FROM: U.S. JUSTICE DEPARTMENT
Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland plc Agree to Plead Guilty In Connection With The Foreign Exchange Market and Agree to Pay More Than $2.5 Billion In Criminal Fines
UBS AG Agrees to Plead Guilty to Manipulating LIBOR; Admits its Conduct in Foreign Exchange Market Breached Its Non-Prosecution Agreement Resolving the LIBOR Investigation and Agrees to Pay $203 Million
WASHINGTON — Five major banks – Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland plc and UBS AG – have agreed to plead guilty to felony charges. Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland plc have agreed to plead guilty to conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market and the banks have agreed to pay criminal fines totaling more than $2.5 billion. A fifth bank, UBS AG, has agreed to plead guilty to manipulating the London Interbank Offered Rate (LIBOR) and other benchmark interest rates and pay a $203 million criminal penalty, after breaching its December 2012 non-prosecution agreement resolving the LIBOR investigation.
Attorney General Loretta E. Lynch, Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office and Director Aitan Goelman of the Commodity Futures Trading Commission’s Division made the announcement.
"Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes, and they serve as a stark reminder that this Department of Justice intends to vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and who enrich themselves at the expense of American consumers," said Attorney General Lynch. "The penalty these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct. It is commensurate with the pervasive harm done. And it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare."
“The charged conspiracy fixed the U.S. dollar – euro exchange rate, affecting currencies that are at the heart of international commerce and undermining the integrity and the competitiveness of foreign currency exchange markets which account for hundreds of billions of dollars worth of transactions every day,” said Assistant Attorney General Baer. “The seriousness of the crime warrants the parent-level guilty pleas by Citicorp, Barclays, JPMorgan and RBS.”
“The five parent-level guilty pleas that the department is announcing today communicate loud and clear that we will hold financial institutions accountable for criminal misconduct,” said Assistant Attorney General Caldwell. “And we will enforce the agreements that we enter into with corporations. If appropriate and proportional to the misconduct and the company’s track record, we will tear up an NPA or a DPA and prosecute the offending company.”
“These resolutions make clear that the U.S. Government will not tolerate criminal behavior in any sector of the financial markets,” said Assistant Director in Charge McCabe. “This investigation represents another step in the FBI’s ongoing efforts to find and stop those responsible for complex financial schemes for their own personal benefit. I commend the special agents, forensic accountants, and analysts, as well as the prosecutors for the significant time and resources they committed to investigating this case.”
According to plea agreements to be filed in the District of Connecticut, between December 2007 and January 2013, euro-dollar traders at Citicorp, JPMorgan, Barclays and RBS – self-described members of “The Cartel” – used an exclusive electronic chat room and coded language to manipulate benchmark exchange rates. Those rates are set through, among other ways, two major daily “fixes,” the 1:15 p.m. European Central Bank fix and the 4:00 p.m. World Markets/Reuters fix. Third parties collect trading data at these times to calculate and publish a daily “fix rate,” which in turn is used to price orders for many large customers. “The Cartel” traders coordinated their trading of U.S. dollars and euros to manipulate the benchmark rates set at the 1:15 p.m. and 4:00 p.m. fixes in an effort to increase their profits.
As detailed in the plea agreements, these traders also used their exclusive electronic chats to manipulate the euro-dollar exchange rate in other ways. Members of “The Cartel” manipulated the euro-dollar exchange rate by agreeing to withhold bids or offers for euros or dollars to avoid moving the exchange rate in a direction adverse to open positions held by co-conspirators. By agreeing not to buy or sell at certain times, the traders protected each other’s trading positions by withholding supply of or demand for currency and suppressing competition in the FX market.
Citicorp, Barclays, JPMorgan and RBS each have agreed to plead guilty to a one-count felony charge of conspiring to fix prices and rig bids for U.S. dollars and euros exchanged in the FX spot market in the United States and elsewhere. Each bank has agreed to pay a criminal fine proportional to its involvement in the conspiracy:
Citicorp, which was involved from as early as December 2007 until at least January 2013, has agreed to pay a fine of $925 million;
Barclays, which was involved from as early as December 2007 until July 2011, and then from December 2011 until August 2012, has agreed to pay a fine of $650 million;
JPMorgan, which was involved from at least as early as July 2010 until January 2013, has agreed to pay a fine of $550 million; and
RBS, which was involved from at least as early as December 2007 until at least April 2010, has agreed to pay a fine of $395 million.
Barclays has further agreed that its FX trading and sales practices and its FX collusive conduct constitute federal crimes that violated a principal term of its June 2012 non-prosecution agreement resolving the department’s investigation of the manipulation of LIBOR and other benchmark interests rates. Barclays has agreed to pay an additional $60 million criminal penalty based on its violation of the non-prosecution agreement.
In addition, according to court documents to be filed, the Justice Department has determined that UBS’s deceptive currency trading and sales practices in conducting certain FX market transactions, as well as its collusive conduct in certain FX markets, violated its December 2012 non-prosecution agreement resolving the LIBOR investigation. The department has declared UBS in breach of the agreement, and UBS has agreed to plead guilty to a one-count felony charge of wire fraud in connection with a scheme to manipulate LIBOR and other benchmark interest rates. UBS has also agreed to pay a criminal penalty of $203 million.
According to the factual statement of breach attached to UBS’s plea agreement, UBS engaged in deceptive FX trading and sales practices after it signed the LIBOR non-prosecution agreement, including undisclosed markups added to certain FX transactions of customers. UBS traders and sales staff misrepresented to customers on certain transactions that markups were not being added, when in fact they were. On other occasions, UBS traders and sales staff used hand signals to conceal those markups from customers. On still other occasions, certain UBS traders also tracked and executed limit orders at a level different from the customer’s specified level in order to add undisclosed markups. In addition, according to court documents, a UBS FX trader conspired with other banks acting as dealers in the FX spot market by agreeing to restrain competition in the purchase and sale of dollars and euros. UBS participated in this collusive conduct from October 2011 to at least January 2013.
In declaring UBS in breach of its non-prosecution agreement, the Justice Department considered UBS’s conduct described above in light of UBS’s obligation under the non-prosecution agreement to commit no further crimes. The department also considered UBS’s three recent prior criminal resolutions and multiple civil and regulatory resolutions. Further, the department also considered that UBS’s post-LIBOR compliance and remediation efforts failed to detect the illegal conduct until an article was published pointing to potential misconduct in the FX markets.
Citicorp, Barclays, JPMorgan, RBS and UBS have each agreed to a three-year period of corporate probation, which, if approved by the court, will be overseen by the court and require regular reporting to authorities as well as cessation of all criminal activity. All five banks will continue cooperating with the government’s ongoing criminal investigations, and no plea agreement prevents the department from prosecuting culpable individuals for related misconduct. Citicorp, Barclays, JPMorgan and RBS have agreed to send disclosure notices to all of their customers and counter-parties that may have been affected by the sales and trading practices described in the plea agreements.
Today, in connection with its FX investigation, the Federal Reserve also announced that it was imposing on the five banks fines of over $1.6 billion; and Barclays settled related claims with the New York State Department of Financial Services (DFS), the Commodity Futures Trading Commission (CFTC) and the United Kingdom’s Financial Conduct Authority (FCA) for an additional combined penalty of approximately $1.3 billion. In conjunction with previously announced settlements with regulatory agencies in the United States and abroad, including the Office of the Comptroller of the Currency (OCC) and the Swiss Financial Market Supervisory Authority (FINMA), today’s resolutions bring the total fines and penalties paid by these five banks for their conduct in the FX spot market to nearly $9 billion.
This investigation is being conducted by the FBI’s Washington Field Office. This prosecution is being handled by the Antitrust Division’s New York Office and other criminal enforcement sections and the Criminal Division’s Fraud Section. The Justice Department appreciates the substantial assistance provided by the CFTC, OCC, FINMA, FCA, Securities and Exchange Commission, Federal Reserve Bank, the U.K. Serious Fraud Office and the New York State Department of Financial Services. The Criminal Division’s Office of International Affairs and the U.S. Attorney’s Office in the District of Connecticut have also provided assistance in this matter.
Showing posts with label LIBOR. Show all posts
Showing posts with label LIBOR. Show all posts
Wednesday, May 20, 2015
Thursday, April 23, 2015
ASSISTANT AG CALDWELL'S REMARKS ON DEUTSCHE BANK INTEREST RATE MANIPULATION CASE
FROM: U.S. JUSTICE DEPARTMENT
Assistant Attorney General Leslie R. Caldwell Delivers Remarks for the Deutsche Bank Manipulation of Libor Conference Call
Washington, DCUnited States ~ Thursday, April 23, 2015
Today we announce the latest law enforcement action in our ongoing criminal investigation of the manipulation of LIBOR, the London Interbank Offered Rate, which is a critical benchmark interest rate used throughout the world. I am pleased to be joined on this call by my colleague and friend, Assistant Attorney General Bill Baer of the Antitrust Division.
Today’s resolution of the LIBOR investigation with Deutsche Bank is in some respects the most significant one yet. Deutsche Bank’s London subsidiary has agreed to plead guilty to wire fraud in connection with its role in manipulating LIBOR. And the parent-level bank is entering into a deferred prosecution agreement that requires a corporate monitor. This is the first LIBOR resolution that imposes a monitor. Deutsche Bank is paying to DOJ the largest criminal penalty imposed yet in the LIBOR resolutions, a total of $775 million.
Today’s guilty plea, significant financial penalty, deferred prosecution agreement and corporate monitor reflect the department’s consideration of several factors, including the seriousness of Deutsche Bank’s misconduct and the level of cooperation Deutsche Bank provided in the government’s investigation. Deutsche Bank’s cooperation at the outset of the government’s investigation was not full and complete, but it improved over time, and today’s resolution takes that fact into account.
Deutsche Bank’s manipulation of LIBOR and EURIBOR, the Euro inter-bank offered rate, was long term and pervasive. As part of the resolution, Deutsche Bank has agreed to a detailed statement of facts that sets forth its criminal conduct. From at least 2003 through January 2011, dozens of the bank’s traders requested that the bank’s LIBOR and EURIBOR submitters contribute rates that would benefit the traders’ trading positions. And in brazen conflicts of interest, certain traders were also LIBOR submitters for the currency they were trading. So the very traders who had an interest in the LIBOR fix were the ones submitting the rates on behalf of the bank. Deutsche Bank structured its trading group in another way that benefitted the traders at the expense of submitting fair and accurate rates: certain LIBOR submitters were supervised by traders of that currency who stood to benefit from LIBOR fixes that were favorable to their trading positions. Deutsche Bank’s manipulation involved every major benchmark currency: U.S. Dollar LIBOR, Yen LIBOR, Swiss Franc LIBOR, Sterling LIBOR and EURIBOR.
As a result, Deutsche Bank’s U.K. subsidiary, DB Group Services (U.K.) Ltd, which employed many of the individuals who engaged in the scheme, has agreed to plead guilty to wire fraud. And Deutsche Bank AG has entered into a parent-level, three-year deferred prosecution agreement, with a corporate monitor, to resolve wire fraud and antitrust charges in connection with LIBOR manipulation.
Together with penalties that Deutsche Bank is paying to our regulatory partners at the U.K. Financial Conduct Authority, the CFTC and the New York State Department of Financial Services, Deutsche Bank is paying approximately $2.5 billion in total.
The important resolution we are announcing today is just the latest action in our ongoing and active investigation. We have charged 12 individuals to date, and three of those have already pleaded guilty. The other charges are pending and the defendants are presumed innocent. We have also resolved the LIBOR investigation with five other banks – six including Deutsche Bank. These actions reflect the department’s continued commitment to investigating and prosecuting financial fraud and protecting U.S. markets. And our LIBOR investigation is far from over. We have more work to do – and we’re doing it. Today’s resolution does not provide coverage against any individuals, and Deutsche Bank has agreed to continue cooperating in our investigation.
Together with our law enforcement partners at the FBI and our regulatory partners here and abroad, we will continue to gather evidence of LIBOR manipulation and bring the accountable institutions and individuals to justice.
I would like to thank the team of prosecutors and paralegals from the Criminal Division’s Fraud Section and the Antitrust Division who have worked tirelessly on this matter, as well as the many agents, accountants and financial analysts at the FBI for their excellent work. I am also grateful to the Criminal Division’s Office of International Affairs for their help, and I would like to thank the CFTC, the U.K. Financial Conduct Authority, the Securities and Exchange Commission and the U.K. Serious Fraud Office for their assistance as well.
Assistant Attorney General Leslie R. Caldwell Delivers Remarks for the Deutsche Bank Manipulation of Libor Conference Call
Washington, DCUnited States ~ Thursday, April 23, 2015
Today we announce the latest law enforcement action in our ongoing criminal investigation of the manipulation of LIBOR, the London Interbank Offered Rate, which is a critical benchmark interest rate used throughout the world. I am pleased to be joined on this call by my colleague and friend, Assistant Attorney General Bill Baer of the Antitrust Division.
Today’s resolution of the LIBOR investigation with Deutsche Bank is in some respects the most significant one yet. Deutsche Bank’s London subsidiary has agreed to plead guilty to wire fraud in connection with its role in manipulating LIBOR. And the parent-level bank is entering into a deferred prosecution agreement that requires a corporate monitor. This is the first LIBOR resolution that imposes a monitor. Deutsche Bank is paying to DOJ the largest criminal penalty imposed yet in the LIBOR resolutions, a total of $775 million.
Today’s guilty plea, significant financial penalty, deferred prosecution agreement and corporate monitor reflect the department’s consideration of several factors, including the seriousness of Deutsche Bank’s misconduct and the level of cooperation Deutsche Bank provided in the government’s investigation. Deutsche Bank’s cooperation at the outset of the government’s investigation was not full and complete, but it improved over time, and today’s resolution takes that fact into account.
