Following on from our previous post and the LIBOR update article in our June 2013 edition of Regulator, the European Commission (EC) last week handed down record fines to eight financial institutions for their involvement in a cartel in the European Union Area market for financial derivatives affecting the benchmark EURIBOR and LIBOR, as well as various currencies including the Japanese Yen rate. The fines totalling €1.71 billion (approximately A$2.58 billion) were agreed as a result of settlements entered into between the EC and certain of the participants.
The investigations into the EURIBOR and Yen interest rate derivatives began in late 2011 through various dawn raids, with proceedings being commenced in Europe in March 2013 and February 2013 respectively. The alleged conduct in the EURIBOR matter involved distortion of the usual manner in which components of the derivatives were priced between September 2005 and May 2008. In the Yen-related investigations, the EC found that there was collusion between certain banks arising from discussions between traders regarding certain Yen LIBOR submissions between 2007 and 2010. The traders were found to have exchanged commercially sensitive information relating to those submissions and trading positions.
In the EURIBOR matter, one participant received full immunity for whistleblowing, avoiding a fine of approximately € 690 million (approximately A$1.04 billion), while the other participants received reductions in their penalties ranging from 5% to 50% in accordance with the EC’s Leniency Notice, for cooperating during the investigation.
In the Yen rate investigations, the whistle-blower similarly received immunity and avoided a fine of around €2.5 billion (approximately A$3.78 billion), while another received full immunity for one of its infringements for reasons not specified by the EC, thereby avoiding a fine of around €55 million (approximately A$83 million). The other participants who cooperated with the EC received reductions in their penalties ranging from 25% to 40% under the Leniency Notice.
All of the penalties imposed were reduced by a further 10% as a result of reaching settlement agreements with the EC.
In the US, antitrust proceedings under the Hart-Scott-Rodino Act in relation to the LIBOR investigations were dismissed by a New York Federal judge in March 2013. While antitrust proceedings did not proceed in the US, in October 2013, the US Department of Justice nevertheless handed down fines for wire fraud and financial misconduct, as did other global financial regulators including the UK’s Financial Conduct Authority. In this context, the imposition of antitrust fines by the EC has been criticised by US observers as “over-punishment” in light of the participants having already been punished by other US and European regulators. However, the EC’s Vice-President, Joaquín Almunia, firmly stated that the EC will sanction these cartels in order to maintain healthy competition and transparency in financial markets.