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Introducing Behind the Money: Barclays and the legal fight over a 'controlling mind'


Some days become inflection points. Think of last Thursday when? Us equities had their worst day since nineteen eighty seven. It was a moment that we won't soon forget and will return to that story on this podcast soon. But today we're going back to two thousand eight to September fifteenth the day that Investment Bank Lehman Brothers filed for bankruptcy which sent shockwaves felt financial centers around the world. It doesn't look much like a bank that today. Downing Street and so we the taxpayers of become the biggest shareholder in these high street names. It's also a huge investment in the country's future after Lehman collapsed in September Two Thousand and eight U K. Banks came into huge pressure almost every day. They were removed. A bank was in trouble. Struggling Bank shares fell dramatically so by sort of mid October the UK government decided to step in to bolster confidence in the banking system. The government forced the banks drastically increase their reserves by buying shares in them using taxpayers money. And this is the sort of bail so-called bailout weekend with the eleventh and twelfth of October by then the UK government had given the bank's an idea of how much capital they needed to raise the only buyer of bancshares was going to be the UK tax payer and at the end of that weekend The UK government injected thirty seven billion pounds into three UK. Banks that was hey boss. Lloyd's and also Royal Bank of Scotland then there was Barclays Barclays Escape that Barclays didn't go into the treasury and they basically told the market on the thirteenth of October that Barclays would not be accepting UK government capital. It would be raising capital itself. This is behind the money. I'm amy keen. Barclays would end up raising more than eleven billion pounds of outside investment to help save the bank at the height of the financial crisis on this episode. The Carolina bit him Jane Croft on the ensuing investigation and criminal trial into how the bankers raised the funds and whether authorities have the ability to prosecute light color crime at the country's biggest institutions. Our story begins in two thousand seven on a yacht in Sardinia with Barclays banker. Roger Jenkins here's Caroline Sue. Russia was one of the best earning bankers in the UK a at the time. He was dubbed big dog by his colleagues. And that kind of gives you an idea of just how important he was. He'd risen through the ranks and was head of this rather controversial unit that was known for avoiding tax that say or being creative in terms of the tax that advised its clients to pay and on this yet. Rodriguez Shake Hamad bin. Jassim bin Jabr Al. Tony the Prime Minister of Qatar. At the time he was quite the king-maker if you wanted anything doing in Qatar you have to speak to shake come out. There was a party at dinner that was hosted by an Italian industrialist and both Roger and shake him out both happened to be in Sardinia at the time and were both invited to this particular dinner on the yacht. And it's one of those chance meetings that happens all the time in Saudia. That's what Saudi near is known for being a playground of the rich and famous and powerful. But this one happened to be more important than most now. Roger Jenkins was the head of Barclays Middle East Unit and he was focused on finding new clients and investors in the region so his relationship with the Prime Minister of Qatar was most opportune shake. Ben Justin Bin Jabir Al Tawny was the Chairman of the Gulf States. Very powerful sovereign wealth fund Back in two thousand seven early two thousand and eight S. Wf's were really driving force behind a lot of investment around the world particularly sovereign wealth funds from Nations such as Qatar. That a sitting on a whole lot of natural resources money that has to be invested somehow so having a personal relationship with the Prime Minister of one of these countries who also by the way is the chairman of that. Sovereign Wealth Fund. Clearly Russia Jenkins was seeing dollar signs and if we fast forward about nine months after this chance meeting. Barclays need for this kind of money would become more acute in March of. Oh eight investment bank bear stearns would collapse triggering concern throughout the market and ultimately leading to a full blown financial crisis like of its rivals. Barclays felt that it had to raise its capital and so a way of doing that was tapping institutional investors and also new investors. Sasha sovereign wealth funds as a way not only to get more money into the bank to make it more financially sound but also as a way of embedding strategic relationship with sovereign wealth funds in the summer of two thousand eight Barclays was able to raise four point four billion pounds in around that included Qatar holding the private investment vehicle of Shake Hamade. There were other sovereign wealth funds involved too and then we see throughout the summer of two thousand eight things going from bad to. Us CAPS WITH LEMAN BROTHERS BANKRUPTCY IN SEPTEMBER. I think Qatar suffered even in one day. Something like four hundred million pounds worth of value wiped from its investment just because of the wild swings in. Chas that were going on