Deutsche Bank’s manipulation of LIBOR and EURIBOR, the Euro inter-bank offered rate, was long term and pervasive. As part of the resolution, Deutsche Bank has agreed to a detailed statement of facts that sets forth its criminal conduct. From at least 2003 through January 2011, dozens of the bank’s traders requested that the bank’s LIBOR and EURIBOR submitters contribute rates that would benefit the traders’ trading positions. And in brazen conflicts of interest, certain traders were also LIBOR submitters for the currency they were trading. So the very traders who had an interest in the LIBOR fix were the ones submitting the rates on behalf of the bank. Deutsche Bank structured its trading group in another way that benefitted the traders at the expense of submitting fair and accurate rates: certain LIBOR submitters were supervised by traders of that currency who stood to benefit from LIBOR fixes that were favorable to their trading positions. Deutsche Bank’s manipulation involved every major benchmark currency: U.S. Dollar LIBOR, Yen LIBOR, Swiss Franc LIBOR, Sterling LIBOR and EURIBOR.
As a result, Deutsche Bank’s U.K. subsidiary, DB Group Services (U.K.) Ltd, which employed many of the individuals who engaged in the scheme, has agreed to plead guilty to wire fraud. And Deutsche Bank AG has entered into a parent-level, three-year deferred prosecution agreement, with a corporate monitor, to resolve wire fraud and antitrust charges in connection with LIBOR manipulation.
Together with penalties that Deutsche Bank is paying to our regulatory partners at the U.K. Financial Conduct Authority, the CFTC and the New York State Department of Financial Services, Deutsche Bank is paying approximately $2.5 billion in total.
The important resolution we are announcing today is just the latest action in our ongoing and active investigation. We have charged 12 individuals to date, and three of those have already pleaded guilty. The other charges are pending and the defendants are presumed innocent. We have also resolved the LIBOR investigation with five other banks – six including Deutsche Bank. These actions reflect the department’s continued commitment to investigating and prosecuting financial fraud and protecting U.S. markets. And our LIBOR investigation is far from over. We have more work to do – and we’re doing it. Today’s resolution does not provide coverage against any individuals, and Deutsche Bank has agreed to continue cooperating in our investigation.
Together with our law enforcement partners at the FBI and our regulatory partners here and abroad, we will continue to gather evidence of LIBOR manipulation and bring the accountable institutions and individuals to justice.
I would like to thank the team of prosecutors and paralegals from the Criminal Division’s Fraud Section and the Antitrust Division who have worked tirelessly on this matter, as well as the many agents, accountants and financial analysts at the FBI for their excellent work. I am also grateful to the Criminal Division’s Office of International Affairs for their help, and I would like to thank the CFTC, the U.K. Financial Conduct Authority, the Securities and Exchange Commission and the U.K. Serious Fraud Office for their assistance as well.
Tuesday, March 24, 2015
FORMER RABOBANK TRADER ARRAIGNED ON CHARGES RELATED TO LIBOR INTEREST RATE MANIPULATION
FROM: U.S. JUSTICE DEPARTMENT
Friday, March 20, 2015
Former U.K. Rabobank Trader Appears in U.S. Court to Face LIBOR Interest Rate Manipulation Charges
The former global head of liquidity and finance for Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) has waived extradition and appeared in U.S. federal court today for an arraignment on charges related to his alleged role in a scheme to manipulate the U.S. Dollar (USD) and Yen London InterBank Offered Rate (LIBOR), a benchmark interest rate.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division and Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office made the announcement.
Anthony Allen, 43, of Hertsfordshire, England, appeared in the Southern District of New York and pleaded not guilty to a superseding indictment charging him with conspiracy to commit wire and bank fraud and substantive counts of wire fraud. The court released Allen on a $500,000 bond and set a trial date for Oct. 5, 2015.
According to the superseding indictment, at the time relevant to the charges, LIBOR was an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believed they would be charged if borrowing from other banks. It serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. LIBOR was published by the British Bankers’ Association (BBA), a trade association based in London. LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The published LIBOR “fix” for U.S. Dollar and Yen currency for a specific maturity was the result of a calculation based upon submissions from a panel of 16 banks, including Rabobank.
According to allegations in the superseding indictment, Allen, who was Rabobank’s Global Head of Liquidity & Finance and the manager of the company’s money market desk in London, put in place a system in which Rabobank employees who traded in derivative products linked to USD and Yen LIBOR regularly communicated their trading positions to Rabobank’s LIBOR submitters, who submitted Rabobank’s LIBOR contributions to the BBA. Rabobank traders entered into derivative contracts containing USD or Yen LIBOR as a price component and they allegedly asked others at Rabobank to submit LIBOR contributions consistent with the traders’ or the bank’s financial interests, to benefit the traders’ or the banks’ trading positions.
The charges in the superseding indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
The investigation is being conducted by special agents, forensic accountants and intelligence analysts in the FBI’s Washington Field Office. The prosecution is being handled by the Criminal Division’s Fraud Section and the Antitrust Division. The Criminal Division’s Office of International Affairs has provided assistance in this matter.
The Justice Department expresses its appreciation for the assistance provided by various enforcement agencies in the United States and abroad. The Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the department and, along with the U.K. Financial Conduct Authority, has played a major role in the investigation. The Securities and Exchange Commission also has played a significant role in the LIBOR series of investigations, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation. The department has worked closely with the Dutch Public Prosecution Service and the Dutch Central Bank in the investigation of conduct at Rabobank. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance.
Friday, March 20, 2015
Former U.K. Rabobank Trader Appears in U.S. Court to Face LIBOR Interest Rate Manipulation Charges
The former global head of liquidity and finance for Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) has waived extradition and appeared in U.S. federal court today for an arraignment on charges related to his alleged role in a scheme to manipulate the U.S. Dollar (USD) and Yen London InterBank Offered Rate (LIBOR), a benchmark interest rate.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division and Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office made the announcement.
Anthony Allen, 43, of Hertsfordshire, England, appeared in the Southern District of New York and pleaded not guilty to a superseding indictment charging him with conspiracy to commit wire and bank fraud and substantive counts of wire fraud. The court released Allen on a $500,000 bond and set a trial date for Oct. 5, 2015.
According to the superseding indictment, at the time relevant to the charges, LIBOR was an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believed they would be charged if borrowing from other banks. It serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. LIBOR was published by the British Bankers’ Association (BBA), a trade association based in London. LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The published LIBOR “fix” for U.S. Dollar and Yen currency for a specific maturity was the result of a calculation based upon submissions from a panel of 16 banks, including Rabobank.
According to allegations in the superseding indictment, Allen, who was Rabobank’s Global Head of Liquidity & Finance and the manager of the company’s money market desk in London, put in place a system in which Rabobank employees who traded in derivative products linked to USD and Yen LIBOR regularly communicated their trading positions to Rabobank’s LIBOR submitters, who submitted Rabobank’s LIBOR contributions to the BBA. Rabobank traders entered into derivative contracts containing USD or Yen LIBOR as a price component and they allegedly asked others at Rabobank to submit LIBOR contributions consistent with the traders’ or the bank’s financial interests, to benefit the traders’ or the banks’ trading positions.
The charges in the superseding indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
The investigation is being conducted by special agents, forensic accountants and intelligence analysts in the FBI’s Washington Field Office. The prosecution is being handled by the Criminal Division’s Fraud Section and the Antitrust Division. The Criminal Division’s Office of International Affairs has provided assistance in this matter.
The Justice Department expresses its appreciation for the assistance provided by various enforcement agencies in the United States and abroad. The Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the department and, along with the U.K. Financial Conduct Authority, has played a major role in the investigation. The Securities and Exchange Commission also has played a significant role in the LIBOR series of investigations, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation. The department has worked closely with the Dutch Public Prosecution Service and the Dutch Central Bank in the investigation of conduct at Rabobank. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance.
Tuesday, January 14, 2014
3 CHARGED FOR ROLES IN YEN LIBOR MANIPULATION CASE
FROM: JUSTICE DEPARTMENT
Monday, January 13, 2014
Three Former Rabobank Traders Charged with Manipulating Yen Libor
Two former Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) Japanese Yen derivatives traders and the trader responsible for setting Rabobank’s Yen London InterBank Offered Rate (LIBOR) were charged as part of the ongoing criminal investigation into the manipulation of LIBOR.
Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.
Earlier today, a U.S. Magistrate Judge sitting in the Southern District of New York signed a criminal complaint charging Paul Robson of the United Kingdom, Paul Thompson of Australia, and Tetsuya Motomura of Japan with conspiracy to commit wire fraud and bank fraud as well as substantive counts of wire fraud. All are former employees of Rabobank, which on Oct. 29, 2013, entered into a deferred prosecution agreement with the Department of Justice as part of the department’s LIBOR investigation and agreed to pay a $325 million penalty. Each defendant faces up to 30 years in prison for each count upon conviction.
“Today, less than three months after Rabobank admitted its involvement in the manipulation of LIBOR, we have charged three of its senior traders with participating in this global fraud scheme,” said Acting Assistant Attorney General Raman. “As alleged, these three traders – working from Japan, Singapore and the U.K. – deliberately submitted what they called ‘obscenely high’ or ‘silly low’ LIBOR rates in order to benefit their own trading positions. The illegal manipulation of this cornerstone benchmark rate undermines the integrity of the markets; it harms those who are relying on what they expect to be an honest benchmark; and it has ripple effects that extend far beyond the trading at issue here. The Justice Department has now charged eight individuals and reached resolutions with four multi-national banks as part of our ongoing and industry-wide LIBOR probe and, alongside our law enforcement and regulatory partners both here and abroad, we remain committed to continuing to root out this misconduct.”
“The conspirators charged today conspired to rig the interest rates used by derivative products throughout the financial industry to benefit their own trading books,” said Deputy Assistant Attorney General Snyder. “Today’s charges demonstrate the department’s commitment to hold individuals accountable for schemes that undermine the integrity of markets that rely on competition to flourish.”
“Manipulation of benchmark rates that are routinely referenced by financial products around the world erodes the integrity of our financial markets,” said Assistant Director in Charge Parlave. “The charges against these individuals represent another step in our ongoing efforts to find and stop those who hide behind complex corporate and securities fraud schemes. I commend the Special Agents, forensic accountants and analysts as well as the prosecutors for the significant time and resources they committed to investigating this case.”
According to the complaint, LIBOR is an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London. At the time relevant to the criminal complaint, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The published LIBOR “fix” for Yen LIBOR at a specific maturity is the result of a calculation based upon submissions from a panel of 16 banks, including Rabobank.
LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.
According to allegations in the complaint, all three defendants traded in derivative products that referenced Yen LIBOR. Robson worked as a senior trader at Rabobank’s Money Markets and Short Term Forwards desk in London; Thompson was Rabobank’s head of Money Market and Derivatives Trading Northeast Asia and worked in Singapore; and Motomura was a senior trader at Rabobank’s Tokyo desk who supervised money market and derivative traders employed at Rabobank’s Tokyo desk. In addition to trading derivative products that referenced Yen LIBOR, Robson also served as Rabobank’s primary submitter of Yen LIBOR to the BBA.
Robson, Thompson and Motomura each entered into derivatives contracts containing Yen LIBOR as a price component . The profit and loss that flowed from those contracts was directly affected by the relevant Yen LIBOR on certain dates. If the relevant Yen LIBOR moved in the direction favorable to the defendants’ positions, Rabobank and the defendants benefitted at the expense of the counterparties. When LIBOR moved in the opposite direction, the defendants and Rabobank stood to lose money to their counterparties.
The complaint alleges that from about May 2006 to at least January 2011, Robson, Thompson, Motomura and others agreed to make false and fraudulent Yen LIBOR submissions for the benefit of their trading positions. According to the allegations, sometimes Robson submitted rates at a specific level requested by a co-defendant and consistent with the co-defendant’s trading positions. Other times, Robson made a higher or lower Yen LIBOR submission consistent with the direction requested by a co-defendant and consistent with the co-defendant’s trading positions. On those occasions, Robson’s manipulated Yen LIBOR submissions were to the detriment of, among others, Rabobank’s counterparties to derivative contracts.
In addition to allegedly manipulating Rabobank’s Yen LIBOR submissions, Robson, on occasion and on behalf of one or more co-defendants, coordinated his Yen LIBOR submission with the trader responsible for making Yen LIBOR submissions at another Yen LIBOR panel bank. At times, Robson allegedly submitted Yen LIBOR at a level requested by the other trader, and, at other times, that trader submitted Yen LIBOR at a level requested by Robson.
As alleged in the complaint, Thompson, Motomura and another Rabobank trader described in the complaint as Trader-R made requests of Robson for Yen LIBOR submissions through electronic chats and email exchanges. For example, on May 19, 2006, after Thompson informed Robson that his net exposure for his 3-month fixes was 125 billion Yen, he requested by email that Robson “sneak your 3m libor down a cheeky 1 or 2 bp” because “it will make a bit of diff for me.” On or about May 19, 2006, Robson responded: “No prob mate I mark it low.”
On Sept. 21, 2007, Trader-R asked Robson by email, “wehre do you think today’s libors are? If you can I would like 1mth higher today.” Robson responded, “bookies reckon .85,” to which Trader-R replied, “I have some fixings in 1mth so would appreciate if you can put it higher mate.” Robson answered, “no prob mate let me know your level.” After Trader-R asked for “0.90% for 1mth,” Robson confirmed, “sure no prob[ ] I’ll probably get a few phone calls but no worries mate… there’s bigger crooks in the market than us guys!”
As another example, on Aug. 4, 2008, in a Bloomberg chat, Motomura asked Robson, “Please set today’s 6mth LIBOR at 0.96 I have chunky fixing.” To this, Robson responded, “no worries mate.”
The complaint alleges that Robson accommodated the requests of his co-defendants. For example, on Sept. 21, 2007, after Robson received a request from Trader-R for a high 1 month Yen LIBOR, Rabobank submitted a 1-month Yen LIBOR rate of 0.90, which was 7 basis points higher than the previous day and 5 basis points above where Robson said that “bookies” predicted it, and which moved Rabobank’s submission from the middle to the highest of the panel.
