Newsletters Business Crime & Financial Services 29th Oct 2019

SFO Shuts Down Investigation into Libor Rigging

On 19 October 2019 the SFO announced that, following a seven year probe, the Libor investigation would be shut down. It said that:

“Following a thorough investigation and a detailed review of the available evidence, there will be no further charges brought in this case. This decision was taken in line with the test in the Code for Crown Prosecutors[1].”

Libor is the benchmark interest rate that tracks the cost of borrowing cash. Every day banks estimate what interest rate they think they will have to pay to borrow money, then an average is published as the London Interbank Offered Rate (Libor). £3.5 trillion of investments were tied to Libor. The benchmark has since been overhauled.

The SFO investigation into the alleged manipulation of Libor commenced on 6 July 2012 and is reported to have cost taxpayers at least £60 million. The SFO’s statement conspicuously did not explain which stage of the Code test the decision failed, that is to say, whether there was no realistic prospect of any further convictions, or whether there was sufficient evidence, but prosecutions  were no longer considered to be in the public interest.

More individuals have been acquitted of Libor offences than have been convicted: 13 people have been charged with conspiracy to defraud of whom four were convicted, one entered a guilty plea, and eight were acquitted.

  • An ex-Barclays trader pleaded guilty to conspiracy to defraud in October 2014 and was sentenced to 4 years imprisonment;
  • A former Citigroup and UBS derivatives trader, Tom Hayes, was convicted in August 2015 of eight counts of conspiracy to defraud and is serving an 11 year prison sentence;
  • Six Barclays interdealer brokers were acquitted of conspiring with Mr Hayes in October 2015;
  • Three former Barclays employees, were convicted in July 2016 and sentenced to between 2 years and 9 months and 6 ½ years imprisonment; and
  • Two former Barclays traders were acquitted in April 2017.

In addition, the FCA has said that the direct impact of actual manipulation of the Libor fix on UK retail consumers is likely to be minimal.

In total, it is estimated that at least £7bn has been paid by a wide range of banks around the world to settle with financial regulators over Libor-rigging, for example:

  • In 2012 Barclays was fined £290 million by US and UK regulators, £59.5 million by the FSA (as it then was) and £230 million by US authorities;
  • In 2012 Swiss Bank UBS was fined £940 million, including £160 million to the FSA;
  • In 2013 RBS were fined £390 million, including £87.5 million by the FSA; and
  • In 2014 Lloyds Banking Group was fined £218 million, including £105 million to the FCA.

In the Libor trials, the courts heard from the Defence that it had been accepted commercial practice for traders to make requests for high or low Libor estimates to suit the bank’s commercial interests, within a range of accurate estimates of the cost of borrowing cash. This “low balling” involved traders allegedly submitting artificially low estimates of the rates that they pay to borrow cash, in order to give an inaccurate picture of their firm’s borrowing costs and make the firm appear healthier than it was. It was alleged that the “low balling” adjustments sought by senior managers were up to 50 times the size of the shifts that traders sought.

Defence teams questioned why the SFO has not charged or prosecuted anyone in connection with “low balling”. In 2017 the BBC alleged that the Bank of England was implicated in the “low balling” allegations and, that same year, Panorama broadcast a secret audio recording from 2008 in which a senior Barclays manager said that they were receiving pressure from the UK government and the Bank of England to “push [their] Libors lower”. The Bank of England has said that Libor was unregulated at the time, but  it has assisted the SFO with its investigation.

In March 2019 the SFO confirmed that it was still considering whether to bring charges against three current and former senior Barclays bankers for allegations of “low balling” Libor but as a result of last week’s announcement, it is now clear that no one will face prosecution for “low balling”.

The SFO’s investigation into the manipulation of the separate Euribor benchmark is ongoing. The US Department of Justice has prosecuted 11 individuals for manipulating Euribor.

[1] ‘the Code’


Nikita McNeill

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