RBS Securities Japan Ltd Sentenced for Manipulation of Yen Libor

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.   For more information about the task force visit: www.stopfraud.gov .

RABOBANK ADMITS WRONGDOING IN LIBOR INVESTIGATION, AGREES TO PAY $325 MILLION CRIMINAL PENALTY

WASHINGTON — 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.

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. For more information about the task force  visit: www.stopfraud.gov.

 

UBS Securities Japan Co. Ltd Sentenced for Long-running Manipulation of Libor

UBS Securities Japan Co. Ltd. (UBS Securities Japan), an investment bank, financial advisory securities firm and wholly-owned subsidiary of UBS AG, was sentenced today for its role in manipulating the London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world, the Justice Department announced.

UBS Securities Japan was sentenced by U.S. District Judge Robert N. Chatigny in the District of Connecticut.  UBS Securities Japan pleaded guilty on Dec. 19, 2012, to one count of engaging in a scheme to defraud counterparties to interest rate derivative trades by secretly manipulating LIBOR benchmark interest rates.  UBS Securities Japan signed a plea agreement with the government in which it admitted its criminal conduct and agreed to pay a $100 million fine, which the court accepted in imposing sentence.  In addition, UBS AG, the Zurich-based parent company of UBS Securities Japan, entered into a non-prosecution agreement (NPA) with the government requiring UBS AG to pay an additional $400 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 NPA reflects UBS AG’s substantial cooperation in discovering and disclosing LIBOR misconduct within the financial institution and recognizes the significant remedial measures undertaken by new management to enhance internal controls.

Together with approximately $1 billion in regulatory penalties and disgorgement – $700 million as a result of a Commodity Futures Trading Commission (CFTC) action; $259.2 million as a result of a U.K. Financial Conduct Authority (FCA) action; and $64.3 million as a result of a Swiss Financial Market Supervisory Authority (FINMA) action – the Justice Department’s criminal penalties bring the total amount of the resolution to more than $1.5 billion.

“This action, and the resulting sentence, prove that no individual or firm is above the law – no matter what,” said Attorney General Eric Holder.  “The Department of Justice will continue to stand vigilant against corporations or individuals who threaten the integrity of our financial markets, undermine the stability of our economy, or jeopardize the well-being of our citizens.  And, when supported by the facts and the law, we will never hesitate to use every tool and authority available to us to hold accountable those who illegally take advantage of others for their own financial gain.”

“Through its guilty plea and sentence, UBS has been held to account for deliberately manipulating LIBOR, one of the cornerstone interest rates in our global financial system,” said Acting Assistant Attorney General Mythili Raman of the Criminal Division.  “The $1.5 billion global resolution against UBS – of which this guilty plea and sentence are a critical element – is just one of several actions we have taken against financial firms throughout the world that sought to illegally influence LIBOR.  As we continue our active and ongoing investigation of the manipulation of LIBOR, our prosecutors and agents will continue to tenaciously follow the evidence wherever it leads.  Neither UBS, nor the individual UBS defendants we have charged in connection with this sophisticated scheme, nor any other bank or individual, is above the law.”

According to documents filed in these cases, 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 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.

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.

Beginning in September 2006, UBS Securities Japan and a senior trader employed in the Tokyo office of UBS Securities Japan orchestrated a sustained, wide-ranging and systematic scheme to move Yen LIBOR in a direction favorable to the trader’s trading positions, defrauding UBS’s counterparties and harming others with financial products referencing Yen LIBOR who were unaware of the manipulation.  Between November 2006 and August 2009, the senior trader or a colleague of the senior trader endeavored to manipulate Yen LIBOR on at least 335 of the 738 trading days in that period, and during some periods on almost a daily basis.  Because of the large size of the senior trader’s positions, even slight moves of a fraction of a percent in Yen LIBOR could generate large profits.  For example, the senior trader once estimated that a 0.01 percent movement in the final Yen LIBOR fixing on a specific date could result in a $2 million profit for UBS.

According to the charging documents, UBS Securities Japan and the senior trader employed three strategies to execute the scheme: causing UBS to make false and misleading Yen LIBOR submissions to the BBA; causing cash brokerage firms, which purported to provide market information regarding LIBOR to panel banks, to disseminate false and misleading information about short-term interest rates for Yen, which those banks could and did rely upon in formulating their own LIBOR submissions to the BBA; and communicating with interest rate derivatives traders employed at three other Yen LIBOR panel banks in an effort to cause them to make false and misleading Yen LIBOR submissions to the BBA.

