A prominent member of the Saudi royal family is at the heart of a US criminal probe into whether Barclays made improper payments in the kingdom, with investigators scrutinizing two separate incidents linked to a son of King Abdullah.
The US Department of Justice is investigating two transactions, probing whether Prince Turki bin Abdullah bin Abdel Aziz - a wing commander in the Saudi air force who was recently made deputy governor of the capital city of Riyadh - was paid illicit fees by Barclays, according to six people familiar with the investigation, Financial Times reported Saturday.
The revelation shines another unwelcome spotlight on Barclays' business dealings in the Middle East. The bank remains under investigation in the US and UK over the terms of a crucial capital injection by Qatar in 2008.
In addition to the alleged payment connected to the 2009 award of a Saudi banking license from the CMA, the local regulator - as reported by the Financial Times last November - Barclays is also being investigated over a separate alleged transaction linked to the prince. This was in connection with earlier attempts by the bank to recover a large loan on which the borrower had defaulted in 2002.
The US authorities' enquiries threaten further damage to the kingdom's international ties. Its relations with the UK and the US have been under strain for much of the last decade over prosecutors' inquiries into BAE Systems and its dealings with another Saudi prince. The US authorities went on to fine BAE $400mln in 2010 for improper business dealings in the kingdom and in Europe.
Barclays acknowledged in a statement that the bank had appointed Prince Turki, "acting through his corporate entity, Al Obayya, to advise it on strategic issues in the Kingdom of Saudi Arabia, as well as on its CMA license application".
It added, "Barclays is fully co-operating with the investigation. Barclays is not aware of any improper payments made to the CMA or any of its officials relating to the grant of a securities license." The bank disclosed in February that it was being investigated by US authorities in connection with the US Foreign Corrupt Practices Act though gave no details.
According to two people familiar with the case, the loan, worth about $900mln in total, had been taken out to develop military compounds which were then leased to the Saudi defense ministry.
A dispute arose between the bank and the Saudi government because the bank claimed the loan carried a form of government guarantee. The matter escalated to a lawsuit filed in New York by Barclays and Dresdner Bank, another of the syndicated lenders, against the Saudi ministries of finance and defense. The lawsuit was settled in 2003, according to court records.
Prince Turki was approached to try to resolve the matter, according to people familiar with the case.
While other banks were also involved in the lending syndicate it was Barclays that led the operation to recover the money. The DoJ is investigating whether any fixing fee was paid to the prince or his company.
In the later banking license application, the authorities are similarly scrutinizing Prince Turki's role in the grant of the license in 2009.
In a statement Al Obayya denied being party to any "improper conduct". It said the prince was a minority shareholder and held no executive role. Its relationship with Barclays had been to support it "with various practical and administrative tasks relating to the establishment of its presence in the kingdom." It added that it "would have been in no position to influence the process" of obtaining a license "as the process is transparent."
The FT received no response to requests to the prince to comment submitted via email, telephone and letter to his secretary at the office of the deputy governor in Riyadh. The DoJ declined to comment.