By Philip Mattera
Barclays was riding high a few years ago, after it emerged largely unscathed from the financial meltdown. But starting in 2010 the UK bank has been enmeshed in a series of legal and regulatory scandals involving violations of economic sanctions against countries such as Iran and illegal manipulation of the LIBOR interest rate index. In 2015 it pleaded guilty to a U.S. criminal charge of currency market manipulation and paid some $2.4 billion in fines but was allowed to stay in business.
Barclays, which dates back to a Quaker goldsmithing and banking firm founded in 1728, became a significant force in 1896, when 20 banks merged to form Barclay and Company. A series of additional mergers in the early 20th Century made Barclays one of the largest banks in Great Britain. During this period it also built an extensive international banking network. Decades later, that network reached the United States, where Barclays formed a bank in California in 1965 and one in New York in 1971.
It had also reached South Africa, but in 1986 Barclays gave in to pressure from the anti-apartheid movement and sold its operations in the country, the first British company to do so. (In 2002 Barclays was among a group of large companies sued for reparations by apartheid victims under the U.S. Alien Tort Claims Act; the case has dragged on for more than a decade.)
Barclays began the 1990s in expansionist mode, but its rising losses from bad loans forced it to retrench by divesting assets such as its U.S. retail banking network and eliminating some 18,000 jobs, mostly in the UK. It also sold off much of its investment banking business.
Losing a Takeover Battle Pays Off
In 2007 Barclays sought to grow once again by making an aggressive bid to take over the Dutch bank ABN AMRO. Yet it was outbid by a consortium led by the Royal Bank of Scotland. Losing that battle turned out to be a godsend, since it allowed Barclays to better survive the ensuing financial crisis. While the over-extended RBS had to be bailed out by the British government, Barclays avoided that stigma and was in a position to purchase the core capital markets businesses of Lehman Brothers for a fire sale price. Barclays did, however, benefit indirectly from the bailout of AIG by the U.S. government, which allowed the insurance firm to pay fully pay off obligations such as the $8.5 billion owed to Barclays.
Barclays ended up doing less well on the regulatory and legal fronts. In 2007 the bank had to pay $10.9 million to settle insider trading charges relating to the sale of distressed bonds. In 2009 the UK Financial Services Authority fined Barclays £2.45 million for failing to submit accurate transaction reports. That same year, the estate of the bankrupt Lehman Brothers filed suit against Barclays, alleging that it received a windfall in the purchase and seeking $10 billion in damages. (The suit was later dropped.)
In 2010 Barclays had to agree to pay $298 million to the U.S. government and New York State to settle charges that it violated the International Emergency Economic Powers Act and the Trading with the Enemy Act in its transactions with sanctioned countries such as Iran and Sudan. Barclays admitted responsibility for its criminal actions—which were said to involve transactions worth hundreds of millions of dollars—but was offered a deferred prosecution agreement. The judge in the case was not impressed by the size of the settlement, calling it a “sweetheart deal,” but he ended up approving it.
In January 2011 Barclays chief executive Robert Diamond called for an end to criticism of the banking industry, telling a parliamentary committee: “There was a period for remorse of banks but I think this period is over. The question for us is how do we put some of the blame game behind us.” A week later the Financial Services Authority fined Barclays £7.7 million and ordered it to pay about £60 million to customers for numerous abuses in the sale of high-risk investment funds. Shortly thereafter, the FSA fined Barclays another £1.12 million for failing to protect and segregate money market customer funds.
In May 2011 Barclays and other British banks said they would not challenge a court ruling requiring them to compensate customers who had received improper advice when purchasing payments protection insurance, which was supposed to cover debt repayment in the event of illness or unemployment. Barclays said it would put aside £1 billion to cover compensation costs. In September 2011 the Federal Housing Finance Agency sued Barclays and 16 other financial institutions for violations of federal securities law in the sale of mortgaged-backed securities to housing finance agencies Fannie Mae and Freddie Mac. The case is pending.
In October 2011 Barclays agreed to pay $23.7 million to settle a shareholder lawsuit charging that it mismanaged the leveraged buyout of Del Monte Foods, which agreed to pay $65.7 million to the plaintiffs. In December 2011 Barclays was sued for €82 million for allegedly using confidential information from a potential client to complete the 2010 takeover of the Swedish carbon trading company Tricorona. Barclays later sold Tricorona, but the case continues. That same month, the U.S. industry regulator FINRA fined Barclays Capital $3 million for misrepresenting delinquency data and exercising inadequate supervision in connection with the issuance of residential subprime mortgage securities in the period from 2007 to 2010.
In February 2012 UK Treasury officials blocked Barclays from implementing what they called “highly abusive” tax avoidance schemes that could have resulted in the loss of some £500 million in public revenue. (Barclays had earlier come under criticism for paying only £113 million in UK corporation tax in 2009, a year in which it posted £11.6 billion in profits.)
In April 2012 Barclays was sued in a U.S. court by Germany’s HSH Nordbank, which accused it of defrauding investors by failing to disclose that the underlying loans in three mortgage-backed securities had not been properly transferred to investment trusts. The case, in which HSH and the other plaintiffs asked for $46 million in damages, is pending.