at that time. Here's Jane after Lehman collapsed. The financial system basically went into absolute meltdown. The UK government put in place a scheme where it would buy or inject capital into the UK. Banks Abreu a bank of Scotland was the worst bank affected. The ended up becoming seventy-nine percent publicly owned Lloyd's also had to take a substantial amounts of government money because he just bought h boss which is full of sort of toxic assets And then this talk about Barclays what was going to happen with Barclays. I think certain people saying at the time. Barclays doesn't WANNA TAKE GOVERNMENT MONEY. Because obviously you know if it does take government money. The government's GonNa Crack. Down ON BANKER BONUSES. Bonuses are one thing but government money also meant the berkeleys would likely have been pressured to wind down its investment banking business and in the wake of the financial crisis while other banks were struggling to raise capital. Berkeley's was instead trying to propel itself into the top tier of investment banks in fact bought Lehman Brothers. Us operations out of bankruptcy. For just this reason so a government bailout was not a particularly attractive option for Barclays and senior executives. There's this moment that seared into a city folklore of sorts of John Varley the CEO of Barclays at the time sitting in his thirty first floor office overlooking Canary Wharf. He had just got a phone call from the the regulator the Financial Services Authority essentially informing him of what they thought. The capital shortfall was that Barclays was facing and he's done a quick back of the envelope calculation and equate to about thirteen billion pounds. At the same time there was this crack team of senior Barclays executives on their way to do on Qatar to meet shake Hamas for dinner undiscussed other investment opportunities. So it was this kind of confluence of events that all came together in October. Two Thousand Eight and essentially I think they were tasked with getting the Qataris on board for whatever it took ready to keep the bank accounts of UK Government. Hands Remember that the bank had already raised four point four billion pounds in June so by October. Two Thousand Eight When is against it? They had again been trying to devise some kind of way that they could inject more capital into the bank and that ultimately became the second fundraising at the end of October. Two Thousand Eight in the Second. Fundraising the BANCHORY. Six point eight billion pounds. This time it was. With more complex. Financial instruments including capital notes convertible shares the fundraising was structured at the debt. Issuance which met some instruments would later be converted to equity for the investors and as with the first fundraising in Qatar. Holding as well as Shaka mods personal investment vehicle took part so did Abu Dhabi sovereign wealth fund and it was Roger Jenkins the head of the Middle East Unit. You've got Barclays. The cash that needed Roger had actually had a heart attack that August but he came back to the bank much earlier than expected in order to help with the second capital raising. I mean Roger Jenkins was promised to be compensated significantly. As a result he received twenty five million pound bonus voice help in negotiating the second cups raising And you know he was sending emails saying like you did this to save our asses and jobs now. The bank also sold off a few of its own assets all to make up for that thirteen billion pound shortfall at needed to steer clear of a government bailout and business continued. Hi Hi how are you? Yeah I think I'm all right thank you. Could you hearing recorded in the Line of Barclays Bank Richard? Both he was at the time. Managing Director at Barclay's the CO head of the banks European Financial Institutions Group. Richard was on the team that helps structure the capital raisings along with Roger Jenkins who had the relationship with Qatar and Tom Cholera. Who headed up the banks? Wealth and Investment Management Unit around twenty eleven during routine supervisory visit as all regulators. Do for big banks They came across some emails. That seemed actually a little bit suspicious. It started talking about this site deals and inducements to Qatar and it was this discovery of emails documents and phone calls that led to an almost decade long investigation by regulators into something that looked a lot like fraud remember that Barclays had raised four point. Four billion pounds at the height of the financial crisis from Qatar and other investors including chick. Commod himself now. Investors are typically given a subscription fee for participating in a fundraising like this and the amount of the fee is disclosed in the perspective that goes to market so that everyone involved has the same information and all these people for investing were given a one point five percents fee but it wasn't enough for Qatar. Initially Caddo at wanted I think three point seven five and then at were beaten down to about three point two five under UK securities law all investors in these kind of capital market structures. Have to be paid the same. And that's not just from a fan. His point of view. It's because if one investor is getting preferential treatment that the others don't know about them that might indicate that actually there's