The Department of Justice has used similar tactics in a range of high-profile cases, including the infamous price-fixing scandal involving the auction houses Christies and Sothebys in 2001. In that case, however, Christies availed of the leniency program and evaded financial penalty. The fact that Barclays had to pay what the Department of Justice refers to as a “substantial price” suggests the cooperation – although in itself substantial – was both late and insufficient to compensate for the egregiousness of the offence, as laid out in the Principles of Federal Prosecution of Business Organizations. These principles include the pervasiveness of wrongdoing within the corporation, the corporation’s history of similar misconduct, including prior enforcement action.
Although the Department of Justice has agreed not to prosecute Barclays, the non-prosecution agreement does allow for the future prosecution of individuals, including employees of the bank. Furthermore, it is conditional on the bank continuing to cooperate not only with the Department but with any other US enforcement agency. Should the bank fail to comply with the terms of the agreement, the adjudication of which is at the “sole discretion” of the Department of Justice, it is subject to immediate prosecution for a range of offences, including perjury and obstruction of justice. This suggests the evidence of misconduct is exceptionally strong.
By co-operating, Barclays has made a rational calculation. The reputational damage will, however, extend far beyond the 15% share fall since the disclosure last Wednesday. The chief executive, Bob Diamond, has determined to try to ride the crisis out rather than following the lead of the bank’s chairman, Marcus Agius, who resigned on Monday, citing his responsibility to uphold the reputation of the bank. The phrasing is rendered even more curious given the fact that at the time of the manipulation of the dollar and euro interest rates Diamond was in charge of the unit involved.
Changing or charging individual executives will not, however, change the culture – either within Barclays or the wider banking sector. The fact that the misconduct was reported to the bank’s compliance department and was ignored suggests an amoral culture within the bank. It demonstrates, yet again, that unless compliance is linked to warranted commitment to high ethical standards, it is meaningless.
Restoring integrity to the banking system necessitates building integrated accountability systems that are subject to ongoing external evaluation. The non-prosecution agreement is a start; but it is only a start.
Effective reform requires a cleaning of the “cesspit”, which can only occur if there is acceptance within the industry of systemic ethical failings. That in turn requires a far-reaching inquiry on what should constitute the moral foundations of market integrity.
Just as the phone hacking scandals in the United Kingdom prompted judicial inquiries in both Australia and the United Kingdom into media ethics, there is a similar need to establish the parameters of acceptable practice in banking. The prosecutorial leverage provided by the Barclays admission of wrong-doing suggests and future revelations will increase the possibility of it occurring – if only to protect the industry from itself.
Justin O’Brien writes a column for The Conversation, The ethical deal, and is director of the UNSW Centre for Law, Markets and Regulation portal, where this story also appears.
