US regulators knew of Barclays’ potential for misconduct before last week, as it fined the bank for violating sanctions in 2010
The £290m fine levied on Barclays for its role in manipulating Libor is the second time in less than two years that the British bank has been penalised by US regulators.
Barclays was forced to pay $298m (£190m) to the US Department of Justice to settle August 2010 charges that it “knowingly and willfully” violated international sanctions, by handling hundreds of millions of dollars in clandestine transactions with banks in Cuba, Iran, Libya, Sudan and Burma.
At the time of the deal Lanny A Breuer, the DoJ’s assistant attorney general, said: “Banks like Barclays will not be permitted to disregard sanctions put in place by the US government. Not just once, but numerous times over more than a decade, Barclays stripped vital information out of payment messages that would have alerted US financial institutions about the true origins of the funds.”
The Manhattan district attorney, Cyrus R Vance Jr, added: “Criminal activity of the type we found at Barclays does more than deceive our financial institutions, it threatens the security of our country.”
Documents filed at a federal court in Washington accused Barclays of handling money transfers totalling $500m from banks in prohibited countries through its dollar clearance branch in New York between 1995 and 2006. The bank accepted that staff at a payment processing centre in Poole, Dorset, had changed the wording in international money transfers to hide the fact the transactions involved countries barred from accessing the US financial system.
Under a deferred prosecution agreement signed by Barclays’ general counsel, Mark Harding, the bank agreed to pay $149m to the DoJ and a further $149m to the office of New York’s district attorney, while committing to a string of measures to improve training and tighten internal procedures, as well as promising to co-operate with any further investigation by the US authorities.
The bank, which has become a force on Wall Street since buying much of the US operation of the bankrupt Lehman Brothers in 2008, spent $250m on an internal inquiry that involved 100 million records and 300 interviews with 175 employees.
The DoJ’s 2010 statement added: “In light of the bank’s remedial actions to date and its willingness to acknowledge responsibility for its actions, the department will recommend the dismissal of the information in two years, provided Barclays fully co-operates with, and abides by, the terms of the deferred prosecution agreement.” The justice department would not comment on whether the current Libor scandal will reactivate the sanction-busting charges approaching expiry, although it is understood that Barclays is in talks on that issue with the US judge in the case. The bank’s Libor actions pre-date the 2010 deal.
Barclays did not comment about the deferred prosecution, nor did it respond when asked if behaviour that attracts the attention of regulators was endemic within the bank. At the weekend, the business secretary, Vince Cable, wrote in the Observer: “Incompetence, corruption and greed have been endemic in British banking”.
Despite the large 2010 fine, there have been critics of the settlement. The judge in the case, Emmet Sullivan, questioned why the penalty was hitting investors’ pockets rather than coming “out of the assets of the board of directors” and asked why nobody was “standing up and taking criminal responsibility” for the prohibited transactions.
“These are shocking charges. What the bank is being charged with is doing business with the enemy. These were prohibitions everyone in the banking community was aware of,” he said. “You don’t believe the government is putting on kid gloves here at all?”
Prosecutors replied that they had been unable to find sufficient evidence to bring any individuals to trial, while top Barclays executives had been unaware of the transactions.
Barclays was not alone in facing charges of violating international sanctions, which breached America’s International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). Lloyds TSB and Credit Suisse both settled with the US government in 2009 over similar dealings with institutions in repressive regimes.
Similarly, Barclays is not the only bank being investigated over Libor and the US authorities, along with the UK’s Financial Services Authority (FSA), has made it clear that further announcements on Libor should follow.
Last week the FSA slapped a £59.5m fine on the bank while US authorities hit Barclays with penalties of £230m for what were described as repeated breaches of rules dating back to 2005.
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