Barclays just got hit with a £72 million fine for ignoring 'obvious red flags to win new business'
The Financial Conduct Authority (FCA) has hit Barclays with the fine, the largest ever for financial crime failings, for arranging and executing transactions in 2011 and 2012 for a number of ultra-high net worth clients who were "politically exposed persons."
These clients, who are not named, are people who held political positions and thus should have been subject to extra scrutiny to guard against corruption and money laundering.
But Mark Steward, the FCA's director of enforcement and markets oversight, says Barclays "overlooked obvious red flags to win new business and generate significant revenue," forgoing the checks to try and bag the trades.
In fact, the FCA says Barclays was more lenient with these rich, powerful clients that it was even with lower-risk trades. Here's the FCA (emphasis ours):
Barclays went to unacceptable lengths to accommodate the clients. Specifically, Barclays did not obtain information that it was required to obtain from the clients to comply with financial crime requirements. Barclays did not do so because it did not wish to inconvenience the clients.
Barclays agreed to keep details of the Transaction strictly confidential, even within the firm, and agreed to indemnify the clients up to £37.7 million in the event that it failed to comply with these confidentiality restrictions. Few people knew of the existence and location of the firm's due diligence records which were kept in hard copy and not on Barclays' systems. This had a detrimental impact on how the Business Relationship was monitored by Barclays and also meant that Barclays could not respond promptly to the FCA's request for this information.
The FCA stresses that there's no evidence that a financial crime did take place and it is not accusing the bank's clients of doing anything. But Barclays totally ignored its own internal checks and systems, meaning a financial crime could easily have taken place.
Most damning is the finding that Barclays "failed to establish the purpose and nature of Transaction and did not sufficiently corroborate the clients' stated source of wealth and source of funds for the Transaction."
In other words, politically powerful figures rocked up with stacks of cash wanting to send it somewhere and Barclays readily agreed without going far enough to check where it was from or where it was going. It's easy to see how that could go badly wrong.
Steward says in a statement: "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. This is wholly unacceptable.
"Firms will be held to account if they fail to minimise financial crime risks appropriately and, for this reason, the FCA has required Barclays to disgorge its revenue from the Transaction."
The £72 million fine comprises a payback of £52.3 million, the sum Barclays made on the trades, and a fine of £19.7 million as a further slap on the wrist.
It's the largest fine for a financial crime ever handed down by the FCA or its predecessor the FSA but, in fact, could have been bigger - Barclays settled early on in the case, meaning it qualified for a 30% discount. Without that, the fine would have been £80 million.