Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) will 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.
A criminal information will charge Rabobank with wire fraud for its role in manipulating the benchmark interest rates LIBOR and Euribor.
In addition to the $325 million penalty, a deferred prosecution agreement requires the bank to admit and accept responsibility for its misconduct as described in a statement of facts.
The bank was represented by David Gelfand and James Cavoli of Milbank Tweed in New York.
In related actions, the Commodity Futures Trading Commission fined the bank $475 million, the UK Financial Conduct Authority fined the bank $170 million, and the Dutch Public Prosecutor’s office fined the bank $96.5 million — bringing the total global settlement to over $1 billion.
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 U.S. dollar, Yen, and 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 Criminal Division chief Mythili Raman.
“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.”
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.
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.
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.
Federal officials alleged that 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 November 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 December 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 !!”
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 stated: “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).