In entering into the NPA with UBS AG, the Justice Department considered information from UBS and from regulatory agencies in Switzerland and Japan demonstrating that in the last two years UBS has made important and positive changes in its management, compliance and training to ensure adherence to the law.  The Department received favorable reports from the FINMA and the Japan Financial Services Authority (JFSA) describing, respectively, progress that UBS has made in its approach to compliance and enforcement and UBS Securities Japan’s effective implementation of the remedial measures the JFSA imposed based on findings relating to the attempted manipulation of Yen benchmarks.

The investigation was conducted by the FBI’s Washington Field Office.  The prosecution is being handled by Deputy Chiefs Daniel Braun and William Stellmach and Trial Attorneys Thomas B.W. Hall and Sandra L. Moser, along with former Trial Attorney Luke Marsh, of the Criminal Division’s Fraud Section.  Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut have provided valuable assistance.  The Criminal Division’s Office of International Affairs also provided 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 SEC has also played a significant role in the LIBOR series of investigations and, among other efforts, has made an invaluable contribution to the investigation relating to UBS.  The Department of Justice also wishes to acknowledge and thank FINMA, the Japanese Ministry of Justice, and the JFSA.  Various agencies and enforcement authorities from other nations also have participated in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the Department is grateful for their cooperation and assistance.

RBS 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.  For example, in an electronic chat on March 16, 2009, an RBS Swiss Franc derivatives trader, (Trader-7), sought to benefit his trading book by asking the RBS LIBOR submitter (Submitter-1), “can we pls get a very very very low 3m [3 month] and 6m [6 month] fix today [please]” because “we have rather large fixings!”  Submitter-1 responded, “perfect, if that’s what u want.”  After thanking Submitter-1, Trader-7 informed Submitter-1 that “from tomorrow . . .  we need them thru the roof!!!!!”

In another electronic chat on May 20, 2009, involving an RBS Yen derivatives trader, (“Trader-2”), Submitter-1, and others, the following exchange occurred:

Trader-2: high 3s and low 6s pls [Submitter-1]

Submitter-1: no problems

Trader-2: grazias amigo . . . where will you lower 6s to?

Submitter-1: 70

That day, RBS’s 6-month Yen LIBOR submission dropped two basis points from .72 to .70, before reverting to .72 the following two days.

RBS employees also allegedly furthered their collusive scheme with Hayes to fix the price of derivative instruments tied to Yen LIBOR through electronic communications.  For instance, in an electronic chat on April 20, 2007, Hayes requested that an RBS derivatives trader, (“Trader-3”), ask Submitter-1 for a low 3 month Yen LIBOR submission:

Hayes: . . . if you could ask your guys to keep 3m low wd be massive help as long as it doesn’t interfere with your stuff . . . tx in adavance.

Approximately 30 minutes later, Hayes and Trader-3 had the following exchange:

Hayes:   mate did you manage to spk to your cash boys?

Trader-3:  yes u owe me they are going 65 and 71

Hayes:  thx mate yes i do . . . in fact i owe you big time

Approximately 45 minutes later, Hayes sent the following message to Trader-3:

Hayes:  mater they set 64! . . . thats beyond the call of duty!

* * * *
Trader-3: no worries

By entering into a DPA with RBS, the Justice Department credits RBS’ cooperation in disclosing LIBOR misconduct within the financial institution, recognizes the significant remedial measures undertaken by RBS’ management to enhance internal controls, and acknowledges the additional reporting, disclosure and cooperation requirements undertaken by the bank.  The DPA does not prevent the Justice Department from prosecuting individuals for related conduct.

The pending charges against Hayes are merely accusations and he is considered innocent unless and until proven guilty.

The prosecution of RBS is being handled by Deputy Chief Patrick Stokes and Trial Attorney Gary Winters of the Criminal Division’s Fraud Section, and New York Field Office Assistant Chief Elizabeth Prewitt and Trial Attorneys Eric Schleef and Richard Powers of the Antitrust Division.  Deputy Chiefs Daniel Braun and William Stellmach, Assistant Chief Rebecca Rohr 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 FSA, has played a major role in the investigation.  The Securities and Exchange Commission has also played a significant role in the LIBOR series of investigations.  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.

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. For more information about the task force visit: www.stopfraud.gov.