The 2008 deals by which Barclays, the British banking group, was rescued by Qatari investors has thrown a long shadow over the City of London and its behavior during the global financial crisis.
It also threatens to further complicate relations between Britain and Qatar in the midst of the standoff in the Arabian Gulf between the Anti-Terror Quartet (ATQ) — Saudi Arabia, the UAE, Bahrain and Egypt — and Qatar over alleged terrorism funding.
A crown court in London this week began to hear allegations of fraud conspiracy against Barclays and four executives, including the bank’s former chief executive John Varley. It is the only example of British bankers being prosecuted for their part in the high-octane activities that were played out against the background of the global financial crisis.
The charges are being brought by the Serious Fraud Office (SFO), the investigatory and prosecuting body responsible for dealing with large-scale financial crime. The SFO alleges that Barclays, Varley and three other executives — Roger Jenkins, Thomas Kalaris and Richard Boath — conspired to commit fraud through false representation and unlawful financial assistance when they did deals with two Qatari entities, Qatar Holding and Challenger Universal, in 2008.
Challenger was the vehicle created specifically for the Barclays transaction by Sheikh Hamad Bin Jassim Bin Jaber Al-Thani, who was then prime minister of the country.
Although other investors also bought shares in Barclays around the same time — including Sheikh Mansour Bin Zayed Al-Nahyan of the UAE and Temasek, the Singapore sovereign wealth fund — it is only the Qatar dealings that have caught the attention of the UK authorities.
The circumstances were extraordinary. By October 2008, after the collapse of Lehman Brothers in New York, banks all round the world were getting desperate. All were wondering who would be next. If Lehman had collapsed, nobody was safe.
The British banks in particular were thought to be especially vulnerable. Royal Bank of Scotland, Lloyds TSB and Halifax Bank of Scotland were being urged by the British government to take up funding made available under a £50 billion ($65 billion) bail-out package deemed essential for survival.
Barclays was too proud to take public funds from a left-wing government, and did not want to surrender to state ownership. It was also conscious of the fact that government money came with strings, like a cap on executive bonuses.
The new investors from Qatar offered no such complications. They had already stumped up as part of a £4.5 billion cash-call in June of that year, and were enthusiastic investors as part of the £7.3 billion package under negotiation in October.
The case raised by the UK’s Serious Fraud Office comes at a sensitive time for Doha, which has investments in Britain totalling some $40 billion
Barclays was generous to its new partners. Not only were the terms of the cash injection expensive for the British bank and dilutive of its existing shareholders, but it came with side deals which must have impressed the Qataris.
It is those side deals — especially a £322 million fee for “advisory services” paid to Qatar and a $3 billion loan to the Qatari finance ministry — that caught the attention of the SFO and have resulted in the current criminal prosecution.
At the hearing at a London court this week it emerged that the trial will begin in January 2019, and it will last four months.
Several important questions remain
The first is whether the SFO will bring new charges against the bank’s operating unit in the UK. So far, it is only the group holding company that faces charges, as well as the individual executives. Action agains the regulated entity Barclays Bank could be a threat to its business in Britain.
The other question is whether any action will be brought against the Qatari side of the transaction. In a statement to Arab News, the SFO said: “Should further information come to light in relation to other individuals, it will be given appropriate consideration.”
But so far, the SFO believes that the alleged crimes were committed in Britain, and that they have the men responsible in the dock.
However, that does not mean that Qatar will escape scrutiny in the affair entirely. It seems very likely that senior Qatari officials will be called as witnesses, and cross-examination could be extremely uncomfortable for them, to say the least.
The trial comes at a very sensitive time for Qatar. Its investments in the UK — totalling some $40 billion — are coming under closer examination in light of the ATQ’s terror allegations, which have provoked a diplomatic crisis in the region and alarmed Western allies, including Britain.
In the run-up to Brexit, Britain wants to encourage foreign investment to make up for the fall-off in European trade expected when it exits the EU. But it will have to be extra careful who it choses as investors.
As the Barclays trial shows, taking money from Qatar is not exactly risk-free.
• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai