Rabobank has become the latest financial markets player to be hit with fines over the London Interbank Offered Rate (Libor) scandal, the Dutch giant faces penalties of more than $1 billion from authorities in the US, UK and Holland.
The Commodity Futures Trading Commission has brought and settled charges of false reporting and attempted manipulation of the Libor for US dollar, yen and sterling, and of the Euro Interbank Offered Rate (Euribor) and charges of successful manipulation of yen Libor.
The CFTC also settled charges that Rabobank, at times, aided and abetted the attempts of derivatives traders at other banks to manipulate Yen LIBOR and Euribor.
These violations, which spanned nearly six years, involved more than two dozen employees working out of six offices on three continents. Rabobank is obligated to pay a penalty of $475 million, and the company is ordered to take further steps to ensure the integrity of its Libor and other benchmark interest rate submissions in the future.
In related actions, the US Department of Justice entered into a deferred prosecution agreement with Rabobank, deferring criminal wire fraud charges in exchange for Rabobank continuing to cooperate and agreeing to a penalty of $325 million; the UK’s Financial Conduct Authority (FCA) issued a Final Notice regarding its enforcement action against Rabobank and imposed a penalty of £105 million; the Japanese Financial Services Agency (JFSA) issued an administrative action against Rabobank for failure of its internal controls within its Tokyo office; De Nederlandsche Bank took action by imposing remedial measures on Rabobank; and the Dutch Public Prosecutor’s Office agreed to a payment of €70 million by Rabobank in order for Rabobank to avoid a criminal prosecution.
David Meister, the CFTC’s director of enforcement says, “The CFTC has now charged five global financial institutions for Libor manipulative schemes, with nearly $1.8 billion in penalties imposed by the Commission alone. The sheer number of institutions and individuals involved in these cases reflects a truly shocking and brazen degree of unlawfulness, warranting the historic enforcement response we bring forth today and in our prior cases. I want to personally commend Gretchen Lowe and the Division staff who have all painstakingly worked to investigate and prosecute these cases in the finest traditions of law enforcement.”
Meister is sooon to step down from his role to be replaced by Lowe, she says, “For years, Rabobank allowed profit-driven traders located in offices around the globe to corrupt the submission process for critical benchmark interest rates. When an institution threatens the integrity of the financial markets, we bring the full force of our authority to bear. Accordingly, today the Commission holds Rabobank accountable for its egregious, manipulative misconduct.”
In it’s order, CFTC says that Rabobank traders, some of whom doubled as Libor and Euribor submitters, regularly made and accommodated their fellow traders’ requests to make favourable rate submissions to benefit their trading positions through attempts to manipulate rates that were, as some Rabobank employees said at the time, “ridiclous,” “obseenly high” and “silly low”.
More than two dozen traders, including several desk managers and at least one senior manager located in Rabobank’s New York, London, Utrecht, Tokyo, Hong Kong, and Singapore offices engaged in this wrongful conduct or knew it was ongoing at the time but did nothing to stop it, CFTC adds.
The CFTC Order adds that at times, Rabobank was successful in its attempts to manipulate Yen Libor. “In fact, the misconduct with respect to Yen Libor was so entrenched that as traders assumed the role of submitter, their predecessors would train them on the unlawful practices,” it explains.
Rabobank also, at times, aided and abetted other banks’ attempts to manipulate Yen Libor and Euribor, including coordinating with an interdealer broker on Yen Libor submissions to aid the manipulations of the senior yen trader at UBS who has already been charged by the authorities.
Although the Libor scandal has revolved around the actions of a group of dealers and brokers, CFTC also finds that institutionally Rabobank ignored the obvious conflict of interest it created by assigning traders with trading positions tied to Libor and Euribor to serve as Rabobank’s Libor and Euribor submitters. “Submitters were improperly left to choose between their responsibility to make an honest assessment of borrowing costs and their desire to maximize the profitability of their trading positions,” CFTC says. “Here, Rabobank’s submitters often resolved the conflict in favour of profit.
“This conflict was exacerbated by traders and submitters sitting together so that traders could simply shout requests for unlawful submissions across the trading desk,” CFTC adds. “Rabobank thus provided these employees with unfettered opportunities to attempt to manipulate Libor and Euribor for profit, and the traders took advantage of those opportunities.”
As appears to have been the case elsewhere, CFTC says that the manipulative conduct occurred even after the Commission had commenced its investigation of Rabobank’s US dollar Libor practices in April 2010, when Rabobank received the Commission’s request that the Bank internally investigate its practices. “In late 2010, after Rabobank submitters refused, as instructed by a manager, to consider a trader’s requests for particular Yen Libor submissions, the Rabobank trader promptly obtained the assistance of an interdealer broker to continue attempting to manipulate Yen LIBOR to benefit his trading positions through early 2011,” CFTC says.
In the UK, Tracey McDermott, the FCA’s director of enforcement and financial crime was equally critical. “Rabobank’s misconduct is among the most serious we have identified on Libor,” she says. “Traders and submitters treated Libor submissions as a potential way to make money, with no regard for the integrity of the market. This is unacceptable.
“Rabobank’s flawed assurances and failure to get a grip on what was going on in its business were extremely disappointing,” she adds. “Firms should be in no doubt that the spotlight will remain on wholesale conduct and we will hold them to account if they fail to meet our standards.”