BARCLAYS BANK PLC AGREES TO PAY $160 MILLION PENALTY AND AVOIDS PROSECUTION FOR GLOBAL INTEREST RATE MANIPULATION

 FROM:  U.S. JUSTICE DEPARTMENT 
Wednesday, June 27, 2012
Barclays Bank PLC Admits Misconduct Related to Submissions for the London Interbank Offered Rate and the Euro Interbank Offered Rate and Agrees to Pay $160 Million Penalty

WASHINGTON – Barclays Bank PLC, a financial institution headquartered in London, has entered into an agreement with the Department of Justice to pay a $160 million penalty to resolve violations arising from Barclays’s submissions for the London InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR), which are benchmark interest rates used in financial markets around the world, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office.

As part of the agreement with the Department of Justice, Barclays has admitted and accepted responsibility for its misconduct set forth in a statement of facts that is incorporated into the agreement.  According to the agreement, Barclays provided LIBOR and EURIBOR submissions that, at various times, were false because they improperly took into account the trading positions of its derivative traders, or reputational concerns about negative media attention relating to its LIBOR submissions.  The Justice Department’s criminal investigation into the manipulation of LIBOR and EURIBOR by other financial institutions and individuals is ongoing.  The agreement requires Barclays to continue cooperating with the department in its ongoing investigation.

“LIBOR and EURIBOR are critically important benchmark interest rates,” said Assistant Attorney General Breuer. “Because mortgages, student loans, financial derivatives, and other financial products rely on LIBOR and EURIBOR as reference rates, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide.  For years, traders at Barclays encouraged the manipulation of LIBOR and EURIBOR submissions in order to benefit their financial positions; and, in the midst of the financial crisis, Barclays management directed that U.S. Dollar LIBOR submissions be artificially lowered.  For this illegal conduct, Barclays is paying a significant price.  To the bank’s credit, Barclays also took a significant step toward accepting responsibility for its conduct by being the first institution to provide extensive and meaningful cooperation to the government.  Its efforts have substantially assisted the Criminal Division in our ongoing investigation of individuals and other financial institutions in this matter.”

“Barclays Bank’s illegal activity involved manipulating its submissions for benchmark interest rates in order to benefit its trading positions and the media’s perception of the bank’s financial health,” said Assistant Director in Charge McJunkin.  “Today’s announcement is the result of the hard work of the FBI Special Agents, financial analysts and forensic accountants as well as the prosecutors who dedicated significant time and resources to investigating this case.”

Barclays was one of the financial institutions that contributed rates used in the calculation of LIBOR and EURIBOR.  The contributed rates are generally meant to reflect each bank’s assessment of the rates at which it could borrow unsecured interbank funds.  For LIBOR, the highest and lowest 25% of contributed rates are excluded from the calculation and the remaining rates are averaged to calculate the fixed rates.  For EURIBOR, the highest and lowest 15% are excluded and the remaining 70% are averaged to calculate the fixed rates.

Futures, options, swaps, and other derivative financial instruments traded in the over-the-counter market and on exchanges worldwide are settled based on LIBOR.  Further, mortgages, credit cards, student loans and other consumer lending products often use LIBOR as a reference rate.  According to the agreement, an individual bank’s LIBOR or EURIBOR submission cannot appropriately be influenced by the financial positions of its derivatives traders or the bank’s concerns about public perception of its financial health due to its LIBOR submissions.

According to the agreement, between 2005 and 2007, and then occasionally thereafter through 2009, certain Barclays traders requested that the Barclays LIBOR and EURIBOR submitters contribute rates that would benefit the financial positions held by those traders.  The requests were made by traders in New York and London, via electronic messages, telephone conversations and in-person conversations.  The employees responsible for the LIBOR and EURIBOR submissions accommodated those requests on numerous occasions in submitting the bank’s contributions.  On some occasions, Barclays’s submissions affected the fixed rates.

In addition, between August 2005 and May 2008, certain Barclays traders communicated with traders at other financial institutions, including other banks on the LIBOR and EURIBOR panels, to request LIBOR and EURIBOR submissions that would be favorable to their or their counterparts’ trading positions, according to the agreement.

When the requests of traders for favorable LIBOR and EURIBOR submissions were taken into account by the rate submitters, Barclays’s rate submissions were false and misleading.

