By Charles H. Green
Ending a seven-year investigation of at least one bank, Deutsche Bank pleaded guilty to criminal charges of purposely manipulating the London interbank offering rate (LIBOR) in collusion with several other banks, and has agreed to pay an eye-popping $2.5 billion fine. In addition to the cash penalty, the bank accepted the conviction on criminal charges and discharged several employees. Barclays and USB have already settled cases against them, while prosecutors are still in discussions with other banks being scrutinized.
By arbitrarily manipulating interest rates these banks harmed millions of transactions participants globally, in that the LIBOR rate underpins trillions of dollars in mortgages, student loans and other commercial debt.
As reported by the New York Times, Leslie R Caldwell, head of the Justice Department’s criminal division, said “Today’s resolution of the Libor investigation with Deutsche Bank is in some respects the most significant one yet,” The Justice Department coordinated the investigation along with authorities in Washington, London and New York.
The case spotlighted the collusive elements of Wall Street trading desks, where rival banks have occasionally joined forces to manipulate financial benchmarks. It also foreshadows looming actions against banks suspected of teaming up to manipulate the price of foreign currencies, people briefed on the matter said, with the Justice Department planning to announce guilty pleas from at least four banks — Barclays, JPMorgan Chase, Citigroup and the Royal Bank of Scotland — by next month.
“Financial markets function properly only if customers and competing banks have confidence that they are untainted by fraud and collusion,” said William J. Baer, the head of the Justice Department’s antitrust unit, adding that “the unprecedented size of the penalty” demonstrates just “how far from that bedrock principle Deutsche Bank and its traders strayed.”
The investigation into whether the LIBOR was rigged started in 2008 with a single investigator at the Commodity Futures Trading Commission (CFTC), and later spread to criminal and regulatory agencies around the globe. Deutsche Bank’s settlement is jointly with the Justice Department’s criminal and antitrust divisions, New York Financial Supervisor, CFTC and the Financial Conduct Authority of Britain.
As part of the deals, the bank will install an independent monitor, the first such requirement in a Libor case. More broadly, the authorities ordered the bank to dismiss seven managers suspected of involvement in the wrongdoing, all but one of whom are in London. They were among 29 employees suspected of playing a role, most of whom have already left the bank.
“We deeply regret this matter but are pleased to have resolved it,” said Jürgen Fitschen and Anshu Jain, the co-chief executives of Deutsche Bank. “The bank accepts the findings of the regulators.” The bank had hoped to pay less than $2 billion, and while the deal will provide some closure to this investigation, they will not end the bank’s legal problems. Deutsche Bank is also ensnared in the foreign exchange investigation. And it is suspected of violating United States sanctions against countries like Iran.
The size of the fine and other penalties reflected the breadth of wrongdoing that authorities uncovered, while regulators denounced the bank’s lax oversight of traders and failure to respond to warning signs of misconduct. In addition, Deutsche Bank intentionally dragged its feet in responding to demands for information for more than two years and accidentally destroying some evidence.
The manipulation was conducted between 2005 and 2011 and involved employees in London, Frankfurt, New York and Tokyo. “Markets do not just manipulate themselves,” said New York’s state financial regulator Benjamin Lawsky. “It takes deliberate wrongdoing by individuals.”
Manipulation of LIBOR, an average of how much banks say they would pay to borrow from one another, struck a nerve with government authorities. As a benchmark for trillions of dollars in credit-card loans and other financial instruments, LIBOR is a cornerstone of the financial marketplace. Read more at NYTimes.com.
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