something wrong with the bank that they're sweetening the deal for some reason that no not telling others that actually the others have a right to know before they put their money into the bank as well. This is where the BERKELEYS bankers started to get creative. They were keen on raising this capital with coach our support but the country was driving a hard bargain sensitive. I've thought about quayle is is this additional fee. Here's Chris Lucas. The finance director of Barclays in two thousand eight talking to Richard both about how to make the deal work quayle which they reference in. This call is the name. The bankers used to refer to its deal with Kutcher or not. Avi for the US. Well I've I've said to them. You know absolutely absolutely we can have as something that would offering everybody else you know so therefore it can. It can be a tunnel be linked to the transaction but outside of that can be pretty flexible but finding a way of doing it which is which policies the smell test because really the issue ultimately given a three point two five percent commission fee a bit more than double what everyone else involved in the capital raising received now. Barclays had to figure out how to pay the additional fee to cut are often they kind of mold various structures Even a cash deposit or something like that and decided against that they come up with this idea of having some kind of side deal sorted out a mechanism with Roger And I've got it cleared in principle by Bob Chris and Steve Morse And so what it has to do with Is is an advisory Relationship Tim Keller is talking about Bob Diamond who sat on Barclays Board and would later become chief executive says talking about Chris. Lucas the finance director and a man named Steve Morse who headed the bank's compliance department is talking about a so-called advisory Services Agreement with Qatar. The idea being that for cars additional services of supposedly helping. Barclays developed business in the region. The bank would pay Qatar. Forty two million pounds in this moment based on some of the tapes. It seems that Clarice and Roger Jenkins have the support of the senior most figures at the bank. Yeah I think that's that's fair to say I mean Tom Colorado's in his defense did say that yet. She went to the office of John Varley and told him about the demands that Keto were putting in terms of the fee and John. Volley was the one who suggested aside agreement years Roger Jenkins and Richard both talking about how far up the chain. This deal win. You know right now. The direct is on the line and then you and I are on the line. I prefer the former well. They're on the line right and and I'm very surprised I'm very surprised at Johns Valley. Giving his ethics is doing this. I mean it's amazing. I'm not totally sure that they'll find on it but apparently went to the board yesterday. Bought Update and at this point is the prospect of sort of Legal recourse or even. Possibly some of these bankers going to jail did not seem to play in anyone's mind. Oh yeah definitely I mean. There's a conversation which was between the deputy general counsel of the Bank Judith Shepherd and Richard both And you know riches basically saying. Are we going to have to demonstrate over time? They've provided these services and juice episode. Yes if anyone challenges is from Boston is they have to provide financial services in exchange for that money and there is no way roundabout. Are we going to have to demonstrate over time that they have provided these services? Anybody challenges us like like any of the other investments and the other investors. The new you can. The criminal is Arkie the fraud unit. I'm already feeling sick. Always works to maybe feel thicker. I mean finished Melissa. Do you just saying lots of people who would basically be onto them if basically these you know. This was a fake agreement if this was not a genuine agreement also at the same time. Barclays extended this Advisory Service Agreement the ASA from June. And it felt that well. Because it's not a new deal. It's just an extension of an existing one we don't really have to disclose it. But whilst in June the ASA was for forty two million pounds in October extended for form far far more for two hundred eighty million pounds. In addition Barclays also extended a three billion dollar loan to the Ministry of Qatar just as the second fundraising was closing in October. Two Thousand and eight if you add up everything that caught our God through the loan through the as it gets you to about two point. Four billion pounds now. That equates almost exactly to the equity caught our first person to Britain's Serious Fraud Office. This looked a lot like fraud. The SFO alleged that Barclays and those involved in structuring the capital raisings had lied to the market while they had disclosed the existence of a side agreement to the market during the first deal. They didn't disclose the amount of the fee that was paid and the extension of the ASA wasn't disclosed the market during the second fundraising in October the SF Oh also alleged that the three billion dollar loan the bank had extended to Qatar was illegal financial assistance. It was the most ambitious case. The prosecutors had taken charging a corporation and bankers with a crime for the actions. They took during the financial crisis. But it wasn't going