Imagine you ran a too-big-to-fail bank under criminal investigation by US prosecutors. Now ask yourself this: How much of your company's money would you pay to have the Justice Department inoculate you personally against the prospect of any government charges?
If you said "the sky's the limit," you're not alone. Prosecutors often settle claims against corporations in exchange for fines, while letting the executives off scot-free. This brings us to the $160 million non-prosecution agreement that Barclays Plc reached last month with the Justice Department, a week before Robert Diamond resigned as its chief executive officer.
In essence, although it didn't mention him by name, the Justice Department publicly cleared Diamond of wrongdoing over the way he responded to a pivotal phone call from Paul Tucker, the Bank of England's deputy governor, on Oct. 29, 2008, during one of the worst moments of the financial crisis. Here's the crucial sentence from the "statement of facts" that the Justice Department and Barclays agreed were "true and accurate," as part of their settlement:
"As the substance of the conversation was passed to other Barclays employees, certain Barclays managers formed the understanding that they had been instructed by the Bank of England to lower Barclays's Libor submissions, and instructed the Barclays dollar and sterling Libor submitters to do so -- even though that was not the understanding of the senior Barclays individual who had the call with the Bank of England official," the June 26 document said.
We now know that Diamond was the Barclays person referred to at the end of that sentence and that Tucker was the Bank of England official, thanks to documents released by UK lawmakers. We also know there are conflicting, unresolved accounts of what Diamond's understanding actually was.
Libor, short for the London interbank offered rate, is the interest-rate benchmark used in hundreds of trillions of dollars of financial contracts, based on daily surveys of large banks about their borrowing costs. Barclays admitted manipulating Libor submissions as far back as 2005. Other big banks are under investigation, too. Barclays was just the first to settle.
This week, former Barclays Chief Operating Officer Jerry del Missier contradicted Diamond's version of events -- and the Justice Department's -- during testimony before Parliament's Treasury Committee. He said Diamond told him during an Oct. 29, 2008, phone call to lower the bank's Libor submissions, and that Diamond told him the instruction came from Tucker during their conversation earlier that day. (At the time, Diamond was head of Barclays's investment-banking business, where del Missier also was a senior executive.) Del Missier said he responded by relaying the order to the head of Barclays's money-market desk, who then followed through on it.
Diamond told the same panel on July 4 that he didn't believe he received an instruction from Tucker, and that del Missier misunderstood him. So far, it has been del Missier's word against Diamond's. Treasury Committee members have said they don't know whom to believe. Tucker, for his part, last week told the committee he wasn't nudging Barclays to underreport its Libor submissions. His credibility came under attack, too.
So how did the Justice Department determine what Diamond's understanding was? And how could it be so sure? A Justice Department spokeswoman, Alisa Finelli, declined to comment. We may never know, because the government's case against the company isn't going to court.
The settlement was one of three related to Libor for Barclays last month. The bank also agreed to pay $200 million to the US Commodity Futures Trading Commission, which spearheaded the investigation, and 59.5 million pounds ($93.5 million) to the UK Financial Services Authority.
Notably, the CFTC's order against Barclays didn't include any statement characterizing Diamond's understanding of Tucker's comments. The FSA didn't either, although its story line was consistent with Tucker's.
"No instruction for Barclays to lower its Libor submissions was given during this telephone conversation," the FSA's final notice said. "However, as the substance of the telephone conversation was relayed down the chain of command at Barclays, a misunderstanding or miscommunication occurred."
The only known record of what Tucker said is an ambiguous note that Diamond e-mailed to del Missier on Oct. 30, 2008, the day after Tucker's phone call. In the memo, Diamond said Tucker told him "he had received calls from a number of senior" UK government officials asking "why Barclays was always toward the top end of the Libor pricing." The note said Tucker told him "that it did not always need to be the case that we appeared as high as we have recently."
Both del Missier and Diamond told the Treasury Committee that, to their knowledge, they are no longer under investigation by US or UK authorities. Bloomberg News reported this week that US prosecutors are preparing Libor-related criminal cases against other individuals who worked for Barclays.
Barclays certainly had an incentive to get the language about Diamond's state of mind in its agreement with prosecutors: Diamond was its CEO. At the time of the deal, neither he nor del Missier planned to step down. It was only after a political firestorm erupted in response to the settlement that Diamond and del Missier felt compelled to resign, along with departing Barclays Chairman Marcus Agius.
By all appearances, Barclays paid a lot of money for a deal that let its top executives off the hook, while prosecutors accepted Diamond's version of events as part of the negotiations. That let them get a settlement and move on. Whatever its basis for concluding that Diamond's story was the truth, the Justice Department owes the world an explanation.
Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.