Wednesday, December 19, 2012

The organised criminal mafia enterprise that was the LIBOR market!

The findings in the investigation into the way in which UBS routinely carried out criminal manipulations of the LIBOR market make chilling reading.

I am utterly dumbfounded by the level of cynical and wholesale criminality that the FSA's report has uncovered. I had thought that it would no longer be possible to be shocked by any activities carried out by the global casino banks, but I was wrong. The LIBOR manipulations have managed to supercede even my wildest imaginations.

In this event, they provide us with a masterclass of how the average city banker's mind works and how he/she views the market they inhabit and how much they care about the simplest rules designed to prevent criminal conduct.

The Financial Services Authority (FSA) has fined UBS £160m for misconduct relating to the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR). This is the largest fine ever imposed by the FSA.

£160 million is an almost inconceivable figure for a banking institution to be fined. What is even more alarming is that there has been no public outcry, there are no clarion calls for resignations of regulators or politicians. Not a word has been uttered by the Government, no Cabinet spokesperson has been briefed to explain the Government's sense of concern at such a high level of egregious criminality. What has happened to their sense of moral outrage, do they think that the rest of us don't notice, or have we, as I suspect, have become so inured to this seemingly tireless procession of constant announcements of criminal conduct on the part of our biggest banks, that we can contemplate such a fantastic figure without batting an eyelid? For a bank to be able to so insouciantly admit such a selection of crimes, attracting such phenomenal fines, and the whole event merits only a few lines in the business pages of the newspapers, demonstrates just how criminally corrupted we have become in this country.  

This is the real scandal underlying this wholesale exercise in organised criminality. This is what truly demonstrates just how far the Government and the regulators have allowed the financial services industry to engage in crime, without doing anything about it, for fear of losing the dubious proceeds of foreign criminality that daily slush through the UK banking sector.

Between 1 January 2005 to 31 December 2010, UBS’s breaches of the FSA’s requirements encompassed a number of issues, involved a significant number of employees and occurred over a period of years in a number of countries.

This just proves how deeply entrenched the criminal culture has been allowed to become. This criminality, this fraudulent market manipulation, this exercise in wanton rule aversion has been taking place, just in this one egregious bank, every single day for over 5 years, across a number of jurisdictions.

UBS’s traders routinely made requests to the individuals at UBS responsible for determining its LIBOR and EURIBOR submissions, to adjust their submissions to benefit the traders’ trading positions.

These actions alone are offences under Section 17 Theft Act 1968, under the Theft Act 2000, and contrary to Common Law.

What were the in-house compliance officers doing while all this crime was taking place? Did nobody notice anything amiss for these five years, did no-one think to ask just the tiniest question about these transactions, Did no-one in the compliance department know the law, and realise that these actions were straightforward criminal offences?

If they did know, what did they do about it? And if they didn't know, why are they in the job in the first place. It makes me sick, just having to ask these simple questions, but then the same can be asked of the FSA.

During their routine compliance review visits, did they not become aware of what was happening? Did no-one inside the FSA pick up the slightest rumours that LIBOR was being manipulated in this way? It does begin to be apparent that they were aware of some LIBOR skulduggery at Barclays Bank, didn't it occur to them that it might also be going on at other institutions as well?

Apparently, corrupt brokerage payments were made to reward brokers for their efforts to manipulate the LIBOR submissions of panel banks. Did no-one in the other firm not become aware of this criminal activity?

The misconduct is described by the FSA as 'extensive and widespread'. At least 2,000 requests for inappropriate submissions were documented – an unquantifiable number of oral requests, which by their nature would not be documented, were also made. Manipulation was also discussed in internal open chat forums and group emails, and was widely known. At least 45 individuals including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions.

I asked whether anyone knew about these practices. Apparently the routine and widespread manipulation of the submissions was not detected by Compliance or by Group Internal Audit, which undertook five audits of the relevant business area during the relevant period.

What the fuck were they looking at, this begins to sound suspiciously like the fact that they were deliberately told to ignore these actions?

Even when the trading and submitting roles were split in Autumn 2009, UBS’s systems and controls did not prevent traders from camouflaging their requests as 'market colour'. Given the widespread and routine nature of the requests to change LIBOR and EURIBOR and the nature of the control failures, the FSA found that every LIBOR and EURIBOR submission, in currencies and tenors in which UBS traded during the relevant period, was at risk of having been improperly influenced to benefit derivatives trading positions.

The misconduct occurred in various locations around the world including Japan, Switzerland, the UK and the USA.

