January 2019 marked the commencement of the first criminal trial of senior UK banking executives since the financial crisis in 2008. The trial involves the prosecution of former CEO of Barclays Bank PLC, John Varley, and three other former executives of Barclays PLC and Barclays Capital, Roger Jenkins, Thomas Kalaris and Richard Boath. There are two charges of conspiracy to commit fraud by false representation that the defendant’s face.
The case relates to Barclays’ capital raising arrangements, which took place in June and October 2008, and the fees paid to Qatar under advisory service agreements. It is alleged that the arrangements helped Barclays to avoid a government bailout during the financial crisis, unlike Royal Bank of Scotland and Lloyds TSB that had to accept tax payers’ money to avoid collapse. It is further alleged that the bank’s employees were dishonest and lied to the market about the fees paid to Qatar over the course of the two fundraisings in 2008.
Advisory Service Agreements (ASAs) are contracts entered into by a corporation and its advisor and should set out the expectation of the relationship, the work to be performed on behalf of the advisor and compensation they shall receive. The Barclays agreement purported to pay Qatar in exchange for strategic advice in the Middle East. If this was correct then there would be no issue for Barclays and its employees entering into such agreements. However, it is the SFO’s case that in these circumstances, those agreements were a sham to disguise payments being made to Qatar, despite no services being provided, as Qatar demanded the payments for the investments that had been paid into Barclays. If no services were provided under the agreement then the payments could amount to bribery, as it appears that there would be no legitimate reason for the bank to go to such lengths to disguise these payments.
All four defendants deny any wrongdoing, there is also no allegation of wrongdoing by Qatar made by the prosecution, however, if the jury conclude that there has been a fraud then it must follow that Qatar knew they were being paid vast amounts of money when they were not providing any services under the ASAs, and potentially demanding corruption payments. The trial is expected to last four to six months and if the former executives are convicted, they are going to be subjected to long and complex confiscation proceedings – it is reported that in 2008 bonuses of up to £25million were received by the bank’s employees.
The banking group, Barclays, was previously a named defendant in criminal proceedings, but that case was dismissed by Southwark Crown Court last year, a decision which was upheld by the High Court – the reasons for those decisions are subject to reporting restrictions. Despite the reprieve from the criminal proceedings, Barclays still faces a £1.5bn civil case, due to start in October 2019.
This is a significant prosecution. It is not only the first criminal trial of UK bank bosses since the financial crisis but also the first case of a banking group itself being prosecuted since the crisis. There will be questions raised as to whether it will set a new precedent for future investigations and prosecutions.
The case demonstrates that those at the top will not be able to hide behind the financial institution that they are employed by and that they can be held accountable for their part if any criminal activity is suspected, and later proved. Given the precedent this may set, it could mean that those at the top think twice before stepping into a ‘grey’ area given that this case demonstrates that senior officials are not immune to investigation and prosecution, and it may give the general public greater confidence in those looking after their money.
However, the SFO will be under pressure to deliver in this case given the embarrassment caused by the discontinuance of the prosecutions against Barclays and the Tesco directors last year and the limited convictions in previous banking cases, including Libor.
The case continues.
Marie Bourke is a senior associate at Russell-Cooke