The SFO website can be really quite helpful.
Their uncompromising mission statement reads;
"...Our aim is to protect society from extensive, deliberate
criminal deception which could threaten public confidence in the financial
system. We investigate fraud
and corruption that requires our
investigative expertise and special powers to obtain and assess evidence to
successfully prosecute fraudsters, freeze assets and compensate victims..."
Its criteria for taking on an investigation are clear and precise. They
state:
"...We only take on the most significant
cases and the key factors we consider before taking on a case
are..."
·
Does the value of the alleged fraud exceed £1
million?
·
Is there a significant international
dimension?
·
Is the case likely to be of widespread public
concern?
·
Does the case require highly specialised
knowledge, for example, of financial markets?
·
Is there a need to use the SFO's special
powers, such as Section 2 of the Criminal Justice Act?
In addition to the above criteria we
look for factors such as:
·
Whether the case involves or is linked to
organised crime.
·
Whether the fraud will impact on the integrity
of the financial market.
·
Whether there is a wider group than
shareholders or creditors who have lost money as a result of the alleged fraud.
·
Whether the fraudsters have targeted financial
institutions and government (local or central) or other public serving authorities.
·
Whether the case involves multiple countries.
·
Whether the evidence to be obtained during the
course of the investigation will be found in multiple locations (within the UK
or in other countries).
·
Whether the case involves multiple and complex
financial transactions, for example involving many companies, accounts,
Trusts and countries.
·
Whether the investigation will need to involve
a large accountancy analysis.
Imagine
therefore how the main board members at Barclays Bank must be feeling right
now, in the knowledge that the SFO are investigating them yet again. If I were
a middle ranking employee at this criminogenic bank, I would be wondering how
much longer I could bear to go on working there. If I were a junior working on
the counter, I would find it very difficult to look my customers in the eye. If
I were a customer, I would be seriously asking myself if I should move my
accounts! I mean, this is getting silly, how many criminal investigations do
you need to have before someone gets the idea that this institution is just a
nest of crooks?
It seems that
every time you open a newspaper, Barclays are being investigated for yet
another criminal allegation. There is already one major SFO investigation going
on into the criminal manipulation of the LIBOR interest rate. Now, the SFO have
announced another investigation into payments between
Barclays and Qatar Holding, adding to an already ongoing regulatory
investigation into dealings between the two parties. It relates
specifically to fees paid to the Qatar
Investment Authority on deals in June and November 2008, when Barclays raised
11.5 billion pounds.
Barclays said on Wednesday
that the Serious Fraud Office (SFO) started an investigation into
"payments under certain commercial agreements" between it and Qatar,
confirming an earlier report. The Financial Services Authority
(FSA), Britain's financial watchdog, is already investigating the bank and four
current and former senior employees, including finance director Chris Lucas, on
whether sufficient disclosures were made about the fees it paid in a 2008
capital raising.
The SFO probe differs as
it is examining the bank, rather than the bank plus four individuals. The bank did not reveal
which payments between it and Qatar were being investigated by the SFO,
although the FSA is expected to share information with the SFO that it has
obtained, and both are expected to ask for further information from the bank.
Qatar Holding, the entity
involved in the investigation, is a unit of the Qatar Investment Authority,
which is the largest shareholder in Barclays with a 6.65 percent stake,
according to Reuters data.
The bank is
already staggering
after being fined £290 million by British and U.S.
regulators in June for rigging Libor interest rates, sparking criticism about
its culture and risk-taking and forcing its chairman and chief executive to
quit.
In July 2012, Barclays admitted that the FSA had started an independent investigation
into the Bank on the topic of fee payments, when the bank admitted its
finance director Chris Lucas was one of four current and past employees being
scrutinised over the fundraising. The bank said at the time that it had
satisfied its disclosure obligations and that it will co-operate fully with the
FSA.
The investigation by the FSA will now run alongside that of the
SFO, which is understood to involve a broad look at the company's conduct with
the Qataris. The Guardian is quoted as saying '...A source close to the inquiry said:
"The SFO is looking into the role of the company [Barclays]. I wouldn't
discount anything..."
In June 2008, Barclays raised
£4.5bn through an issue of new shares and in November 2008 it raised more than
£7bn. Much of the focus appears to be on information provided in the June 2008
fundraising that describes "an agreement for provision of advisory
services" by Qatar to Barclays in the Middle East.
Qatar Holding
is a unit of the Qatar Investment Authority, which is the largest shareholder
in Barclays with a 6.65% stake, according to data compiled by Reuters.
The June
fundraising outlined an agreement "to explore opportunities for a
co-operative business relationship" with Sumitomo Mitsui Banking Corporation
of Japan. The fees disclosed for this fundraising totalled around £100m.
In the November 2008 fundraising,
Barclays provided five separate disclosures of fees that amounted in total to
around £300m. The Daily Telegraph of 30th August discloses that a figure of
£110 million was paid to Sheikh Mansour Bin Zayed al Nahyan an Abu Dhabi royal,.
