Barclays ‘Strip Club’ Fine ‘Too Lenient’

This week Barclays have hit the headlines with their $298 million settlement struck with the US Department of Justice over sanctions violations. The US Office of Foreign Asset Control has also entered into a settlement agreement with Barclays for violations of the International Emergency Economic Powers Act and the Trading with the Enemy Act that will require Barclays to pay $176 million, which is concurrent with the forfeiture paid as a result of the deferred prosecution arrangements.

US district judge Emmet Sullivan approved the settlement on Wednesday but questioned the DoJ’s decision to defer prosecution rather than require Barclays to plead guilty. Barclays did not dispute the charges which included systematically removing the names of sanctioned countries including Cuba, Sudan, Iran and Burma. Barclays also stripped information from SWIFT payments to obscure OFAC sanctioned countries and persons routed through the US.

Barclays had actually created a filter to identify these transactions which sent out a message to the relevant business unit stating ‘Wording below is contained in the message and does not comply with the Office of Foreign Asset Control regulations applicable to all payments sent via the USA. Payments to USA must NOT contain the word listed below.’ The relevant business unit would then ‘decide whether to re-input the message without the offending text …. Or to fully cancel the payment order.’ In other words the filter wasn’t there to enforce but to assist in the breaking of the sanctions payments. Sometimes payments went through a Barclays sundry account.

Furthermore, Barclays failed to heed concerns raised by employees from as early as 2001. Despite this the settlement states that Barclays took ‘prompt and thorough remedial action through extensive global measures’ despite the list of transactions made to Iran, Burma, Cuba and Sudan ranging from 1995 through to September 2006.

Attorney General Lanny Breuer stated that ‘… numerous times over more than a decade, Barclays stripped vital information out of payment messages that would have alerted US institutions  to  the true origins of the funds.’ The DoJ did take into account the fact that Barclays disclosed and cooperated with the investigation and has since taken remedial measures.

Barclays join Lloyds TSB who entered a DPA in 2009 with the DoJ with a  total penalty of $350 million. ANZ Bank settled proceedings for Sudanese and Cuban sanctions violations. The cases are remarkably similar and earned the banks the saucy ‘Strip Club’ title. Judge Sullivan commented that ‘if other banks saw that the government was being rough and tough and that bank executives had to stand before a judge and plead guilty it would be a powerful deterrent.’ Financial institutions should heed the lessons learned from these cases or expect heavier fines and possible prosecution of executives if Judge Sullivan gets his way in the future.

Further information:

US Department of Justice Press Release; http://www.justice.gov/opa/pr/2010/August/10-crm-933.html

US OFAC Civil Penalties http://www.treas.gov/offices/enforcement/ofac/civpen/penalties/08182010.pdf

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