Posted: December 12th, 2017
In a previous update, DE-Tenants.org explained how the Qatar Investment Authority (QIA) and the former Qatari Prime Minister bailed out Barclays bank in the midst of the 2008 financial crisis. Barclays’ £11.8 billion emergency cash-raising efforts have led to criminal charges and regulatory penalties, along with a whistleblowing claim from one of its most senior bankers and a $1 billion lawsuit filed by a financier with Persian Gulf connections.
Today we will discuss penalties levied by the UK’s Financial Conduct Authority.
At the time of Barclays’ first £4.5 billion cash-raising effort in June 2008, the bank also entered into a so-called advisory services agreement, or ASA, with Qatar Holding (a QIA subsidiary), for £42 million, in exchange for Qatar Holding’s agreement to help Barclays develop business in the Persian Gulf.
Barclays CEO John Varley signed the June ASA after it was approved by the Barclays board, according to a senior bank source speaking anonymously to the Financial Times. Per the FT, the ASA was disclosed in the approved prospectus of the June 2008 cash call, but the amount was not quantified.
FT reporting further disclosed that just prior to the second £7.3 billion cash call in November, Barclays again extended its ASA with Qatar in October, this time for much more: £280 million was promised. In short, at the same time that it was raising emergency funds, Barclays agreed to pay Qatar Holdings a total of £322 million (or $501 million) in advisory fees payable over a period of five years.
The October extension of the ASA was signed not by Varley but by Roger Jenkins, the friend of Qatari Prime Minister Sheikh Hamad bin Jassim bin Jaber al-Thani (HBJ), according to the Financial Times. The extension of the ASA did not receive Barclays’ board approval, per FT reporting, and it was not disclosed publically at the time of the announcement of the fundraising.
A partner in the November cash call named PCP Capital Partners and PCP’s principal Amanda Staveley would later argue in an 2016 lawsuit that the £322 million in advisory fees were a “sham” designed to repay the Qataris for their earlier June investment, and to induce them to invest once more in November. Barclays denies this, saying that the ASA was not contingent on the fundraising and associated advisory fees were paid to Qatar Holding for legitimate services.
Also under scrutiny is a £2.26 billion loan ($3 billion) to Qatar’s finance ministry, which Barclays agreed in November 2008 before the fundraising was completed. PCP Capital Partners alleges this had the effect of loaning money to Qatar to then reinvest—which would be an illegal propping up of a Barclays’ own shares. The bank says there was a clause prohibiting such reinvestment.
Investigation: Financial Conduct Authority
The UK’s Financial Conduct Authority took note of these events and launched a civil investigation in 2011. The FCA alleged that Barclays did not properly disclose the £322 million of advisory fees it paid Qatar Holdings following the capital raisings. In September 2013, the FCA delivered an early determination called a “Warning Notice” wherein the FCA fined Barclays £50 million ($62 million) because Barclays “acted recklessly”.
According to Barclays own 2016 Annual Report, the FCA warning notice concluded that “the primary purpose of the [£322 million] agreements was not to obtain advisory services but to make additional payments, which would not be disclosed, for the Qatari participation in the Capital Raisings.” Barclays has said it will contest the penalty, but the challenge was put on hold pending the outcome of a parallel criminal investigation launched into the advisory fees by the UK Serious Fraud Office in 2012.
The FCA may be reconsidering its warning notice, potentially intending to change its conclusions and fine after the release of 100,000 pieces of documentary evidence by Barclays to the SFO. Barclays previously claimed the evidence was covered by legal professional privilege, which keeps confidential the advice between lawyers and clients, even during investigations. It is rare for the regulator to open a case after reaching a warning notice. It can do so if more facts or evidence are unearthed. (SOURCE)
Pending the FCA’s re-opened investigation, it has not published a “Final Notice” of its conclusions and evidence. However, other documents and Final Notices published by the FCA and its predecessor organization can be read HERE. They include an agreement for Barclays to pay £59.5 million after Barclays admitted that its traders and executives tried to manipulate Libor, an interest rate tied to loans and financial contracts around the world. Ultimately, Barclays would pay $450 million for rigging Libor, including penalties paid to American regulators.
Part 3 of this series will explain how the UK Serious Fraud Office filed criminal charges against Barclays Plc and four former employees.
- Barclays Series (Part 1): Qatari Deal with Barclays Leads to Penalties & Criminal Charges
- Barclays Series (Part 2): Barclays Fined by UK’s Financial Conduct Authority
- Barclays Series (Part 3): UK’s Serious Fraud Office Announces Criminal Charges Against Barclays & Former Employees
- Barclays Series (Part 4): Barclays Investigated by Americans Under Foreign Corrupt Practices Act
- Barclays Series (Part 5): Barclays Sued by PCP Capital Partners in a $1 Billion Lawsuit
- Barclays Series (Part 6): Barclays Employee Files Whistleblower Claim
- Barclays Series (Part 7): Barclays Breaks Finance Due Diligence Rules for Qatari Prime Minister