According to court documents, the defendants were also aware that they were making false or fraudulent Yen LIBOR submissions. For example, on May 10, 2006, Robson admitted in an email that “it must be pretty embarrasing to set such a low libor. I was very embarrased to set my 6 mth – but wanted to help thomo [Thompson]. tomorrow it will be more like 33 from me.” At times, Robson referred to the submissions that he submitted on behalf of his co-defendants as “ridiculously high” and “obscenely high,” and acknowledged that his submissions would be so out of line with the other Yen LIBOR panel banks that he might receive a phone call about them from the BBA or Thomson Reuters.
A criminal complaint is a formal accusation of criminal conduct, not evidence. A defendant is presumed innocent unless and until convicted.
The investigation is being conducted by special agents, forensic accountants, and intelligence analysts in the FBI’s Washington Field Office. The prosecution is being handled by Trial Attorneys Carol L. Sipperly, Brian Young and Alexander H. Berlin of the Criminal Division’s Fraud Section, and Trial Attorneys Ludovic C. Ghesquiere and Michael T. Koenig of the Antitrust Division. Former Deputy Chief Glenn Leon and Senior Counsel Rebecca Rohr of the Criminal Division’s Fraud Section, along with Assistant Chief Elizabeth Prewitt and Trial Attorneys Eric Schleef and Richard Powers of the Antitrust Division, have also provided valuable assistance. The Criminal Division’s Office of International Affairs has provided assistance in this matter as well.
The broader investigation relating to LIBOR and other benchmark rates has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the department and, along with the U.K. Financial Conduct Authority, has played a major role in the LIBOR investigation. The department has worked closely with the Dutch Public Prosecution Service and the Dutch Central Bank in the investigation of Rabobank. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance. In particular, the Securities and Exchange Commission has played a significant role in the LIBOR series of investigations, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.
This prosecution 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.
Monday, January 13, 2014
Three Former Rabobank Traders Charged with Manipulating Yen Libor
Two former Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) Japanese Yen derivatives traders and the trader responsible for setting Rabobank’s Yen London InterBank Offered Rate (LIBOR) were charged as part of the ongoing criminal investigation into the manipulation of LIBOR.
Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.
Earlier today, a U.S. Magistrate Judge sitting in the Southern District of New York signed a criminal complaint charging Paul Robson of the United Kingdom, Paul Thompson of Australia, and Tetsuya Motomura of Japan with conspiracy to commit wire fraud and bank fraud as well as substantive counts of wire fraud. All are former employees of Rabobank, which on Oct. 29, 2013, entered into a deferred prosecution agreement with the Department of Justice as part of the department’s LIBOR investigation and agreed to pay a $325 million penalty. Each defendant faces up to 30 years in prison for each count upon conviction.
“Today, less than three months after Rabobank admitted its involvement in the manipulation of LIBOR, we have charged three of its senior traders with participating in this global fraud scheme,” said Acting Assistant Attorney General Raman. “As alleged, these three traders – working from Japan, Singapore and the U.K. – deliberately submitted what they called ‘obscenely high’ or ‘silly low’ LIBOR rates in order to benefit their own trading positions. The illegal manipulation of this cornerstone benchmark rate undermines the integrity of the markets; it harms those who are relying on what they expect to be an honest benchmark; and it has ripple effects that extend far beyond the trading at issue here. The Justice Department has now charged eight individuals and reached resolutions with four multi-national banks as part of our ongoing and industry-wide LIBOR probe and, alongside our law enforcement and regulatory partners both here and abroad, we remain committed to continuing to root out this misconduct.”
“The conspirators charged today conspired to rig the interest rates used by derivative products throughout the financial industry to benefit their own trading books,” said Deputy Assistant Attorney General Snyder. “Today’s charges demonstrate the department’s commitment to hold individuals accountable for schemes that undermine the integrity of markets that rely on competition to flourish.”
“Manipulation of benchmark rates that are routinely referenced by financial products around the world erodes the integrity of our financial markets,” said Assistant Director in Charge Parlave. “The charges against these individuals represent another step in our ongoing efforts to find and stop those who hide behind complex corporate and securities fraud schemes. I commend the Special Agents, forensic accountants and analysts as well as the prosecutors for the significant time and resources they committed to investigating this case.”
According to the complaint, LIBOR is an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London. At the time relevant to the criminal complaint, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The published LIBOR “fix” for Yen LIBOR at a specific maturity is the result of a calculation based upon submissions from a panel of 16 banks, including Rabobank.
LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.
According to allegations in the complaint, all three defendants traded in derivative products that referenced Yen LIBOR. Robson worked as a senior trader at Rabobank’s Money Markets and Short Term Forwards desk in London; Thompson was Rabobank’s head of Money Market and Derivatives Trading Northeast Asia and worked in Singapore; and Motomura was a senior trader at Rabobank’s Tokyo desk who supervised money market and derivative traders employed at Rabobank’s Tokyo desk. In addition to trading derivative products that referenced Yen LIBOR, Robson also served as Rabobank’s primary submitter of Yen LIBOR to the BBA.
Robson, Thompson and Motomura each entered into derivatives contracts containing Yen LIBOR as a price component . The profit and loss that flowed from those contracts was directly affected by the relevant Yen LIBOR on certain dates. If the relevant Yen LIBOR moved in the direction favorable to the defendants’ positions, Rabobank and the defendants benefitted at the expense of the counterparties. When LIBOR moved in the opposite direction, the defendants and Rabobank stood to lose money to their counterparties.
The complaint alleges that from about May 2006 to at least January 2011, Robson, Thompson, Motomura and others agreed to make false and fraudulent Yen LIBOR submissions for the benefit of their trading positions. According to the allegations, sometimes Robson submitted rates at a specific level requested by a co-defendant and consistent with the co-defendant’s trading positions. Other times, Robson made a higher or lower Yen LIBOR submission consistent with the direction requested by a co-defendant and consistent with the co-defendant’s trading positions. On those occasions, Robson’s manipulated Yen LIBOR submissions were to the detriment of, among others, Rabobank’s counterparties to derivative contracts.
In addition to allegedly manipulating Rabobank’s Yen LIBOR submissions, Robson, on occasion and on behalf of one or more co-defendants, coordinated his Yen LIBOR submission with the trader responsible for making Yen LIBOR submissions at another Yen LIBOR panel bank. At times, Robson allegedly submitted Yen LIBOR at a level requested by the other trader, and, at other times, that trader submitted Yen LIBOR at a level requested by Robson.
As alleged in the complaint, Thompson, Motomura and another Rabobank trader described in the complaint as Trader-R made requests of Robson for Yen LIBOR submissions through electronic chats and email exchanges. For example, on May 19, 2006, after Thompson informed Robson that his net exposure for his 3-month fixes was 125 billion Yen, he requested by email that Robson “sneak your 3m libor down a cheeky 1 or 2 bp” because “it will make a bit of diff for me.” On or about May 19, 2006, Robson responded: “No prob mate I mark it low.”
On Sept. 21, 2007, Trader-R asked Robson by email, “wehre do you think today’s libors are? If you can I would like 1mth higher today.” Robson responded, “bookies reckon .85,” to which Trader-R replied, “I have some fixings in 1mth so would appreciate if you can put it higher mate.” Robson answered, “no prob mate let me know your level.” After Trader-R asked for “0.90% for 1mth,” Robson confirmed, “sure no prob[ ] I’ll probably get a few phone calls but no worries mate… there’s bigger crooks in the market than us guys!”
As another example, on Aug. 4, 2008, in a Bloomberg chat, Motomura asked Robson, “Please set today’s 6mth LIBOR at 0.96 I have chunky fixing.” To this, Robson responded, “no worries mate.”
The complaint alleges that Robson accommodated the requests of his co-defendants. For example, on Sept. 21, 2007, after Robson received a request from Trader-R for a high 1 month Yen LIBOR, Rabobank submitted a 1-month Yen LIBOR rate of 0.90, which was 7 basis points higher than the previous day and 5 basis points above where Robson said that “bookies” predicted it, and which moved Rabobank’s submission from the middle to the highest of the panel.
According to court documents, the defendants were also aware that they were making false or fraudulent Yen LIBOR submissions. For example, on May 10, 2006, Robson admitted in an email that “it must be pretty embarrasing to set such a low libor. I was very embarrased to set my 6 mth – but wanted to help thomo [Thompson]. tomorrow it will be more like 33 from me.” At times, Robson referred to the submissions that he submitted on behalf of his co-defendants as “ridiculously high” and “obscenely high,” and acknowledged that his submissions would be so out of line with the other Yen LIBOR panel banks that he might receive a phone call about them from the BBA or Thomson Reuters.
A criminal complaint is a formal accusation of criminal conduct, not evidence. A defendant is presumed innocent unless and until convicted.
The investigation is being conducted by special agents, forensic accountants, and intelligence analysts in the FBI’s Washington Field Office. The prosecution is being handled by Trial Attorneys Carol L. Sipperly, Brian Young and Alexander H. Berlin of the Criminal Division’s Fraud Section, and Trial Attorneys Ludovic C. Ghesquiere and Michael T. Koenig of the Antitrust Division. Former Deputy Chief Glenn Leon and Senior Counsel Rebecca Rohr of the Criminal Division’s Fraud Section, along with Assistant Chief Elizabeth Prewitt and Trial Attorneys Eric Schleef and Richard Powers of the Antitrust Division, have also provided valuable assistance. The Criminal Division’s Office of International Affairs has provided assistance in this matter as well.
The broader investigation relating to LIBOR and other benchmark rates has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the department and, along with the U.K. Financial Conduct Authority, has played a major role in the LIBOR investigation. The department has worked closely with the Dutch Public Prosecution Service and the Dutch Central Bank in the investigation of Rabobank. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance. In particular, the Securities and Exchange Commission has played a significant role in the LIBOR series of investigations, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.
This prosecution 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.
Tuesday, January 7, 2014
RBS SECURITIES JAPAN LTD SENTENCED FOR MANIPULATION OF YEN LIBOR
FROM: JUSTICE DEPARTMENT
WASHINGTON — RBS Securities Japan Limited, a wholly owned subsidiary of The Royal Bank of Scotland plc (RBS) that engages in investment banking operations with its principal place of business in Tokyo, Japan, was sentenced today for its role in manipulating the Japanese Yen London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world.
Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.
RBS Securities Japan was sentenced by U.S. District Judge Michael P. Shea in the District of Connecticut. RBS Securities Japan pleaded guilty on April 12, 2013, to one count of wire fraud for its role in manipulating Yen LIBOR benchmark interest rates. RBS Securities Japan signed a plea agreement with the government in which it admitted its criminal conduct and agreed to pay a $50 million fine, which the court accepted in imposing sentence. In addition, RBS plc, the Edinburgh, Scotland-based parent company of RBS Securities Japan, entered into a deferred prosecution agreement (DPA) with the government requiring RBS plc to pay an additional $100 million penalty, to admit and accept responsibility for its misconduct as set forth in an extensive statement of facts and to continue cooperating with the Justice Department in its ongoing investigation. The DPA reflects RBS plc’s cooperation in disclosing LIBOR misconduct within the financial institution and recognizes the significant remedial measures undertaken by new management to enhance internal controls.
Together with approximately $462 million in regulatory penalties and disgorgement – $325 million as a result of a Commodity Futures Trading Commission (CFTC) action and approximately $137 million as a result of a U.K. Financial Conduct Authority (FCA) action – the Justice Department’s criminal penalties bring the total amount of the resolution with RBS and RBS Securities Japan to approximately $612 million.
“Today’s sentencing of RBS is an important reminder of the significant consequences facing banks that deliberately manipulate financial benchmark rates, and it represents one of the numerous enforcement actions taken by the Justice Department in our ongoing LIBOR investigation” said Acting Assistant Attorney General Raman. “As a result of the department’s investigation, we have charged five individuals and secured admissions of criminal wrongdoing by four major financial institutions. Our enforcement actions have had a lasting impact on the global banking system, and we intend to continue to vigorously investigate and prosecute the manipulation of this cornerstone benchmark rate.”
“By colluding to manipulate the Yen LIBOR benchmark interest rate, RBS Securities Japan reaped higher profits for itself at the expense of unknowing counterparties, and in the process undermined the integrity of a major benchmark rate used in financial transactions throughout the world,” said Deputy Assistant Attorney General Snyder. “Today’s sentence, in conjunction with the department’s agreement with parent company RBS, demonstrates the Antitrust Division’s commitment to prosecuting these types of far-reaching and sophisticated conspiracies.”
“The manipulation of LIBOR impacts financial products the world over, and erodes the integrity of the financial markets,” said Assistant Director in Charge Parlave. “Without a level playing field in our financial marketplace, banks and investors do not have a threshold to which they can measure their hard work. I commend the Special Agents, forensic accountants and analysts, as well as the prosecutors, for the significant time and resources they committed to investigating this case.”
According to court documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR serves as the primary benchmark for short-term interest rates globally, and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.
LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London. At the time relevant to the conduct in the criminal information, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA.
According to the plea agreement, at various times from at least 2006 through 2010, certain RBS Securities Japan Yen derivatives traders engaged in efforts to move LIBOR in a direction favorable to their trading positions, defrauding RBS counterparties who were unaware of the manipulation affecting financial products referencing Yen LIBOR. The scheme included efforts to manipulate more than one hundred Yen LIBOR submissions in a manner favorable to RBS Securities Japan’s trading positions. Certain RBS Securities Japan Yen derivatives traders, including a manager, engaged in this conduct in order to benefit their trading positions and thereby increase their profits and decrease their losses.
The prosecution of RBS Securities Japan is being handled by Deputy Chief Patrick Stokes and Trial Attorney Gary Winters of the Criminal Division’s Fraud Section, and New York Office Assistant Chief Elizabeth Prewitt and Trial Attorneys Eric Schleef and Richard Powers of the Antitrust Division. Deputy Chiefs Daniel Braun and William Stellmach and Trial Attorney Alex Berlin of the Criminal Division’s Fraud Section, Trial Attorneys Daniel Tracer and Kristina Srica of the Antitrust Division, Jeremy Verlinda of the Antitrust Division’s Economic Analysis Group, Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut, and the Criminal Division’s Office of International Affairs have also provided valuable assistance in this matter. The investigation is being conducted by special agents, forensic accountants and intelligence analysts of the FBI’s Washington Field Office.
