BUSI­NESS Fear of ‘in­con­ve­nienc­ing’ Gulf clients costs Bar­clays hefty R1.5bn fine

Weekend Argus (Saturday Edition) - - OPINION - DAVID CONNETT

BAR­CLAYS Bank has been fined £72m (R1.55 bil­lion) for fail­ing to carry out proper an­ti­crime checks on a group of su­per-rich Gulf clients be­cause it did not want to “in­con­ve­nience” them.

The bank was so keen on a £1.88bn “ele­phant” deal with the clients, it ig­nored its rules to safe­guard against money laun­der­ing and fi­nan­cial crime, the Fi­nan­cial Con­duct Author­ity said. The fine is the largest im­posed in the UK for fi­nan­cial crime fail­ings.

In­stead of car­ry­ing out “en­hanced lev­els of due dili­gence and mon­i­tor­ing” on a group of clients de­scribed as po­lit­i­cally ex­posed clients, the bank took them on as quickly as pos­si­ble with­out the nec­es­sary checks, the City watch­dog said yes­ter­day.

The clients are be­lieved to be from Qatar, al­though nei­ther Bar­clays nor the FCA would com­ment on this yes­ter­day.

“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,” said Mark Stew­ard, the FCA’s di­rec­tor of en­force­ment. “This is wholly un­ac­cept­able.”

The fine in­cludes the £52.3m profit Bar­clays made on the deal, as well as a £19m penalty that would have been greater but for the bank’s co-op­er­a­tion, the FCA said.

The reg­u­la­tor crit­i­cised se­nior man­age­ment at the bank when the deal was done in 201112, but the fine is a blow for Bar­clays’ chair­man John McFarlane, who has made ethics one of his pri­or­i­ties. Bar­clays has al­ready cut its 2016 profit tar­get as a re­sult of fines for past mis­deeds.

The FCA said the bank went to “un­ac­cept­able lengths” to ac­com­mo­date the clients be­cause it did not wish to “in­con­ve­nience” them, in­clud­ing fail­ing to get in­for­ma­tion from the clients to com­ply with fi­nan­cial crime reg­u­la­tions.

The deal was kept so confidential within the bank that it agreed to in­dem­nify the clients up to £ 37.7m if the de­tails leaked. Only a small num­ber of bankers knew of the ex­is­tence and lo­ca­tion of any due dili­gence doc­u­ments as the records were kept in hard copy and not on a com­puter sys­tem. So se­cret was the deal that when FCA in­ves­ti­ga­tors asked for the de­tails, bank of­fi­cials took months to find them.

Reg­u­la­tors said se­nior man­agers at the bank failed to “ad­e­quately oversee” its fi­nan­cial crime risks, failed to “re­spond ap­pro­pri­ately” to de­tails point­ing to a “higher risk” of crime, and fol­lowed a “less ro­bust process” than it would have done with lower-risk clients.

The bank, which was headed by Bob Di­a­mond in 2011 and 2012, did not es­tab­lish the “pur­pose or na­ture” of the deal and “did not suf­fi­ciently cor­rob­o­rate” the clients’ stated source of wealth and funds.

The FCA in­sisted that there was no ev­i­dence of any fi­nan­cial crime and made no crit­i­cism of the clients. The reg­u­la­tor said it was “un­clear” which se­nior man­agers were re­spon­si­ble for making the checks.

The in­abil­ity of reg­u­la­tors to hold se­nior bankers per­son­ally re­spon­si­ble for mis­takes will fuel de­mands for stronger ac­count­abil­ity rules and will in­crease pres­sure on the gov­ern­ment to res­ur­rect plans to make se­nior fi­nan­cial ser­vices ex­ec­u­tives prove they were un­aware of wrong­do­ing.

Ear­lier this month the Trea­sury re­vealed it was making a key change to rules to in­crease the ac­count­abil­ity of top man­agers. The new rules, putting the bur­den of proof on ex­ec­u­tives to show they took rea­son­able steps to pre­vent wrong­do­ing, were pro­posed by the par­lia­men­tary com­mis­sion set up to in­ves­ti­gate causes of the bank­ing cri­sis.

Ex­ec­u­tives will now have a statu­tory “duty of re­spon­si­bil­ity” re­quir­ing them to take steps to pre­vent reg­u­la­tory breaches.

Op­po­nents of the re­form claimed bankers and their ad­vis­ers were spend­ing more time and re­sources mit­i­gat­ing the risk of be­ing held per­son­ally li­able than on run­ning their com­pa­nies. Supporters of the change said it was to force bankers to spend more time en­sur­ing rules are fol­lowed.

Mark Car­ney, the gov­er­nor of the Bank of Eng­land, pledged in June to end the “age of ir­re­spon­si­bil­ity” in which there have been scan­dals, in­clud­ing at­tempts to rig for­eign ex­change mar­kets. The new rules, which take ef­fect next March, ap­ply to 1 000 firms reg­u­lated by the Pru­den­tial Reg­u­la­tion Author­ity.

A damn­ing 2011 study by the FCA’s pre­de­ces­sor found wide­spread abuse of anti- money laun­der­ing rules by banks. – The In­de­pen­dent

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