Salz Review - Wall Street Journal

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71 Salz Review An Independent Review of Barclays’ Business Practices working in a regulator, and vice versa. We see no reason why conflict and confidentiality issues should not be capable of resolution as this is a common practice in some other jurisdictions. Collaboration between regulators and banks might also encourage candour and support for the values which regulators and the public wish to see banks uphold. This, in turn, depends on regulators having regard, in enforcing breaches, to the risk of driving a culture of defensiveness within banks and a more legalistic response. Honest mistakes in complex organisations of thousands of people are inevitable. Banks will find it harder to establish open cultures if such mistakes are perceived as being treated in the same way as serious breaches of duties or rules. Relationship with HMRC 7.11 Barclays may have underestimated the reputational effect of its dealings with the tax authorities, which have been another source of damage to the bank’s reputation. Financial institutions have increasingly come under media and public pressure since the financial crisis over their tax optimisation strategies. In March 2009, the Guardian published details of certain Barclays’ tax structuring schemes. We set out details of Barclays’ corporation tax charges in Appendix H. Barclays represents that the tax structure was voluntarily and fully disclosed to HMRC though there was no statutory obligation to do so. 121 7.12 Historically, some banks have been actively involved in structuring financial transactions to gain tax, financial reporting or regulatory capital benefits. Often these activities were run as part of, or as add-ons to, fixed income or equities businesses. At Barclays, the SCM business was run as a free-standing operation, primarily based in London, but also replicated in the US following the Lehman acquisition. It undertook transactions in many countries for financially-sophisticated corporates and financial institutions. In addition to its client-facing business, SCM provided tax advice and structures to Barclays itself to help the bank manage its own tax and regulatory position efficiently. 7.13 Barclays provided limited information in its published accounts about SCM as the business grew, and it did not present its results separately. Overall, while there are some accounting assumptions necessary in allocating costs to SCM’s separate business, SCM (with around 100 employees) has clearly been a large and profitable part of the investment bank, making a particularly high contribution in the early years of the investment bank. Its profitability helped support the development of other areas of the investment bank. 121 The Guardian, “Revenue Investigates Barclays tax mole claims”, 16 March 2009.
3,686 5,352 7,492 8,694 9,396 12,128 16,788 Salz Review An Independent Review of Barclays’ Business Practices 72 Figure 7.1 – SCM’s Share of Barclays’ Investment Banking Revenues (2000-11) £m 20,000 SCM Rest of investment banking 1,074 15,000 1,081 10,000 1,186 1,164 939 915 5,000 0 222 1,508 347 1,831 502 1,925 605 2,236 713 2,805 819 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Note: IB total revenues excludes own credit in all years and credit market losses of £2,217 million in 2007, £6,290 million in 2008 and £4,417 million in 2009; 2000-05 investment bank total revenue restated for portfolio transfers between the corporate and investment bank; SCM revenue as a percentage of IB revenue was 18% in 2000-05 Source: Barclays letter to the Parliamentary Commission on Banking Standards, February 2013 7.14 There is no suggestion that Barclays illegally evaded tax or put forward such schemes to clients. Interviewees told us that SCM adopted a policy of transparency with HMRC. Its practice was to disclose to HMRC, on an annual basis, details about the structured transactions so that HMRC could evaluate them. However, we note that HMRC had introduced a disclosure requirement from August 2004 concerning employment or financial products, widened in 2006 to all income tax, corporation tax and capital gains taxes. A tax arrangement had to be disclosed if it “will, or might be expected to, enable any person to obtain a tax advantage”. 122 7.15 In interviews, senior management stressed that Barclays put in place rigorous internal review processes, involving senior individuals, to approve tax transactions to ensure they were in compliance with relevant legislation and Barclays’ policies. SCM also obtained external legal advice in support of the legal effect of transactions. 7.16 Nonetheless, SCM operated in an inherently risky business dependent on the interpretation of the relevant tax legislation. Barclays tended to negotiate an annual settlement of its tax liabilities with HMRC. From 2006, under its ‘Litigation and Settlement Strategy’, HMRC took a view as to whether to challenge tax-based transactions on the basis of its judgment as to their legal effectiveness for tax purposes. 123 This made it inappropriate to settle the tax liability on an overall negotiated basis and Barclays has found it more difficult to settle outstanding tax issues since then. 122 HMRC, Disclosure of Tax Avoidance Schemes, August 2004. 123 Dave Hartnett, “Exclusive: Litigation and Settlement Strategy Relaunched”, Tax Journal, 14 July 2011; http://www.taxjournal.com/tj/articles/litigation-and-settlement-strategy-relaunched-28812.
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Salz Review - April 2013
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Salz Review - Wall Street Journal

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