The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the CFTC’s Division of Enforcement referred this matter to the department and, along with the FCA, has played a major role in the investigation. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance. In particular, the Securities and Exchange Commission has played a significant role in the LIBOR investigation, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.
This prosecution 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.
WASHINGTON — RBS Securities Japan Limited, a wholly owned subsidiary of The Royal Bank of Scotland plc (RBS) that engages in investment banking operations with its principal place of business in Tokyo, Japan, was sentenced today for its role in manipulating the Japanese Yen London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world.
Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.
RBS Securities Japan was sentenced by U.S. District Judge Michael P. Shea in the District of Connecticut. RBS Securities Japan pleaded guilty on April 12, 2013, to one count of wire fraud for its role in manipulating Yen LIBOR benchmark interest rates. RBS Securities Japan signed a plea agreement with the government in which it admitted its criminal conduct and agreed to pay a $50 million fine, which the court accepted in imposing sentence. In addition, RBS plc, the Edinburgh, Scotland-based parent company of RBS Securities Japan, entered into a deferred prosecution agreement (DPA) with the government requiring RBS plc to pay an additional $100 million penalty, to admit and accept responsibility for its misconduct as set forth in an extensive statement of facts and to continue cooperating with the Justice Department in its ongoing investigation. The DPA reflects RBS plc’s cooperation in disclosing LIBOR misconduct within the financial institution and recognizes the significant remedial measures undertaken by new management to enhance internal controls.
Together with approximately $462 million in regulatory penalties and disgorgement – $325 million as a result of a Commodity Futures Trading Commission (CFTC) action and approximately $137 million as a result of a U.K. Financial Conduct Authority (FCA) action – the Justice Department’s criminal penalties bring the total amount of the resolution with RBS and RBS Securities Japan to approximately $612 million.
“Today’s sentencing of RBS is an important reminder of the significant consequences facing banks that deliberately manipulate financial benchmark rates, and it represents one of the numerous enforcement actions taken by the Justice Department in our ongoing LIBOR investigation” said Acting Assistant Attorney General Raman. “As a result of the department’s investigation, we have charged five individuals and secured admissions of criminal wrongdoing by four major financial institutions. Our enforcement actions have had a lasting impact on the global banking system, and we intend to continue to vigorously investigate and prosecute the manipulation of this cornerstone benchmark rate.”
“By colluding to manipulate the Yen LIBOR benchmark interest rate, RBS Securities Japan reaped higher profits for itself at the expense of unknowing counterparties, and in the process undermined the integrity of a major benchmark rate used in financial transactions throughout the world,” said Deputy Assistant Attorney General Snyder. “Today’s sentence, in conjunction with the department’s agreement with parent company RBS, demonstrates the Antitrust Division’s commitment to prosecuting these types of far-reaching and sophisticated conspiracies.”
“The manipulation of LIBOR impacts financial products the world over, and erodes the integrity of the financial markets,” said Assistant Director in Charge Parlave. “Without a level playing field in our financial marketplace, banks and investors do not have a threshold to which they can measure their hard work. I commend the Special Agents, forensic accountants and analysts, as well as the prosecutors, for the significant time and resources they committed to investigating this case.”
According to court documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR serves as the primary benchmark for short-term interest rates globally, and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.
LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London. At the time relevant to the conduct in the criminal information, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA.
According to the plea agreement, at various times from at least 2006 through 2010, certain RBS Securities Japan Yen derivatives traders engaged in efforts to move LIBOR in a direction favorable to their trading positions, defrauding RBS counterparties who were unaware of the manipulation affecting financial products referencing Yen LIBOR. The scheme included efforts to manipulate more than one hundred Yen LIBOR submissions in a manner favorable to RBS Securities Japan’s trading positions. Certain RBS Securities Japan Yen derivatives traders, including a manager, engaged in this conduct in order to benefit their trading positions and thereby increase their profits and decrease their losses.
The prosecution of RBS Securities Japan is being handled by Deputy Chief Patrick Stokes and Trial Attorney Gary Winters of the Criminal Division’s Fraud Section, and New York Office Assistant Chief Elizabeth Prewitt and Trial Attorneys Eric Schleef and Richard Powers of the Antitrust Division. Deputy Chiefs Daniel Braun and William Stellmach and Trial Attorney Alex Berlin of the Criminal Division’s Fraud Section, Trial Attorneys Daniel Tracer and Kristina Srica of the Antitrust Division, Jeremy Verlinda of the Antitrust Division’s Economic Analysis Group, Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut, and the Criminal Division’s Office of International Affairs have also provided valuable assistance in this matter. The investigation is being conducted by special agents, forensic accountants and intelligence analysts of the FBI’s Washington Field Office.
The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the CFTC’s Division of Enforcement referred this matter to the department and, along with the FCA, has played a major role in the investigation. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance. In particular, the Securities and Exchange Commission has played a significant role in the LIBOR investigation, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.
This prosecution 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.
Tuesday, October 29, 2013
RABOBANK AGREES TO PAY $325 MILLION CRIMINAL PENALTY IN LIBOR/EURIBOR INTEREST RATE MANIPULATION SCHEME
FROM: U.S. JUSTICE DEPARTMENT
Tuesday, October 29, 2013
Rabobank Admits Wrongdoing in Libor Investigation, Agrees to Pay $325 Million Criminal Penalty
Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) has entered into an agreement with the Department of Justice to pay a $325 million penalty to resolve violations arising from Rabobank’s submissions for the London InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (Euribor), which are leading benchmark interest rates around the world, the Justice Department announced today.
A criminal information will be filed today in U.S. District Court for the District of Connecticut that charges Rabobank as part of a deferred prosecution agreement (DPA). The information charges Rabobank with wire fraud for its role in manipulating the benchmark interest rates LIBOR and Euribor. In addition to the $325 million penalty, the DPA requires the bank to admit and accept responsibility for its misconduct as described in an extensive statement of facts. Rabobank has agreed to continue cooperating with the Justice Department in its ongoing investigation of the manipulation of benchmark interest rates by other financial institutions and individuals.
“For years, employees at Rabobank, often working with traders at other banks around the globe, illegally manipulated four different interest rates – Euribor and LIBOR for the U.S. dollar, the yen, and the pound sterling – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank’s counterparties,” said Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division. “Today’s criminal resolution – which represents the second-largest penalty in the Criminal Division’s active, ongoing investigation of the manipulation of global benchmark interest rates by some of the largest banks in the world – comes fast on the heels of charges brought against three former ICAP brokers just last month. Rabobank is the fourth major financial institution that has admitted its misconduct in this wide-ranging criminal investigation, and other banks should pay attention: our investigation is far from over.”
“Rabobank rigged multiple benchmark rates, allowing its traders to reap higher profits at the expense of their unsuspecting counterparties,” said Deputy Assistant Attorney General Leslie C. Overton of the Justice Department’s Antitrust Division. “Not only was this conduct fraudulent, it compromised the integrity of globally-used interest rate benchmarks – undermining financial markets worldwide.”
“Rabobank admitted to manipulating LIBOR and Euribor submissions which directly affected the rates referenced by financial products held by and on behalf of companies and investors around the world,” said Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office. “Rabobank’s actions resulted in the deliberate harm to counterparties holding products referencing the manipulated rates. Today’s announcement is yet another example of the tireless efforts of the FBI special agents and forensic accountants who are dedicated to investigating complex fraud schemes and, together with prosecutors, bringing to justice those who participate in such schemes.”
Together with approximately $740 million in criminal and regulatory penalties imposed by other agencies in actions arising out of the same conduct – $475 million by the Commodity Futures Trading Commission (CFTC) action, $170 million by the U.K. Financial Conduct Authority (FCA) action and approximately $96 million by the Openbaar Ministerie (the Dutch Public Prosecution Service) – the Justice Department’s $325 million criminal penalty brings the total amount to be paid by Rabobank to more than $1 billion.
According to signed documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world and reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.
LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London. At the time relevant to the conduct in the criminal information, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA. From at least 2005 through 2011, Rabobank was a member of the Contributor Panel for a number of currencies, including United States dollar (dollar) LIBOR, pound sterling LIBOR, and yen LIBOR.
The Euro Interbank Offered Rate (Euribor) is published by the European Banking Federation (EBF), which is based in Brussels, Belgium, and is calculated at 15 maturities, ranging from overnight to one year. Euribor is the rate at which Euro interbank term deposits within the Euro zone are expected to be offered by one prime bank to another at 11:00 a.m. Brussels time. The Euribor at a given maturity is the result of a calculation based upon submissions from Euribor Contributor Panel banks. From at least 2005 through 2011, Rabobank was also a member of the Contributor Panel for Euribor.
According to the statement of facts accompanying the agreement, from as early as 2005 through at least November 2010, certain Rabobank derivatives traders requested that certain Rabobank dollar LIBOR, yen LIBOR, pound sterling LIBOR, and Euribor submitters submit LIBOR and Euribor contributions that would benefit the traders’ trading positions, rather than rates that complied with the definitions of LIBOR and Euribor.
In addition, according to the statement of facts accompanying the agreement, from as early as January 2006 through October 2008, a Rabobank yen LIBOR submitter and a Rabobank Euribor submitter had two separate agreements with traders at other banks to make yen LIBOR and Euribor submissions that benefitted trading positions, rather than submissions that complied with the definitions of LIBOR and Euribor.
The Rabobank LIBOR and Euribor submitters accommodated traders’ requests on numerous occasions, and on various occasions, Rabobank’s submissions affected the fixed rates.
According to the statement of facts, Rabobank employees engaged in this conduct through electronic communications, which included both emails and electronic chats. For example, on Sept. 21, 2007, a Rabobank Yen derivatives trader emailed the Rabobank Yen LIBOR submitter at the time with the subject line “libors,” writing: “Wehre do you think today’s libors are? If you can, I would like 1mth libors higher today.” The submitter replied: “Bookies reckon 1m sets at .85.” The trader wrote back: “I have some fixings in 1 mth so would appreciate if you can put it higher mate.” The submitter replied: “No prob mate let me know your level.” The trader responded: “Wud be nice if you could put 0.90% for 1mth cheers.” The submitter wrote back: “Sure no prob. I’ll probably get a few phone calls but no worries mate!” The trader replied: “If you may get a few phone calls then put 0.88% then.” The submitter responded: “Don’t worry mate – there’s bigger crooks in the market than us guys!” That day, as requested, Rabobank’s 1-month Yen LIBOR submission was 0.90, an increase of seven basis points from its previous submission, whereas the other panel banks’ submissions decreased by approximately a half of a basis point on average. Rabobank’s submission went from being tied as the tenth highest submission on the Contributor Panel on the previous day to being the highest submission on the Contributor Panel.
On Nov. 29, 2006, a Rabobank dollar derivatives trader wrote to Rabobank’s Global Head of Liquidity and Finance and the head of Rabobank’s money markets desk in London, who supervised rate submitters: “Hi mate, low 1s high 3s LIBOR pls !!! Dont tell [another Rabobank U.S. Dollar derivatives trader] haa haaaaaaa. Sold the market today doooooohhhh!” The money markets desk head replied: “ok mate , will do my best …speak later.” After the LIBOR submissions that day, Rabobank’s ranking compared to other panel banks dropped as to 1-month dollar LIBOR and rose as to 3-month dollar LIBOR. Two days later, on Dec. 1, 2006, the trader again wrote to the money markets desk head: “Appreciate 3s go down, but a high 3s today would be nice… cheers chief.” The money markets desk head wrote back: “I am fast turning into your LIBOR bitch!!!!” The trader replied: “Just friendly encouragement that’s all , appreciate the help.” The money markets desk head wrote back: “No worries mate , glad to help ….We just stuffed ourselves with good ol pie , mash n licker !!”
In an example of an agreement with traders at other banks, on July 28, 2006, a Rabobank rate submitter and Rabobank trader discussed their mutual desires for a high fixing. The submitter stated to the trader: “setting a high 1m again today - I need it!” to which the trader responded: “yes pls mate…I need a higher 1m libor too.” Within approximately 20 minutes, the submitter contacted a trader at another Contributor Panel bank and wrote: “morning skipper.....will be setting an obscenely high 1m again today...poss 38 just fyi.” The other bank’s trader responded, “(K)...oh dear..my poor customers....hehehe!! manual input libors again today then!!!!” Both banks’ submissions on July 28 moved up one basis point, from 0.37 to 0.38, a move which placed their submissions as the second highest submissions on the Contributor Panel that day.
As another example, on July 7, 2009, a Rabobank trader wrote to a former Rabobank yen LIBOR submitter: “looks like some ppl are talking with each other when they put libors down. . . quite surprised that 3m libors came down a lot.” The former submitter replied: “yes deffinite manipulation – always is tho to be honest mate. . . i always used to ask if anyone needed a favour and vise versa. . . . a little unethical but always helps to have friends in mrkt.”
By entering into a DPA with Rabobank, the Justice Department took several factors into consideration, including that Rabobank has no history of similar misconduct and has not been the subject of any criminal enforcement actions or any significant regulatory enforcement actions by any authority in the United States, the Netherlands, or elsewhere. In addition, Rabobank has significantly expanded and enhanced its legal and regulatory compliance program and has taken extensive steps to remediate the misconduct. Significant remedies and sanctions are also being imposed on Rabobank by several regulators and an additional criminal law enforcement agency (the Dutch Public Prosecution Service).
