ABUSE OF STRUCTURED FINANCIAL PRODUCTS- Misusing Basket Options to Avoid Taxes and Leverage Limits MAJORITY AND MINORITY STAFF REPORT

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exercising an existing one) should be viewed as the maintenance of a longstanding
structure.” 437
The memorandum also stated: “[S]enior management may desire to be informed of Option
Transactions in the context of the current internal and external reviews at Barclays (Project
Mango and the Salz Review).” 438 As explained earlier, because the bank was then under
criticism for engaging in questionable conduct in a variety of settings, including participating in
abusive tax shelters, Barclays leadership had initiated the Salz Review to get an independent
review of Barclays’ business practices and determine “what went wrong.” 439
On October 3, 2012, the SCM Group sent a memo to Barclays’ Tax Risk Committee,
informing it of the Group’s decision to approve the new COLT transaction and explaining the
controversy surrounding basket options. 440 The memorandum noted: “Barclays is entitled to a
contractual tax indemnity from the client.” 441
On October 4, 2012, Gerard LaRocca, Barclays CAO, also sent an email alerting the
Chair of Barclays’ CIB Reputational Risk Committee to the COLT situation: “The SCM US
Approvals Committee recently approved an option transaction in which US tax reputation risk is
an issue.” 442
The new option was actually issued on October 9, 2012. 443
On October 12, 2012, SCM sent a second memo to the Barclays Tax Risk Committee
about the COLT transaction, even though the option had already been issued. 444 In it, SCM
advocated approving the new COLT transaction, because while Barclays faced “reputation risk,”
the risk of litigation fell to the client. 445 SCM concluded that “we believe it remains an
appropriate transaction for Barclays to be a party to.” 446
The memorandum acknowledged that, “[i]n 2010, the IRS issued a memo … arguing that
options like the ones in the Option Transactions should not be treated as options for tax
purposes.” 447 In a section entitled, “Why the Option Transaction Remains Appropriate
Notwithstanding the IRS Challenge,” the SCM memorandum made the following points:
“There is a reputation risk for Barclays, especially if the matter proceeds to court
and the IRS’s challenge and Barclays’ role become publicly disclosed. However,
437 10/3/2012 memorandum from Graham Wade to SCM, “COLT XXVII,” BARCLAYS-PSI-016946.
438 Id. at 947.
439 See 4/2013 “Salz Review: An Independent Review of Barclays’ Business Practices,” prepared by Anthony Salz
et al., at opening letter from Anthony Salz,
http://online.wsj.com/public/resources/documents/SalzReview04032013.pdf.
440 10/3/2012 memorandum from SCM US Approvals Committee to Tax Risk Committee, “COLT,” BARCLAYS-
PSI-016951.
441 Id.
442 10/4/2012 email from Gerard LaRocca to Larry Wiesene of Barclays, “COLT SCM Transaction/Important,”
BARCLAYS-PSI-748590.
443 10/12/2012 memorandum from SCM to Tax Risk Committee, “COLT,” BARCLAYS-PSI-018114-116.
444 Id.
445 Id. at 116.
446 Id. at 114.
447 Id. at 115.