Judge calls Barclays settlement sweetheart deal

Pedestrians walk past a Barclays bank in London, August 5, 2010.

WASHINGTON (Reuters) - Barclays Bank Plc won a "sweetheart deal" from the Justice Department in a proposed settlement of criminal charges that accuse the bank of violating U.S. trade sanctions, an angry federal judge said.

U.S. District Judge Emmet Sullivan said at a hearing on Tuesday that he was concerned about the proposed deal in which the London-based bank agreed to pay $298 million to resolve the charges over its dealings with Cuba, Iran, Libya, Sudan and Myanmar.

"This is a sweetheart deal," he said, adding that the average American citizen who gets caught robbing a bank does not get a deferred prosecution agreement, as Barclays did.

It marked the second day in a row that the Obama administration has faced sharp questions from a federal judge in Washington, D.C., over a settlement reached with a big bank.

U.S. District Judge Ellen Huvelle on Monday refused to approve Citigroup Inc's $75 million settlement with the U.S. Securities and Exchange Commission of charges that it misled investors by failing to disclose about $40 billion of subprime mortgages.

In the Barclays case, Sullivan questioned whether it amounted to a fine if the bank only paid back the money involved, and he said he wanted fuller answers about the penalties at another hearing scheduled for Wednesday.

Justice Department attorney Frederick Reynolds defended the agreement and said the amount of money was "beyond what they earned." He said the judge would be satisfied with the answers provided at the next hearing.

Barclays was charged with violating the International Emergency Economic Powers Act and the Trading with the Enemy Act as a result of $500 million in illegal transactions from 1995 through 2006, according to court documents filed on Monday.

The United States has imposed sanctions and trade embargoes against Cuba, Iran, Libya, Sudan and Myanmar. Barclays was accused of hiding transactions on behalf of banks in those countries.

The Barclays case followed three similar earlier ones.

Credit Suisse Group AG in December agreed to pay $538 million to settle charges that it had hidden thousands of transactions on behalf of clients in Iran, Sudan, Libya and other nations.

Also last year, Lloyds TSB agreed to forfeit $350 million over charges that it faked records so that clients from Iran, Sudan and elsewhere could do business in the U.S. banking system.

In May, ABN AMRO Bank NV, now largely part of Royal Bank of Scotland Plc, agreed to forfeit $500 million to settle charges that it conspired to violate U.S. sanctions and bank secrecy laws.

Sullivan questioned why the government did not indict and prosecute the foreign banks, rather than agreeing to the settlements.

He also asked whether any individuals from Barclays were being held responsible, though no one else has been charged in the case so far.

"One must wonder what the penalty is," said Sullivan, who has the final say on whether to approve the Barclays deal.

In Congress, Rep. Ileana Ros-Lehtinen of Florida, the ranking Republican on the House Foreign Affairs Committee, said the financial penalties were not enough in such cases.

"If banks knowingly violate U.S. sanctions," she said, "they should be punished to the fullest extent."

"Barclays' extensive and long-standing relationships with not one, not two, but five nations under U.S. sanctions leads one to conclude that some entities will cut a deal with multiple devils if it makes them an extra buck," she said.

(Additional reporting by Susan Cornwell; Editing by Gerald E. McCormick and Lisa Von Ahn)