This ongoing investigation is being conducted by special agents, forensic accountants, and intelligence analysts of the FBI’s Washington Field Office. The prosecution of Rabobank is being handled by Assistant Chief Glenn S. Leon and Trial Attorney Alexander H. Berlin of the Criminal Division’s Fraud Section and Trial Attorneys Ludovic C. Ghesquiere, Michael T. Koenig and Eric L. Schleef of the Antitrust Division. Deputy Chiefs Daniel Braun and William Stellmach of the Criminal Division’s Fraud Section, Criminal Division Senior Counsel Rebecca Rohr, Assistant Chief Elizabeth B. Prewitt and Trial Attorney Richard A. Powers of the Antitrust Division’s New York Office, and Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut, along with Criminal Division’s Office of International Affairs, have provided valuable assistance in this matter.
The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the CFTC’s Division of Enforcement referred this matter to the department and, along with the FCA, has played a major role in the investigation. The department has also worked closely with the Dutch Public Prosecution Service and De Nederlandsche Bank (the Dutch Central Bank) in the investigation of Rabobank. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance. In particular, the Securities and Exchange Commission has played a significant role in the LIBOR investigation, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.
Tuesday, October 29, 2013
Rabobank Admits Wrongdoing in Libor Investigation, Agrees to Pay $325 Million Criminal Penalty
Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) has entered into an agreement with the Department of Justice to pay a $325 million penalty to resolve violations arising from Rabobank’s submissions for the London InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (Euribor), which are leading benchmark interest rates around the world, the Justice Department announced today.
A criminal information will be filed today in U.S. District Court for the District of Connecticut that charges Rabobank as part of a deferred prosecution agreement (DPA). The information charges Rabobank with wire fraud for its role in manipulating the benchmark interest rates LIBOR and Euribor. In addition to the $325 million penalty, the DPA requires the bank to admit and accept responsibility for its misconduct as described in an extensive statement of facts. Rabobank has agreed to continue cooperating with the Justice Department in its ongoing investigation of the manipulation of benchmark interest rates by other financial institutions and individuals.
“For years, employees at Rabobank, often working with traders at other banks around the globe, illegally manipulated four different interest rates – Euribor and LIBOR for the U.S. dollar, the yen, and the pound sterling – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank’s counterparties,” said Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division. “Today’s criminal resolution – which represents the second-largest penalty in the Criminal Division’s active, ongoing investigation of the manipulation of global benchmark interest rates by some of the largest banks in the world – comes fast on the heels of charges brought against three former ICAP brokers just last month. Rabobank is the fourth major financial institution that has admitted its misconduct in this wide-ranging criminal investigation, and other banks should pay attention: our investigation is far from over.”
“Rabobank rigged multiple benchmark rates, allowing its traders to reap higher profits at the expense of their unsuspecting counterparties,” said Deputy Assistant Attorney General Leslie C. Overton of the Justice Department’s Antitrust Division. “Not only was this conduct fraudulent, it compromised the integrity of globally-used interest rate benchmarks – undermining financial markets worldwide.”
“Rabobank admitted to manipulating LIBOR and Euribor submissions which directly affected the rates referenced by financial products held by and on behalf of companies and investors around the world,” said Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office. “Rabobank’s actions resulted in the deliberate harm to counterparties holding products referencing the manipulated rates. Today’s announcement is yet another example of the tireless efforts of the FBI special agents and forensic accountants who are dedicated to investigating complex fraud schemes and, together with prosecutors, bringing to justice those who participate in such schemes.”
Together with approximately $740 million in criminal and regulatory penalties imposed by other agencies in actions arising out of the same conduct – $475 million by the Commodity Futures Trading Commission (CFTC) action, $170 million by the U.K. Financial Conduct Authority (FCA) action and approximately $96 million by the Openbaar Ministerie (the Dutch Public Prosecution Service) – the Justice Department’s $325 million criminal penalty brings the total amount to be paid by Rabobank to more than $1 billion.
According to signed documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world and reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.
LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London. At the time relevant to the conduct in the criminal information, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA. From at least 2005 through 2011, Rabobank was a member of the Contributor Panel for a number of currencies, including United States dollar (dollar) LIBOR, pound sterling LIBOR, and yen LIBOR.
The Euro Interbank Offered Rate (Euribor) is published by the European Banking Federation (EBF), which is based in Brussels, Belgium, and is calculated at 15 maturities, ranging from overnight to one year. Euribor is the rate at which Euro interbank term deposits within the Euro zone are expected to be offered by one prime bank to another at 11:00 a.m. Brussels time. The Euribor at a given maturity is the result of a calculation based upon submissions from Euribor Contributor Panel banks. From at least 2005 through 2011, Rabobank was also a member of the Contributor Panel for Euribor.
According to the statement of facts accompanying the agreement, from as early as 2005 through at least November 2010, certain Rabobank derivatives traders requested that certain Rabobank dollar LIBOR, yen LIBOR, pound sterling LIBOR, and Euribor submitters submit LIBOR and Euribor contributions that would benefit the traders’ trading positions, rather than rates that complied with the definitions of LIBOR and Euribor.
In addition, according to the statement of facts accompanying the agreement, from as early as January 2006 through October 2008, a Rabobank yen LIBOR submitter and a Rabobank Euribor submitter had two separate agreements with traders at other banks to make yen LIBOR and Euribor submissions that benefitted trading positions, rather than submissions that complied with the definitions of LIBOR and Euribor.
The Rabobank LIBOR and Euribor submitters accommodated traders’ requests on numerous occasions, and on various occasions, Rabobank’s submissions affected the fixed rates.
According to the statement of facts, Rabobank employees engaged in this conduct through electronic communications, which included both emails and electronic chats. For example, on Sept. 21, 2007, a Rabobank Yen derivatives trader emailed the Rabobank Yen LIBOR submitter at the time with the subject line “libors,” writing: “Wehre do you think today’s libors are? If you can, I would like 1mth libors higher today.” The submitter replied: “Bookies reckon 1m sets at .85.” The trader wrote back: “I have some fixings in 1 mth so would appreciate if you can put it higher mate.” The submitter replied: “No prob mate let me know your level.” The trader responded: “Wud be nice if you could put 0.90% for 1mth cheers.” The submitter wrote back: “Sure no prob. I’ll probably get a few phone calls but no worries mate!” The trader replied: “If you may get a few phone calls then put 0.88% then.” The submitter responded: “Don’t worry mate – there’s bigger crooks in the market than us guys!” That day, as requested, Rabobank’s 1-month Yen LIBOR submission was 0.90, an increase of seven basis points from its previous submission, whereas the other panel banks’ submissions decreased by approximately a half of a basis point on average. Rabobank’s submission went from being tied as the tenth highest submission on the Contributor Panel on the previous day to being the highest submission on the Contributor Panel.
On Nov. 29, 2006, a Rabobank dollar derivatives trader wrote to Rabobank’s Global Head of Liquidity and Finance and the head of Rabobank’s money markets desk in London, who supervised rate submitters: “Hi mate, low 1s high 3s LIBOR pls !!! Dont tell [another Rabobank U.S. Dollar derivatives trader] haa haaaaaaa. Sold the market today doooooohhhh!” The money markets desk head replied: “ok mate , will do my best …speak later.” After the LIBOR submissions that day, Rabobank’s ranking compared to other panel banks dropped as to 1-month dollar LIBOR and rose as to 3-month dollar LIBOR. Two days later, on Dec. 1, 2006, the trader again wrote to the money markets desk head: “Appreciate 3s go down, but a high 3s today would be nice… cheers chief.” The money markets desk head wrote back: “I am fast turning into your LIBOR bitch!!!!” The trader replied: “Just friendly encouragement that’s all , appreciate the help.” The money markets desk head wrote back: “No worries mate , glad to help ….We just stuffed ourselves with good ol pie , mash n licker !!”
In an example of an agreement with traders at other banks, on July 28, 2006, a Rabobank rate submitter and Rabobank trader discussed their mutual desires for a high fixing. The submitter stated to the trader: “setting a high 1m again today - I need it!” to which the trader responded: “yes pls mate…I need a higher 1m libor too.” Within approximately 20 minutes, the submitter contacted a trader at another Contributor Panel bank and wrote: “morning skipper.....will be setting an obscenely high 1m again today...poss 38 just fyi.” The other bank’s trader responded, “(K)...oh dear..my poor customers....hehehe!! manual input libors again today then!!!!” Both banks’ submissions on July 28 moved up one basis point, from 0.37 to 0.38, a move which placed their submissions as the second highest submissions on the Contributor Panel that day.
As another example, on July 7, 2009, a Rabobank trader wrote to a former Rabobank yen LIBOR submitter: “looks like some ppl are talking with each other when they put libors down. . . quite surprised that 3m libors came down a lot.” The former submitter replied: “yes deffinite manipulation – always is tho to be honest mate. . . i always used to ask if anyone needed a favour and vise versa. . . . a little unethical but always helps to have friends in mrkt.”
By entering into a DPA with Rabobank, the Justice Department took several factors into consideration, including that Rabobank has no history of similar misconduct and has not been the subject of any criminal enforcement actions or any significant regulatory enforcement actions by any authority in the United States, the Netherlands, or elsewhere. In addition, Rabobank has significantly expanded and enhanced its legal and regulatory compliance program and has taken extensive steps to remediate the misconduct. Significant remedies and sanctions are also being imposed on Rabobank by several regulators and an additional criminal law enforcement agency (the Dutch Public Prosecution Service).
This ongoing investigation is being conducted by special agents, forensic accountants, and intelligence analysts of the FBI’s Washington Field Office. The prosecution of Rabobank is being handled by Assistant Chief Glenn S. Leon and Trial Attorney Alexander H. Berlin of the Criminal Division’s Fraud Section and Trial Attorneys Ludovic C. Ghesquiere, Michael T. Koenig and Eric L. Schleef of the Antitrust Division. Deputy Chiefs Daniel Braun and William Stellmach of the Criminal Division’s Fraud Section, Criminal Division Senior Counsel Rebecca Rohr, Assistant Chief Elizabeth B. Prewitt and Trial Attorney Richard A. Powers of the Antitrust Division’s New York Office, and Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut, along with Criminal Division’s Office of International Affairs, have provided valuable assistance in this matter.
The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the CFTC’s Division of Enforcement referred this matter to the department and, along with the FCA, has played a major role in the investigation. The department has also worked closely with the Dutch Public Prosecution Service and De Nederlandsche Bank (the Dutch Central Bank) in the investigation of Rabobank. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance. In particular, the Securities and Exchange Commission has played a significant role in the LIBOR investigation, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.
Friday, September 27, 2013
ICAP BROKERS FACE FELONY CHARGES FOR ALLEGED LONG-RUNNING MANIPULATION OF LIBOR INTEREST RATES
FROM: U.S. JUSTICE DEPARTMENT
WASHINGTON — Two former derivatives brokers and a former cash broker employed by London-based brokerage firm ICAP were charged as part of the ongoing criminal investigation into the manipulation of the London Interbank Offered Rate (LIBOR), the Justice Department announced today.
Darrell Read, who resides in New Zealand, and Daniel Wilkinson and Colin Goodman, both of England, were charged with conspiracy to commit wire fraud and two counts of wire fraud in a criminal complaint unsealed in Manhattan federal court earlier today. They each face a maximum penalty of 30 years in prison for each count upon conviction.
“By allegedly participating in a scheme to manipulate benchmark interest rates for financial gain, these defendants undermined the integrity of the global markets,” said Attorney General Eric Holder. “They were supposed to be honest brokers, but instead, they put their own financial interests ahead of that larger responsibility. And as a result, transactions and financial products around the world were compromised, because they were tied to a rate that was distorted due to the brokers’ dishonesty. These charges underscore the Justice Department’s determination to hold accountable all those whose conduct threatens the integrity of our financial markets.”
“These three men are accused of repeatedly and deliberately spreading false information to banks and investors around the world in order to fraudulently move the market and help their client fleece his counterparties,” said Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division. “Our criminal investigation of the manipulation of LIBOR by some of the largest banks in the world has led us from New York to London, to Tokyo, and other financial hubs around the globe. These important charges are just the latest law-enforcement action in the Criminal Division and Antitrust Division’s global LIBOR investigation, and reflect the Department’s continued dedication to detecting, and prosecuting, financial fraudsters who affect U.S. markets, whether they work at a bank, or a brokerage, and whether they carry out their fraud from a desk in the United States, or abroad.”
“The complaint unsealed today charges Colin Goodman, Daniel Wilkinson and Darrell Read for conspiring to manipulate benchmark interest rates that determined the profitability of their client’s trades,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “In exchange for bigger bonus checks, the three defendants undermined financial markets around the world by compromising the integrity of globally used interest rate benchmarks. The Department continues to demonstrate its commitment to protecting the interest of American citizens in free and fair financial markets.”
“Corporate and securities fraud involving the manipulation of these rates causes a worldwide impact on trading positions and erodes the integrity of the market and confidence in Wall Street,” said Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office. “Unraveling such complex financial schemes is difficult and time consuming. Today’s charges are the result of the hard work of the FBI special agents and forensic accountants who dedicated significant time and resources to investigating this case.”
According to the criminal complaint, LIBOR is an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London. At the time relevant to the criminal complaint, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The published LIBOR “fix” for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the contributor panel) selected by the BBA.
LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were estimated at approximately $450 trillion.
According to allegations in the criminal complaint filed in this case, between July 2006 and September 2010, Wilkinson was a desk director employed in the London office of ICAP, where he supervised a group of derivatives brokers – including Read – specializing in Yen-based financial products. Generally, the desk’s clients were derivatives traders at large financial institutions, and the transactions brokered by Wilkinson, Read and others on the desk essentially consisted of bets between traders on the direction in which Yen LIBOR would move. Between July 2006 and September 2009, the desk’s largest client was a senior trader at UBS (UBS Trader) in Tokyo, to whom Read spoke almost daily. Because of the large size of the client’s trading positions, even slight moves of a fraction of a percent in Yen LIBOR could generate large profits. For example, UBS Trader once told Read that a 0.01 percent – or one basis point – movement in the final Yen LIBOR fixing on a specific date could result in $3 million profit for his trading positions. A significant part of both Read’s and Wilkinson’s compensation was tied to the brokerage fees generated by UBS Trader and paid to ICAP.
