Despite recent widely publicised setbacks, the UK’s Serious Fraud Office (SFO) has bared teeth and showed a willingness to reach beyond the UK’s borders to charge those who breach UK laws. On 28 March 2014, the SFO filed criminal charges against three US-based bankers over the manipulation of US-denominated LIBOR. The UK, it seems, is no longer content to leave aggressive prosecution of US white collar offenders to the Department of Justice (DOJ).
The investigations into LIBOR1 manipulation by UK authorities (which are being conducted in conjunction with overseas counterparts, including US authorities) remain ongoing, yet they have already resulted in five regulated firms (four banks and one broking firm) sanctioned by the UK’s market regulator, the Financial Conduct Authority (FCA), and 12 individuals prosecuted by the SFO for criminal offences.
The fines imposed by the FCA to date amount to some £426 million:
- Barclays Bank plc – £59.5 million for misconduct relating to LIBOR and EURIBOR
- UBS AG – £160 million for significant failings in relation to LIBOR and EURIBOR
- The Royal Bank of Scotland plc – £87.5 million for misconduct relating to LIBOR
- ICAP Europe Limited (broking firm) – £14 million for misconduct relating to LIBOR (ICAP EU Ltd brokers had colluded with traders at UBS to manipulate JPY LIBOR)
- Rabobank B.A. – £105 million for serious, prolonged and widespread misconduct relating to LIBOR
- Martin (UK) Ltd (broking firm) – £630K (lowered from £3.6 million due to its financial condition)
Add in the fines levied across the EU and in the US for LIBOR failings, and that total figure of regulatory fines imposed for LIBOR misconduct skyrockets to in excess of US $8 billion.
The SFO also is taking LIBOR manipulation very seriously (even though it has been somewhat slower than the FCA to react), and its investigations are seemingly well resourced. In 2012-13, it received funding from the Treasury of some £3.6 million, and in March 2013, announced its LIBOR team was doubling in size from 30 to 60. In January 2014, it sought further “blockbuster” funding from the Treasury of an additional £19 million to help pay for complex investigations including those related to LIBOR.
What we have seen, as a result, is the prosecution of 12 individuals for conspiracy to defraud including: a former trader at UBS and Citigroup; three former employees at ICAP Plc; two former brokers at RP Martin Holdings Limited; and six former employees at Barclays Bank Plc (of which, as noted at the outset, three are US-based). Whether those prosecutions ultimately will prove successful remains to be seen. The individuals who have thus far entered pleas have indicated an intention to defend the charges. And as recent setbacks have shown, the SFO’s running of high profile complex cases has not been without difficulties.
It is, however, not only UK prosecutors that offenders should beware of: the DOJ also has charged eight individuals in relation to LIBOR manipulation. The DOJ has shown an equal willingness to chase offenders beyond its borders: four of those charged are London-based - a former employee of UBS/Citibank, and three former employees of ICAP - and the very same individuals charged by the SFO. It will be interesting to see how, in practice, these cases will run in parallel.
Finally, the FCA is apparently preparing to issue civil penalties against FCA regulated individuals over LIBOR-related misconduct. Warning notices already have been issued against nine (as yet unnamed) individuals. Commentators have suggested that the fines imposed will be significant. The individuals in question have good reason to be concerned: the FCA only recently imposed a fine against a bond trader of more than £660K for having deliberately manipulated a UK government bond (gilt) as well as banning him from the industry. The fine would have been more - nearly £950K - had the individual not agreed settlement early (for which he received a 30% discount). It seems the FCA sent a clear message to regulated individuals in what was the first enforcement action for attempted or actual manipulation of the gilt market.