Barclays bank, its former Chief Executive John Varley, and three of its other former senior executives have been charged with fraud by the Serious Fraud Office (SFO).
The charges relate to deals made with Qatar intended to raise £7 billion in funding during the financial crisis of 2008, and so, avoid the need to accept a government bailout similar to the support operation required to rescue both Lloyds and Royal Bank of Scotland. The support operation meant that the Labour Government acquired a minority shareholding in Lloyds and a large majority of the shares in Royal Bank of Scotland by injecting new capital into the banks.
The case is very significant for the SFO and the country, as the charges are the first to be brought against any UK financial institution arising out of the financial crisis. David Green, the current SFO Director appointed in 2012, defended this position in an interview in 2014, arguing that while the financial crisis may have involved examples of negligent or reckless behaviour by bankers, he needed evidence of dishonesty for a prosecution.
The outcome of the case will not only be significant for Barclays, and its former executives, where dishonesty is alleged, but could also affect the SFO’s future. The SFO faces significant uncertainty as the Conservative Party pledged in its 2017 election manifesto to abolish the Office as a separate entity and merge it with the National Crime Agency (NCA). Critics of this proposal argue that such a merger could lead to organisational problems as the NCA has a very wide remit to combat organised crime including child sexual exploitation, people trafficking, gun smuggling and cyber crime, and so the SFO could be in danger of losing its focus if subsumed within a much larger body. If the SFO were unable to function effectively within the NCA, then it is suggested that it could lose staff with significant expertise in prosecuting fraud.
“The case is very significant for the SFO and the country, as the charges are the first to be brought against any UK financial institution arising out of the financial crisis.”
The SFO has been attempting to improve both its public profile and its success rate in dealing with prosecutions after widespread criticism of its behaviour in recent years. In 2012, for example, the National Audit Office qualified the SFO’s accounts because of an “irregular” payment of £400,000 in voluntary redundancy costs made to a former Chief Executive Officer without Cabinet Office approval. Further, the SFO was humiliated by the bungled arrest in 2011 of property tycoons, the Tchenguiz brothers, who obtained millions of pounds in damages and costs in 2014 because of major flaws in the SFO’s arrest warrants.
A recent high-profile case involving manipulation of Libor interest rates brought mixed results for the SFO. In 2016, it obtained the conviction of four former Barclays staff for Libor-fixing, but a retrial of two former Barclays staff for rate-fixing in 2017 led to acquittals. Hence, the prosecution of Barclays in the Qatar case may be problematic, and it has been suggested that the SFO might have been wiser to attempt to adopt the US-style deferred prosecution agreements it agreed with Tesco and Rolls-Royce earlier in 2017. In such cases, companies agree to pay a fine, which needs to be agreed by a judge, in order to avoid a court case.
Many thanks to Robert for sharing his thoughts. Robert teaches on the Kent Business School BA Accounting and Finance programme. Find out more about Kent Business School undergraduate programmes.
Academic Blogger:
Professor Robert Jupe
Robert Jupe is Professor of Accounting and Public Management at Kent Business School. He worked as an accountant in the civil service before becoming an academic at Kent. He has a degree in Philosophy, Politics and Economics from Oxford University, and a PhD from University of Kent.