Goodman was a cash broker at ICAP’s London office during the relevant time period. In addition to brokering cash transactions, Goodman distributed a daily email to individuals outside of ICAP, including derivatives traders at several large banks as well as those responsible for providing the BBA with LIBOR submissions at certain banks. Goodman’s email contained what was termed his “SUGGESTED LIBORS,” purported predictions of where Yen LIBOR ultimately would fix each day across eight specified borrowing periods. Read and Wilkinson, along with Goodman himself, often referred to Goodman as “lord libor.”
The complaint alleges that Read, Wilkinson and Goodman, together with UBS Trader, executed a sustained and systematic scheme to move Yen LIBOR in a direction favorable to UBS Trader’s trading positions.
According to the criminal complaint, the primary strategy employed by Read, Wilkinson and Goodman to execute the scheme was to use Goodman’s “SUGGESTED LIBORS” email to disseminate misinformation to Yen LIBOR panel banks in hopes that the banks would rely on the misinformation when making their own respective Yen LIBOR submissions to the BBA for inclusion in the published fix. Rather than providing good faith predictions as to where Yen LIBOR would fix, Goodman instead often used his daily email to set forth predictions which benefitted UBS Trader’s trading positions.
Beginning in or about June 2007, Goodman was paid a bonus through the desk Wilkinson supervised, allegedly intended, at least in part, to reward Goodman for his role in their effort to influence and manipulate the published Yen LIBOR fix.
As a second strategy, Read and Wilkinson allegedly further agreed to contact interest rate derivatives traders and submitters employed at Yen LIBOR panel banks in an effort to cause them to make false and misleading submissions to the BBA at UBS Trader’s behest.
As alleged in the charging document, Read, Wilkinson, Goodman, UBS Trader, and other co-conspirators often executed their scheme through electronic chats and email exchanges. For example, on June 28, 2007, in an email message, Read told Wilkinson: “DAN THIS IS GETTING SERIOUS [UBS TRADER] IS NOT HAPPY WITH THE WAY THINGS ARE PROGRESSING . . . CAN YOU PLEASE GET HOLD OF COLIN AND GET HIM TO SEND OUT 6 MOS LIBOR AT 0.865 AND TO GET HIS BANKS SETTING IT HIGH. THIS IS VERY IMPORTANT BECAUSE [UBS TRADER] IS QUESTIONING MY (AND OUR) WORTH.”
The complaint alleges that the defendants were aware of the effects that Goodman’s false and fraudulent “SUGGESTED LIBORS” had on submissions by Yen LIBOR panel banks. For example, on Nov. 20, 2008, Read asked UBS Trader, “you have a really big fix tonight I believe? if Colin sends out 6m at a more realistic level than 1.10 [%] i reckon [the two panel banks] will parrot him, it might mean 6m coming down a bit.” On the following day, Nov. 21, 2008, Goodman moved his suggestion for 6-month Yen LIBOR down by nine basis points. The two other banks mirrored Goodman’s suggestion, moving their 6-month Yen LIBOR submissions down by nine basis points.
According to allegations in the complaint, Read counseled UBS Trader how to most effectively manipulate Yen LIBOR. For example, UBS Trader told Read in a July 22, 2009, electronic chat that “11th aug is the big date...i still have lots of 6m fixings till the 10th.” Read responded to UBS Trader, “if you drop [UBS’s] 6m dramatically on the 11th mate, it will look v fishy... . I’d be v careful how you play it, there might be cause for a drop as you cross into a new month but a couple of weeks in might get people questioning you.” UBS Trader replied, “don’t worry will stagger the drops...ie 5bp then 5bp,” and Read told UBS Trader, “ok mate, don’t want you getting into [expletive].” UBS Trader again assured Read that UBS and two additional panel banks would stagger their drops in coordination, and Read concluded, “great the plan is hatched and sounds sensible.”
A criminal complaint is a formal accusation of criminal conduct, not evidence. A defendant is presumed innocent unless and until convicted.
The investigation is being conducted by special agents, forensic accountants, and intelligence analysts of the FBI’s Washington Field Office. The prosecution is being handled by Deputy Chief William Stellmach and Trial Attorney Sandra L. Moser of the Criminal Division’s Fraud Section and Trial Attorneys Eric Schleef and Kristina Srica of the Antitrust Division. Trial Attorneys Alexander Berlin and Thomas B.W. Hall, Law Clerk Andrew Tyler, and Paralegal Specialist Kevin Sitarski of the Criminal Division’s Fraud Section, along with Assistant Chief Elizabeth Prewitt and Trial Attorney Richard Powers of the Antitrust Division, and former Trial Attorney Luke Marsh have also provided valuable assistance. The Criminal Division’s Office of International Affairs has provided assistance in this matter as well.
The broader investigation relating to LIBOR and other benchmark rates has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the Department and, along with the U.K. Financial Conduct Authority, has played a major role in the investigation. The Securities and Exchange Commission has also provided valuable assistance for which the Department is grateful. The Department also expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation, and the Department is grateful for their cooperation and assistance as well.
Finally, the Department acknowledges ICAP’s continuing cooperation in the Department’s ongoing investigation.
This prosecution 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.
WASHINGTON — Two former derivatives brokers and a former cash broker employed by London-based brokerage firm ICAP were charged as part of the ongoing criminal investigation into the manipulation of the London Interbank Offered Rate (LIBOR), the Justice Department announced today.
Darrell Read, who resides in New Zealand, and Daniel Wilkinson and Colin Goodman, both of England, were charged with conspiracy to commit wire fraud and two counts of wire fraud in a criminal complaint unsealed in Manhattan federal court earlier today. They each face a maximum penalty of 30 years in prison for each count upon conviction.
“By allegedly participating in a scheme to manipulate benchmark interest rates for financial gain, these defendants undermined the integrity of the global markets,” said Attorney General Eric Holder. “They were supposed to be honest brokers, but instead, they put their own financial interests ahead of that larger responsibility. And as a result, transactions and financial products around the world were compromised, because they were tied to a rate that was distorted due to the brokers’ dishonesty. These charges underscore the Justice Department’s determination to hold accountable all those whose conduct threatens the integrity of our financial markets.”
“These three men are accused of repeatedly and deliberately spreading false information to banks and investors around the world in order to fraudulently move the market and help their client fleece his counterparties,” said Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division. “Our criminal investigation of the manipulation of LIBOR by some of the largest banks in the world has led us from New York to London, to Tokyo, and other financial hubs around the globe. These important charges are just the latest law-enforcement action in the Criminal Division and Antitrust Division’s global LIBOR investigation, and reflect the Department’s continued dedication to detecting, and prosecuting, financial fraudsters who affect U.S. markets, whether they work at a bank, or a brokerage, and whether they carry out their fraud from a desk in the United States, or abroad.”
“The complaint unsealed today charges Colin Goodman, Daniel Wilkinson and Darrell Read for conspiring to manipulate benchmark interest rates that determined the profitability of their client’s trades,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “In exchange for bigger bonus checks, the three defendants undermined financial markets around the world by compromising the integrity of globally used interest rate benchmarks. The Department continues to demonstrate its commitment to protecting the interest of American citizens in free and fair financial markets.”
“Corporate and securities fraud involving the manipulation of these rates causes a worldwide impact on trading positions and erodes the integrity of the market and confidence in Wall Street,” said Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office. “Unraveling such complex financial schemes is difficult and time consuming. Today’s charges are the result of the hard work of the FBI special agents and forensic accountants who dedicated significant time and resources to investigating this case.”
According to the criminal complaint, LIBOR is an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London. At the time relevant to the criminal complaint, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The published LIBOR “fix” for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the contributor panel) selected by the BBA.
LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were estimated at approximately $450 trillion.
According to allegations in the criminal complaint filed in this case, between July 2006 and September 2010, Wilkinson was a desk director employed in the London office of ICAP, where he supervised a group of derivatives brokers – including Read – specializing in Yen-based financial products. Generally, the desk’s clients were derivatives traders at large financial institutions, and the transactions brokered by Wilkinson, Read and others on the desk essentially consisted of bets between traders on the direction in which Yen LIBOR would move. Between July 2006 and September 2009, the desk’s largest client was a senior trader at UBS (UBS Trader) in Tokyo, to whom Read spoke almost daily. Because of the large size of the client’s trading positions, even slight moves of a fraction of a percent in Yen LIBOR could generate large profits. For example, UBS Trader once told Read that a 0.01 percent – or one basis point – movement in the final Yen LIBOR fixing on a specific date could result in $3 million profit for his trading positions. A significant part of both Read’s and Wilkinson’s compensation was tied to the brokerage fees generated by UBS Trader and paid to ICAP.
Goodman was a cash broker at ICAP’s London office during the relevant time period. In addition to brokering cash transactions, Goodman distributed a daily email to individuals outside of ICAP, including derivatives traders at several large banks as well as those responsible for providing the BBA with LIBOR submissions at certain banks. Goodman’s email contained what was termed his “SUGGESTED LIBORS,” purported predictions of where Yen LIBOR ultimately would fix each day across eight specified borrowing periods. Read and Wilkinson, along with Goodman himself, often referred to Goodman as “lord libor.”
The complaint alleges that Read, Wilkinson and Goodman, together with UBS Trader, executed a sustained and systematic scheme to move Yen LIBOR in a direction favorable to UBS Trader’s trading positions.
According to the criminal complaint, the primary strategy employed by Read, Wilkinson and Goodman to execute the scheme was to use Goodman’s “SUGGESTED LIBORS” email to disseminate misinformation to Yen LIBOR panel banks in hopes that the banks would rely on the misinformation when making their own respective Yen LIBOR submissions to the BBA for inclusion in the published fix. Rather than providing good faith predictions as to where Yen LIBOR would fix, Goodman instead often used his daily email to set forth predictions which benefitted UBS Trader’s trading positions.
Beginning in or about June 2007, Goodman was paid a bonus through the desk Wilkinson supervised, allegedly intended, at least in part, to reward Goodman for his role in their effort to influence and manipulate the published Yen LIBOR fix.
As a second strategy, Read and Wilkinson allegedly further agreed to contact interest rate derivatives traders and submitters employed at Yen LIBOR panel banks in an effort to cause them to make false and misleading submissions to the BBA at UBS Trader’s behest.
As alleged in the charging document, Read, Wilkinson, Goodman, UBS Trader, and other co-conspirators often executed their scheme through electronic chats and email exchanges. For example, on June 28, 2007, in an email message, Read told Wilkinson: “DAN THIS IS GETTING SERIOUS [UBS TRADER] IS NOT HAPPY WITH THE WAY THINGS ARE PROGRESSING . . . CAN YOU PLEASE GET HOLD OF COLIN AND GET HIM TO SEND OUT 6 MOS LIBOR AT 0.865 AND TO GET HIS BANKS SETTING IT HIGH. THIS IS VERY IMPORTANT BECAUSE [UBS TRADER] IS QUESTIONING MY (AND OUR) WORTH.”
The complaint alleges that the defendants were aware of the effects that Goodman’s false and fraudulent “SUGGESTED LIBORS” had on submissions by Yen LIBOR panel banks. For example, on Nov. 20, 2008, Read asked UBS Trader, “you have a really big fix tonight I believe? if Colin sends out 6m at a more realistic level than 1.10 [%] i reckon [the two panel banks] will parrot him, it might mean 6m coming down a bit.” On the following day, Nov. 21, 2008, Goodman moved his suggestion for 6-month Yen LIBOR down by nine basis points. The two other banks mirrored Goodman’s suggestion, moving their 6-month Yen LIBOR submissions down by nine basis points.
According to allegations in the complaint, Read counseled UBS Trader how to most effectively manipulate Yen LIBOR. For example, UBS Trader told Read in a July 22, 2009, electronic chat that “11th aug is the big date...i still have lots of 6m fixings till the 10th.” Read responded to UBS Trader, “if you drop [UBS’s] 6m dramatically on the 11th mate, it will look v fishy... . I’d be v careful how you play it, there might be cause for a drop as you cross into a new month but a couple of weeks in might get people questioning you.” UBS Trader replied, “don’t worry will stagger the drops...ie 5bp then 5bp,” and Read told UBS Trader, “ok mate, don’t want you getting into [expletive].” UBS Trader again assured Read that UBS and two additional panel banks would stagger their drops in coordination, and Read concluded, “great the plan is hatched and sounds sensible.”
A criminal complaint is a formal accusation of criminal conduct, not evidence. A defendant is presumed innocent unless and until convicted.
The investigation is being conducted by special agents, forensic accountants, and intelligence analysts of the FBI’s Washington Field Office. The prosecution is being handled by Deputy Chief William Stellmach and Trial Attorney Sandra L. Moser of the Criminal Division’s Fraud Section and Trial Attorneys Eric Schleef and Kristina Srica of the Antitrust Division. Trial Attorneys Alexander Berlin and Thomas B.W. Hall, Law Clerk Andrew Tyler, and Paralegal Specialist Kevin Sitarski of the Criminal Division’s Fraud Section, along with Assistant Chief Elizabeth Prewitt and Trial Attorney Richard Powers of the Antitrust Division, and former Trial Attorney Luke Marsh have also provided valuable assistance. The Criminal Division’s Office of International Affairs has provided assistance in this matter as well.
The broader investigation relating to LIBOR and other benchmark rates has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the Department and, along with the U.K. Financial Conduct Authority, has played a major role in the investigation. The Securities and Exchange Commission has also provided valuable assistance for which the Department is grateful. The Department also expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation, and the Department is grateful for their cooperation and assistance as well.
Finally, the Department acknowledges ICAP’s continuing cooperation in the Department’s ongoing investigation.
This prosecution 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.
Monday, April 22, 2013
CFTC CHAIRMAN GENSLER'S REMARKS ON BENCHMARK INTEREST RATES
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
Remarks of Chairman Gary Gensler at London City Week on Benchmark Interest Rates
April 22, 2013
Good afternoon. Thank you, Anthony, for that kind introduction. I’m honored to be joining you for City Week.