Further, according to the agreement, between approximately August 2007 and January 2009, in response to initial and ongoing press speculation that Barclays’s high U.S. Dollar LIBOR submissions at the time might reflect liquidity problems at Barclays, members of Barclays management directed that Barclays’s Dollar LIBOR submissions be lowered.  This management instruction often resulted in Barclays’s submission of false rates that did not reflect its perceived cost of obtaining interbank funds.  While the purpose of this particular conduct was to influence Barclays’s rate submissions, as opposed to the resulting fixes, there were some occasions when Barclays’s submissions affected the fixed rates.

The agreement and monetary penalty recognize Barclays’s extraordinary cooperation.  Barclays made timely, voluntary and complete disclosure of its misconduct.  After government authorities began investigating allegations that banks had engaged in manipulation of benchmark interest rates, Barclays was the first bank to cooperate in a meaningful way in disclosing its conduct relating to LIBOR and EURIBOR.  Barclays’s disclosure included relevant facts that at the time were not known to the government.  Barclays’s cooperation has been extensive, in terms of the quality and type of information and assistance provided, and has been of substantial value in furthering the department’s ongoing criminal investigation.  Barclays has made a commitment to future cooperation with the department and other government authorities in the United States and the United Kingdom.

Assistant Attorney General Breuer further stated, “As today’s agreement reflects, we are committed to holding companies accountable for their misconduct while, at the same time, giving meaningful credit to companies that provide full and valuable cooperation in our investigations.”

In addition, Barclays has implemented a series of compliance measures and will implement additional internal controls regarding its submission of LIBOR and EURIBOR contributions, as required by the Commodity Futures Trading Commission (CFTC).  Barclays will also continue to be supervised and monitored by the FSA.

The agreement and monetary penalty further recognize certain mitigating factors to Barclays’s misconduct.  At times, Barclays employees raised concerns with the British Bankers’ Association, the United Kingdom Financial Services Authority (FSA), the Bank of England, and the Federal Reserve Bank of New York in late 2007 and in 2008 that the Dollar LIBOR rates submitted by contributing banks, including Barclays, were too low and did not accurately reflect the market.  Further, during this time, notwithstanding Barclays’s improperly low Dollar LIBOR submissions, those submissions were often higher than the contributions used in the calculation of the fixed rates.


As a result of Barclays’s admission of its misconduct, its extraordinary cooperation, its remediation efforts and certain mitigating and other factors, the department agreed not to prosecute Barclays for providing false LIBOR and EURIBOR contributions, provided that Barclays satisfies its ongoing obligations under the agreement for a period of two years.  The non-prosecution agreement applies only to Barclays and not to any employees or officers of Barclays or any other individuals.

In a related matter, the CFTC brought attempted manipulation and false reporting charges against Barclays, which the bank agreed to settle. The CFTC imposed a $200 million penalty and required Barclays to implement detailed measures designed to ensure the integrity and reliability of its benchmark interest rate submissions.

The FSA issued a Final Notice regarding its enforcement action against Barclays, and has imposed a penalty of £59.5 million against it.

The case is being handled by Deputy Chief Daniel Braun, Assistant Chiefs Rebecca Rohr and Robertson Park, Trial Attorney Alexander Berlin, and Special Trial Attorney Luke Marsh of the Criminal Division’s Fraud Section.  The investigation is being conducted by the FBI’s Washington Field Office, jointly with the Antitrust Division of the Department of Justice.

The Department acknowledges and expresses its appreciation for the significant assistance provided by the CFTC’s Division of Enforcement, which referred the conduct to the Department, as well as the FSA’s Enforcement and Financial Crime Division.

This agreement is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.

CFTC ORDERS BARCLAYS TO PAY $200 MILLION FOR INTEREST RATE MANIPULATION SCHEME

FROM:  COMMODITY FUTURES TRADING COMMISSION
CFTC Orders Barclays to pay $200 Million Penalty for Attempted Manipulation of and False Reporting concerning LIBOR and Euribor Benchmark Interest Rates.

The Order finds that Barclays attempted to manipulate interest rates and made related false reports to benefit its derivatives trading positions. The Order also finds that Barclays made false LIBOR reports at the direction of members of senior management to protect its reputation during the global financial crisis.

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) issued an Order today filing and settling charges against Barclays PLC, Barclays Bank PLC (Barclays Bank) and Barclays Capital Inc.(Barclays Capital) (collectively Barclays or the Bank). The Order finds that Barclays attempted to manipulate and made false reports concerning two global benchmark interest rates, LIBOR and Euribor, on numerous occasions and sometimes on a daily basis over a four-year period, commencing as early as 2005.

