Bob Diamond Resigns But Will Barclays’ Rate-Fixing Scandal Lead to Prosecutions?

The resignation of Marcus Agius, chairman of Barclays bank, may be just the first casualty of a mammoth scandal rocking the U.K.'s financial sector.

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Barclays Chief Executive Bob Diamond has resigned with immediate effect.

Updated: July 3, 2012 at 3:45 a.m. EST

Authorities in the U.K. and the U.S. slapped Barclays with fines of more $450 million on June 26, but that hasn’t stopped the fallout from the rate-fixing scandal. One week after the embattled British bank agreed to pay the penalties for rigging, to its own advantage, key interbank lending rates — to which many adjustable mortgages and other consumer rates are pegged — executives find themselves at the center of a growing storm that threatens to blow into boardrooms of banks across London.

The controversy claimed its first casualty on Monday morning when Marcus Agius, Barclays’ silver-haired chairman, announced his departure. “Last week’s events, evidencing as they do unacceptable standards of behavior within the bank, have dealt a devastating blow to Barclays’ reputation,” he said in a statement. “As Chairman, I am the ultimate guardian of the bank’s reputation. Accordingly, the buck stops with me and I must acknowledge responsibility by standing aside.”

But with the fallout continuing Tuesday, it turns out that Agius isn’t quite done. Chief Executive Bob Diamond resigned with immediate effect, saying that the external pressure on the bank risked “damaging the franchise.” Barclays then confirmed that Agius would lead the search for Diamond’s replacement. “It is the right decision for the country,” said Chancellor George Osborne of Diamond’s decision, who hoped it was the “first step towards a new culture of responsibility in British banking.”

(MORE: Barclays Chairman Steps Down After Rates Scandal)

But executives falling on their swords won’t stop the hissing. A consumers’ rights organization called Which? found that 78% of people believe the banks broke the law during the scandal and wish to see those responsible prosecuted. Politicians have seized on the sentiment. On Monday afternoon, Prime Minister David Cameron announced in the House of Commons that a full parliamentary inquiry will be set up in the wake of the scandal because the British people “want to see bankers who acted improperly punished” (Diamond is still going to appear before MPs Wednesday to answer questions). Earlier in the day, the U.K.’s Serious Fraud Office, which investigates and prosecutes complex fraud and corruption, also announced that it will decide within four weeks “whether it is both appropriate and possible to bring criminal prosecutions.”

That’s not as straightforward as it sounds. Authorities must figure out what constitutes a criminal offense in the context of the London Interbank Offered Rate, the key rate in question. Mark Stephens, a partner at the London law firm Finers Stephens Innocent, assigns blame partly to the Financial Services Authority (FSA) for turning a blind eye to the problems of the banking system in Britain. “It’s regulatory failure rather than the failures of the rules,” he says. “If the rules had been properly and effectively policed by a regulator with sharp and jagged teeth, I think people would not have got into the position in which they find themselves.”

If the actions of bankers at Barclays are merely regulatory offenses, existing fines would seem an appropriate comeuppance. In any event, that’s the strongest recourse the FSA has. “The Financial Services Authority is a regulatory agency with very limited prosecution powers,” says Professor Peter Alldridge, the head of the Department of Law at Queen Mary, University of London. “It does not have power to prosecute for fraud. That would be a matter for the Serious Fraud Office.”

But legal experts say the SFO, which has the power to bring criminal charges, will find the task of prosecuting bankers incredibly difficult. Speaking to the BBC, Clive Zietman, a lawyer with Stewarts Law, said prosecutors would need to prove that individuals, regardless of their position in the bank, had knowledge that makes them guilty. “There is the physical side and the mental side — and the mental side involves some kind of knowledge,” he said. “You’ve got to prove that beyond all reasonable doubt.”

Regardless of what unfolds with Barclays, banks throughout the city are likely holding their breath, as investigators are already investigating them in other countries. Stephens believes the story is only beginning to unfold. “I think that people in other boardrooms are sweating and getting their golden parachutes ready,” he says, “before they announce to the FSA and the public and politicians the skeletons they have in their closet.”

— With reporting by Judith Welikala

(MORE: 25 People to Blame for the Financial Crisis)

3 comments
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Herb Rubinstein
Herb Rubinstein

Some black guys robs a bank for 50 bucks and gets 20 years....this jerk will probably never even be prosecuted by his fellow thieves.

Steal a little and they put you in jail

Steal a lot and they make you King

mijakada
mijakada

 Is it really possible justice may be served?  Some of these shysters being jailed is long

overdue.  Let us put our hands together, bow our heads "Our Father who .... !

deeegeee
deeegeee

Our father who.....lives on threadneedle street !