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Rabo Hit with $1 Billion Libor Fine

Dutch giant becomes the latest to settle Libor charges. Colin Lambert reports.

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 (CFTC) 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.

CFTC’s former director of enforcement,
David Meister, said at the time: “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.”

Lowe, who has now succeeded Meister,
said, “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 its order, the 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” [sic] 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
says.

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 maximise 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.”
 

Paul Gogliormella

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