Federal judge approves $298 million settlement between Barclays, DOJ

Judge Emmet Sullivan of federal district court in Washington, D.C., was not prepared on Wednesday to rubber-stamp the $298 million settlement between Barclays Bank and the Justice Department to resolve allegations the bank violated government sanctions in processing financial transactions with countries that include Cuba, Iran and Sudan.

Sullivan of the U.S. District Court for the District of Columbia pressed the Justice Department about why no individuals -- and no person from senior management -- was being held criminally liable for the actions of the London-based bank. Sullivan called the charges "shocking." But at the end of a hearing that lasted more than an hour, Sullivan approved the deal.

The judge had plenty of questions. He said "there has to be a paper trail" that leads to a particular individual who participated in what he called an "elaborate" scheme to conceal more than $500 million in transactions with countries on which the United States government has imposed sanctions.

Department of Justice lawyer Kevin Gerrity said Barclays' senior management was unaware of the criminal conduct at the lower level of the bank. The Justice Department, Gerrity said, conducted its own interviews and looked to hold individuals accountable. The government was unable to identify a person for prosecution, he said.

Gerrity lauded the bank, represented by Sullivan & Cromwell, for its "massive" four-year internal investigation that cost upwards of $250 million. Barclays, Gerrity said, notified the government of the bank's misconduct and cooperated in the Justice Department investigation. The bank implemented a remediation program, said Gerrity, an attorney in the department's Asset Forfeiture and Money Laundering Section.

Still, none of this sat well with Sullivan, who said he was raising questions that members of the public would likely ask if they had the chance.

Sullivan questioned why shareholders should have to pay for the bank's criminal conduct. He wondered whether the $298 million should come from the salaries of the bank's top management. Gerrity, in response, said it's entirely another issue whether shareholders file an action against the bank.

Sullivan & Cromwell partners Steven Peikin and David Braff flanked Barclays' general counsel, Mark Harding, as he addressed questions from Sullivan on Wednesday in court. Braff, who is based in New York, is the managing partner of the firm's litigation group and is a member of the management committee.

Harding, general counsel for seven years, said he understood the terms of the agreement and that he is satisfied with the work of the bank's outside counsel.

The deferred prosecution agreement lasts two years. Sullivan is planning to meet in court in November for a status conference to determine whether Barclays is adhering to the terms of the agreement.

Assistant Attorney General Lanny Breuer of the Criminal Division issued a statement Wednesday afternoon:

"Banks like Barclays will not be permitted to disregard sanctions put in place by the U.S. government," Breuer said. "Not just once, but numerous times over more than a decade, Barclays stripped vital information out of payment messages that would have alerted U.S. financial institutions about the true origins of the funds. This serious conduct has now resulted in a serious sanction -- forfeiture of $298 million, a public admission of its illegal acts, and the implementation of stringent compliance measures. As I've said repeatedly, when corporations self-disclose their criminal wrongdoing to us, as Barclays did, they will not get a pass, but we will take their disclosure, cooperation and remedial efforts into consideration."

(Published by The Law.com – August 19, 2010)