Barclays bank, the real indoor pirates

March 28th, 2009

Recently I posted The indoor pirates @ Communities Dominate Brands, of particular relevance…

A friend of mine interviewed the No.4 of a high street bank. This bankers view, was that governments need banks, and so recent circumstances won’t change much. You kind of choke on your cup of tea don’t you? Or find that piece of cake going down “the wrong way”. Especially when that bank was Barclay’s.

Now are we sitting comfortably? The I shall begin. My title for the post was an ironic poke at the financial and banking system, and reference to a childrens book called The Indoor Pirates. What’s it all about?

A hopelessly silly piratical adventure. Bald Ben, Lumpy Lawson, the quarrelling twins, Polly and Molly, and Captain Blackpatch are a useless bunch. They don’t like boats and they don’t like the sea, so they live in a house. When a big electricity bill lands on the mat it needs paying pretty quickly, so the hunt is on for some treasure. But are these pirates any good at finding treasure? In fact, are they goood for anything at all?!

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However, in true English fashion my humour is dark. There is an exchange between captain Blackpatch and a boys mother. Cap’n Blackpatch pretends he is a bank manager not a pirate, and the mother responds,

Well its pretty much the same thing isn’t it!

Indeed, a hopelessly silly piratical adventure. This week just gone, Lord Oakeshott of Seagrove Bay made this statement in the House of Commons

My Lords, I declare my interest as a pension fund manager since I first joined Warburg’s in 1976; these days I manage British commercial property for pension funds, charities and investment trusts. When I buy a warehouse from Sainsbury’s, neither of us pretends that Tamworth is in the Cayman Islands to dodge stamp duty land tax. Tax havens are sunny places for shady people. No one sends their money to Monaco or the Cayman Islands because they are centres of excellence for fund management. I was going to add the British Virgin Islands, but in deference to the noble Baroness, Lady Hooper, I shall leave them out. From Antigua to Belize, you use a tax haven because you have something to hide, be it from the taxman, the authorities where you live or even your family…

Warming to his main theme and referencing the Guardian and the fact that Barclays had been extremely busy trying to gag anyone who might say Barclays and tax abuse, in the same sentence, he proceeded,

Why will the Prime Minister and the Treasury not use their power over the banks to stamp out tax abuse right under their nose in London? You do not have to take a Caribbean cruise; all you have to do is get on a boat down the Thames to Canary Wharf. The superb tax gap series in the Guardian shows how big British businesses, both publicly quoted and private, twist and turn to dodge tax in this country. Their glossy corporate governance reports say nothing about paying your fair share of tax to meet your obligations to the society where you operate. Being a good corporate citizen must mean more than putting on green lipstick and ticking the boxes on diversity.

Nearly nationalised RBS claims to have closed down its tax avoidance operations at head office but still actively promotes its operations in offshore tax havens and its private bank in Switzerland. Barclays has developed tax avoidance into a massive profit centre in its own right, with vast sums of the bank’s money touring tax havens on what in one case amounts almost to a three-day super saver return ticket from Canary Wharf, saving Barclays, not the taxpayer, mountains of tax.

Documents leaked to the Liberal Democrats, which appear to detail systematic tax avoidance on a grand scale by Barclays, were injuncted last week. The Sunday Times and the Guardian had already made them front-page news and these documents are widely available on the internet from sites such as Twitter, wikileaks.org, docstoc.com and gabbr.com. Yet the Guardian had to remove them from its website and cannot tell its readers where to find them. These documents describe deals worth billions of pounds set up by the bank in order to make money out of depriving the UK and foreign exchequers of revenue. Barclays would not last for one minute without the British taxpayer standing behind it, yet it is holding out one hand for taxpayers’ money while it picks taxpayers’ pockets with tax avoidance activities on the other.

And

Barclays has a whole department, the structured capital markets division, inside Barclays Capital, dedicated to dodging the taxman, and has been reported as paying Mr Roger Jenkins, who runs it, £40 million a year. Vince Cable and I are now being told of more, even murkier, deals. About a third of a billion pounds has been added to Barclays Bank’s bottom line by the following six “projects”, from what we can see. Barclays’ Project Knight, set up in 2007, with capital of more than $16 billion, involved making loans to American banks which now need federal funding: Wachovia, WaMu, Bank of America and BB&T. This allowed Barclays to benefit from “double-dip” tax credits, as they are called, and made the bank £100 million or more.

Project Faber, also in 2007, involved capital of £1.5 billion and made Barclays £29 million in tax profits. That involved using tax havens in the Isle of Man and the Caymans for subsidiaries to channel loans to Luxembourg banks. Project Brontos in 2007 was a scheme between Barclays and Italian banks to save Italian tax; it made Barclays £15 million in profits at a conservative estimate. Project Valiha, with capital of nearly £400 million, involved an elaborate trade with interest rate swaps that could be transferred to an American counterparty, alleged to be AIG, which gained Barclays £69 million in tax-free profits. Project Brazil, set up in 2005–06, made Barclays £30 million in tax profits from currency trades and, in Project Berry, a Barclays subsidiary buys index-linked gilts and lends them back to Barclays so that it can collect tax reliefs worth £134 million. How many more of those morbid mutants are on the books of Barclays’ structured capital markets group? Before the Treasury takes on any of the toxic assets of Barclays, we must know how much tax it has avoided, how and with whom, and what has passed through or is still hidden in tax havens.

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Indoor pirates indeed. So read Barclays board as: Cap’n Blackpatch, Bald Ben, Lumpy Lawson, and the quarrelling twins, Polly and Molly, perhaps we could add Seaman Stains, Master bates, and Jack the cabin boy – we all need one of them.

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Richard Murphy writes,

The result has been a deliberate attempt to defraud – by which term I mean seeking to secure a financial advantage by deception, although not (I stress) illegally.

The deception has been on three parties. The first has been tax authorities who despite their brave statements to the contrary did not, I suspect, know the full details of some of these arrangements. It would seem that some may not have been disclosed to them.

Secondly, Barclays have sought to defraud (using the above definition) the taxpayers of the UK and maybe elsewhere who have not received the funds rightfully due to them on profits declared.

Thirdly, I think they have defrauded (using the above definition) their shareholders by declaring profits which were not, in my opinion, sustainable and which were manufactured through preconceived and structured financing deals in which the counterparties played a remarkably small part in exchange for what was, in effect, a fee to allow Barclays to record realised profits by turning the manufactured profits into third-party transactions.

I wonder where the real toxic debt lies?

A commentator to the Financial Times stated:

I was lucky enough to read through the first of the Barclays documents…
I will say it was absolutely breathtaking, extraordinary. The depth of deceit, connivance and deliberate, artificial avoidance stunned me. The intricacy and artificiality of the scheme deeply was absolutely evident, as was the fact that the knew exactly what they were doing and why: to get money from one point in London to another without paying tax, via about 10 offshore companies. Simple, deliberate outcome, clearly stated, with the exact names of who was doing this, and no other purpose.
Until now I have been a supporter of the finance industry – I work with people there regularly and respect many of them, and greatly enjoy the Financial Times and other financial papers. However this has shone a light on something for me, and made me certain that these people belong in jail, and companies like Barclays deserve to be bankrupt. They have robbed everyone of us, every single person who pays tax or who will ever pay tax in this country (and other countries!), through both the bailouts and schemes such as this.

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