FX Cartel Arrives in U.S. After Avoiding UK Charges (Audio)

during the two thousand eight financial crisis. The bank itself, meanwhile, along with Varley and Jenkins, was charged with providing unlawful financial assistance. The executives have all pleaded not guilty. Here to talk with us about the case today is Peter Henning, a professor at Wayne State University. Peter um this is a big case for the for the UK arising out of the two thousand eight crisis. Explain what it is

exactly that the British authorities are charging these executives with. Well, it's an interesting case because what they are accused of doing is not making the opera disclosures about their dealings with Cutter. That there was I guess about a three hundred and thirty million dollar um payment that was made and then a loan facility for the Cutter government or

one of its ministries was arranged through Barclays. And essentially what the executives are being accused of is engaging in more or less a quid pro quo arrangement to get the investments to keep the bank afloat UM. But really the underlying charges you didn't disclose it. You engage in a fraud by misrepresenting UH. It's an interesting case because

that money kept Barclays afloat. It didn't go under like we saw any number of banks in the United States go under UH and even in the UK at that time. So it's an interesting charge because Barkley survived. Yet now these executives are accused of fraud. Joining us is Robert Hockett, Professor, Cornell University Law School, Bob so the former chief executive of Barclay's John Varley, is the most prominent and most senior banker to be charged with crimes relating to the

global financial crisis nine years later. What message does that send? Well, um, I suppose it confirms the message. I think it's been set many times and that many people have sort of gleaned over the last number of years, and that is that it's apparently rather easier to go after the banking institutions themselves than to go after the individuals who make

the actual decisions ultimately that that get the banks into trouble. Well, Peter, so, how I mean this did keep Barclay's afloat and that would see, I mean, it would seem as though that's kind of a success story given the nature of you know, what happened with some other banks and what the government's had to do for them, is it really appropriate to

be charging them here? Well, I think that the point here that the Serious Fraud Office is making is that, um, you know that the end doesn't justify the means, So that if you're going to play fast and loose with the disclosure rules and also make up a loan that appears to have been based on just the fact that Cutter made the investment, um, I think they're concerned about that.

But you know, if I'm looking at the pantheon of bad bank conduct back in two thousand seven and two thousand and eight, I'm not sure I would put this at the top of the list, Bob. In recent years, the UK Serious Fraud Office has failed to successfully prosecute a number of high profile bribery and corruption cases. How much is this a test for that office? Well, I guess a couple of things I want to say there.

I mean, the first is that you know, we talked about the Barkley's case before, or you might remember a few weeks back, and I think there's potentially something more

serious going on here. I think one thing that the Serious Fraud Office is worried about is that essentially what Barkley's is said to have done is you know that the significance of the quid pro quo is such that the capitalization that Barkley's got in the midst of the crisis could be argued to have been a kind of bootstrapped capitalization, because if you're essentially lending money to the very people who are now investing in you to recapitalize you,

then you are in effect creating your own capital out of thin air, as it were. Right, That's the concerns as a kind of a bootstrapping there, And for that reason, I think this particular case has some real teeth and I think that the Serious Fraud Office might very well succeed with this one. On the other hand, there are other cases, and of course you might be alluding to the UH Foreign Exchange scandal other cases where it's more difficult, I think, to get the evidence that you need in

order to sort of make a criminal charge stick. Um, that's of course what happened with the SFO in connection

with the currency manipulation scandals. They had lots and lots of evidence, and they actually still maintained that they believe that a fraud was committed, or that frauds were committed in connection with the four X scandal, but they don't think they have quite the right amount of evidence of the quite the right quality of evidence to stay in a criminal conviction, of course, because the the it's much more difficult to do that, right, The burden of proof

that has to be met in order to deprive somebody of their rights and put them in prison or find them in in a criminal penalty sense of finding, is just a very difficult burden to sustain. And so I think this is this sort of connects up with your first question to me a few minutes ago, and it's just much more difficult, they think, to bring these cases and prevail on them, and it is to prevail on

regulatory cases. In January, during the waning days of the Obama administration, the United States government charged British foreign exchange traders Richard Usher firmly of JP, Morgan Chase Rohan, Rom Chaddon, who is with City Group, and Chris Ashton, firmly of Barclays,

with conspiracy. The three allegedly used a chat room they called the Cartel to manipulate the price of currencies, and now the three have flown to New York to face the charges, even though British authorities had to had declined to charge them under UK law. The traders pled not guilty and were released on bail pending for their proceedings. With us. To talk about this case are Peter Henning, a professor at Wayne State University, and Bob Hockett of

