Unless you have been completely out of reach of any form of media source in the last week or so, you cannot have helped learning of the growing scandal which is engulfing Barclays Bank for their part in the manipulating of LIBOR.
Even so, you might be still asking yourself why I have used the title above for this piece.
It is my contention that Barclays Bank has become a serial criminal enterprise, and it most closely resembles an organised crime group. I have used this phrase before, but now I am going to back it with evidence.
In January 2011, The Financial Services Authority (FSA) fined Barclays Bank (Barclays) £7.7 million for failures in relation to the sale of two funds. Barclays were ordered to contact customers and pay redress where appropriate.
Between July 2006 and November 2008 Barclays sold Aviva’s Global Balanced Income Fund (the Balanced Fund) and Global Cautious Income Fund (the Cautious Fund) to 12,331 people with investments totalling £692 million.
However, there were a number of serious failings in the way the funds were sold. These include:
· Failing to ensure the funds were suitable for customers in view of their investment objectives, financial circumstances, investment knowledge and experience;
· Failing to ensure that training given to sales staff adequately explained the risks associated with the funds;
· Failing to ensure product brochures and other documents given to customers clearly explained the risks involved and could not mislead customers; and
· Failing to have adequate procedures for monitoring sales processes and responding promptly when issues were identified.
The FSA’s investigation revealed that even though Barclays had itself identified potentially unsuitable sales as early as June 2008, it did not take appropriate and timely action.
In fact, of the 12,000 or so investors, most of whom were retired or nearing retirement, 1,730 complained about the advice they were given to invest in the funds. This equated to approximately one in seven investors.
As a result Barclays had already paid approximately £17 million in compensation and the FSA estimated up to £42 million further could be paid to customers who received unsuitable advice.
Margaret Cole, the FSA’s managing director of enforcement and financial crime, said:
“The FSA requires firms to have robust procedures in place to ensure any advice given to customers is suitable. Therefore, when recommending investment products, firms should take account of a customer’s financial circumstances, their attitude to risk and what they hope to achieve by investing.
“On this occasion however, Barclays failed to do this and thousands of investors, many of whom were seeking to invest their retirement savings, suffered. To compound matters, Barclays failed to take effective action when it detected the failings at an early stage.
“Because of this, and given Barclays’ position as one of the UK’s major retail banks, we view these breaches as particularly serious and fully deserving of what is a very substantial fine.”
Let us be absolutely clear, where a person solicits an investment in a product but fails to give the correct information to the person being solicited, whereby the investor makes an investment he or she would not otherwise have made, based on the misleading information, that is the criminal offence of fraud. Every single one of these misleading sales was a fraud, and Barclays personnel involved in this scandal should have been prosecuted for fraud.
This is a reason why Barclays have paid back significant losses caused to their clients by the mis-selling of PPI policies. In addition they have been the subject of regulatory investigations over the way they mis-sold interest-rate swap derivatives. The phrase mis-selling is merely a politically correct form of words which in any other walk of life would be called 'fraud'!
Again in January 2011 The Financial Services Authority (FSA) fined Barclays Capital Securities Ltd (Barclays Capital) £1.12 million for failing to protect and segregate on an intra-day basis client money held in sterling money market deposits.
Under the FSA’s client money rules, firms are required to keep client money separate from the firm's money in segregated accounts with trust status. This helps to safeguard and ring-fence the client money in the event of the firm's insolvency.
For over eight years, between 1 December 2001 and 29 December 2009, Barclays Capital failed to segregate client money maturing from its sterling money market deposits on an intra-day basis. Such client monies were segregated overnight but matured into a proprietary bank account and were mixed on a daily basis with Barclays Capital’s own funds, typically for between five and seven hours within each trading day.
The average daily amount of client money which was not segregated increased from £6 million in 2002 to £387 million in 2009. The highest amount held in the account and at risk at any one time was £752 million. Had the firm become insolvent within the five to seven hours each day in which the funds were unsegregated, this client money would have been at risk of loss.
Funnily enough, the man in charge of Barclays Capital at this time was Bob Diamond. It might be argued that such activity was not criminal per se, but one of the purposes of the client money rules is to ensure that banks protect their client's monies, and by failing to do this, Barclays were dealing with the money as if they were the owners and outside the lawful remit of their powers.
In August 2010, Barclays was forced to pay $298m (£190m) in fines to the US authorities for "knowingly and willfully" violating international sanctions by handling hundreds of millions of dollars in clandestine transactions with banks in Cuba, Iran, Libya, Sudan and Burma.
The bank agreed to pay financial penalties to settle two criminal charges laid by the US department of justice, which accused Barclays of violating a "trading with the enemy" act which prohibits business with certain countries viewed as threats to national security.
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. Barclays is not alone in facing such charges: Lloyds TSB and Credit Suisse both settled with the US government last year over similar dealings with institutions in repressive regimes.
"For more than a decade, Barclays knowingly and wilfully engaged in practices outside the US that caused its New York branch and other financial institutions located in the US to process payments in violation of US sanctions," said an affidavit filed by the US government, which described Barclays as a London-based institution employing 144,000 people in 50 countries with 48m customers.