I’d like to talk about one of the most significant risks facing the capital markets today. That is the risk to market integrity as well as financial stability of the continued use of LIBOR, Euribor and similar benchmark interest rates.
Given their fundamental role in the capital markets and our economy, such benchmark rates must be based on facts, not fiction.
Coordinating with the FCA
The U.K. Financial Conduct Authority (FCA) (along with its predecessor the Financial Services Authority (FSA)) and Martin Wheatley have been valued partners of the U.S. Commodity Futures Trading Commission (CFTC) on this matter.
The CFTC initiated an investigation in 2008 related to the London Interbank Offered Rate (LIBOR). It is the reference rate for 70 percent of the U.S. futures market. It is also referenced by over half of the swaps market, which the CFTC was recently tasked to oversee.
The FCA has been instrumental in the CFTC’s investigations, leading to charges against Barclays and other banks for manipulative conduct regarding LIBOR and similar benchmarks.
Following the Barclays announcement, the international community asked Martin Wheatley and me to co-chair the International Organization of Securities Commissions (IOSCO) Task Force on Financial Market Benchmarks.
Last week, the task force published its second consultation paper outlining a set of international principles to enhance the integrity, reliability and oversight of benchmarks.
The IOSCO principles state that for benchmarks to be robust and reliable, among other things, they must have two essential elements: be anchored in observable transactions and supported by appropriate governance structures.
The IOSCO report further notes that in order to provide confidence that the price discovery system is reliable, benchmarks must be based on prices and rates formed by the competitive forces of supply and demand entered into at arm’s length between buyers and sellers in the market.
Unsecured, Interbank Market: Essentially Nonexistent
LIBOR, Euribor and similar interest rate benchmarks purport to represent the rate at which unsecured borrowing occurs between large banks.
The challenge we face, however, is that banks simply are not lending to each other as they once did. As Mervyn King, governor of the Bank of England, said in 2008 of LIBOR: "It is, in many ways, the rate at which banks do not lend to each other." He went on further to say: "[I]t is not a rate at which anyone is actually borrowing."
The lack of transactions in the unsecured, interbank lending market along with weak governance structures for related benchmarks undermines market integrity.
The dearth of transactions in this market is a result of many factors: the 2008 crisis, the continuing European debt crisis, the downgrading of large banks’ credit ratings, as well as central banks providing significant funding directly to banks.
There has been a significant structural shift in how financial market participants finance their balance sheets and trading positions. There is an increasing move from borrowing unsecured (without posting collateral) toward borrowings that are secured by posting collateral. In particular, this shift has occurred within the funding markets between banks.
In the aftermath of the financial crisis, for understandable reasons, banks have been hesitant to take on each other’s credit risk.
Recent changes to Basel capital rules further suggest that banks are unlikely to return to interbank lending on an unsecured basis.
Basel III includes a new asset correlation factor, which requires additional capital when a bank is exposed to another bank. This was included in the new standards to reduce financial system interconnectedness.
Basel III also includes a new requirement called the liquidity coverage ratio (LCR). Banks will have to hold a sufficient amount of high quality liquid assets to cover their projected net outflows over 30 days.
A number of major banks have indicated that this new LCR requirement alone would make it prohibitively expensive for banks to lend to each other in the interbank market for tenors greater than 30 days. Thus, it is unlikely that banks will return to the days when they would lend to each other for three months, six months or a year.
The shift away from banks funding each other in the unsecured market has led to a scarcity or outright absence of actual transactions underpinning LIBOR and other interest rate benchmarks.
Enforcement Actions
This situation – having benchmark rates that are not anchored in actual transactions – undermines market integrity and leaves the financial system with benchmarks that are prone to misconduct.
Further, significant incentives for misconduct exist when hundreds of trillions of dollars of financial instruments reference benchmarks based on essentially nonexistent markets.
Indeed, as law enforcement actions brought by the CFTC, the FCA and the U.S. Justice Department, among others, have shown, LIBOR and other benchmark rates have been readily and pervasively rigged.
Barclays, UBS and RBS paid fines of approximately $2.5 billion for manipulative conduct relating to these rates.
At each bank, the misconduct spanned many years.
At each bank it took place in offices in several cities around the globe.
At each bank it included numerous people – sometimes dozens, among them senior management.
Each case involved multiple benchmark rates and currencies. In one case, there were over 2,000 instances of misconduct during a six-year period.
And in each case, there was evidence of collusion with other banks.
In the UBS and RBS cases, one or more inter-dealer brokers painted false pictures to influence submissions of other banks, i.e., to spread the falsehoods more widely.
Barclays and UBS also were reporting falsely low borrowing rates in an effort to protect their reputations.
Thus we find ourselves in a situation where there are both the incentives and ability to manipulate a critical rate in our markets.
Market Data
Beyond these cases, there is a significant amount of publicly available market data that calls into question the integrity of LIBOR today.
Let’s take a look at what happened just in the last few weeks as the Cyprus crisis infected the Eurozone. Here is a view of one Eurozone bank’s one-year credit default swap (CDS) spread versus that same bank’s daily submissions to the U.S. dollar LIBOR panel (Slide 1).
The bank’s CDS spread, one market measure of its credit risk, widened dramatically. The bank, however, didn’t change its submission as to where it could borrow from other banks. Though CDS trade in a different market and are for a bank’s holding company, the disconnect, as shown in this slide, raises questions about the credibility of LIBOR.
In Slide 2, we look at the average of all five Eurozone banks that submit to LIBOR. The picture is similar.
Next, let’s turn to the volatility of three-month U.S. dollar LIBOR in comparison with the volatility of other short-term interest rates. LIBOR, the blue line, is far more stable than any other comparable rate. Other short-term rates have much higher volatility (Slide 3).
Also of note, is that the 18 banks submitting to U.S. dollar LIBOR collectively did not change their submissions on 85 percent of the 252 submission days in 2012. You can see in Slide 4 just how few times the banks actually changed their submissions over the course of last year.
In fact, some of the banks didn’t change their submissions for four to five straight months. This was during a period when there were a number of uncertainties in the market driven by elections, changing economic outlook and other events. And yet somehow these banks said they could still borrow at exactly the same rate for four to five months. Slide 5 represents the longest consecutive period last year that the submissions remained unchanged.
Taking another look at CDS spreads versus LIBOR submissions, this time over the last three years, highlights another query. As we see in Slides 6 and 7, during significant market upheavals in the second half of 2011, the market’s views of these two banks’ credit risk changed dramatically. Yet their LIBOR submissions moved only modestly.
While we’re done with slides today, two last points reflected in market data:
There is a well-known concept in finance called interest rate parity, basically that currency forward rates will align with interest rates in two different economies. Since the financial crisis, that has not been the case, whether looking at the dollar versus the euro, sterling or yen. Theory hasn’t been aligning with practice. The borrowing rate implied in the currency markets is quite different than LIBOR.
Lastly, why are the results of two leading interbank benchmark surveys – one done for LIBOR and the other for Euribor – so different when each asks about U.S, dollar borrowing? The same difference occurs in the surveys for euro borrowing. These rates are calculated on the basis of the banks’ answers to roughly the same question. For LIBOR, a bank is asked at what rate it thinks it can borrow, while for Euribor, a bank is asked at what rate it thinks other banks are able to borrow.
Promoting Market Integrity and Financial Stability
Whether we consider the broad structural shift away from unsecured, interbank lending; the recent enforcement actions; or questions that arise from current market data, I believe that LIBOR, Euribor and other similar interest rate benchmarks are unsustainable in the long run.
These benchmarks – referencing markets with insufficient transactions, particularly in longer tenors – undermine market integrity and threaten financial stability.
Market integrity
For capital and risk to be efficiently allocated within the economy, interest rate benchmarks should reflect actual price discovery anchored in observable transactions.
Without transactions in the underlying market, the situation is similar to trying to buy a house, when your estate agent can’t give you comparable transaction prices in the neighborhood – because no houses were sold in the neighborhood in years.
As IOSCO notes, a benchmark should derive its value from the competitive forces of buyers and sellers meeting in an underlying cash market.
Derivatives derive their value from an underlying cash market. Market integrity dictates that whether that underlying cash market is oil, corn or the rate at which banks are borrowing, it must be based on something that is real. It should be anchored in observable transactions.
Further, these rates were readily and pervasively rigged in the past, and incentives for and ability to rig it in the future remain.
When market integrity is compromised, this also undermines the public’s confidence in the financial system.
Financial stability
The financial system’s reliance on interest rate benchmarks, such as LIBOR and Euribor, leaves the system in a fragile state.
Further, continuing to support LIBOR and Euribor in the name of stability may have the opposite effect. Using benchmarks that threaten market integrity may create more instability in the long run.
Given the structural changes in the interbank market, a number of banks have withdrawn from Euribor and some other interest rate benchmarks. Though IOSCO’s task force recommends that users of benchmarks have robust fallback provisions in contracts, many contracts do not currently have such fallback provisions. Thus, there is a risk to financial stability absent a planned, smooth and orderly transition.
I believe to promote market integrity as well as financial stability, we must move forward in a coordinated global effort to identify alternative interest rate benchmarks anchored in observable transactions and plan a smooth and orderly transition from benchmarks referencing unsecured, interbank markets.
Moving Forward
There is no doubt there will be challenges to transitioning from these rates.
But the market does have experience with transitioning from benchmarks that have become obsolete in the past. When the euro was created, a number of interest rate benchmarks were discontinued. How many of you remember PIBOR, RIBOR, MIBOR and FIBOR? Transitions also have occurred for energy and shipping rate benchmarks.
Further Canadian dollar LIBOR and Australian dollar LIBOR will be discontinued this year, leading to necessary transitions in those markets.
The basic components of past transitions include: first, identifying a new and reliable benchmark, one that is anchored in transactions.
Market participants and regulators are currently considering alternative interest rate benchmarks anchored in observable transactions. For instance, the Bank of International Settlements’ (BIS) Economic Consultative Committee’s March report lists possible alternatives anchored in observable transactions: the overnight swaps rate (OIS) and short-term collateralized financing rates such as general collateral repo rates (GC repo).
Second, the new and existing benchmarks run in parallel for a period of time allowing market participants to see and compare the price or rate of the alternative benchmark versus the soon-to-be-discontinued benchmark. This period of the two benchmarks running in parallel has been used to facilitate a smooth transition.
Third, a date is announced well in advance of when the old or obsolete benchmark will be discontinued.
Conclusion
While ongoing international efforts targeting benchmarks have focused on governance principles, these efforts cannot address the central vulnerability of LIBOR, Euribor and similar interest rate benchmarks: the lack of transactions in the underlying market.
Given the known issues with these benchmarks, their scale and effect on market integrity, it is critical that international regulators work with market participants to promptly identify alternative interest rate benchmarks anchored in observable transactions with appropriate governance, as well as determine how to best smoothly transition to such alternatives.
Just as Canadian dollar LIBOR and Australian dollar LIBOR are being discontinued due to the lack of an underlying interbank market, U.S. dollar, sterling, yen and euro LIBOR face similar underlying market challenges. The scope, as we all know, is bigger.
But it’s best that we not fall prey to accepting that LIBOR or any benchmark is "too big to replace."
Just imagine if the quality and integrity of the drinking water across the globe had been compromised. Then, the official sector and the utilities react by addressing the problem in Australia and Canada, but not in England or the United States. They say that there are too many people relying on the current drinking water in those countries.
If this were to occur, how could the public be confident in continuing to drink this water?
I believe market participants and regulators around the globe do have the ability and the ingenuity to tackle the challenges of benchmark interest rates, even in the face of their scale, to restore integrity and promote financial stability.
Remarks of Chairman Gary Gensler at London City Week on Benchmark Interest Rates
April 22, 2013
Good afternoon. Thank you, Anthony, for that kind introduction. I’m honored to be joining you for City Week.
I’d like to talk about one of the most significant risks facing the capital markets today. That is the risk to market integrity as well as financial stability of the continued use of LIBOR, Euribor and similar benchmark interest rates.
Given their fundamental role in the capital markets and our economy, such benchmark rates must be based on facts, not fiction.
Coordinating with the FCA
The U.K. Financial Conduct Authority (FCA) (along with its predecessor the Financial Services Authority (FSA)) and Martin Wheatley have been valued partners of the U.S. Commodity Futures Trading Commission (CFTC) on this matter.
The CFTC initiated an investigation in 2008 related to the London Interbank Offered Rate (LIBOR). It is the reference rate for 70 percent of the U.S. futures market. It is also referenced by over half of the swaps market, which the CFTC was recently tasked to oversee.
The FCA has been instrumental in the CFTC’s investigations, leading to charges against Barclays and other banks for manipulative conduct regarding LIBOR and similar benchmarks.
Following the Barclays announcement, the international community asked Martin Wheatley and me to co-chair the International Organization of Securities Commissions (IOSCO) Task Force on Financial Market Benchmarks.
Last week, the task force published its second consultation paper outlining a set of international principles to enhance the integrity, reliability and oversight of benchmarks.
The IOSCO principles state that for benchmarks to be robust and reliable, among other things, they must have two essential elements: be anchored in observable transactions and supported by appropriate governance structures.
The IOSCO report further notes that in order to provide confidence that the price discovery system is reliable, benchmarks must be based on prices and rates formed by the competitive forces of supply and demand entered into at arm’s length between buyers and sellers in the market.
Unsecured, Interbank Market: Essentially Nonexistent
LIBOR, Euribor and similar interest rate benchmarks purport to represent the rate at which unsecured borrowing occurs between large banks.
The challenge we face, however, is that banks simply are not lending to each other as they once did. As Mervyn King, governor of the Bank of England, said in 2008 of LIBOR: "It is, in many ways, the rate at which banks do not lend to each other." He went on further to say: "[I]t is not a rate at which anyone is actually borrowing."
The lack of transactions in the unsecured, interbank lending market along with weak governance structures for related benchmarks undermines market integrity.