Tracey McDermott's response to this farrago of lost opportunities and failed compliance was a to say; 'The findings we have set out in our notice today do not make for pretty reading. The integrity of benchmarks such as LIBOR and EURIBOR are of fundamental importance to both UK and international financial markets. UBS traders and managers ignored this. They manipulated UBS’s submissions in order to benefit their own positions and to protect UBS’s reputation, showing a total disregard for the millions of market participants around the world who were also affected by LIBOR and EURIBOR. UBS’s misconduct was all the more serious because of the orchestrated attempts to manipulate the JPY LIBOR submissions of other banks as well as its own and the collusion with interdealer brokers and other panel banks in coordinated efforts to manipulate the fix'.

'Over an extended period UBS allowed this to happen through its failure to control its business appropriately to ensure that LIBOR and EURIBOR submissions properly reflected the relevant requirements. There should be no doubt about how seriously the FSA views these failings. This is our largest penalty to date and demonstrates our commitment to ensuring that those in the wholesale markets do not put their own interests above those of the markets as a whole'.
So what is going to be the outcome of all this organised crime?

We know, from bitter experience that the FSA won't be prosecuting anyone, they never do when they can avoid it. At the same time, Tracey McDermott can take comfort in the fact that the SFO have called three players in for interviews, so the FSA can now legitimately claim that another agency is looking at the question of prosecuting potential criminal charges.

But are all the people in UBS, the 45 individuals including traders, managers and senior managers who were engaged in this activity, what of them? Are they going to be called in for interview under caution and submitted for criminal charges to be preferred, and if not, why not?
Surely Tracey McDermott and her team can share the papers with the SFO, and let them get on with the business of prosecuting these bastards back to the Stone Age!

What this case demonstrates beyond any doubt is what happens when those who are employed to regulate the financial markets fail to do their job properly. It proves that UBS had a wholly captured compliance department who clearly just focused in processes and procedures, and who wilfully ignored what was going on under their noses, no doubt because they were told to mind their own business by senior managers.

It is the worst possible example of what happens when organised criminal conduct is allowed to become endemic inside a financial market sector, because it becomes so conjoined with other layers of business, it becomes hard to tell one from the other. It takes place because those engaged in this dishonesty know that no-one is going to do the least thing about them or their crimes, so what is to stop them. For them it is just like taking candy from a baby!.

Shame on all of those who failed to pick up these issues and deal with them. Shame on the management of UBS and all the other banks who were complicit in this criminal behaviour. Shame on the FSA for not dealing with this appropriately and sooner. The problem is now so huge, there is no effective way of remedying the existing situation except by imposing these vast fines, in the vain hope that it looks as if someone, anyone, might just be doing something, anything about it.

Organised criminality inside the major London banks is now their default position. It is the sine qua non of their status and culture, and as far as getting them to change, the genie is out of the bottle. The Government must now take this electoral issue far more seriously, and they must act upon it, once and for all, otherwise, they must be held to account at the ballot box, because they are directly benefiting from this mafia-style business culture, and they have the blood on their hands, and the dirty money in their coffers.


Demetrius said...

When I was young the idea was to bomb the Germans back to The Stone Age, and then as a teenager I was involved in making similar arrangements for the Soviets. Whilst it is tempting to hope for it for the Libor bankers, just as before politics will prevent it from happening.

Jason said...

Rowan as always I applaud your analysis and stance.

What is even more alarming is that there has been no public outcry, there are no clarion calls for resignations of regulators or politicians.

Rowan, the British public is like a dog the government is taking for a walk. The media is the stick the government throws -- whatever direction it throws that stick, the dog runs in that direction. LIBOR is forgotten amid genteel little misdirections like this which are the most we can expect at the moment.

What will change this?

What changed it on MP's expenses?

What changed it on phone hacking?

There was no proper oversight in those cases either. Only massive public calls for a change in that situation did anything.

Of course this government isn't worryed about the ballot box. They (wrongly) think allowing these crimes will make us rich and then they will claim to have solved the deficit crisis.

Some independent media story has to break that makes this more personal with the public.

Have a great Christmas!

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Jason said...

On another note Rowan, I was recently looking at this episode of HardTalk with Niall Ferguson:

BBC HARDtalk - Niall Ferguson - Historian (4/7/12)

I think it might interest you. I only got about seven minutes before the lies stacked up so high that I gave up! He pretty much contradicts everything you write here and more -- might prompt some thought or one of your excellent stinging rebuttals sometime.

Rowan Bosworth-Davies said...

I have learned in life that there are some people with whom it is seldom worth debating, simply because whatever one's views, no matter how genuinely held, they are never going to have any impact on the person with a contrarian view. Niall Fergusson is one such.

Jason said...


I've learned the same. :)

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