UBS
Reuters
U.S. prosecutors charged two former UBS traders with taking part in a
multi-year scheme to manipulate Libor and other benchmark interest
rates, making them the first individuals to be criminally accused in the
international scandal.
The charges against the two traders, Tom Hayes and Roger Darin,
resulted from a broad investigation into the activities of more than a
dozen banks in the setting of prices for Libor and related rates.
A day after UBS agreed to pay $1.5 billion (923 million pounds) to
regulators in the United States, UK and Switzerland, the Hong Kong
Monetary Authority (HKMA) said the bank was being probed over its
submissions of interbank rates there, raising the risk it could face
more fines.
In settling with U.S., UK and Swiss authorities, UBS not only paid one
of the largest fines ever imposed on a bank, its Japanese subsidiary
pleaded guilty to one U.S. criminal count of fraud relating to
manipulation of benchmark rates, including the yen Libor, reports
Reuters.
The Japanese subsidiary is where authorities allege much of the
manipulation of interest rates occurred, as employees of the bank looked
to profit on derivatives trades linked to the rates.
The bank could have more trouble in store in Asia. HKMA, Hong Kong's de
facto central bank, said in a statement early Thursday in Asia that it
had received information from overseas regulatory authorities about
possible misconduct by UBS involving submissions for the Hong Kong
Interbank Offered Rate (Hibor) and other reference rates in the region.
UBS is the second large international bank to reach a settlement with
U.S. and UK authorities, and other settlements are expected to follow in
the next few months. In June Barclays Plc agreed to pay $453 million in
fines to settle allegations its employees attempted to manipulate Libor
rates.
The investigation and it findings - that attempts to manipulate Libor
were fairly widespread in the banking industry - have cast doubts on the
reliability of Libor as a benchmark for setting interest rates. The
probe has also raised questions about why bank regulators were slow to
uncover the manipulation, which Reuters previously reported dated back
to at least the late 1990s.
"The bank's conduct was simply astonishing," Lanny Breuer, who heads
the U.S. Justice Department's criminal division, said in announcing the
settlement.
"Make no mistake - for UBS traders, the manipulation of Libor was about getting rich."
While the bank will hope that the $1.5 billion settlement with
regulators in the U.S., UK and Switzerland will draw a line under its
penalties for its role in Libor manipulation, it remains at risk of
action from regulators elsewhere for possible rate rigging.
As well as Hong Kong, there is an ongoing investigation in Singapore
into the possible manipulation of benchmark lending and foreign exchange
rates.
"We continue to work closely with various regulatory authorities to
resolve issues relating to the setting of certain global benchmark
interest rates. As we are currently in active discussions with these
authorities, we cannot comment further," said a spokesman for UBS in
Hong Kong.
CRIMINAL CHARGES
The Justice Department charged Hayes and Darin with conspiracy,
according to a criminal complaint unsealed in U.S. district court in
Manhattan on Wednesday. Hayes was also charged with wire fraud and an
antitrust violation.
U.S. and UK investigators portrayed Hayes as a ringleader of sorts for UBS' manipulation of rates.
The two men are both believed to be in Europe, according to a U.S.
official. Last week, British police arrested Hayes and two other men in
connection with the Libor probe. The two others were Terry Farr and
James Gilmour, both of whom worked at interdealer broker RP Martin.
The $1.5 billion UBS penalty is the second largest ever imposed on a
bank, exceeded only by the $1.9 billion that HSBC agreed to pay to
settle U.S. charges in connection with the laundering of drug cartel
money.
"We deeply regret this inappropriate and unethical behaviour. No amount
of profit is more important than the reputation of this firm," said UBS
Chief Executive Sergio Ermotti.
The criminal complaint against Hayes and Darin also detailed how some
former UBS employees are cooperating in the probe, in exchange for a
promise that they won't be prosecuted.
The cooperation agreements forged in the UBS case could prove useful to
U.S. and UK authorities as they move against other individuals and
other big banks.
U.S. prosecutors, for instance, are continuing to investigate the
activities of a number of former Barclays derivatives traders based in
New York who were dismissed from the bank following an internal
investigation into Libor manipulation. So far, none of those former
Barclays employees in the United States have been charged with
wrongdoing.
Libor and related benchmarks are used to set interest rates for
trillions of dollars worth of loans around the world, ranging from home
loans to credit cards to complex derivatives.
Authorities said traders could benefit on their derivatives positions
by nudging the prices for Libor up just small amounts, as over time the
payoffs added up. Already a number of civil lawsuits have been filed in
the U.S. by institutional investors claiming they were harmed on trades
because of the interest rate rigging.
'NORMAL BUSINESS PRACTICE'
In legal filings, Britain's Financial Services Authority (FSA) said UBS
staff made "corrupt" payments to reward brokers for helping to
manipulate rates - expanding the scandal to include bribery.
It said attempts to manipulate Libor and Euribor, its European
equivalent, were so widespread that every submission UBS made over a
six-year period from 2005 to 2010 was suspect.
At least 45 people at UBS were involved in the rigging, which was
discussed in internal chat forums and group emails but never detected by
compliance staff, despite five audits.
The FSA said a wide pool of people within UBS considered the manipulation to be a "normal business practice."
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