Barclays Accused of Bilking Saudi Firm for Bank License

Barclays Plc (BARC) was sued by a company affiliated with Saudi Arabia’s second-richest man and accused of dropping its pursuit of lease payments for housing compounds for U.S. defense contractors to secure a local banking license.

MBI International Holdings Inc., controlled by billionaire Sheikh Mohamed bin Issa al Jaber, is seeking $10 billion in the suit, which was made public today in New York State Supreme Court inManhattan. A unit of London-based MBI, Saudi Arabia-based Jadawel International, is claiming breach of fiduciary duty, fraud and interference against the London-based bank.

“Barclays was under a duty to pursue claims against the Saudi government for payments owed to Jadawel International,” MBI said in its suit. “Instead, Barclays betrayed its duty in order to obtain for itself a rare and lucrative license to conduct banking activity in Saudi Arabia.”

Al Jaber is the 139th-wealthiest person in the world and Saudi Arabia’s second-richest man, with a net worth of $8.9 billion, according to the Bloomberg Billionaires Index.

The suit follows a failed attempt by the plaintiff to obtain documents earlier this year that was denied as an “unmeritorious fishing expedition,” the bank said in a statement. Barclays said the latest claim is unfounded and the company will fight the suit.

Two Compounds

According to the complaint, Jadawel built two compounds to house employees of U.S. defense contractors working in Saudi Arabia in the early 1990s, which entitled the company to more than $2 billion in lease payments from the government through 2017. One of the complexes, the Dorrat Al Jadawel, was among three compounds struck by car bombs in May 2003 in a terrorist attack that killed more than 30 people.

Jadawel created a vehicle to collect $1.4 billion in lease payments due from 2001 to 2011, according to the suit. Barclays first lent $450 million to the vehicle to refinance Jadawel’s debts to Saudi banks, and then led a group of banks that lent $900 million to the entity, to be repaid from the lease payments, according to the complaint.

The government made about $102 million in lease payments before partially defaulting in 2002, and Barclays sued in a U.S. federal court seeking a declaration that Saudi Arabia was required to continue making payments, according to the state-court suit.

Rare Opportunity

According to MBI’s complaint, it became public shortly after Barclays sued that Saudi Arabia was considering giving a Western financial institution a license to operate for the first time in decades and that the litigation would make obtaining it impossible.

Barclays settled the suit for $925 million, paid millions to a company owned by a Saudi prince and senior government official for advisory services and then received its Saudi banking license, according to MBI’s complaint.

“As a direct result of Barclays’ scheme, the government of Saudi Arabia escaped the terms of its leases with Jadawel International, Barclays obtained its banking license, and plaintiffs lost hundreds of millions of dollars in surplus that could otherwise have been recovered, as well as other lost business opportunities,” MBI said.

Justice Department

According to the complaint, MBI discovered the alleged scheme when the Financial Times reported in May 2013 that the U.S. Justice Department was probing payments by Barclays to Prince Turki bin Abdullah bin Abdel Aziz, a son of Saudi King Abdullah and deputy governor of Riyadh, in an attempt to recover a large defaulted loan.

Barclays said in a statement e-mailed after publication of the FT article that it appointed Al Obayya, the prince’s corporate vehicle, to advise on strategic issues and its application for the banking license.

Barclays said in the statement that it was informed by the Justice Department and the U.S. Securities and Exchange Commission of a probe into whether ties with third parties that help it win or keep business violated anti-bribery laws.

The bank said in the statement that it was cooperating with the investigation and wasn’t aware of any improper payments to Saudi Arabia’s banking regulator or its officials. The Justice Department didn’t immediately respond to a phone message left with public affairs seeking comment on the probe.

Earnings Report

Barclays, which will report its third-quarter financial results tomorrow at 7 a.m. London time, faces other legal issues in the U.S., including a probe by New York Attorney General Eric Schneiderman, who’s alleged the bank hid the role of high-frequency traders to boost revenue in its dark pool trading venue.

Additionally, the U.K. Serious Fraud Office is investigating the 322 million pounds ($515 million) in advisory fees the bank paid the Qatar Investment Authority as it raised 7 billion pounds to avoid a taxpayer bailout during the financial crisis. The London-based firm is said to be one of six firms in talks with British regulators to settle allegations it manipulated currency markets.

The case is MBI International Holdings Inc. v. Barclays Bank Plc, 653307/2014, New York State Supreme Court, New York County (Manhattan).