The LIBOR Fiasco
The biggest blow to the reputation of Barclays came in June 2012, when it had to agree to pay $450 million to UK and U.S. regulators to resolve allegations that it was involved in the illegal manipulation of the LIBOR and Euribor interest rate indices. The settlements included a $200 million penalty payment to the U.S. Commodity Futures Trading Commission (the largest in the agency’s history); a $160 million penalty payment to the U.S. Justice Department, which agreed to a non-prosecution agreement; and a fine of £59.5 million imposed by the Financial Services Authority, which put out a statement saying that “Barclays’ misconduct was serious, widespread and extended over a number of years.”
In the wake of the case, Barclays CEO Bob Diamond resigned, but in a subsequent appearance before a parliamentary committee he denied “personal culpability” and sought to cast blame for the LIBOR fiasco on regulators. In their testimony, officials from the Financial Services Authority accused Barclays of “gaming us.” Diamond was forced to forgo up to $31 million in stock bonuses. A parliamentary report issued in August 2012 questioned the accuracy and completeness of Diamond’s testimony.
During this time Barclays confirmed reports that it was being investigated by the UK Serious Fraud Office in connection with fees that were paid by the bank when it turned to Middle East sources such as the Qatar Holding sovereign fund for capital infusions during the financial crisis of 2008. Barclays later disclosed that the U.S. Justice Department and the SEC were investigating possible violations of the Foreign Corrupt Practices Act in connection with the payments. And yet later, it was reported that Barclays had lent money to Qatar to invest in the bank so that it could avoid an embarrassing government bailout.
In November 2012 the U.S. Federal Energy Regulatory Commission accused Barclays traders of manipulating electricity prices in the period from late 2006 to the end of 2008 and proposed a civil penalty of $435 million plus $35 million in disgorgement. Barclays has been disputing the charge.
Faced with these problems, the new Barclays CEO, Antony Jenkins, told his staff in early 2013 that those who were not willing to help clean up the bank’s image should leave the bank. “My message to those people is simple,” Jenkins said. “Barclays is not the place for you. The rules have changed.” In another sign of change, Jenkins shut down the bank’s controversial structured capital markets unit, which had been accused of promoting large-scale tax avoidance.
In February 2013 Barclays recouped some £300 million in promised bonuses to staffers, but a couple of weeks later it came to light that more than 400 of its employees had each been paid £1 million or more in 2012. Subsequently, the bank announced that it had made a large stock distribution to top executives, including more than £40 million to Jenkins.
In April 2013 an independent review requested by the board of Barclays concluded that its evolution into an aggressive global investment bank had created a culture that put profit before customers.
In July 2013 the Federal Energy Regulatory Commission ordered Barclays and four of its traders to pay $453 million in civil penalties for manipulating electricity prices in California and other western U.S. markets during a two-year period beginning in late 2006. Barclays vowed to fight the fine in court.
In May 2014 the Financial Conduct Authority fined Barclays £26 million for failing to monitor conflicts of interest between itself and customers. The agency also fined a trader at the bank for improperly influencing gold prices at the expense of a client.
In July 2014 the U.S. Senate Permanent Subcommittee on Investigations accused Barclays and Deutsche Bank of helping hedge funds use dubious financial products to avoid paying more than $6 billion in taxes.
In December 2014 the Financial Industry Regulatory Association fined Barclays Capital $5 million as part of a case against ten investment banks for allowing their stock analysts to solicit business and offer favorable research coverage in connection with a planned initial public offering of Toys R Us in 2010.
In May 2015 the U.S. Justice Department announced that Barclays was one of a group of banks pleading guilty to criminal charges of conspiring to fix foreign currency rates. Barclays was fined $710 million and put on probation for three years. To settle related charges the bank paid $485 million to the New York State Department of Financial Services, the equivalent of about $441 million to the Financial Conduct Authority, $400 million to the U.S. Commodity Futures Trading Commission, and $342 million to the Federal Reserve, The SEC gave it a waiver from a rule that would have barred it from remaining in the securities business.
That same month, the CFTC fined Barclays $115 million for attempting to manipulate a benchmark interest rate used in swaps and derivatives.
In November 2015 New York State regulators fined the bank another $150 million for foreign exchange abuses, and the UK Financial Conduct Authority fined it the equivalent of about $109 million for not applying adequate due diligence and monitoring in a special program for wealthy clients.
In February 2016 the SEC announced that Barclays would pay $70 million to the agency and the New York Attorney General to resolve allegations that it violating securities laws by operating alternative trading systems known as dark pools.
In August 2016 Barclays agreed to pay $100 million to settle a LIBOR manipulation case that had been brought by 44 states.
In 2012 the UK group World Development Movement Barclays stepped up its criticism of Barclays for speculating on food commodities, thereby driving food costs to prohibitive levels for the world’s poorest people. In February 2013 Barclays vowed to pull out of food speculation.
Other Information Sources
Violation Tracker summary page
Watchdog Groups and Campaigns
Key Books and Reports
A Big Deal? Corporate Social Responsibility and the Finance Sector in Europe (CORE Coalition, December 2005).
Abuse of Structured Financial Products (Senate Permanent Subcommittee on Investigations,July 2014).
Farming Money: How European Banks and Private Finance Profit from Food Speculation and Land Grabs (Friends of the Earth Europe, January 2012).
Fixing Libor: Some Preliminary Findings (Treasury Select Committee of the UK Parliament, August 2012).
Shaping the Future of Sustainable Finance (WWF and BankTrack, January 2006)
The Banks and Society: Rebuilding Trust (Ecumenical Council for Corporate Responsibility, March 2011).
Undue Diligence: How Banks Do Business with Corrupt Regimes (Global Witness, March 2009).
Last updated September 14, 2016