US authorities begin extradition proceedings against two former UBS employees as global regulators fined the Swiss bank $1.2bn for attempts to manipulate key benchmark interest rates
The first criminal charges in the Libor scandal were brought on Wednesday just hours after the Swiss bank UBS was fined $1.2bn (£940m) by global regulators for manipulating the key rate and making corrupt payments to brokers.
The US authorities are to begin extradition proceedings against two former UBS employees after regulators found the Swiss bank had been involved in “extensive and widespread” attempts to manipulate key benchmark interest rates.
The £160m portion of the fine levied by the Financial Services Authority is the largest ever imposed by the City regulator, surpassing the £59.5m imposed on Barclays in June for attempted manipulation of the Libor and Euribor rates.
The total Barclays fine was £290m, and led to the resignation of chief executive Bob Diamond. The FSA said the UBS offences were “considerably more serious”, involving payments of £15,000 a quarter to brokers to help fix the rate used on financial products such as mortgages worth £300tn. Just as the Barclays case revealed traders promising each other Bollinger champagne, the emails and phone calls published by regulators in relation to UBS asked brokers to be “superman … be a hero today” in helping to fix Libor. An electronic chat described a UBS trader and two traders at two unnamed banks being described as the three “muscateers” (sic).
In another electronic exchange, a UBS trader says to a broker “do the bisness and i’ll sort you MASSIVE”. Another said he would pay a broker “whatever you want” to fix Libor at a suitable level.
In Washington, the department of justice said Tom Hayes and Roger Darin, two former UBS employees, had been charged with conspiracy and that Hayes was also charged with wire fraud and an antitrust violation. “Make no mistake, for UBS traders the manipulation of Libor was about getting rich,” assistant attorney general Lanny Breuer, the head of the department’s criminal division, said.
Breuer said the department would seek the extradition of two former employees. “We believe that one of them is in England. The other one is in Switzerland. Mr Hayes obviously was a very, very major trader, and we’re going to continue to move forward,” he said.
In an agreement with the department of justice, the Japanese arm of UBS pleaded guilty to one charge of wire fraud, and is paying US regulators a total of £740m. It is the latest in a string of embarrassments for the City, following the record £1.2bn fine on HSBC for money laundering and £415m penalty levied on Standard Chartered for Iranian sanctions busting.
Regulators found UBS had made at least 2,000 requests for “inappropriate submissions” to the key rates and at least 45 individuals “including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions”, the FSA said. It feared every one of those submissions was potentially suspicious.
The bailed-out Royal Bank of Scotland is in talks with regulators over its involvement in rigging the key rates and at least a dozen firms are co-operating with the authorities.
A criminal investigation into Libor has begun in the UK and the Serious Fraud Office arrested three men last week.
Sergio Ermotti, chief executive of UBS, who joined after the Libor offences, said 30 or 40 people had now left the bank and the “misconduct” did not reflect the values of the bank, which had to be bailed out by Switzerland during the 2008 financial crisis when many of the regulatory breaches were taking place. “We deeply regret this inappropriate and unethical behaviour. No amount of profit is more important than the reputation of this firm and we are committed to doing business with integrity,” Ermotti said. UBS, in the process of axing 10,000 staff, will report a loss this quarter as a result of the penalties.
The FSA said UBS had colluded with interdealer brokers to influence submissions to the yen Libor rate and that corrupt brokerage payments of thousands of pounds a quarter were made to reward brokers for their efforts to manipulate the Libor submissions of other banks on the Libor panel. It said it had found a UBS trader agreeing with a counterpart that he would attempt to manipulate UBS’s submissions in “small drops” to avoid arousing suspicion. The trader made it clear that he hoped to profit from the manipulation and referred explicitly to his UBS trading positions and the impact of the Japanese Libor rate on those positions. He offered to “return the favour” and illicit fees of more than £170,000 were generated for the broker through unnecessary trades.
Five internal audits failed to uncover the attempts to manipulate Libor, which took place between 2005 and the end of 2010. The Swiss regulator Finma said most of the requests were made by one trader who worked in Tokyo from 2006 to 2009.