Under a deferred prosecution agreement signed by Barclays' general counsel, Mark Harding, the bank had agreed to a string of measures to improve training and tighten internal procedures, and to co-operate with any further investigation by the US authorities. The bank paid $149m to the US department of justice and a further $149m to the office of New York's district attorney.
The deal went before a Washington judge for approval. But judge Emmet Sullivan adjourned the hearing, saying he wanted Harding to appear in person: "He's the one who signed the pleadings and he should be here."
The US government has vowed to come down hard on sanctions-busting. Cuba has been barred from business with the US since President Kennedy's tenure in the White House in the early 1960s. Sanctions have been in place against Iran since 1995 and were imposed on Sudan and Burma in 1997. Libya was on a list of "state sponsors of terrorism" until 2006, although relations have since thawed.
Prosecutors contend that foreign banks with a presence in the US have colluded in giving institutions in these repressive regimes a back-door route into the American financial system. Lloyds TSB agreed to pay $350m in January 2009 for its dealings with Libya, Sudan and Iran, while Switzerland's second biggest bank, Credit Suisse, struck a deal in December paying $536m for violating sanctions against Iran.
Finally in recent days, Barclays has been fined £290m ($450m) for trying to manipulate a key bank interest rate which influences the cost of loans and mortgages.
Its traders lied to make the bank look more secure during the financial crisis and, sometimes - working with traders at other banks - to make a profit. Barclays said the actions "fell well short of standards".
Barclays' misconduct related to the daily setting of the London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor).
These are two of the most important interest rates in the global financial markets and directly influence the value of trillions of dollars of financial deals between banks and other institutions. They can also affect lending rates to the public, for instance, with some mortgage deals.
Between 2005 and 2008, the Barclays staff who submitted estimates of their own interbank lending rates were frequently lobbied by its derivatives traders to put in figures which would benefit their trading positions, in order to produce a profit for the bank.
And between 2007 and 2009, during the height of the banking crisis, the staff put in artificially low figures, to avoid the suspicion that Barclays was under financial stress and thus having to borrow at noticeably higher rates than its competitors.
The FSA pointed out that Barclays traders were quite open in their routine attempts to lobby their colleagues who submitted the bank's estimate of its borrowing costs to the BBA. It was particularly concerned because it appeared to be "accepted culture" amongst some staff.
Both UK and US authorities were also critical of Barclays' lack of internal controls over its system of submitting information on Libor and Euribor. This, along with inadequate supervision of trading desks, "allowed this conduct to occur", US regulators said.
Barclays' record fine for rigging Libor interest rates should be a "watershed" moment for the wider financial industry to clean up its act and restore public trust, The FSA said . The Libor penalty and last week's news that Britain's top four banks mis-sold interest rate swaps to small businesses compounds the stereotype of a sector that cannot be trusted and left to its own devices, said Tracey McDermott, acting head of enforcement at the Financial Services Authority.
"Instead, it sells products to the wrong people at the wrong time in the wrong way. To change things in the future, to restore that trust and confidence... requires tough action from the regulator but it's not our job alone," McDermott told an FSA conference.
"Perhaps the reaction to the penalty imposed last week on Barclays will be a watershed moment, the point when the industry realizes that it also has to rise to the challenge and to recognize that things have to change," she said.
McDermott said "wave after wave of mis-selling scandals" meant the role of regulators must be rethought and warned firms which fail to improve despite repeated requests.
"We need to have a low tolerance for firms that constantly bump along the bottom. We will be much more prepared to intervene and limit business," McDermott said.
All these examples demonstrate that there is an ingrained culture in Barclays Bank to ignore the law, both civil and criminal, where it doesn't suit Barclays' ambitions or agenda. These examples are evidence of a wholesale culture of criminogenisis, or a potential to engage in criminal conduct. It has gone on for so long that many Barclays' employees are simply unaware when they are doing right and when they are doing wrong. They have developed their careers in an institutionalised atmosphere of 'anomie', or a state of avoidance of all conventional norms of honest conduct.
It is too late now to reverse this trend because it is too entrenched. The only way that this pariah bank can be turned round is for a series of targeted prosecutions to be brought against some of the more elevated serial offenders, and harsh penalties imposed upon conviction.
A new board must be employed, and the existing members dismissed without compensation. They have presided over this culture of condoned criminality for too long, and it would be a travesty of justice if they were allowed to remain in post, picking up their inflated compensation.
The new board must start by requiring all employees to re-apply for their own jobs, so that the more egregious and recalcitrant offenders can be rooted out. A full programme of ethical reconstruction must be applied, and not one provided by the usual suspects in the big consulting firms
The retail and the casino arms of the bank must be rigidly segregated. Then, and only then can Barclays be permitted to continue doing any financial business again. The only alternative is to close it down by removing its banking licences, on the grounds that it is too dishonest to be allowed to continue in business. We must be prepared to confront the full implications of such an event, but banks can no longer be permitted to believe that they are a protected species, and too big to fail. When the Government is willing and ready to show that no financial institution is above the law, we will begin to see the much desired sea-change in attitudes towards banking that this country so badly needs.