According to the Order, Barclays, through its traders and employees responsible for determining the Bank’s LIBOR and Euribor submissions (submitters), attempted to manipulate and made false reports concerning both benchmark interest rates to benefit the Bank’s derivatives trading positions by either increasing its profits or minimizing its losses. This conduct occurred regularly and was pervasive. In addition, the attempts to manipulate included Barclays’ traders asking other banks to assist in manipulating Euribor, as well as Barclays aiding attempts by other banks to manipulate U.S. Dollar LIBOR and Euribor.

The Order also finds that throughout the global financial crisis in late August 2007 through early 2009, as a result of instructions from Barclays’ senior management, the Bank routinely made artificially low LIBOR submissions to protect Barclays’ reputation from negative market and media perceptions concerning Barclays’ financial condition.

The CFTC Order requires Barclays to pay a $200 million civil monetary penalty, cease and desist from further violations as charged, and take specified steps, such as making the determinations of benchmark submissions transaction-focused (as set forth in the Order), to ensure the integrity and reliability of its LIBOR and Euribor submissions and improve related internal controls.

“The American public and our markets rely upon the integrity of benchmark interest rates like LIBOR and Euribor because they form the basis for hundreds of trillions of dollars of transactions and affect nearly every corner of the global economy,” said David Meister, the CFTC’s Director of Enforcement. “Banks that contribute information to those benchmarks must do so honestly. When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports that result from senior management orders to lower submissions to guard the bank’s reputation, the integrity of benchmark interest rates is undermined. The CFTC launched this investigation to protect the markets and the public from such illegal conduct, and today’s action demonstrates that we will bring the full force of our authority to bear as we carry out that mission.”
LIBOR and Euribor

LIBOR – the London Interbank Offered Rate – is among the most important benchmark interest rates in the world’s economy, and is a key rate in the United States. LIBOR is based on rate submissions from a relatively small and select panel of major banks, including Barclays, and is calculated and published daily for several different currencies by the British Banker’s Association (BBA). Each panel bank’s submission is also made public, and the market can therefore see each bank’s independent assessment of its own borrowing costs. LIBOR is supposed to reflect the cost of borrowing unsecured funds in the London interbank market.

Euribor, which is calculated in a similar fashion by the European Banking Federation (EBF), is another globally important rate that measures the cost of borrowing in the Economic and Monetary Union of the European Union.

LIBOR impacts enormous volumes of swaps and futures contracts, commercial and personal consumer loans, home mortgages and other transactions. For example, U.S. Dollar LIBOR is the basis for the settlement of the three-month Eurodollar futures contract traded on the Chicago Mercantile Exchange (CME), which had a traded volume in 2011 with a notional value exceeding $564 trillion. In addition, according to the BBA, swaps with a notional value of approximately $350 trillion and loans amounting to $10 trillion are indexed to LIBOR. Euribor is also used internationally in derivatives contracts. In 2011, over-the-counter interest rate derivatives referenced to Euro rates had a notional value in excess of $220 trillion, according to the Bank for International Settlements. LIBOR and Euribor are relied upon by countless large and small businesses and individuals who trust that the rates are derived from candid and reliable submissions made by each of the banks on the panels.

Barclays’ Unlawful Conduct to Benefit Derivatives Trading Positions
As the Order shows, Barclays, in pursuit of its own self-interest, disregarded the fundamental principle that LIBOR and Euribor are supposed to reflect the costs of borrowing funds in certain markets. Barclays’ traders located at least in New York, London and Tokyo asked Barclays’ submitters to submit particular rates to benefit their derivatives trading positions, such as swaps or futures positions, which were priced on LIBOR and Euribor. Barclays’ traders made these unlawful requests routinely, and sometimes daily, from at least mid-2005 through at least the fall of 2007, and sporadically thereafter into 2009. The Order relates that, for example, one trader stated in an email to a submitter: “We have another big fixing tom[orrow] and with the market move I was hoping we could set [certain] Libors as high as possible.”

In addition, certain Barclays Euro swaps traders, led at the time by a senior trader, coordinated with and aided and abetted traders at other banks in each other’s attempts to manipulate Euribor, even scheming to impact Euribor on key standardized dates when many derivatives contracts are settled or reset.

