Barclays Charged with Fraud: The Serious Fraud Office Raises the Stakes

Here in Financial Regulation Matters, we have discussed the Serious Fraud Office (SFO) on a number of occasions. Whilst this author has discussed the viability of the Office within a different regulatory framework, the most recent focus on the Office is arguably the most important issue with regards to the SFO. On the 18^th of May we looked at the Conservative Party’s pledge to dissolve the SFO and merge it into the National Crime Agency, something which was suggested represented the culmination of Theresa May’s incessant quest to quash the SFO stemming from her time as Home Secretary. Whilst the general election result puts the Conservative Party’s pledges up in the air, somewhat, yesterday’s announcement – one which was eagerly awaited – shows that the SFO, and its Director David Green, will not be going down with a whimper… far from it. Yesterday morning, the SFO announced that it has charged Barclays and four individuals associated with the Bank – John Varley (former CEO), Roger Jenkins, Tom Kalaris, and Richard Boath – with ‘conspiracy to commit fraud and the provision of unlawful assistance’. So, in this post, we will look more closely at the decision to press charges, but also expand our lens to look at what this potentially unprecedented move means for the SFO, for the regulatory framework, and for creating a deterrent for financial transgressions moreover.

As the Financial Crisis developed in 2007 and 2008, a number of banks faced the prospect of needing excess liquidity just to function, as was the nature of the so-called ‘credit crunch’. During this time, it was decided by British and American Treasury Officials that a program of ‘quantitative easing’ – more colloquially known as ‘bail-outs’ – was required and, as such, a number of banks accepted this taxpayer-backed liquidity for stakes in their organisations; we have discussed already how Lloyds Bank have just returned to the private sector after nearly a decade of public ownership (in part), whilst RBS represents the other end of the scale entirely. Yet, one notable bank refused the public investment and instead sought a private capital injection to survive the financial storm. In June 2008, Barclays turned to the Qatar Investment Authority for investment and, in conjunction with a number of other investors the Bank raised £4.5 billion to stave off the negative financial environment at that time. Yet, the original narrative was that the bank had just chosen to remain private and the Qataris had invested legitimately in a massive British banking institution, but this apparently was not the case at all. The SFO has nailed it colours to the mast by alleging that the bank and the investors were engaged in side-deals whose details were not made public, with the actualities being that at the same time the Bank received the investment from the Qatari investment vehicles, the bank promised to pay the investors £322 million in the shape of advisory services for ‘helping to develop business in the Gulf’, as well as providing a $3 billion load facility to the State of Qatar. The Financial Conduct Authority is conducting a parallel investigation into improper disclosure, but is awaiting the development of this much more serious case before proceeding, which underlines the seriousness of the SFO’s approach. This seriousness, and also the special nature of the developments, is perhaps better signified in numbers: John Varley faces a maximum of 22 years in Prison for his crimes, whilst the other defendants each face a maximum of 10 years in Prison, on top of a fine for the Company. Understandably, this action which essentially marks the only criminal investigation and charge relating to the Financial Crisis (institutionally speaking at least – lest we forget Kareem Serageldin) is sparking plenty of debate.

One analyst confidently stated that he does not expect the bank to ‘seriously penalised… for the sins of the preceding regime’, whilst one commentator argues alternatively saying that to focus on the timing of the crime, and the fact that the bank avoiding receiving taxpayer money, ‘misses the point’, with the ‘point’ being that SFO must prosecute on the evidence it sees. What is becoming a general theme however is the impressive courage being displayed by the SFO, with a Partner at Irwin Mitchell stating ‘taking on Barclays… sends a very strong message that the SFO is now fearless in terms of the companies and individuals it pursues’. This theme is similar to the one advanced here in Financial Regulation Matters months earlier: the SFO is steadily demonstrating that it has the capacity to stand up for justice in this transgressive arena and make moves which many regulatory bodies would steer clear from, for a number of negative reasons like the ‘revolving door’ theory. However, this praise that the SFO is garnering is consistently overshadowed by Theresa May’s crusade against it so, widening our lens ever so slightly, what does this dynamic demonstrate.

Theresa May was emboldened as she stood in front of Number 10 Downing Street, confidently calling the snap election. The accepted understanding was that the Conservative Party were so far ahead in the polls, and ahead of a Labour Party in disarray, that their leader could begin to really aim for her desired policies. It was in this confident mode that the Prime Minister made it clear that this non-ministerial department, one which had only recently made quite an impact with its investigations into Rolls Royce and Tesco, was not doing well enough and needed to be subsumed into the National Crime Agency. What this demonstrates is the sentiment behind Theresa May’s leadership and the Conservative Party she leads: it is not about National Interest, but curtailing efforts to apply the law and general rules evenly. The SFO is actually leading the charge against fraud, something which the U.K. is beginning to lead the world with in terms fraud within its borders, and as a result of that the Prime Minister wants to shut it down – the equation is simple and clear to see. Yet, these intimidatory tactics have, thankfully, failed. Whilst there is a real possibility that even with a conviction no one will go to Prison, the sentiment and constitution not to be bullied by those who champion private interests against the interests of the public, are to be praised. In April this author stated that the SFO could be the spearhead of a new regulatory framework, and the more it continues to pursue those who believe they are above the law, the more that proposition proves all the more sensible. If Theresa May does not survive the political cauldron she is currently inheriting, then the next leader of the Country must give the SFO more funds, not reduce it. It must give the SFO more than £30 or £40 million a year, because doing so sends an incredible message: there are people willing to uncover and punish fraudulent behaviour, and they have the resources with which to do so – the sooner that situation becomes reality and we move away from this private-interests-first narrative that is wreaking havoc in all walks of life, the better society will be.