This morning the Financial Times ran a full-page article over the problems with prosecuting fraud under the headline “The legal fight over a company’s controlling mind”. This covered the difficulty that the Serious Fraud Office (SFO) has in prosecuting fraud with particular reference to the Barclays case. That arose from the escape by Barclays from involvement with Government funding after the financial crisis in 2008. They simply borrowed a pile of money from Qatari investors instead. But it was alleged that they had paid additional consultancy fees as a sweetener for the deal which were not disclosed to investors at the time.
As a Barclays shareholder at the time, I thought that it was a very wise move to avoid Government involvement as the Government seemed to be intent on taking control of the banking sector by forcing recapitalisation on the major UK banks, i.e. forcing them to issue equity or take loans on onerous terms which they certainly did with RBS and Lloyds, much to shareholders disadvantage. It has always seemed to me that the legal case against Barclays was politically motivated from the very beginning with the objective of teaching Barclays a lesson.
Last week, the last of three Barclays defendants were acquitted. The former CEO John Varley had been previously discharged by the judge on the grounds that there was insufficient evidence and no corporate charges were brought. The deal had been approved by the board of Barclays after legal advice had been taken so the latest acquittal is hardly surprising.
But the FT article explains well why it is difficult for the SFO to obtain convictions in fraud and bribery cases even when the evidence is better because it is very difficult to identity a “directing” or “controlling” mind in large companies. The current law might have worked with small companies in times gone by but the complexities of modern corporations make it difficult to apply. As a result the SFO has tended to rely on Deferred Prosecution Agreements (DPAs) where the company pays a fine to avoid prosecution but without conceding anything. However, the individuals involved have often then been declared not guilty in subsequent trials (e.g. in the Tesco case).
It’s worth reading the FT article to see how the legal framework is such a mess in the UK. It’s also not helped by the FCA and FRC also being involved with overlapping and confusing responsibilities for corporate financial affairs.
It’s certainly makes a good case for reform. It’s worth pointing out also that the Barclays case stemmed from 2008 (i.e. 13 years ago) and it is surely unjust to have the defendants under the stress of a major prosecution, incurring very large legal costs and probably making them unemployable for that length of time when the legal case seemed to be very weak.
However much some sections of the public would like bankers who were around in 2008 put in prison, this is not justice.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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