Barclays Bank will not be prosecuted but will pay a $160 million penalty to resolve violations arising from Barclays’s submissions for the London InterBank Offered Rate and the Euro Interbank Offered Rate, which are benchmark interest rates used in financial markets around the world. Barclays “has admitted and accepted responsibility for its misconduct set forth in a statement of facts that is incorporated into the agreement.”
Why wasn’t Barclay’s prosecuted? The Justice Department said that the non prosecution agreement and monetary penalty “recognize Barclays’s extraordinary cooperation.”
Barclays was represented by Sullivan & Cromwell Attorneys Steven Peikin, David Braff, Jeffrey Scott and Matthew Fitzwater.
“Barclays made timely, voluntary and complete disclosure of its misconduct,” the Department said. “After government authorities began investigating allegations that banks had engaged in manipulation of benchmark interest rates, Barclays was the first bank to cooperate in a meaningful way in disclosing its conduct relating to LIBOR and EURIBOR. Barclays’s disclosure included relevant facts that at the time were not known to the government. Barclays’s cooperation has been extensive, in terms of the quality and type of information and assistance provided, and has been of substantial value in furthering the department’s ongoing criminal investigation. Barclays has made a commitment to future cooperation with the department and other government authorities in the United States and the United Kingdom.”
Barclays has implemented a series of compliance measures and will implement additional internal controls regarding its submission of LIBOR and EURIBOR contributions, as required by the Commodity Futures Trading Commission (CFTC). Barclays will also continue to be supervised and monitored by the FSA.
“As a result of Barclays’s admission of its misconduct, its extraordinary cooperation, its remediation efforts and certain mitigating and other factors, the department agreed not to prosecute Barclays for providing false LIBOR and EURIBOR contributions, provided that Barclays satisfies its ongoing obligations under the agreement for a period of two years,” the Department said. “The non-prosecution agreement applies only to Barclays and not to any employees or officers of Barclays or any other individuals.”
The Justice Department alleged that Barclays provided LIBOR and EURIBOR submissions that, at various times, were false because they improperly took into account the trading positions of its derivative traders, or reputational concerns about negative media attention relating to its LIBOR submissions.
Barclays was one of the financial institutions that contributed rates used in the calculation of LIBOR and EURIBOR.
The contributed rates are generally meant to reflect each bank’s assessment of the rates at which it could borrow unsecured interbank funds. For LIBOR, the highest and lowest 25% of contributed rates are excluded from the calculation and the remaining rates are averaged to calculate the fixed rates. For EURIBOR, the highest and lowest 15% are excluded and the remaining 70% are averaged to calculate the fixed rates.
Futures, options, swaps, and other derivative financial instruments traded in the over-the-counter market and on exchanges worldwide are settled based on LIBOR.
Mortgages, credit cards, student loans and other consumer lending products often use LIBOR as a reference rate. According to the agreement, an individual bank’s LIBOR or EURIBOR submission cannot appropriately be influenced by the financial positions of its derivatives traders or the bank’s concerns about public perception of its financial health due to its LIBOR submissions.
Between 2005 and 2007, and then occasionally thereafter through 2009, certain Barclays traders requested that the Barclays LIBOR and EURIBOR submitters contribute rates that would benefit the financial positions held by those traders.
The requests were made by traders in New York and London, via electronic messages, telephone conversations and in-person conversations. The employees responsible for the LIBOR and EURIBOR submissions accommodated those requests on numerous occasions in submitting the bank’s contributions. On some occasions, Barclays’s submissions affected the fixed rates.
In response to initial and ongoing press speculation that Barclays’s high U.S. Dollar LIBOR submissions at the time might reflect liquidity problems at Barclays, members of Barclays management directed that Barclays’s Dollar LIBOR submissions be lowered.
This management instruction often resulted in Barclays’s submission of false rates that did not reflect its perceived cost of obtaining interbank funds. While the purpose of this particular conduct was to influence Barclays’s rate submissions, as opposed to the resulting fixes, there were some occasions when Barclays’s submissions affected the fixed rates.
The Commodities Futures Trading Commission brought attempted manipulation and false reporting charges against Barclays, which the bank agreed settled.
The CFTC imposed a $200 million penalty and required Barclays to implement detailed measures designed to ensure the integrity and reliability of its benchmark interest rate submissions.
The FSA issued a Final Notice regarding its enforcement action against Barclays, and has imposed a penalty of £59.5 million against it.