An “elephant deal” that Barclays executed three years ago has cost the bank £72m in penalties, after the City regulator concluded that the bank ran the risk of laundering money or financing terrorism by conducting the deal for politically sensitive people, reports The Guardian.
To be classified internally as an “elephant” a deal needed to be worth £20m or more – but this one was almost £1.9bn in size and so large that it aroused the interest of the Financial Conduct Authority. It was the largest of its kind that Barclays’ wealth management arm had executed and the names of the clients were so sensitive they were kept confidential, even inside the bank.
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.”
It is the seventh penalty imposed on Barclays since 2009, with its UK penalty bill from the FCA and its predecessor, the Financial Services Authority, now at nearly £500m.
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 so-called politically exposed persons (PEPs). In 2012, Coutts, the private banking arm of the Royal Bank of Scotland and which counts the Queen as a client, 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 had actually facilitated money laundering or terrorist financing when it conducted the transaction but breached rules put in place intended to ensure checks were made about client suitability. It found 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 in the event it failed to comply with confidentiality restrictions.
The bank was driven by the 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.”
Questions were raised about why the Barclays staff involved were not punished at the time and why the individuals were not named. “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,” said Robert Barrington, the executive director of Transparency International UK.
