Deutsche Bank AG will pay $2.5 billion and enter into a deferred prosecution agreement with the Justice Department to resolve allegations that it manipulated the London Interbank Offered Rate (LIBOR), a leading benchmark interest rate used in financial products and transactions around the world.
DB Group Services (UK) Limited, a wholly owned subsidiary of Deutsche Bank AG will plead guilty to wire fraud for its role in manipulating the LIBOR. (See DBGS statement of facts.)
The bank was represented by Roberto Finzi, Andrew Finch and Ted Wells of Paul Weiss in New York.
Deutsche Bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust charges in connection with its role in both manipulating U.S. Dollar LIBOR and engaging in a price-fixing conspiracy to rig Yen LIBOR.
Together, Deutsche Bank and its subsidiary will pay $775 million in criminal penalties to the Justice Department.
DB Group Services will plead guilty to one count of wire fraud, and to pay a $150 million fine, for engaging in a scheme to defraud counterparties to interest rate derivatives trades by secretly manipulating U.S. Dollar LIBOR contributions.
In its deferred prosecution agreement, Deutsche Bank admitted its role in manipulating LIBOR and participating in a price-fixing conspiracy in violation of the Sherman Act by rigging Yen LIBOR contributions with other banks.
The agreement requires the bank to continue cooperating with the Justice Department in its ongoing investigation, to pay a $625 million penalty beyond the fine imposed upon DB Group Services (UK) Limited and to retain a corporate monitor for the three-year term of the agreement.
Together with approximately $1.744 billion in regulatory penalties and disgorgement — $800 million as a result of a Commodity Futures Trading Commission (CFTC) action, $600 million as a result of a New York Department of Financial Services (DFS) action, and $344 million as a result of a U.K. Financial Conduct Authority (FCA) action — the Justice Department’s criminal penalties bring the total amount of penalties to approximately $2.519 billion.
“For years, employees at Deutsche Bank illegally manipulated interest rates around the globe – including LIBORs for U.S. Dollar, Yen, Swiss Franc and Pound Sterling, as well as EURIBOR – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank’s counterparties,” said Assistant Attorney General Leslie Caldwell. “Deutsche Bank is the sixth major financial institution that has admitted its misconduct in this wide-ranging criminal investigation, and today’s criminal resolution represents the largest penalty to date in the LIBOR investigation.”
Deutsche Bank was a member of the panel of banks whose submissions were used to calculate the LIBORs for a number of currencies, including U.S. Dollar, Yen, Pound Sterling and Swiss Franc LIBOR, as well as EURIBOR (the Euro Interbank Offered Rate).
According to the agreements, from at least 2003 through early 2011, numerous Deutsche Bank derivatives traders — whose compensation was directly connected to their success in trading financial products tied to LIBOR — engaged in efforts to move these benchmark rates in a direction favorable to their trading positions.
Specifically, the derivatives traders requested that LIBOR submitters at Deutsche Bank and other banks submit contributions favorable to trading positions, rather than rates that complied with the definition of LIBOR.
Through these schemes, Deutsche Bank defrauded counterparties who were unaware of the manipulation.
Deutsche Bank admitted that the conduct affected the resulting LIBOR fix on various occasions.
Deutsche Bank admitted that its employees engaged in this misconduct through face-to-face requests, electronic communications, which included both emails and electronic chats, and telephone calls.
For example, in an electronic chat on March 22, 2005, a Deutsche Bank U.S. Dollar LIBOR submitter explained how he would manipulate the rate for a trader in New York, stating, “if you need something in particular in the libors i.e. you have an interest in a high or a low fix let me know and there’s a high chance i’ll be able to go in a different level. Just give me a shout the day before or send an email from your blackberry first thing.”
In another example described in the statement of facts, on May 17, 2006, the supervisor of LIBOR submissions in London received a request from a trader in New York asking, “If you can help we can use a high 3m fix tom.” The supervisor replied to the trader and a U.S. Dollar LIBOR submitter, “I’m off but [submitter] is your libor man [] [submitter] could you take a look at 3s libor in the morning for [trader].” The submitter agreed to accommodate the request, replying, “Will do chaps.” The following morning, after he submitted the bank’s contribution, the submitter wrote to the trader, “I went in at 19+ for the 3m libor, as you’ll see it almost manage to reach 19.”
In an example from March 2007, a trader thanked one of Deutsche Bank’s EURIBOR submitters for his help in successfully manipulating EURIBOR, saying in an electronic chat: “Great job on this [Submitter], we can do more of this stuff,” to which the submitter replied, “WE CAN MY FRIEND. WE CAN….” Later that day, the submitter bragged about Deutsche Bank’s manipulation by offices in Frankfurt and London in an email to the head of Deutsche Bank’s Global Finance Unit: “HAVE U SEEN THE 3MK FIXING TODAY? THAT WAS AN EXCELLENT CONCERTED ACTION FFT/LDN. CHEERS.”
Deutsche Bank also admitted to working with other banks to manipulate LIBOR contributions. For instance, in a May 2009 electronic chat exchange, a UBS trader asked a Deutsche Bank trader, “cld you do me a favour would you mind moving you 6m libor up a bit today, i have a gigantic fix. . .” The Deutsche Bank trader agreed. The next day, the Deutsche Bank trader confirmed that the Yen LIBOR submission had been beneficial to the UBS trader, asking “u happy with me yesterday?” The UBS trader acknowledged, “thx.”
By entering into a deferred prosecution agreement with Deutsche Bank, the Justice Department said it took several factors into consideration, including that Deutsche Bank’s cooperation with the government’s investigation was often helpful but also fell short in some important respects.
The department also considered the extensive remedial measures undertaken by Deutsche Bank’s management and its enhanced compliance program.
Deutsche Bank has agreed to continue cooperating with the government’s investigation, and the agreement does not prevent the Justice Department from prosecuting culpable individuals for related misconduct.
The Justice Department has previously announced resolutions with five other banks for their roles in manipulation of benchmark interest rates, including Barclays Bank PLC, UBS AG, The Royal Bank of Scotland plc, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) and Lloyds Banking Group plc.
The department has also charged 12 individuals as a result of this investigation, and three of those individuals have pleaded guilty.