to be simple to basically prove a corporate is guilty of criminal activity the has to be some sort of directing willin mind controlling the company. That's just how it's framed in English law. Prosecutors have to demonstrate the right. Tim A mind for company was involved in. Ledge criminality to prove company. Liable the problem is that this law is quite old and was really set up. In the industrial revolution. Companies are beginning to be forward to maybe consisted of wall. No to direct to sue is very easy to find a controlling mind currently with kind of very complex global corporates. It's often very difficult to find. Who is the Dritan mind when the SFO brought Criminal Charges Against Barclays? The claim that John Varley who had been the chief executive during the crisis was this directing mind he knew about the site agreements and he had signed the directors responsibility letter in the market prospectus. Up until case there was no particular legal definition of what a directing mind constituted but it was kind of assumed that a group CEO as John Volley was in two thousand and eight would probably pass the huddle lawyers for the bank argued. Otherwise the presiding judge Mr Justice. J agreed with them. Mr Justice Jay said No. He maintained that. Mr Volley was not the directing mind of Barclays because although he was group. Ceo He was answerable to the board and he was subject to the checks and balances that really any big sophisticated company operates now. The consequence of that ruling really can't be understated. Once Barclays as a corporate defendant went so did a central pillar of the F. as case namely this three billion dollar loan the allegation previously being essentially Barclays through the individual bankers lent Qatar. The money to essentially reinvest in a sort of circle away back into Barclays which was essentially an illegal propping offer for their share price. Key Time in two thousand and eight so that pillow disappears. So what did this? Sfo have to do to prepare for a retrial when the charges against Barclays with scrubbed the SFO's left with much smaller case. The trial went forward so that crown core of the four individuals including the chief executive John Varley And they were accused of fraud. Charges relating to the to cash calls. That trial went ahead in January. Two Thousand Nineteen I won. The prosecution closed its case. The jury was dismissed and there was a legal argument. John Valley's lawyers argued that in fact his Barclays that was making these representations to the market and so John Varley could not be held accountable for representations to the Malkin Barclays name and in the legal argument The barristers for the defendants argued that the case should be thrown out and the judge agreed. Mr Justice J dismissed the case then the. Nfl appeals that decision to the Court of Appeal? The Court of Appeal ruled that John. Varley There was insufficient evidence against him to to proceed with the trial. But it did hold that a retrial should be held with the defendants. I think the other thing to mention is that once Mr Justice Jay had ruled on John. Varley in a decision that was upheld by the Court of Appeal. You had this kind of Catholic arrests situation and again has much much repercussions in this case alone. Whereby the culprits couldn't be held liable for the actions of the chief executive for on the other hand that she's executive couldn't be held accountable for the actions of the company so the ESA went to court again. The allegation was the same Richard. Both Tom Clarice. And Roger Jenkins had lied to the market in the prospectus but the SFO had to demonstrate. How a different senior director conspired to commit fraud with John. Varley out of the picture. The Serious Fraud Office emphasized the role. Chris Lucas who's Berkeley's ex finance director? They said he was alleged. Co Conspirator as a subcentral lynch pin of the alleged conspiracy the whole point about the the alleged conspiracy was it was all about representations to the market and obviously Chris Lucas as a board director had to sign a director's responsibility letter in that perspective which which was given to the mark in which the AFO alleged did not provide the full picture of the fundraising so Chris Lucas. As a finance director. They based a lot of the alleged conspiracy said that he was kind of the halted this during the retrial. The presiding judge Mr Justice. Popplewell told the jurors that they needed to think about the role. Chris Lucas Plate. The very fast thing they were told by. Mr Justice Papa. Well that they had to consider when they would deliberating. Their verdicts was the role of Chris. Lucas he was really key. Did Mr Lucas ever intend that? Any services to the tune of forty two million pounds initially and three hundred twenty two million pounds overall wherever gang to be provided by Qatar to Barclays. Now Chris Lucas had been mentioned in the first trial but he was too ill to stand. Trial was never charged He's kind of the absent defendant. Really in case the wall some evidence presented relating to him. There were phone calls tapes emails. That sort of thing but it was always going to be very difficult for the AFFO- to base conspiracy case around an absent defendant That was always going to be very hard for them to prove with Barclays the corporate as well