Why it matters: On April 23, 2015, Deutsche Bank entered into a three year deferred prosecution agreement with the DOJ, including a corporate monitor requirement, in connection with charges that the bank manipulated LIBOR and engaged in a price-fixing conspiracy to rig Yen LIBOR and EURIBOR. In addition, Deutsche Bank’s U.K. subsidiary agreed to plead guilty to one count of wire fraud. Together, Deutsche Bank and its U.K. subsidiary will pay the DOJ and other investigating agencies an aggregate amount exceeding $2.5 billion in criminal penalties and disgorgement—over $750 million of which is the largest criminal penalty imposed by the DOJ alone in connection with the LIBOR resolutions. As Assistant Attorney General of the Criminal Division Leslie R. Caldwell remarked, “[t]oday’s resolution of the LIBOR investigation with Deutsche Bank is in some respects the most significant one yet.”
Detailed discussion: On April 23, 2015, the DOJ announced that Deutsche Bank AG (Deutsche Bank), headquartered in Germany, was the latest bank to be implicated in the DOJ’s investigation of the manipulation of the London Interbank Offered Rate (LIBOR). Pursuant to the DOJ’s press release, Deutsche Bank entered into a three year deferred prosecution agreement (DPA) with the DOJ, which requires a corporate monitor, to resolve wire fraud and antitrust charges grounded in manipulation of LIBOR and engaging in a price-fixing conspiracy involving Yen LIBOR and the Euro Interbank Offered Rate (EURIBOR). In addition, Deutsche Bank’s wholly-owned U.K. subsidiary DB Group Services (UK) Limited (DBGS) agreed to plead guilty to one count of wire fraud for its role in the manipulation of LIBOR in relation to interest rate derivatives trades executed by DBGS employees.
Deutsche Bank and DBGS will pay the DOJ criminal penalties aggregating approximately $775 million ($625 million from Deutsche Bank and $150 million from DBGS). When combined with fines imposed in related agency actions (i.e., $800 million to the Commodity Futures Trading Commission; $600 million to the New York Department of Financial Services; and $344 million to the U.K. Financial Conduct Authority), the total amount Deutsche Bank is paying out exceeds $2.5 billion.
On the conference call with press in conjunction with the DOJ press release, Caldwell emphasized that “[t]his is the first LIBOR resolution that imposes a monitor.” Caldwell went on to state that “[t]oday’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.” The press release noted that the DOJ “also considered the extensive remedial measures undertaken by Deutsche Bank’s management and its enhanced compliance program” when entering into the DPA.
According to the two separate Statements of Facts (collectively, Statement) incorporated into the DPA and the Plea Agreement with DBGS, respectively, from 2003 through early 2011, Deutsche Bank and DBGS derivatives traders worked with the employees who set Deutsche Bank’s daily LIBOR submissions (submitters) to manipulate the LIBOR submissions favorable to their trading positions. The Statement cites to classic “conflict of interest” situations created by the way the traders and submitters were organized, including where the LIBOR submitter and the derivatives trader were one and the same person, and where the submitters were directly supervised by a trader who stood to benefit from the LIBOR manipulation.
As set out in the Statement, the LIBOR manipulations were accomplished through telephone calls, face-to-face requests (for example, in DBGS’s London office, USD LIBOR submitters sat in close physical proximity to USD LIBOR traders and reported to the same manager), and in writing via emails and electronic “chats.” The Statement cites to Deutsche Bank’s “poor compliance culture” as the root of its troubles, finding that management either had an “awareness of the scheme” but did nothing to stop it, or it “fail[ed] to recognize warning signs” such as a trading set-up that encouraged “conflicts of interest” and “prioritized making money above compliance and business ethics.”
The Statement also describes how, during the relevant time period, traders at Deutsche Bank worked with traders at other banks to manipulate Yen LIBOR and EURIBOR submissions to benefit the other traders’ positions.
The DOJ’s resolution with Deutsch Bank follows resolutions with five other banks in the wide-ranging LIBOR manipulation investigation, including Barclays Bank PLC and UBS AG, although as the government has strongly hinted in the past few months, the DPAs and NPAs it is entering into with these banks are not set in stone and will be pulled for repeat offenders. The government did just that with respect to UBS this week: on May 20, 2015, the government announced that, due to UBS’s breach, it was voiding the 2012 NPA and that UBS was pleading guilty to LIBOR manipulation. UBS will pay a criminal penalty of $203 million, an amount that comes in addition to the over $1 billion in penalties and fines paid by UBS to global law enforcement and regulators when it entered into the NPA. In the same May 20 press release, the DOJ stated that Barclays Bank was one of four banks that were pleading guilty for conspiring to rig the FOREX market. While the DOJ found the conspiracy to be in breach of Barclays’ 2012 NPA, that NPA remains intact for now but Barclays was assessed an additional $60 million criminal penalty for the breach.
See here to read the Deferred Prosecution Agreement in U.S. v. Deutsche Bank AG (4/23/15).
See here to read the Statement of Facts, Attachment A to the Deferred Prosecution Agreement in U.S. v. Deutsche Bank AG (4/23/15).
See here to read the Statement of Facts, Exhibit 3 to the Plea Agreement in U.S. v. DB Group Services UK Limited (4/23/15).
See here to read the DOJ Press Release dated 4/23/15 entitled “Deutsche Bank’s London Subsidiary Agrees to Plead Guilty in Connection with Long-Running Manipulation of LIBOR.”
See here to read the DOJ Press Release dated 4/23/15 entitled “Assistant Attorney General Leslie R. Caldwell Delivers Remarks for the Deutsche Bank Manipulation of Libor Conference Call.”
For more on this matter, read (1) the DOJ Press Release dated 4/23/15 entitled “Assistant Attorney General Bill Baer Delivers Remarks for the Deutsche Bank Manipulation of Libor Conference Call,” (2) the Plea Agreement in U.S. v. DB Group Services UK Limited (4/23/15), and (3) the DOJ’s press release dated 5/20/15 entitled “Five Major Banks Agree to Parent-Level Guilty Pleas.”