An “elephant deal” executed three years ago has cost Barclays £72m in penalties after the City regulator concluded that the bank ran the risk of being used to launder money or finance terrorism.
To be classified internally as an “elephant”, a deal has to be worth £20m or more. This one was worth almost £1.9bn – so large that it aroused the interest of the Financial Conduct Authority.
It was the largest deal of its kind that Barclays’ wealth management operation had executed, and the names of the clients – so-called politically exposed persons (PEPs) – were so sensitive they were kept confidential, even inside the bank. Barclays stood to make a £50m profit on handling the cash.
The FCA found that instead of conducting a thorough check on the clients, Barclays relaxed its assessments, breaching its own controls. As result the fine is the largest imposed for financial crime failings.
It is the seventh penalty imposed on Barclays since 2009, bringing itspenalty bill from the FCA and its predecessor, the Financial Services Authority, to nearly £500m.
Mark Steward, the FCA’s new director of enforcement and market oversight, said: “Barclays ignored its own process designed to safeguard against the risk of financial crime and overlooked obvious red flags to win new business and generate significant revenue. This is wholly unacceptable.”
At the time the transaction took place – in a series of stages between 2011 and 2012 – the City regulator had issued a warning to banks about their dealings with PEPs. In 2012, Coutts, the private banking arm of the Royal Bank of Scotland, was fined £8.75m for breaches of money-laundering rules in handling the affairs of customers vulnerable to corruption because of their political links.
The FCA did not conclude that Barclays facilitated money laundering or terrorist financing when it conducted the transaction, but found that it breached rules put in place intended to ensure checks were made about client suitability.
It found that the bank had gone to “significant lengths to accommodate the clients”, which it described as “a number of ultra-high net worth politically exposed persons”.
One manager described it as “the deal of the century” and the clients were offered up to £37.7m in compensation if the bank failed to comply with confidentiality restrictions. A safe was used to store details of the clients in hard copy – rather than on computer files – but “few people within Barclays knew of the existence and location of the safe”.
The bank was driven by a desire for the profits on the deal – which amounted to £52.3m – and the prospect of winning further business, the FCA said. The total penalty imposed on Barclays includes disgorgement of this profit – a step rarely taken by the regulator.
The deal was an intricate one, involving investments in structured bonds, and a number of companies were used to facilitate the transaction. The aim of the deal was to provide the clients with a specified rate of income with full capital guarantee over a number of decades.
Barclays said: “The FCA made no finding that Barclays facilitated any financial crime in relation to the transaction or the clients on whose behalf it was executed. Barclays has co-operated fully with the FCA throughout and continues to apply significant resources and training to ensure compliance with all legal and regulatory requirements.”
Robert Barrington, the executive director of Transparency International UK, questioned why the Barclays staff involved in the deal had not been named or punished.
“While we welcome the regulatory action and the fact that the company has co-operated with the investigation, for a failure on this scale we would expect to see action taken against key individuals, which may include prosecution or being de-barred from working in financial services,” he said. .
The fine comes as Barclays’ new chief executive, Jes Staley, prepares to take the helm on 1 December. The American banker has said improving trust in the bank is part of his mandate, in the wake of the Libor-rigging scandal in 2012 that forced out the former chief executive Bob Diamond and prompted a wave of anger about bankers’ activities.
