Barclays: the legal fight over a company’s ‘controlling mind’
Roger Jenkins was once one of Britain’s most powerful bankers, earning as much as £75m in 2005. But sitting in the dock at London’s Old Bailey dressed down in a dark jumper and trousers, it was sometimes difficult to remember that he was once the “gatekeeper” of Barclays Bank’s multibillion-pound relationship with Qatar’s then prime minister Sheikh Hamad Bin-Jaber al-Thani, who he had first met on board a yacht in Sardinia.
He was facing charges that — along with two other former Barclays Bank employees — he lied to the market over fees paid to Qatar, as the Gulf state invested £4bn to help save the bank at the height of the financial crisis.
Calm throughout the five-month trial, Mr Jenkins rarely raised his voice under cross-examination even as he described being ordered back to work, just weeks after a heart attack, in August 2008, to help the bank avoid a humiliating UK taxpayer bailout.
But when asked about his responsibility for the £322m in secret fees paid to the Qataris, he became animated. Mr Jenkins insisted that the two side deals were struck as part of fundraising, were genuine and not a “smokescreen” for illegal payments, as the Serious Fraud Office had alleged. He added that far from being “misleading”, the October 2008 capital-raising prospectus had been approved by Barclays’ board.
“To imply . . . that I’m in some way guilty for this document, I’m sorry I find [it] very difficult to continue that conversation,” he told the SFO’s prosecutor Edward Brown QC in one charged exchange. “We have a board for that reason and I am not on that board. Sorry to be emotional about it.”
His comment lies at the heart of the failed landmark UK prosecution — one that began nine years ago when the financial regulator’s investigation first started, took two jury trials and ended with Mr Jenkins, along with co-defendants Richard Boath, a senior banker, and Tom Kalaris, former head of Barclays’ wealth division, being acquitted at the end of February.
Tom Kalaris The ‘quarterback’
Barclays colleagues dubbed the American head of its wealth division the “quarterback” because of his role in helping to drive capital raisings over the line. During the trial, the father of five rolled out the big guns as character witnesses: the former chairman of the old markets regulator, the Financial Services Authority, Callum McCarthy, and the ex-Barclays chairman, David Walker, in place when authorities started circling the bank. Both vouched for him.
The lack of prosecutions of senior bankers — arising out of events during the financial crisis — has unleashed public anger on both sides of the Atlantic. But the clean sweep of acquittals — which mean that no UK bank boss has been convicted or jailed over actions taken in the financial crisis — throws up wider questions about the UK’s ability to prosecute allegations of white-collar crime at the highest levels.
Unlike in the US, prosecutors in England and Wales must demonstrate that the “directing mind” of a company was involved in alleged criminality if they are to prove a company liable.
“It is almost impossible to find a controlling mind and prove that controlling mind is complicit in any criminality,” says David Green, director of the SFO when it launched its investigation into Barclays, who argues that prosecutions are being hampered by this legal requirement. “The email chain tends to dry up at middle management level.”
“[The acquittals] will turbo-charge arguments in favour of reform of the law on corporate criminal liability,” says Mr Green, now a partner at law firm Slaughter and May. “The current law was developed in the industrial revolution when companies were beginning to be formed and consisted of one person or two or three people so it was very easy to identify who was a controlling mind.”
His successor at the SFO, Lisa Osofsky, was even blunter during the trial, telling the BBC that the law was a “standard from the 1800s when ‘mom and pop’ ran companies — that is not at all reflective of today’s world.”
The court case recalled the desperate measures Barclays took to stay out of UK government hands as markets nosedived in 2008. And with the SFO evidence hinging on extracts from Mr Boath’s taped phone conversations in 2008 — including lurid conversations in which he discussed with Mr Kalaris fears of going to jail — it was a vivid reminder of a different era.
John Varley: The chief executive
Mr Varley, 63, with his distinctive red braces and tailored suits, was the archetypal City banker as Barclays chief executive between 2004 and 2010. He came to the bank through family connections, marrying into the Pease family who sold their lender to Barclays in 1902. After rising up through the ranks, he became finance director and then chief executive. He remains the only chief executive of a major UK bank to face a jury over events related to the financial crisis.
