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Barclays investment banking division tax avoidance
Barclays’ investment banking division created routed vast amounts of money in elaborate circles through offshore networks. Photograph: Neil Hall/Reuters
Barclays’ investment banking division created routed vast amounts of money in elaborate circles through offshore networks. Photograph: Neil Hall/Reuters

Barclays secret tax avoidance factory that made £1bn a year profit disbanded

This article is more than 11 years old
Lucrative dark arts were practised in the run-up to the banking crisis by the company's Structured Capital Markets division

As much as £1bn a year of Barclays' annual profits in the years leading up to the banking crisis is believed to have come not from clever investments or banking services but from the prolific and secretive tax avoidance factory at the heart of Barclays' investment banking arm – much of which is expected to be lined up for closure today.

Thanks to a succession of whistleblowers, in 2009 the Guardian was able to uncover the highly lucrative dark arts practiced by Barclays' Structured Capital Markets division. The division created multibillion-pound deals which routed vast amounts of money in elaborate circles through offshore networks – with the prime purpose of magic-ing profits out of tax credits. Former chancellor Lord Lawson last week described the business as "industrial scale" tax avoidance.

The company was so alarmed when the Guardian revealed the true nature of its business that it woke a judge in the middle of the night to try to gag the paper and its website.

At the time Barclays denied the sums reported but its decision to axe a substantial part of SCM's operations is an admission that much of the unit's activities involved what the bank's new chief executive, Antony, Jenkins now regards as unethical. Jenkins told MPs last week that he was "shredding" the legacy of his predecessor Bob Diamond, as he seeks to clean up Barclays' image in the wake of a succession of huge fines and compensation payouts for Libor rigging and insurance mis-selling.

An extraordinary culture within the SCM division once allowed tax avoidance not just to thrive but become the engine of Barclays' investment banking's growth. Whistleblowers described to us a management style that depended on fear, summary sackings, ritual humiliations and group social events that outdid any 1980s fictional tales of macho banking excess.

The division was run by Roger Jenkins, reported to be paid up to £40m a year, and whose nicknames were Roger the Dodger and The King of the "Double Dip" – a tax avoidance trick that exploited different tax rules in various countries to extract double tax benefits. The brains behind the schemes was said to be Iain Abrahams, a tall Scot with an encyclopaedic knowledge of tax and accounting law. It was common for staff to come in to work to an email from Roger Jenkins announcing that a colleague who had been there the previous day no longer worked for SCM. On one occasion a secretary was said to have been fired for booking an executive a taxi that was a Volvo rather than an S class Mercedes.

Team-building events included free-flowing champagne and cigars, poker games involving hundreds of thousands of pounds in bets and a "motivation" exercise in which an executive was strapped to a mock electric chair to the soundtrack of a rap song with the line "I hate you and I hope you die". Executives would regularly join tax avoidance experts from other banks for a "cow-eating" club to eat and drink to excess. Barclays SCM was regarded as the leader of the pack.

The banking crash revealed cracks in the highly artificial money-making machine. Confidential documents were leaked to The Guardian and the Liberal Democrats in 2009, which contained the blueprints for the almost incomprehensibly complex accounting and legal structures behind several multibillion-pound tax avoidance deals. When the Guardian published them on its website, Barclays obtained a middle-of-the-night injunction forcing it to take them down, along with a gagging order. It was only after Liberal Democrat peer Lord Oakeshott referred to them in the House of Lords using parliamentary privilege that the paper was able to inform readers.

More on this story

More on this story

  • This is bigger than Barclays

  • Barclays: he says he gets it

  • Barclays must reveal how much it has made from playing the tax system

  • Barclays cuts 3,700 jobs in overhaul

  • Barclays admits mistake in reporting of ownership of 2008 investment lifeline

  • Barclays strategic review: for a culture to change, people must change

  • Shutting Barclays tax avoidance unit to take up to 10 years

  • Barclays accused of 'cynical ploy' to avoid NICs for temporary workers

  • Barclays battles persistent pests, while Hourican endures a storm

  • Barclays results: where the bank makes its money

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