The Department of Justice (DOJ) Commodities Futures Trading Commission (CFTC) and Financial Services Authority (FSA) in the UK settled charges on Monday with the Royal Bank of Scotland (RBS) for manipulating the Japanese Yen London Interbank Offered Rate (LIBOR) and for felony wire fraud.
Criminal penalties in the combined regulatory actions bring the total imposed on the company and its subsidiary to approximately $612 million.
A criminal information filed with the U.S. District Court in Connecticut charges RBS Securities Japan, a wholly owned subsidiary of RBS, 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 has signed a plea agreement in which it admits its criminal conduct and has agreed to pay a $50 million fine.
A criminal information was also filed against parent company RBS as part of a deferred prosecution agreement (DPA). The DPA requires the bank to accept responsibility for its misconduct, agree to cooperate in the DOJ’s ongoing investigation and pay a fine of $100 million to go along with the fine imposed on the subsidiary.
The CFTC levied a combined penalty of $325 million against RBS and its subsidiary, and the FSA imposed a fine of $137 million against the entities.
As noted in the agencies’ press releases, the misconduct was widespread. At least 219 requests for inappropriate submissions were documented, and at least 21 individuals were involved, including derivatives and money market traders and at least one manager.
RBS failed to implement LIBOR-related systems and controls during the time period in which the misconduct occurred (January 2006 to November 2010) and only implemented controls that could be called adequate in March 2011 for submissions by money market traders and in June 2011 for submissions by derivatives traders.
In addition, RBS instituted a business model in which derivatives traders sat next to LIBOR submitters and encouraged the two groups to communicate orally and in electronic chats without restriction, despite the fact that derivatives traders would seek to influence the firm’s LIBOR submissions.
By entering into a DPA, the DOJ credits RBS’s cooperation in the investigation into these charges and the remedial measures the firm has taken to enhance internal controls, but it does not prevent DOJ from prosecuting individuals for related conduct.
LIBOR is a leading benchmark calculated for 10 currencies at 15 borrowing periods ranging from overnight to one year. It is used in financial products and transactions around the world. From at least 2006 to 2010, RBS has been a member of the panel of banks that make submissions leading to the LIBOR calculation for both the Yen and Swiss Franc LIBOR rates.
The press releases describing the agencies’ charges and penalties can be found here:
Commodities and Futures Trading Commission
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.
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