The reputations of both Barclays and the Serious Fraud Office have taken hits over the past few years. The two are locked in a high-stakes battle that could burnish or taint either’s credentials as the SFO probes the bank’s dealings with Qatari investors ahead of a 2008 emergency fundraising.
For Barclays, the ultimate risk includes a fine as part of a corporate prosecution. For some of its former executives in the crosshairs of the SFO, the ultimate sanction could be jail.
But any penalty would depend on what potential offence the SFO decides to focus on. That is why it is good news for Barclays and its former executives that the agency moved away from examining whether corruption took place when the bank looked to Qatar to shore up its balance sheet. Instead the SFO appears to be asking whether investors were properly informed about the deal. Corruption tends to carry higher penalties than disclosure violations.
“The SFO never used the c-word,” one person familiar with the investigation told the Financial Times, alluding to corruption. “They’re not totally ruling it out either, but they seem to be focusing more on whether false statements were made, or whether investors were misled.”
Barclays and the SFO declined to comment.
The bank turned to Qatar Holding, a subsidiary of the Qatar Investment Authority, and Challenger – an investment vehicle of Qatar’s former prime minister and his family – twice in 2008.
The SFO, for its part, has not had great success in prosecuting either companies or individuals for overseas bribery.
This has been particularly true of cases with a nexus in the Middle East: its investigation into alleged bribery in Saudi Arabia by BAE Systems was shut down in 2006 by Downing Street on national-security grounds; last year the prosecution of Victor Dahdaleh, who was accused of “large-scale corruption” in Bahrain, collapsed.
A criminal prosecution under the corruption laws dating from 1906 would require consent from the attorney-general but no such prerequisite exists for Companies Act and Fraud Act offences or those under Section 397 of the Financial Services and Markets Act, three pieces of legislation that the SFO is examining, according to the people familiar with the probe.
The uncertain outcome of the SFO’s probe against Barclays weighs on the bank at a sensitive time. Barclays has had to defend a series of regulatory findings and litigation despite a pledge to clean up its image by Antony Jenkins, who became chief executive in the wake of the Libor scandal in 2012. The SFO is still investigating the bank over alleged Libor-rigging too.
This week Barclays had to pay a record £38m to the Financial Conduct Authority for failing to safeguard clients’ money.
For John McFarlane, this month named as the successor to Sir David Walker, any outcome of the cash-call probe could be a key test when he takes up the chairmanship of the bank next year.
The FCA has already made findings against the bank over the 2008 fundraising and has said it wants to fine Barclays £50m, which the bank is contesting, for failing to disclose fees paid to Qatari investors.
According to the bank’s 2013 disclosure, the FCA said two agreements to pay a total of £322m over five years had been struck primarily for Qatar’s participation in the cash calls and not to obtain advisory services, as had been argued by the bank.
For the SFO, equally, the stakes of the investigation are high: with a general election looming next year, the taxpayer-funded agency is keen to burnish its credentials as a tough and successful investigator and prosecutor of complex, economic crime.
The Treasury gave the cash-strapped SFO an additional £2m in funding last year to pursue its probe into Barclays’ dealings with Qatar. The SFO’s next application to the Treasury for additional funding for 2015 is not due until November.
The fact that the SFO is even considering taking Barclays to court to resolve the issue of what it maintains is key evidence – and what the bank says is material properly caught by legal-professional privilege – was described by one legal expert as “extraordinary”.
Another, involved in the case, said: “While you typically hear of privilege issues being thrashed out in civil litigation, I have never heard of a prosecutor going to court on an LPP point ahead of charging.”
A timeline of the investigation into Barclays’ dealings with Qatar
Timeline: Qatari capital injection that drew SFO scrutiny
June 2008 Barclays calls on Qatari backers to invest £2.3bn to support a £4.5bn share issue
Oct 2008 UK government says banks, including Barclays, need to raise more capital,
Oct 2008 Barclays unveils terms of a fresh £7bn capital injection to boost its balance sheet but without British state aid. Existing shareholders are left out
June 2012 Barclays reveals that the Financial Services Authority is investigating whether the bank adequately disclosed fees it paid to Qatar Investment Authority when the sovereign wealth fund bought a stake in the bank
Aug 2012 The UK’s Serious Fraud Office opens a formal criminal probe into the issue
Oct 2012 Barclays discloses that £300m has been paid in fees and commissions as part of the deal in 2008, including £66m to Qatar Holding
Jan 2013 A new angle is probed by authorities, surrounding allegations that Barclays loaned Qatar money to invest in itself
July 2013 SFO secures additional government funding for its investigation into Barclays
Sept 2013 Barclays discloses that the UK Financial Conduct Authority wants to fine the bank £50m, a finding the bank disputes, for failing to disclose £322m in fees paid to Qatari investors as part of the cash call.
Apr 2014 Key former and current employees of the bank begin to be interviewed under caution by the SFO