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‘Elephant’ deals and cutting corners: Why FCA fined Barclays £72m

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Staff at Barclays lowered due diligence standards for a group of ultra high-net-worth individuals in a bid to avoid “irritating” the clients, the FCA’s final notice reveals.

This morning the regulator revealed it had fined the bank £72m for applying lower standards of scrutiny to a £1.88bn deal involving several “politically exposed persons”.

According to the FCA, Barclays senior management expressed concern at the speed at which due diligence could be completed, with one saying they wanted to “rush through” the “elephant deal”.

The FCA says: “Barclays went to significant lengths to accommodate the clients. It did this to win the clients’ business and for the significant revenue that it would generate from the transaction.

“In the early stages of arranging the deal, when it was suggested that the transaction might be for a larger sum, one senior manager recognised that it could be the ‘deal of the century’.

“It was also recognised within Barclays that the transaction could open the door to similar significant business opportunities for Barclays.”

However, the regulator found that the bank’s desire to secure the clients meant it agreed to keep details of the transaction secret, even within Barclays, with a £37.7m indemnity agreed if confidentiality was breached.

As a result, the FCA says “a very limited number of people within Barclays and its advisers” were aware of the clients’ identities, and details were not kept on the banks internal computer systems.

This meant automated checks against sanctions and court order lists that would have typically been carried out never took place.

The bank was also reluctant to obtain more information from clients out of fear of “irritating” them with multiple requests, the FCA says.

This meant when the £1.88bn transaction occurred, Barclays was unable to satisfy itself of the identity of the accounts that funds had come from, the length of time funds had been in those accounts, or the provenance of the funds used.

As a result, Barclays applied less scrutiny than would be required for standard business relationships.

The FCA also cites one instance in which clients requested Barclays make a payment in the order of tens of millions to a third party.

The FCA says: “When Barclays questions the rationale for that payment, the request for the payment to be made to the third party was withdrawn.

“Whilst there could have been legitimate reasons for the proposed payment and its subsequent retraction, Barclays should have considered whether the reluctance to provide it with an explanation indicated a higher risk of financial crime, and whether it needed to apply a higher level of scrutiny in respect of the business relationship.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. As a Barclays shareholder it hurts me to say that I agree they should be fined. I also think that those who had a hand it the transaction and the ‘cover up’ should be financially punished and then dismissed. If this was a politically sensitive transaction then they should be only too aware of the part that the FCA and Money Laundering controls play in our society and that no one should be immune.

    The ‘senior managers’ in this case are not fit persons.

    • If they didnt make their standard enquiries even and failed to make more detailed NON standard enquiries for something that based on the article sounds potentially dodgy, then I suspect I am not the onyl reader who is wondering why there has been only a fine and not a criminal prosecution against a Barclays staff member? Had an adviser firm done this, you can bet without a disclosure having been made by the firm the compaliance manager if they knew of this or teh staff member who waived standard rules without more in depth ones being agreed would be facing t juts a fine, but a potential criminal record.

    • Frank, if I was a shareholder I would be asking why no criminal investigation of any Barclays staff member for money laundering and financial crime and looking at why no-one has been sanctioned by name by Barclays or had their bonuses withdrawn etc.

  2. It seems to me, the larger the company the more that they forget that there are three elements to prevention of money laundering & financial crime:
    1. Law
    2. Internal Rules
    3. Common sense.

    1 cannot be varied, but 2. should have standard internal rules and situation specific investigation which are influenced by common sense.
    This scenario should in fact have resulted in MORE NON standard investigation rather than no standard use of internal rules.

  3. Surprised no one has asked about timing and whether Hector Sants, former head of FSA and subsequently head of compliance at Barclays before moving on was in situ at the time.

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