Today, The Wall Street Journal has announced that U.S. and British authorities are preparing to bring criminal charges against former employees of Barclays PLC for their alleged roles trying to manipulate the LIBOR benchmark interest rates, according to insiders familiar with the plans, marking a real escalation of a global investigation now entering its sixth year.
According to the New York journal, the charges are likely to be filed this summer, the sources have reported, roughly a year after the big British bank became the first institution to settle over allegations that it attempted to rig the London interbank offered rate, and other widely used financial benchmarks. The sources cautioned that the plans aren't finalized and could be delayed or modified.
Such news is very welcome indeed, because it demonstrates that criminal prosecutions could be in the offing, but we must be cautious before making too many positive public comments because of the old adage of 'many a slip'!
So far, U.S. authorities have filed charges against two individuals. British prosecutors haven't charged anyone. Units of two banks, UBS AG and Royal Bank of Scotland Group PLC have pleaded guilty to U.S. criminal charges as part of rate-manipulation settlements.
At the present time it is not clear which former Barclays employees are likely to face charges, or what the charges would be. A Barclays spokesman has declined to comment.
However, and from my perspective slightly worrying, the present investigations appear to be targeted at mid-level traders, not top-level executives, according to the sources familiar with the planned charges.
In London, prosecutors at the Serious Fraud Office and regulators from the Financial Conduct Authority have been investigating former Barclays employees, according to inside sources familiar with the investigation.
The FCA has postponed multiple enforcement hearings with specific individuals, partly in order to coordinate some of the cases with the SFO and Justice Department. The FCA hasn't publicly accused any individuals of wrongdoing.
As the WSJ reports, the U.S. and British authorities originally envisioned bringing civil and criminal charges against any individuals alleged to be involved within months of each bank settling Libor-rigging charges, according to people familiar with the cases. But the investigations have proceeded more slowly than expected, partly because of the cases' complexity and the difficulties of coordinating among authorities in multiple jurisdictions.
Part of the residual problem has been a breakdown in trans-Atlantic working relationships, but now, U.S. and British investigators are trying to coordinate their cases against the former Barclays employees, and hoping to repair relations that were badly strained in the Libor case late last year.
Last autumn, case insiders reported that Justice Department officials informed their U.K. counterparts that they planned to file criminal fraud charges against former UBS and Citigroup Inc. trader Tom Hayes, a British citizen living in the London area.
The day before the Justice Department filed its charges against him in mid-December, the SFO arrested Mr.Hayes and seized his passport. He has not been charged in the U.K. In a January text message to The Wall Street Journal, Mr. Hayes said: "This goes much much higher than me."
The move angered U.S. officials because it undermined the chances of Mr. Hayes, a prime target of the Justice Department's years long investigation, ever being extradited to the U.S.
It is almost certain that the US authorities would have wanted to get at more senior employees in the banks, and they would have done this by using Hayes as a cooperating witness, but in order to achieve that status, they would have had to have had him physically in the US, where they could have exerted legal pressure on him to cooperate.
Knowing now that the SFO moved against him before the US authorities could get hold of him, thus souring relationships between the two prosecuting agencies, predicates, for me, a wide series of important questions.
Why did the SFO arrest Hayes the day before US charges were filed? Clearly the US authorities were corresponding with their UK counterparts, and sharing information, but the actions of merely arresting Hayes and seizing his passport and then releasing him again while further enquiries were made, does smack of 'official interference' with the US case!
It further smacks of an attempt to be in a position to control the outcomes of the investigation, because once in American hands, the UK authorities would not have been able to control what information or further evidence Hayes might have been willing to give against others further up the 'food chain'. Such information could well prove to be very embarrassing to senior banking figures in the City of London, information which the UK authorities would have been very keen to suppress, if it proved to be too awkward. There is no doubt that the British Government would have wanted to know exactly what Hayes would have been in a position to say before allowing him to be interviewed by the US prosecutors, and they would have wanted to be in a position to 'influence' his cooperation with the US authorities if his potential information was deemed to be too damaging to City interests.
You will note I refer to 'City' interests, not those of UK plc!
Let us not have any illusions about the British tactic of obstructing other law enforcement agencies, particularly when it comes to investigating alleged wrong-doing in the City of London.
When the Manhattan District Attorney's Office was investigating the affairs of BCCI, the US officers were wholly prevented from conducting investigations in London by the then head of the SFO, Barbara Mills, and were told to stay in their hotel rooms until called for. It took a lot of negotiations before the US authorities were permitted to undertake parallel investigations in London with their City of London counterparts.
So, it is with some eager anticipation that I await the outcome of these investigations and the unveiling of any charges which may be brought against the bankers who have been involved in this most egregious of activities.
My only hope, and it is a very real one, is that the charges are not just brought against bankers who are only half way up the pecking order. I sincerely hope that the investigations have gone right up to the top of the institutions involved and have included the responsible board members who undoubtedly would have known of this wrongdoing and who would have openly connived at its commission.
Only by bringing serious criminal charges against senior bankers can the UK authorities prove to us, the British people, and the wider world, that they have the mmoral courage to put their authority where their mouth is, and prove, once and for all that they are going to ensure that criminal actions in the banks will be met by concerted criminal action on the part of the prosecutors.
My great fear is that they will bottle out of bringing action against senior executives, for fear of offending the City, and that only the minnows will be caught up in the net. What will be fascinating, after any charges have been laid, to see what kind of deals are proffered to the defendants to plead guilty in return for a series of soft sentences, in order to prevent or forestall any embarrassing revelations by a defendant from the witness box as to which other persons, the 'big fish', in the bank were involved in the scams!