Federal officials held a press conference at the Justice Department yesterday to announce that UBS had settled charges that it manipulated the London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world.
It was a massive crime — and UBS paid $1.5 billion to settle the allegations.
The Department laid out the crime in a 51-page statement of facts.
It criminally charged two UBS traders.
And it even forced a UBS subsidiary in Japan to plead guilty to crimes.
But UBS AG — the Swiss parent company — was allowed to enter into a non prosecution agreement.
UBS was represented by Gary Spratling and David Burns of Gibson Dunn in Washington, D.C.
The first question at the press conference was the obvious one — why wasn’t UBS indicted?
“We evaluate it the way we do here,” said Criminal Division chief Lanny Breuer. “We looked at the conduct. There are many factors, as you know, that we consider when pursuing cases against entities. Here much of the conduct occurred at the Japanese subsidiary, and looking at its criminal history, looking at the severity of the conduct, looking at the collateral consequences, we think we arrived at a very robust, very real and very appropriate resolution.”
A second reporter wasn’t convinced.
Yes, the UBS Japanese unit was convicted.
But why not the parent?
“This bank was previously – I mean, you had brought a case with regard to their behavior on tax evasion in 2009,” the reporter said. “This is a bank that has broken the law before. So why not be tougher?”
“I don’t know what tougher means,” Breuer said.
“We have today announced a criminal plea of a major financial institution, a Japanese subsidiary of a very major institution. We brought charges against two traders. We brought a very robust, real non-prosecution agreement. We have a $500 million penalty from the Justice Department and a $1.5 billion overall resolution, and we’re continuing to investigate. By any fair criteria, this is a very real, a very robust and a very forceful resolution.”
Yes, exactly.
A criminal plea of a Japanese subsidiary of a very major institution.
Why didn’t you charge the parent company with a crime?
You allowed them to enter this non-prosecution agreement.
It’s not even a deferred prosecution agreement.
You say you are worried about collateral consequences.
What exact collateral consequences are you worried about?
“There are a lot of different factors that we in the Department of Justice have to use when we’re evaluating what’s a fair and real resolution,” Breuer said. “We look at the criminal history, we look at the underlying conduct, we look at the level of cooperation.”
“Our goal here is not to destroy a major financial institution.”
How exactly would a criminal plea of UBS destroy it?
“I’m not saying that,” Breuer said.
“But let’s look at what we’ve done here. It’s been a long time since a major entity has pled guilty, and here you have a major entity – not a small entity, a major UBS entity, pleading guilty to wire fraud. We also have a very robust resolution.”
“We also, frankly, have new UBS leadership. We have looked at who UBS’ chairman is. He’s the former head of the central bank of Germany. There’s a whole new regime. They completely have cooperated with this investigation. They’ve helped us advance the LIBOR investigation.”
“I think we have to balance all of these factors. This is a very real and a very robust resolution.”
“And we have to weigh different factors, one of which is, to go into your question – what are the collateral consequences?”
“And in deciding how you’re going to pursue an institution, you have to at least evaluate whether or not innocent people might lose jobs or there might be some sort of a collateral event.”
If this company were charged with the crimes that you all are alleging, what specific collateral consequences are you worried about?
“It’s not so much that we were worried about any one thing,” Breuer said. “We’re trying to figure out what was the appropriate resolution. But of course, as others have said, in the world today of large institutions, where much of the financial world is based on confidence, one of the things we want to ensure as we come forward in a – in a right resolution is to ensure that counter-parties don’t flee an institution, that jobs are not lost, that there’s some world economic event that’s disproportionate to the resolution we want.”
“Here we’re holding those who did wrong accountable. Here a subsidiary’s pleading guilty. Here we have an ongoing investigation. And here we have an entirely new leadership at UBS that wasn’t the leadership when the wrongdoing was occurring, that has new compliance programs and that has fully cooperated.”
Attorney General Eric Holder now steps in.
“Let’s be honest,” Holder says. “I’m not talking about just this case, but in others that we have resolved, the impact on the stability of the financial markets around the world is something that we take into consideration. We reach out to experts outside of the Justice Department to talk about what are the consequences of actions that we might take, what would be the impact of those actions if we wanted to make a particular prosecutive decision or determination with regard to a particular institution. So that factors into the kinds of decisions that we make.”
“As Lanny said, there are a series of factors that we have to consider in bringing charges. It started back when I was the deputy attorney general. It was called the ‘Holder memo’ then. It’s gone through a number of iterations since then.”
“I think we have to understand, though, what has happened today is that UBS – UBS has been charged criminally. Now, we can parse that if we want to.”
“But the reality is that UBS has been charged criminally – individuals have been charged criminally. And a resolution has been reached with regard to the corporation.”
Well, Mr. Attorney General, the reality is, UBS was not charged criminally.
UBS Japan was charged criminally.
Apparently, it makes a difference.
Or as Mr. Breuer put it:
“Our goal here is not to destroy a major financial institution.”