Barclays itself, its chief executive and three other senior executives have all been acquitted in prosecutions for allegedly false statements made in prospectuses and subscription agreements sent to investors in 2008. So, relying just on what has been reported in the press, what were the issues raised that succeeded and what does this show today’s management about how they might conduct themselves so as not to be put in the position that these Barclays executives found themselves in?
Charges against the bank dismissed by the trial judge
Before the first trial started, the bank’s lawyers argued that the bank, as a corporate entity, could only be held responsible either if its entire board was part of a conspiracy (not just certain executives – there was no evidence of this) or if the board had delegated full discretion to the executives (as opposed to the executives remaining responsible to the board for the manner in which they discharged their duties – this was also not the case). In light of this, the charges against the bank were dismissed.
Charges against the Chief Executive dismissed by the trial judge
In the first trial the trial judge dismissed the charges against the Chief Executive on the grounds there was insufficient evidence that he was aware the agreements were total shams, as alleged. On appeal this decision was upheld.
The second trial
Prosecutors claimed the remaining three defendants, as bank executives, achieved the £11bn emergency fundraising in 2008 from, among others, Qatari investors, by arranging secret payments to Qatari companies under advisory services agreements under which the bank agreed to pay Qatari companies more than double the investment fees that others would get for strategic advice and introductions in the Middle East. The SFO alleged that the advisory services agreements were shams to hide the extra fees and to preserve their own positions and their multimillion-pound bonuses and that the defendants never intended that valuable advice services would be provided – and concealed that from the board and the lawyers.
The court heard evidence that the bank’s board of directors knew about agreements at a fee level of £115m and that the bank had received advice from lawyers for the bank that cooperation agreements were legal, provided that they were on commercial terms. Therefore the mechanism of an advisory services agreement (ASA) was not in itself necessarily dishonest. The lawyers were also aware that fees at this level were contemplated. All that essentially changed after that was an increase in the fee.
The defendants said the agreements were genuine and had been signed off by the bank’s top lawyers. It was emphasised that for the ASA to be a sham, what the defendants had to be found to have known was that no genuine services were to be provided, not merely that the services were overvalued. This proved difficult to establish.
Meanwhile, there were the following unusual features to the prosecution case:
- The alleged misrepresentations were made by the bank
The alleged false statements in the public documents – saying no extra fees were paid – were made by the bank as a corporate entity, not the defendants. Neither the bank nor its top directors were on trial. David Green, director of the SFO at the time, has been reported as commenting, “The email chain tends to dry up at middle management level.”The SFO case was that the defendants arranged for the bank to make false statements, with the bank and its board acting and being used as an innocent agent not exercising any independent judgment. The defendants disputed that scenario and were cleared by the jury.
- No live evidence
The prosecution called no live evidence to suggest that anyone had been misled when advice was given to the bank that the agreements were legal. Recordings of phone calls between the defendants and other bank staff were open to more than one interpretation, leaving the door open for “reasonable doubt” on the jury’s part.In the end the jury took less than six hours to clear the defendants and find in their favour.
This outcome demonstrates how difficult it is for a prosecution to be brought which relies on individuals being responsible for significant acts or projects. Commerce just doesn’t work that way today. In reality, global companies are often set up along business lines, not jurisdictional ones. This means that chains of command and responsibility for decision making can involve several jurisdictions and many authorisers, not one of whom is solely responsible for the decisions made.
The law on corporate criminal liability is in the process of being reviewed, but this case begs a more fundamental question: if the case against the corporate (which relies on the actions of one or more individuals to bind the company) was dismissed, was this not a red flag to the SFO of a weak case when considering charges against individuals? Perhaps the Code for Crown Prosecutors could do with an update too; at present, charges can be brought if the Prosecutor is more than 50% sure of a conviction (the “evidence limb” of the two-limb test, the other being public interest). Shouldn’t the threshold be higher? After all, if the Prosecutor isn’t really sure on the evidence that the defendant has committed the offence in question, how can he/she expect a jury to be?
The outcome also shows how detailed evidence that decisions were taken honestly for good commercial reasons can overcome prosecution allegations of acting dishonestly to preserve positions and bonuses.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.