the Cornell University Law School. Bob, this case was a big deal for the Obama administration, that kind of It was one of the last things that they did they charged these traders. Why was this case such a big deal for them? Well, I think it was big for

a couple of reasons. One is that the Obama administrations have been criticized quite roundly and quite frequently in the wake of the crisis for not having gone after individuals who were thought to have been at least in part responsible for this scandal or that scandal, or for this crash or for that crash. There has been plenty of settlements reached with various banking institutions and other financial institution, but no really serious convictions or even pursuits up to

that point of individuals. UM. And with the outbreak of the London Whales scandal in and then the four X scandal and under precious medals and other commodities scandals following those, um, I think the Obama administration was probably really beginning to feel that heat, thinking, you know, we really want to charge at least some individuals here, given that finding the finding the banks doesn't seem to do the job. So I'm guessing that that's why they decided to kind of

go out with this particular bang, Peter. This follows months of negotiations with prosecutors over the terms of their surrender and the fact that they can return to the UK until uh, there's a trial here. Could they have fought extradition, yes, the answers, but could they have one if they fought extradition? Well, yeah, you can always fight, but UM, the treaty, the extradition treaty between the U S and the U k H

is really quite broad and permissive. And so there was a fight back around two thousand four, two thousand five related to three investment bankers from nat West UM and they were got the nickname the Thatt West three related to Enron, and they fought all the way to the highest court in Britain and lost and ended up getting

extradited into the US. I think what these three traders figured out was and their attorneys figured out, was, look, let's work out an accommodation, will come, will surrender, and then maybe we'll be allowed to return to the US. Then that West three had to go find apartments in Houston, UM and sit around there and wait for their trial. So this is really UM, if you're not going to win the fight, try to work out the best deal that you can. And I suspect that's what they did, Bob.

This was as we were discussing a big deal for the Obama administration in this case. And you know now the Justice Department has negotiated these voluntary array tachments for the defendants to come and appear in US Court, which they now have. But you know, a lot of people have wondered if the Trump administration would take the same sort of approach to these kinds of issues as the

Obama administration did, at least at the end. Um, can we expect that the Trump administration is going to prosecute this as vigorously as the Obama people would have done. Yeah, that's a great question, and I honestly think it's a tough call in this particular case for several reasons. Uh. One is that the traders in question or not American, and so it could be one could imagine at least the Trumpet administration being a little bit less solicitous of

non American defendants. Another reason is that Mr Trump of course campaigned on at least partly a sort of anti Wall Street platform, and while that's turned out to be somewhat let's say questionable, or let's say, well, his commitment to that particular aspect of his platform Wall campaigning has has come into question, of course, in recent months, it's not clear that it's been entirely a bad So my guess would be that they'll prosecute this, maybe not with

quite the same vigor that the Obomba administration seemed to want to do at the end of its time, but that it will still probably try to treat this fairly seriously, Peter. They've frequently pointed to the fact that the Serious Fraud Office, which we were talking about, decided in to close its investigation into this without filing any charges, and they've pointed to that as evidence that they did nothing wrong. Is it any kind of evidence. Well, it's certainly a good

talking point. Whether it comes in at trial is another issue. I can't see an American federal district court judge allowing defendants to argue, well, the British authority said what we did wasn't a crime, therefore you shouldn't prosecute us, or even that that's somehow a defense. So I think that's more of something that they can try to use in the media rather than having any real impact on the trial.

This is going to be a case about um, the the I M s and talking back and forth, and then looking at how they were able to nudge Libar up a little bit, down a little bit to help their positions. So that's really going to be the focus here in the case. Bob in about thirty seconds. Given that that's the focus of the case, how strong is the government's case here? I think it's actually quite strong.

I mean, when you call yourselves the cartel and when you're acting definitely to manipulate foreign foreign exchange rates, Uh, it doesn't get much better than that. And it's important that the SFO in Britain didn't actually decide that there was no wrong doing. They just decided they said, actually, we think the fraud was committed. We just don't have enough evidence to prevail in trial. With a burden of group is quite heavy, the American Justice Department might be

more competent. Well. Our thanks to Bob Hockett of Cornell University Law School and Peter Henning of Wayne State University for being with us here to talk about all this legal news coming out of the UK and and British traders on Bloomberg Law