as John Varley and Chris Lucas out of the picture. There were three bankers left. Roger Jenkins Tom Clarice. And Richard both they stood for a retrial late. Last year over those charges of line to the market the NUB of the defendant's case is that the advisory services agreements with genuine and they did deliver services or at least they were envisaged to deliver services and business opportunities for Barclays and that both Barclays and cutoff benefited for them. Yes the essays and the capital raisings were interdependent and one existed because the other but actually there's nothing illegal about that and Roger Jenkins outshine. His defense told the trial. You know the board knew about this signed off by the lawyers when he actually said something like. I'm an employee of the bank. The you know. The board consists of fifteen to twenty people who approved this nine. Figura say in October to imply that I'm responsible for this document. He's made the point. He's not the chief financial officer to the bank. He's not the chief lawyer of the bank so you know he did make the point that everybody knew about it and that he thought it was genuine agreement and a great opportunity for is to expand his Middle East and business the retrial that began in October of last year concluded just a couple of weeks ago that the end of February the jewelry was sent out on the twenty sixth of February in the morning and we thought there would be several days because there are three defendants it ruin five-month trial but on Friday morning. The twenty eighth of February at ten thirty were all called into caught very Sydney and hold rights verdicts and then. The jury foreman of came in with the jewelry. And read out the not guilty verdicts clean sweep of acquittals it actually taken the joy less than six hours to reach the verdicts that they did all told the SFO's spent seven years and twelve point. Two million pounds investigating this case and bringing it to trial all to see no one held responsible. It's been criticized for how it handled such a high case this tactical errors that yes afo did which didn't help it. Certainly the AFO went after Certainly one of the defendants Richard. Both even after he'd been cleared by the financial regulator for the same conduct so whilst the SFO interviewed some Barclays lawyers it decided not charge any other lawyers or call witnesses so that meant that the defendants could easily say to the trial. You know everything they did was with the You know the blessing external internal legal advice the SEO didn't interview anyone from Qatar at all Didn't ask for a court order to obtain legal documents from the Qatari lawyers which were Leithauser Watkins which advised Qatar on the two thousand and eight fundraising you know the SF. Oh did make a lot of missteps in this case and pursued perhaps certain aspects of the case when perhaps it shouldn't have done now listening to the story. It's hard to believe that you have thirties. Have the capacity to prosecute white collar crime. What should we make of this? So I guess this goes back to the so-called directing mind principle and the quite apart from this case has long argued that fraud laws in the UK needs to be overhauled and that without them. It's really hamstrung. In bringing complex cases at the highest level and fat of couple of lawyers said to me. It's almost impossible To find the controlling mind to prove that mind is complicit with criminality so at least resolve ski. The director of the series of his told the BBC recently that in fraud cases. She's got to have the controlling mind of company before she can get a company in the DOC And she sort of said you know that's like like something from the eighteen. Hundreds when mom-and-pop ran companies? That's not at all reflective of today's world Berkeley's is not commented on the case that was dropped against the company in two thousand eighteen but the company has its own issues to deal with now although it's dealt with the criminal case There is still some outstanding matters for the bank so it's facing a lawsuit in the High Court with allegations of deceit against it by the firm founded by the businesswoman to stave who orchestrated APPA Dhabi's investment in the October two thousand and eight fundraising and that's due to go to trial later. This yea Barclays also faced delayed regulatory scrutiny from the Financial Conduct Authority over the Qatari affair. And that's still ongoing at the moment as well and It's chief executive. Jess daily is dealing with Questions at the moment about his ties to Jeffrey Epstein which is the subject of all over investigation so Barclays itself has its own issues to deal with at the moment before we go. We'd love to hear from you. Love to know what you like about the show and what we might be able to improve the FDA dot com slash behind the money survey and fill out the survey for a chance to win a pair of Bose Quiet Comfort. Noise cancelling headphones. You can also get should directly at behind the money at Dot com episode ideas or story to cover in future episodes. You can also reach me on twitter. I'm at Amy Peqiin. That's a. m. e. p. k. a. n. e. this episode was produced by Allergists tweet. We also had help from Fiona Simon. We'll be back with a new episode in a couple of weeks.

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