One of the Middle East investors who helped Barclays avoid a government bailout in 2008, the sheikh effectively sold his remaining stake in the bank in October 2010 after cashing in a total profit of about £2.25bn. Sheikh Mansour was one of three Gulf investors who helped Barclays raise £7bn in 2008 at the height of the financial crisis. The cash injection, the bulk of which came from Qatari investment vehicles, helped persuade the UK Government that Barclays could survive without a state bail-out.
The revelation of these payments were tucked away at the bottom of
page 87 of Barclays’ results.
"...Under
other disclosure matters the statement was made that "...The FSA has
commenced an investigation involving Barclays and four current and former
senior employees...The FSA is investigating the sufficiency of disclosure in
relation to fees payable under certain commercial agreements and whether these
may have related to Barclays capital raisings in June and November 2008.
Barclays
considers that it satisfied its
disclosure obligations and confirms that
it will cooperate with FSA's investigation..."
So what might
this be talking about? It appears to relate to the two big capital raising
exercises by Barclays in June 2008 and October / November 2008, when the bank
raised nearly £12bn
This money came primarily from
sovereign wealth funds and, in particular, from Qatar Holding and Sheikh
Mansour Bin Zayed Al-Nahyan, a member of the Abu Dhabi royal family who in his
spare time just happens to own Manchester City football club.
The first £4.5bn capital raising
in June 2008 was controversial because it largely bypassed existing investors
and instead raised more than £1.7bn from Qatar Holding, as well as significant
amounts from Sumitomo Mitsui Banking Corporation, China Development Bank and
Temasek Holdings, the Singaporean fund.
The second deal, announced at the
end of October 2008 and completed in November was more controversial – in
particular because the bank paid hundreds of millions of dollars in fees to
three investors in exchange for their investment of around £5.4bn in Barclays,
on top of the punitively high cost of the funding exercise.
Barclays raised £4.3bn in
‘mandatory convertible notes’ of which £2.8bn was taken up by Sheihk Mansour,
Qatar Holding, and a company called Challenger (a Qatari vehicle set up in the
British Virgin Islands for the express purpose of investing in Barclays), and
which paid out a lucrative 14% coupon.
It also raised £3bn of ‘reserve
capital instruments ‘ – effectively warrants – from Qatar Holding and Sheikh
Mansour, which paid out 9.75% in the short-term.
These two issues came with some
very unusual fees attached.
Qatar Holding
received £12 million, Challenger
received £12 million and Sheikh Mansour received £112 million by way of
commissions for investments they had agreed to make.
Qatar Holding
and Sheikh Mansour each received a further £30m million each as commissions for
other investments they agreed to make.
Qatar
Holdings received a fee of £66 million for arranging certain subscriptions.
Credit
Suisse and JP Morgan Cazenove each received £11.3 million in fees.
The two
banks each received a further £900,000 each for assisting Barclays.
Quite why Barclays felt they had to pay these huge fees in
exchange for the three investments in Barclays on extremely generous terms is
not clear. It is unusual to say the
least, investors don’t normally get paid
sweetheart fees for the privilege of investing in something on which they
expect to realise a vast profit.
These fee payments could only have been agreed at the very highest level of the bank, indeed it was the culture in the bank to refer every contentious decision upwards to the top. Speaking exclusively to The Independent in July 2012, a former senior Barclays employee exposed the “culture of fear” that operated at the bank.
It is certain that Bob Diamond would have
been aware of his subordinates' activities in making these payments.
Speaking on condition of anonymity, the banker said
that senior Barclays bosses would have been told about every important issue
such as Libor concerns and other important matters because staff were drilled
to pass anything untoward up to their managers. Failure to do this meant the
sack.
"Libor fixing (as well as all important decisions) was
escalated by several people up to their directors, they would then have
escalated it up the line because at Barclays if you don't escalate, and it is
found out that you haven't, it is grounds for disciplinary action. You will be
dismissed."
The banker also describes the dark side of working for Mr
Diamond's bank. He spoke of management by intimidation, even physical threat,
punishing hours and a ruthless grading system that left workers in terror of
their annual appraisals. Employees were often reduced to tears by the end of a
day, but only when they had departed from the building. Such weakness would not
be tolerated inside.
It is not
hard to understand why ordinary workers, fearful for their jobs in a time of
serious recession would sooner turn a blind eye to anything untoward rather
than get involved by bringing themselves to notice.
So there you
have it. What we do know is that Barclays paid a total of around £400 million
in fees to raise capital to support their balance sheet in 2008, instead of
having to rely on British Government funding, in a way similar to that which
shored up RBS. Asking the Government for financial help would have tied their
hands considerably in terms of continuing to make their own investment decisions,
and would have subjected their business dealings to some significant scrutiny
and inquisitive oversight. Raising the money independently from helpful
shareholders was probably a more palatable option.
What we do now
know is that there are alleged suspicions surrounding those payments, so
serious as to demand the special investigatory powers of the SFO to be
employed. We also know that the SFO only intervenes in the most serious of
financial crime cases, particularly in cases of fraud and corruption, where
their " aim is to protect society from extensive,
deliberate criminal deception which could threaten public confidence in the
financial system..."
Hmmmmm!
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