject to political interference, and it would be less likely to pursue these sorts of things.
At the moment, it’s pursuing people who gave money to the Conservative Party, for example. Major donors to the Tory Party are being probed for fraud by the Serious Fraud Office. One cannot imagine that happening in the event of it becoming a branch of the state-controlled National Crime Agency.
So I personally doubt she will be able to do it because I think she now has a weaker control over the government and over the political situation here in the UK as a consequence of the recent general election where she lost her majority. So for her to get acts through Parliament is now far more of a struggle than it was before the 8th of June election, or was it the 6th of June, I lose track of the date.
Sharmini Peries: The 8th of June.
Ian Frasier: Okay.
Sharmini Peries: Here I’m on the other side of the pond.
Ian Frasier: Yeah. So, yeah, Theresa May is really … She’s been described as a dead woman walking by her former chancellor, George Osborne, who’s now a newspaper editor, and I think he’s right. She has not got the electoral mandate or the sufficient majority within the House of Commons to push through certain types of legislation. I think the abolition of the Serious Fraud Office may well be one of the things she has to drop.
Sharmini Peries: Ian, tell us about the Barclays former executives that have been charged. What are they doing now? Did these charges come out of the blue for them?
Ian Frasier: Okay. There’s four in total. There’s John Varley who always used to wear red braces, very much in the style of Gordon Gekko. He was chief executive of Barclays Bank. He’s retired now. He’s married to a woman who was from one of the founding families of Barclays, so he’s very much an establishment figure, and he was almost seen as beyond reproach until about 2008. So it’s a major blow for him.
We’ve got Roger Jenkins who’s know as, allegedly, “Roger the Dodger” because he set up the Barclays Structured Financial Products division, which was essentially a tax-avoidance factory, which was used by corporates and wealthy individuals to avoid tax using complex tax arbitrage. He was also known as “the King of the Double Dip.” He’s a playboy, and he’s a former sprinter who sprinted in the Commonwealth Games in 1974 racing for Scotland.
Fourthly, we have Tom Kalaris who is a US citizen. He was educated at Penn, sorry, in Pennsylvania at Dickinson College. He started his career at J.P. Morgan, and then he moved to Barclays in about ’96. He ran Barclays Wealth in the US where there’s lots of stories about alleged wrongdoing under his leadership. I’m not quite sure what he’s doing now, but I think he’s based in London.
Last but not least, we have a guy called Richard Boath who was head of Barclays Financial Institutions Group. Richard Boath actually was a whistleblower. He was fired by Barclays in 2012 for providing information to the Serious Fraud Office in relation to this inquiry. So basically, Boath is pretty angry that he has helped the Serious Fraud Office in providing them with information related to the alleged crimes and the alleged offenses, and yet they have now chosen to charge him.
So he’s actually not a happy man, and he says he will vigorously defend the charges. He basically believes that he’s been falsely accused. That’s Richard Boath. The others have been pretty silent. I think one of them has said they will defend the charges. The others have not commented on whether or not they wish to defend the charges.
Sharmini Peries: Right. All these years have gone by, have they been expecting these charges to come about?
Ian Frasier: I think they were well aware the Serious Fraud Office has been investigating their role since 2012, but like with all of these things, they must’ve been hoping that the SFO would drop the inquiry because it often happens. So I guess they were like 50/50 thinking, “Maybe we’ll get charged, maybe we won’t.” But obviously the bad news dropped for them yesterday, 7:00 in the morning.
Sharmini Peries: All right, Ian, I thank you so much for joining us today.
Ian Frasier: Okay. Good talking to you.
Sharmini Peries: And thank you for joining us here on The Real News Network.