A Barclays bank executive claims to have been made redundant after raising issues relating to one of the bank's tax avoidance schemes.
The claims are being denied by Barclays. The bank confirms that it called in outside lawyers last month to hold discussions about written allegations from the sacked banker, but says "no evidence has been found" to back them. A source familiar with the allegations said last night that the executive did not want to go public with Barclays' proprietary information but said the individual wanted an external inquiry by Revenue & Customs into the detail of the deal.
The New York-based banker dismissed in February is the latest of several whistleblowers who have emerged claiming to cast light on the bank's 110-strong Structural Capital Markets [SCM] division.
SCM is alleged to have made up to £1bn-a-year profit through complicated schemes in which multibillion-pound loans or investments are manipulated to collect tax losses.
Vince Cable, Liberal Democrat Treasury spokesman, said any alleged irregularities should be thoroughly investigated. "These allegations, if true, are very serious and worrying and chime with allegations we have also heard from inside sources at Barclays. It is becoming increasingly clear that the bank's decision not to proceed with the government's asset protection scheme may have been driven by a desire not to have the company's tax transactions too closely scrutinised by the Treasury," he told the Guardian.
Barclays said: "There has been no instance of any employee in Barclays Capital who has had his or her employment terminated as a result of refusing to work on a transaction." The banker concerned "was made redundant, with others, in accordance with the firm's policies".
Barclays issued a statement through its lawyers saying "no evidence has been found" to justify the allegations, and told us they believed the claims to be untrue.
The allegations were made on 17 March in a letter to Bob Diamond, Barclays Capital president, from the dismissed banker.
It is alleged that after the employee raised issues about the deal in May and June 2008, explicit threats were made by other executives, and the banker was finally removed in February this year.
Concerns were also allegedly expressed in 2008 by another executive, a managing director in the US division of the group in New York, over the so-called structured tax trade, which ran during the past 12 months, according to sources familiar with the deal.
Barclays did not comment on that allegation when it was put to them.
The trade involved manipulation of transatlantic dealings in stocks and shares by one of the two divisions of Barclays Capital's SCM group.
Insiders say the secretive unit is divided into the Principal group, devising schemes involving fixed-income securities, and the Markets group, which trades in equities.
The markets group, headed by Jonathan Zenios, is considered particularly ingenious. A string of its recent schemes are known internally by a variety of code-names: Barthel, Opticash, BCSL Long Positions, Berry, Buy/Sell, Cum-Ex, Knebworth, Luxembourg Equities, Nightingale, Riesling, Spanish Equity Derivatives, and Schumann.
Documents seen by the Guardian suggest Berry involved the purchase of £10bn of index-linked UK government bonds or gilts, while Nightingale used a specially created Barclays unit trust to trade with a Luxembourg bank.
Barclays denied that the bank's board had any knowledge of the dismissed banker's allegation. The bank said: "It would always be the practice of the Barclays board to investigate any allegation of wrongdoing. We are unaware of any such allegation."
Barclays' lawyers, Freshfields, issued a subsequent statement saying the allegations had been passed to Barclays' compliance department: "The correspondence ... was investigated in keeping with such procedures (including discussions with external counsel and other relevant parties) and no evidence was found."
A string of Barclays tax avoidance schemes involving massive loans have recently been unveiled, following the leak of internal documents by another whistleblower to Vince Cable. Many of the Barclays schemes involved elaborate circular transactions with US banks and financial institutions such as the stricken US insurance company AIG.
Until the worldwide financial crash, the deals frequently relied on massive borrowings from the wholesale money markets, loaned out at interest to exploit offshore tax loopholes. They often featured Caymans, US or Luxembourg entities.
Barclays accounts show that last year it was operating more than 70 groups of such entities. Barclays has displayed sensitivity over its tax-avoidance schemes. Its lawyers persuaded a judge at 2.30am to issue a gagging order removing copies of the bank's internal memos from the Guardian's website. The bank obtained a ban on the disclosure that other copies were available online on Wikileaks, a free speech site, and other websites.
Legal moves were rendered ineffective when Lib Dem Treasury spokesman in the Lords, Matthew Oakeshott, disclosed the whereabouts of the documents under parliamentary privilege in a House of Lords speech. Labour MP and tax campaigner Austin Mitchell also put down a parliamentary motion identifying Wikileaks.