The dearth of transactions in this market is a result of many factors: the 2008 crisis, the continuing European debt crisis, the downgrading of large banks’ credit ratings, as well as central banks providing significant funding directly to banks.
There has been a significant structural shift in how financial market participants finance their balance sheets and trading positions. There is an increasing move from borrowing unsecured (without posting collateral) toward borrowings that are secured by posting collateral. In particular, this shift has occurred within the funding markets between banks.
In the aftermath of the financial crisis, for understandable reasons, banks have been hesitant to take on each other’s credit risk.
Recent changes to Basel capital rules further suggest that banks are unlikely to return to interbank lending on an unsecured basis.
Basel III includes a new asset correlation factor, which requires additional capital when a bank is exposed to another bank. This was included in the new standards to reduce financial system interconnectedness.
Basel III also includes a new requirement called the liquidity coverage ratio (LCR). Banks will have to hold a sufficient amount of high quality liquid assets to cover their projected net outflows over 30 days.
A number of major banks have indicated that this new LCR requirement alone would make it prohibitively expensive for banks to lend to each other in the interbank market for tenors greater than 30 days. Thus, it is unlikely that banks will return to the days when they would lend to each other for three months, six months or a year.
The shift away from banks funding each other in the unsecured market has led to a scarcity or outright absence of actual transactions underpinning LIBOR and other interest rate benchmarks.
Enforcement Actions
This situation – having benchmark rates that are not anchored in actual transactions – undermines market integrity and leaves the financial system with benchmarks that are prone to misconduct.
Further, significant incentives for misconduct exist when hundreds of trillions of dollars of financial instruments reference benchmarks based on essentially nonexistent markets.
Indeed, as law enforcement actions brought by the CFTC, the FCA and the U.S. Justice Department, among others, have shown, LIBOR and other benchmark rates have been readily and pervasively rigged.
Barclays, UBS and RBS paid fines of approximately $2.5 billion for manipulative conduct relating to these rates.
At each bank, the misconduct spanned many years.
At each bank it took place in offices in several cities around the globe.
At each bank it included numerous people – sometimes dozens, among them senior management.
Each case involved multiple benchmark rates and currencies. In one case, there were over 2,000 instances of misconduct during a six-year period.
And in each case, there was evidence of collusion with other banks.
In the UBS and RBS cases, one or more inter-dealer brokers painted false pictures to influence submissions of other banks, i.e., to spread the falsehoods more widely.
Barclays and UBS also were reporting falsely low borrowing rates in an effort to protect their reputations.
Thus we find ourselves in a situation where there are both the incentives and ability to manipulate a critical rate in our markets.
Market Data
Beyond these cases, there is a significant amount of publicly available market data that calls into question the integrity of LIBOR today.
Let’s take a look at what happened just in the last few weeks as the Cyprus crisis infected the Eurozone. Here is a view of one Eurozone bank’s one-year credit default swap (CDS) spread versus that same bank’s daily submissions to the U.S. dollar LIBOR panel (Slide 1).
The bank’s CDS spread, one market measure of its credit risk, widened dramatically. The bank, however, didn’t change its submission as to where it could borrow from other banks. Though CDS trade in a different market and are for a bank’s holding company, the disconnect, as shown in this slide, raises questions about the credibility of LIBOR.
In Slide 2, we look at the average of all five Eurozone banks that submit to LIBOR. The picture is similar.
Next, let’s turn to the volatility of three-month U.S. dollar LIBOR in comparison with the volatility of other short-term interest rates. LIBOR, the blue line, is far more stable than any other comparable rate. Other short-term rates have much higher volatility (Slide 3).
Also of note, is that the 18 banks submitting to U.S. dollar LIBOR collectively did not change their submissions on 85 percent of the 252 submission days in 2012. You can see in Slide 4 just how few times the banks actually changed their submissions over the course of last year.
In fact, some of the banks didn’t change their submissions for four to five straight months. This was during a period when there were a number of uncertainties in the market driven by elections, changing economic outlook and other events. And yet somehow these banks said they could still borrow at exactly the same rate for four to five months. Slide 5 represents the longest consecutive period last year that the submissions remained unchanged.
Taking another look at CDS spreads versus LIBOR submissions, this time over the last three years, highlights another query. As we see in Slides 6 and 7, during significant market upheavals in the second half of 2011, the market’s views of these two banks’ credit risk changed dramatically. Yet their LIBOR submissions moved only modestly.
While we’re done with slides today, two last points reflected in market data:
There is a well-known concept in finance called interest rate parity, basically that currency forward rates will align with interest rates in two different economies. Since the financial crisis, that has not been the case, whether looking at the dollar versus the euro, sterling or yen. Theory hasn’t been aligning with practice. The borrowing rate implied in the currency markets is quite different than LIBOR.
Lastly, why are the results of two leading interbank benchmark surveys – one done for LIBOR and the other for Euribor – so different when each asks about U.S, dollar borrowing? The same difference occurs in the surveys for euro borrowing. These rates are calculated on the basis of the banks’ answers to roughly the same question. For LIBOR, a bank is asked at what rate it thinks it can borrow, while for Euribor, a bank is asked at what rate it thinks other banks are able to borrow.
Promoting Market Integrity and Financial Stability
Whether we consider the broad structural shift away from unsecured, interbank lending; the recent enforcement actions; or questions that arise from current market data, I believe that LIBOR, Euribor and other similar interest rate benchmarks are unsustainable in the long run.
These benchmarks – referencing markets with insufficient transactions, particularly in longer tenors – undermine market integrity and threaten financial stability.
Market integrity
For capital and risk to be efficiently allocated within the economy, interest rate benchmarks should reflect actual price discovery anchored in observable transactions.
Without transactions in the underlying market, the situation is similar to trying to buy a house, when your estate agent can’t give you comparable transaction prices in the neighborhood – because no houses were sold in the neighborhood in years.
As IOSCO notes, a benchmark should derive its value from the competitive forces of buyers and sellers meeting in an underlying cash market.
Derivatives derive their value from an underlying cash market. Market integrity dictates that whether that underlying cash market is oil, corn or the rate at which banks are borrowing, it must be based on something that is real. It should be anchored in observable transactions.
Further, these rates were readily and pervasively rigged in the past, and incentives for and ability to rig it in the future remain.
When market integrity is compromised, this also undermines the public’s confidence in the financial system.
Financial stability
The financial system’s reliance on interest rate benchmarks, such as LIBOR and Euribor, leaves the system in a fragile state.
Further, continuing to support LIBOR and Euribor in the name of stability may have the opposite effect. Using benchmarks that threaten market integrity may create more instability in the long run.
Given the structural changes in the interbank market, a number of banks have withdrawn from Euribor and some other interest rate benchmarks. Though IOSCO’s task force recommends that users of benchmarks have robust fallback provisions in contracts, many contracts do not currently have such fallback provisions. Thus, there is a risk to financial stability absent a planned, smooth and orderly transition.
I believe to promote market integrity as well as financial stability, we must move forward in a coordinated global effort to identify alternative interest rate benchmarks anchored in observable transactions and plan a smooth and orderly transition from benchmarks referencing unsecured, interbank markets.
Moving Forward
There is no doubt there will be challenges to transitioning from these rates.
But the market does have experience with transitioning from benchmarks that have become obsolete in the past. When the euro was created, a number of interest rate benchmarks were discontinued. How many of you remember PIBOR, RIBOR, MIBOR and FIBOR? Transitions also have occurred for energy and shipping rate benchmarks.
Further Canadian dollar LIBOR and Australian dollar LIBOR will be discontinued this year, leading to necessary transitions in those markets.
The basic components of past transitions include: first, identifying a new and reliable benchmark, one that is anchored in transactions.
Market participants and regulators are currently considering alternative interest rate benchmarks anchored in observable transactions. For instance, the Bank of International Settlements’ (BIS) Economic Consultative Committee’s March report lists possible alternatives anchored in observable transactions: the overnight swaps rate (OIS) and short-term collateralized financing rates such as general collateral repo rates (GC repo).
Second, the new and existing benchmarks run in parallel for a period of time allowing market participants to see and compare the price or rate of the alternative benchmark versus the soon-to-be-discontinued benchmark. This period of the two benchmarks running in parallel has been used to facilitate a smooth transition.
Third, a date is announced well in advance of when the old or obsolete benchmark will be discontinued.
Conclusion
While ongoing international efforts targeting benchmarks have focused on governance principles, these efforts cannot address the central vulnerability of LIBOR, Euribor and similar interest rate benchmarks: the lack of transactions in the underlying market.
Given the known issues with these benchmarks, their scale and effect on market integrity, it is critical that international regulators work with market participants to promptly identify alternative interest rate benchmarks anchored in observable transactions with appropriate governance, as well as determine how to best smoothly transition to such alternatives.
Just as Canadian dollar LIBOR and Australian dollar LIBOR are being discontinued due to the lack of an underlying interbank market, U.S. dollar, sterling, yen and euro LIBOR face similar underlying market challenges. The scope, as we all know, is bigger.
But it’s best that we not fall prey to accepting that LIBOR or any benchmark is "too big to replace."
Just imagine if the quality and integrity of the drinking water across the globe had been compromised. Then, the official sector and the utilities react by addressing the problem in Australia and Canada, but not in England or the United States. They say that there are too many people relying on the current drinking water in those countries.
If this were to occur, how could the public be confident in continuing to drink this water?
I believe market participants and regulators around the globe do have the ability and the ingenuity to tackle the challenges of benchmark interest rates, even in the face of their scale, to restore integrity and promote financial stability.
Thursday, February 7, 2013
RBS SUBSIDIARY AGREES TO GUILTY PLEA IN LIBOR INTERST MANIPULATION CASE
FROM: U.S. JUSTICE DEPARTMENTRBS Securities Japan Limited Agrees to Plead Guilty in Connection with Long-Running Manipulation of Libor Benchmark Interest Rates
Second Financial Institution to Plead Guilty to Libor Fraud and Pay Substantial Criminal Penalties; RBS Parent Company Also Admits Fault in Deferred Prosecution Agreement
RBS Securities Japan Limited, a wholly owned subsidiary of The Royal Bank of Scotland plc (RBS), has agreed to plead guilty to felony wire fraud and admit its role in manipulating the Japanese Yen London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world, Assistant Attorney General Lanny Breuer of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Scott D. Hammond of the Justice Department’s Antitrust Division and Special Agent in Charge Timothy A. Gallagher of the FBI’s Washington Field Office Criminal Division announced today.
A criminal information, being filed in U.S. District Court for the District of Connecticut, charges RBS Securities Japan with one count of wire fraud for engaging in a scheme to defraud counterparties to interest rate derivatives trades by secretly manipulating Yen LIBOR benchmark interest rates. RBS Securities Japan has signed a plea agreement with the government admitting its criminal conduct, and has agreed to pay a $50 million fine.
In addition, the government is filing a criminal information in the District of Connecticut which charges parent company RBS as part of a deferred prosecution agreement (DPA). The information charges RBS with wire fraud for its role in manipulating LIBOR benchmark interest rates, and with participation in a price-fixing conspiracy in violation of the Sherman Act by rigging the Yen LIBOR benchmark interest rate with other banks. The DPA requires the bank to admit and accept responsibility for its misconduct as described in an extensive statement of facts, to continue cooperating with the Justice Department in its ongoing investigation and to pay a $100 million penalty beyond the fine imposed upon RBS Securities Japan.
Together with approximately $462 million in regulatory penalties and disgorgement – $325 million as a result of a Commodity Futures Trading Commission (CFTC) action and approximately $137 million as a result of a U.K. Financial Services Authority (FSA) action – the Justice Department’s criminal penalties bring the total amount of the resolution with RBS and RBS Securities Japan to approximately $612 million.
"As we have done with Barclays and UBS, we are today holding RBS accountable for a stunning abuse of trust," said Assistant Attorney General Breuer. "The bank has admitted to manipulating one of the cornerstone benchmark interest rates in our global financial system, and its Japanese subsidiary has agreed to plead guilty to felony wire fraud. The department’s ongoing investigation has now yielded two guilty pleas by significant financial institutions. These are extraordinary results, and our investigation is far from finished. Our message is clear: no financial institution is above the law."
"RBS secretly rigged the benchmark interest rates upon which many transactions and consumer financial products are based," said Deputy Assistant Attorney General Hammond. "RBS’ conduct not only harmed its unsuspecting counterparties, it undermined the integrity and the competitiveness of financial markets everywhere."
"The manipulation of LIBOR by RBS and its subsidiary directly affected the rates referenced by financial products held by and on behalf of American companies and investors. The FBI works to uncover wrongdoing such as this in order to protect American consumers and the integrity of financial markets," said Special Agent in Charge Gallagher. "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."
According to court documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR serves as the primary benchmark for short-term interest rates globally, and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.
LIBOR, published by the British Bankers’ Association (BBA), a trade association based in London, is calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA. From at least 2006 through 2010, RBS has been a member of the Contributor Panel for a number of currencies, including Yen LIBOR and Swiss Franc LIBOR, which are the focus of the plea agreement and DPA.
According to the filed charging documents, at various times from at least 2006 through 2010, certain RBS Yen and Swiss Franc derivatives traders – whose compensation was directly connected to their success in trading financial products tied to LIBOR – engaged in efforts to move LIBOR in a direction favorable to their trading positions. Through these schemes, RBS allegedly defrauded counterparties who were unaware of the manipulation affecting financial products referencing Yen and Swiss Franc LIBOR. The alleged schemes included hundreds of instances in which RBS employees sought to influence LIBOR submissions in a manner favorable to their trading positions in two principal ways: internally at RBS through requests by derivatives traders for Yen and Swiss Franc LIBOR submissions, and externally through an agreement with a separately charged derivatives trader to request Yen LIBOR submissions. The trader, Tom Alexander William Hayes, was formerly employed by a Japanese subsidiary of another Contributor Panel bank, UBS AG (UBS).
According to court documents, RBS employees engaged in this conduct through electronic communications, which included both emails and electronic chats.
Subscribe to:
Posts (Atom)