What’s going on here?
Barclays executives have been charged with unlawful financial assistance stemming from their actions in the 2008 financial crisis.
What does this mean?
In 2008, Qatar Holdings (a company owned by the Qatari government) invested around £4 billion in Barclays as part of an £11 billion fund raising process at the height of the financial crisis. Barclays accepted this as it sought to avoid needing a government bailout, like Lloyds and RBS had required. Since accepting the money, Barclays paid £322 million to Qatari Holdings, purportedly for the provision of “advisory services” that the company had provided. The Serious Fraud Office (SFO) has since investigated Barclays, claiming that the bank provided unlawful financial assistance to Qatari Holdings. The SFO has argued that this agreement is a sham, and was only in place to give Qatari Holdings financial assistance to invest in Barclays. The SFO is now charging Barclays and several senior executives with unlawful financial assistance and fraud.
What’s the big picture effect?
This is the first jury trial in the world of a major bank’s chief executive over the events during the financial crisis, and follows one of the highest profile fraud investigations in the history of the UK. As such the outcome will be watched closely, particularly as the bank avoided a government bailout only due to this investment.
This case also demonstrates some of the drawbacks of the UK’s regulatory regime for financial services, showing that investigation and prosecution can take many years to come to fruition. This case has only gone to trial almost 11 years after the alleged wrongdoing.
The rules against financial assistance are designed to prevent companies offering incentives to investors to purchase shares in the company. The aim is to maintain a level playing field between investors, by preventing more favourable terms being offered to one investor but not others. Maintaining this level playing field is a fundamental principle of capital markets.
One of the key points of the case has been the attitude of Barclays’ lawyers, who have been described as having “persuaded themselves” that there was no illegality in the deal made with Qatari Holdings. They have argued that the agreement was legal, so long as some services were provided to Barclays by the Qatari company.
Report written by Harry B.
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