As part of this evidence, the jury heard that after Barclays agreed the Qatari fundraising, Mr Jenkins, who was paid £37.5m in 2007, pushed for an additional £25m special payment for his role in helping to raise the capital, saying he had helped “save our arses and jobs”.
The SFO alleged the £322m side deal, or advisory services agreement, sealed with a six-paragraph handwritten letter, was a dishonest way of funnelling Qatari investors, including Sheikh Hamad, outsize fees that they were demanding to pump £4bn into Barclays via emergency fundraisings in June and October 2008 — ultimately saving the lender from a bailout.
When the SFO filed charges in 2017, it was the first time a major bank and its chief executive had faced the prospect of a jury trial over events during the crisis. Unusually, the SFO decided to charge Barclays as a corporate defendant, accusing it of fraud and illegal financial assistance.
Roger Jenkins: The ‘gatekeeper’
At one stage Mr Jenkins, 64, was among the best paid bankers in Britain — receiving a £25m bonus in 2008 as the “gatekeeper” of the relationship with Qatar. He had worked his way up from a graduate trainee to lead the bank’s structured wealth division.
But John Varley, chief executive in 2008, was acquitted by the first trial judge last year and the corporate charges — built around a $3bn loan the bank extended to Qatar’s finance ministry just as the second fundraising was closing — were scrubbed even before trial. The SFO had accused Barclays of lending Qatar the money simply to reinvest in the bank, essentially propping up its share price.
The court found no case of any criminal wrongdoing against Barclays, or Mr Varley, and the jury in the retrial made it clear they did not believe any allegations of criminality against the three defendants, taking just over five hours to clear them.
But in the wake of the failure of both jury trials, lawyers now say prosecuting a big company in the UK looks to have become even harder.
Prosecutors have struggled to meet the “controlling mind” test in the past. In 2015, the UK Crown Prosecution Service announced it would not be bringing any corporate charges against News Group Newspapers over the phone hacking scandal, which saw several of its journalists convicted for voicemail interception.
At the time the CPS said: “The present state of the law means it is especially difficult to establish criminal liability against companies with complex or diffuse management structures.”
Richard Boath: ‘The worrier’
The most junior defendant, Mr Boath’s telephone was routinely recorded by Barclays because he dealt directly with clients and provided most of the SFO’s evidence. A self-described “worrier”, Mr Boath told the SFO — during eight days of questioning in 2014 and 2015 — that the bank paid Qatar outsized fees to secure its participation in the fundraisings. He was cleared by the FCA in its parallel regulatory case, and still has an employment claim outstanding against the bank.
There is no precise definition of what constitutes a directing mind, but up until the Barclays case, it was thought that a group chief executive — as Mr Varley was — would make the grade.
The first trial judge, Mr Justice Jay, obliterated that assumption: in essence, he ruled that Mr Varley was not the directing mind of Barclays — and, therefore, Barclays could not be prosecuted on the SFO’s evidence. Mr Varley was answerable to the board, which in the judge’s view meant he was not working as the company but for the company.
Mr Justice Jay acquitted Mr Varley halfway through the first jury trial in 2019 on the basis that the SFO had brought insufficient evidence to show he had acted dishonestly; he could not be held accountable for alleged misrepresentations made to the market in Barclays’ name.
In essence, the bank could not be held accountable for the actions of the chief executive, but neither could the chief executive be accountable for the actions of Barclays. In an unsuccessful appeal against Mr Justice Jay’s decision the SFO argued that the dual rulings would allow directors to “insulate themselves from liability” and make such alleged offences “impossible to prosecute”.
Sheikh Hamad Bin-Jaber al-Thani: The money man
Once the powerful prime minister of Qatar. Known simply as HBJ, he also chaired Qatar Investment Authority which invested in Barclays. He first met Roger Jenkins on a yacht in Sardinia in 2007, and a year later invested over £800m in Barclays. He was one of the Qatari investors who received a share of the £322m in fees paid by Barclays that were at the core of the Old Bailey trial.
