Whine on You Sleazy Diamond

July 2, 2012

ImageIt’s good to see some attention being focused upon the dealings of Barclays Bank. By manipulating LIBOR rates, it was able to protect itself against certain vulnerabilities and to realise vast gains at times, while undermining confidence in what all seem to agree is a key element of the banking system. In the case of LIBOR, however, what seems to have sparked the outrage is that it represents a breach of “club rules” – the equivalent perhaps of a country club member being caught in flagrante delicto with the wife of another. But this terrible naughtiness should not conceal many other examples of Barclays’ essential institutional visciousness.

Barclays has a rich record of morally repugnant – sometimes criminal activity, which has had repercussions across the globe. Cheating on LIBOR rates is simply the tip of the iceberg, if a real bonfire of the vanities is to be undertaken.

For one thing, the bank has historically been one of the most slippery exploiters of “loopholes” in the tax system, allowing it to evade billions of pounds in taxes. In February 2012, the bank was ordered to close loopholes through which is stood to funnel £500 million in tax breaks. One of these creative scams was described by the Treasury as “an attempt to secure ‘repayment’ from the Exchequer of tax that has not been paid” – classic tax fraud really. However, before the loopholes were closed, Barclays had been running an astonishing line of avoidance strategies. In 2011, it was reported that despite global profits of £5 billion, it paid only £113 million in corporation tax

Barclays has also been embroiled in taxation controversies on the continent. In June of this year, for example, Italian authorities accused the bank of conspiring with the Italian bank Unicredit to avoid taxation on accounts by issuing fake securities based on the Turkish lira, and routing them via Luxembourg. It remains to be seen how deeply Barclays were involved, but it would be no surprise to see their sticky fingers emerge from another tax-related honeypot. 

The bank also has a long and glorious history of supporting repressive regimes and the poverty that they create.

In 2009, the NGO Global Witness reported that Barclays had been holding an account for Teodorin Obiang, the son of the dictator of Equatorial Guinea. The bank did business with the playboy thug, whose plunder from his father’s fiefdom included 8 luxury sports cars and mansions across the world, well after it was known that oil revenues were the source of his lifestyle. 

At the time, Barclays promised to clean up its act, and that all “globally applicable” money laundering laws were being followed within its companies. But this year, it emerged that Barclays has been assisting another serial looter with his money laundering. James Ibori plundered millions from Nigeria’s  conflict-ridden Delta state ($250 million to be precise) and, according to Global Witness, Barclays was happy to act as one of the conduits for his money. In one Barclays account, registered in Knightsbridge, Ibori deposited £1.5 million in rolls of banknotes between 1999 and 2006. He doesn’t seem to have aroused much suspicion.

Given Barclays’ history, this is not at all surprising. After all, the bank was a key pillar of support for South Africa’s apartheid governments, allowing access to international finance and a means of stashing ill-gotten gains.

Barclays has a long pedigree in shafting high street customers as well as other banks, the inhabitants of poorer nations and the British taxman. In 2009, it proudly occupied first place in a league table of the “most complained about financial services companies” compiled by the Financial Ombudsman Service. The bank’s problems with Payment Protection Insurance are legendary. Having had to set aside over £1 billion by 2011 to deal with claims made by customers over the mis-selling of PPI, by April 2011, things had got so bad that the bank was now offering to settle claims with “no questions asked.” By April 2012, the bank’s total liabilities for PPI had reached a whopping £1.47 billion.

The bank was also fined heavily by the Financial Services Authority in early 2011 for mis-selling investment “opportunities” to retirees. Barclays branded the “Aviva Global Balanced Income Fund” and the “Global Cautious Income Fund” as virtually risk-free, while thousands of people then racked up the losses as this proved false. In this case, the FSA found that, not only did Barclays mis-sell its stinking funds, but it knew “at an early stage” that the funds were a poor bet, and continued to sell them to pensioners or near-retirees.

Then there is the relatively humdrum everyday scandal of the way that the bank treats its customers. While paying executives truly obscene amounts of money, Barclays has tried to weather the financial crisis by milking its customers. In 2010, for example, it dramatically increased overdraft rates so that, in some cases, these reached 18 percent. On top of this, researchers found in 2010 that overdraft charges are actually far higher than this base rate, sometimes reaching 32 percent when other fees are included. The rate for an unauthorised Barclays overdraft was calculated at a huge 220 percent (though far below the equally awful RBS’ rate of 365 percent).

So, Barclays has been happy to penalise its customers, while awarding its leadership handsomely. It has been happy to devise numerous scams to fool unsuspecting savers and investors, risking homes, pensions and savings in the process. It has been happy to work with other banks and “high net worth individuals” (read: worthless individuals) to devise cunning tax avoidance schemes. It has set up and maintained accounts for dictators and corrupt governors. It, as we know, corrupted the very banking cartel that gives it such power in the first place and, perhaps, this will be its hubristic moment.

Don’t be so sure. David Cameron has annouced an enquiry into transparency, bonuses and pay, criminal penalties and “regulatory failure.” This was made virtually inevitable by the scale of Barclays wrongdoing and the corruption of the LIBOR system (as well as the shocking lack of regulation in its operations). But there is no guarantee that issues such as tax avoidance, human rights or mis-selling of investments will be covered. There are sure signs that this will become a partisan exercise, in which the government seeks to put the Labour government on trial and vice versa.

But every institution in this broken financial system needs to be reshaped. This is the lesson of Barclays. Not that one bad apple has ruined the picnic for the rest of us. Sadly, this activity would require grown ups without a vested interest in the bottom line of the companies involved. It’s hard to see such a process ever getting very far.

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