The traders’ requests were frequently accepted by Barclays’ submitters, who emailed responses such as “always happy to help,” “for you, anything,” or “Done…for you big boy,” resulting in false submissions by Barclays to the BBA and EBF. The traders and submitters also engaged in similar conduct on fewer occasions with respect to Yen and Sterling LIBOR.

Barclays’ Unlawful Conduct at the Direction of Senior Management
The CFTC Order also finds that Barclays, acting at the direction of senior management, engaged in other serious unlawful conduct concerning LIBOR. In late 2007, Barclays was the subject of negative press reports raising questions such as, “So what the hell is happening at Barclays and its Barclays Capital securities unit that is prompting its peers to charge it premium interest in the money market?” Such negative media speculation caused significant concern within Barclays and was discussed among high levels of management within Barclays Bank. As a result, certain senior managers within Barclays instructed the U.S. Dollar LIBOR submitters and their supervisor to lower Barclays’ LIBOR submissions to be closer to the rates submitted by other banks and not so high as to attract media attention.

According to the Order, senior managers even coined the phrase “head above the parapet” to describe high LIBOR submissions relative to other banks. Barclays’ LIBOR submitters were told not to submit at levels where Barclays was “sticking its head above the parapet.” The directive was intended to fend off negative public perceptions about Barclays’ financial condition arising from its high LIBOR submissions relative to the submissions of other panel banks, which Barclays believed were too low given the market conditions.
Despite concerns being raised by the submitters that Barclays and other banks were, for example, “being dishonest by definition” and that they were submitting “patently false” rates, the submitters followed the directive and submitted artificially lower rates. The senior management directive for low U.S. Dollar LIBOR submissions occurred on a regular basis during the global financial crisis from August 2007 through early 2009, and, at limited times, for Yen and Sterling LIBOR during the same period. As the U.S. Dollar senior submitter said in October 2008 to his supervisor at the time, “following on from my conversation with you I will reluctantly, gradually and artificially get my libors in line with the rest of the contributors as requested. I disagree with this approach as you are well aware. I will be contributing rates which are nowhere near the clearing rates for unsecured cash and therefore will not be posting honest prices.”

Barclays’ Obligations to Ensure Integrity and Reliability of Benchmark Interest Rates
In addition to the $200 million penalty, the CFTC Order requires Barclays to implement measures to ensure that its submissions are transaction-focused, based upon a rigorous and honest assessment of information and not influenced by conflicts of interest. See pages 31-44 of the CFTC’s Order. Among other things, the Order requires Barclays to:
Make its submissions based on certain specified factors, with Barclays’ transactions being given the greatest weight, subject to certain specified adjustments and considerations;
Implement firewalls to prevent improper communications including between traders and submitters;
Prepare and retain certain documents concerning submissions, and retain relevant communications;
Implement auditing, monitoring and training measures concerning its submissions and related processes;
Make regular reports to the CFTC concerning compliance with the terms of the Order;
Use best efforts to encourage the development of rigorous standards for benchmark interest rates; and
Continue to cooperate with the CFTC.
* * * *
The Order recognizes Barclays’ significant cooperation with the CFTC during the investigation of this matter.
In a related matter, as part of an agreement with the Fraud Section of the U.S. Justice Department’s Criminal Division, Barclays agreed to pay a $160 million penalty and to continue to cooperate with the Department. Furthermore, the United Kingdom’s Financial Services Authority (FSA) issued a Final Notice regarding its enforcement action against Barclays Bank PLC, and has imposed a penalty of £59.5 million against the Bank.

The CFTC thanks the FSA, the U.S. Department of Justice, the Washington Field Office of the Federal Bureau of Investigation and the U.S. Securities and Exchange Commission for their assistance in the CFTC’s investigation.

CFTC Division of Enforcement staff members responsible for this case are Anne M. Termine, Stephen T. Tsai, Maura M. Viehmeyer, Brian G. Mulherin, Gretchen L. Lowe and Vincent A. McGonagle, with assistance from Philip P. Tumminio, Rishi K. Gupta, Russell Battaglia, Jeremy Cusimano, Elizabeth Padgett, Terry Mayo, Jason T. Wright, Aimée Latimer-Zayets, Timothy M. Kirby, Jonathan K. Huth, Susan A. Berkowitz and staff from the Division of Market Oversight and Office of the Chief Economist.