In a bid to clarify the law, Ms Osofsky could now ask the attorney-general to make a special reference to the Court of Appeal — this involves granting permission for a special case to be brought to decide a point of law. She has long called on parliament to overhaul “antiquated” fraud laws and allow prosecutions if a company fails to take adequate steps to prevent fraud by employees.
“Although it’s easy from the sidelines to ask why haven’t people been held to account, and why haven’t there been criminal convictions a lot of the things that went on are difficult to prove to a criminal standard,” says Mark Button, director of the centre for counter-fraud studies at Portsmouth University in the UK. “And that is why not a lot has happened”.
The identification principle governs almost all areas of corporate crime except bribery, where, since 2010, it has been possible to prosecute corporations under the UK Bribery Act for failure to prevent graft in their organisation. Since 2017 failure to prevent also covers tax evasion charges. Mr Green, and others, want parliament to extend that “failure to prevent” to cover economic crime, which would make it easier to prosecute large companies.
The SFO has also been striking US-style deferred prosecution agreements where a company agrees to pay a hefty fine and overhaul compliance in exchange for a suspension rather than a prosecution. Since 2014 it has struck DPAs with seven companies, including Rolls-Royce, Tesco and, most recently, Airbus. But in none of those cases have any individuals been convicted, either because the SFO chose not to pursue charges, or because it failed at trial.
But the SFO’s approach to DPAs has raised questions over whether the process is fair because individuals can be named publicly as the wrongdoers and directing minds in a DPA yet be acquitted by a jury in a criminal court. In the Tesco case, the judge threw out the SFO’s case against three ex-executives on trial because it was “so weak”, even though they had been named as the supermarket’s directing mind in the corporate DPA.
“We now have a system where it’s all about the money,” says Jonathan Pickworth, a lawyer at White & Case. “It’s almost like a new system of taxation, with little concern from the SFO about whether it can successfully prosecute the individuals whom the company and the SFO conveniently agree are responsible for the alleged offences.”
More than a decade on from the emergency cash calls in question, the world has changed. Qatar is not quite the global powerhouse it was in 2008 after being isolated by its neighbours over regional divisions. Yet the Qatar Investment Authority, the state-owned holding company, remains the second-largest shareholder in Barclays.
For the bank, the spectre of a years long investigation — one of several misconduct issues it has faced — has weighed on its reputation. It still faces an outstanding £1bn lawsuit over claims of deceit by the firm founded by Amanda Staveley, the financier who orchestrated Abu Dhabi’s investment into the October fundraising.
Barclays, and indeed Mr Varley and Mr Jenkins, now face delayed regulatory scrutiny from the Financial Conduct Authority over the Qatari affair. It was the FCA’s predecessor body, the FSA, that first opened a file on the bank after finding suspect emails during a routine visit in 2011.
But for the SFO, the case has become bigger than the sum of its parts. The acquittal of Mr Varley and the scrubbing of the corporate charges in particular strike at its very purpose of being a “specialist prosecuting authority tackling the top level of serious or complex fraud” as the agency describes itself.
The UK is not unique in failing to secure any convictions of bankers since 2008 despite banks paying eye-watering fines and costs in related litigation. The US has imprisoned just one banker over the crisis: a junior Credit Suisse trader, for inflating the price of subprime mortgages. He received a 30-month sentence.
Elizabeth Warren, who until last week was vying to become the Democratic presidential candidate, tweeted that giant banks “will only clean up their act when their executives know they’ll face handcuffs when they preside over massive fraud”.
In the UK Ms Osofsky has said the agency is “hamstrung” by the directing-mind principle. She told parliamentarians last year that without reform: “I can go after Main Street, but I can’t go after Wall Street”; in other words, small companies but not corporates with layers of control.
Yet Brexit, and the overwhelming Conservative win at the general election, may hinder any legal reform.
“You’ve got to ask how attractive this will be to Boris [Johnson] and his post-Brexit Britain,” says a former senior prosecutor. “The prime minister is not going to want to be seen to be adding red tape to business right now. If they want to hold corporates accountable, they need to make this change, but will probably kick it into the long grass and give it to the Law Commission to consider,” referring to the body that recommends changes to the law.
“That’ll probably take five to seven years,” he says, “longer than an SFO investigation.”