WASHINGTON—Barclays Bank PLC, a financial institution headquartered in London, has entered into an agreement with the Department of Justice to pay a $160 million penalty to resolve violations arising from Barclays’ submissions for the London InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR), which are benchmark interest rates used in financial markets around the world, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office.
As part of the agreement with the Department of Justice, Barclays has admitted and accepted responsibility for its misconduct set forth in a statement of facts that is incorporated into the agreement. According to the agreement, Barclays provided LIBOR and EURIBOR submissions that, at various times, were false because they improperly took into account the trading positions of its derivative traders, or reputational concerns about negative media attention relating to its LIBOR submissions. The Justice Department’s criminal investigation into the manipulation of LIBOR and EURIBOR by other financial institutions and individuals is ongoing. The agreement requires Barclays to continue cooperating with the department in its ongoing investigation.
“LIBOR and EURIBOR are critically important benchmark interest rates,” said Assistant Attorney General Breuer. “Because mortgages, student loans, financial derivatives, and other financial products rely on LIBOR and EURIBOR as reference rates, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide. For years, traders at Barclays encouraged the manipulation of LIBOR and EURIBOR submissions in order to benefit their financial positions; and, in the midst of the financial crisis, Barclays management directed that U.S. Dollar LIBOR submissions be artificially lowered. For this illegal conduct, Barclays is paying a significant price. To the bank’s credit, Barclays also took a significant step toward accepting responsibility for its conduct by being the first institution to provide extensive and meaningful cooperation to the government. Its efforts have substantially assisted the Criminal Division in our ongoing investigation of individuals and other financial institutions in this matter.”
“Barclays Bank’s illegal activity involved manipulating its submissions for benchmark interest rates in order to benefit its trading positions and the media’s perception of the bank’s financial health,” said Assistant Director in Charge McJunkin. “Today’s announcement is the result of the hard work of the FBI special agents, financial analysts, and forensic accountants as well as the prosecutors who dedicated significant time and resources to investigating this case.”
Barclays was one of the financial institutions that contributed rates used in the calculation of LIBOR and EURIBOR. The contributed rates are generally meant to reflect each bank’s assessment of the rates at which it could borrow unsecured interbank funds. For LIBOR, the highest and lowest 25 percent of contributed rates are excluded from the calculation and the remaining rates are averaged to calculate the fixed rates. For EURIBOR, the highest and lowest 15 percent are excluded, and the remaining 70 percent are averaged to calculate the fixed rates.
Futures, options, swaps, and other derivative financial instruments traded in the over-the-counter market and on exchanges worldwide are settled based on LIBOR. Further, mortgages, credit cards, student loans, and other consumer lending products often use LIBOR as a reference rate. According to the agreement, an individual bank’s LIBOR or EURIBOR submission cannot appropriately be influenced by the financial positions of its derivatives traders or the bank’s concerns about public perception of its financial health due to its LIBOR submissions.
According to the agreement, between 2005 and 2007, and then occasionally thereafter through 2009, certain Barclays traders requested that the Barclays LIBOR and EURIBOR submitters contribute rates that would benefit the financial positions held by those traders. The requests were made by traders in New York and London, via electronic messages, telephone conversations, and in-person conversations. The employees responsible for the LIBOR and EURIBOR submissions accommodated those requests on numerous occasions in submitting the bank’s contributions. On some occasions, Barclays’s submissions affected the fixed rates.
In addition, between August 2005 and May 2008, certain Barclays traders communicated with traders at other financial institutions, including other banks on the LIBOR and EURIBOR panels, to request LIBOR and EURIBOR submissions that would be favorable to their or their counterparts’ trading positions, according to the agreement.
When the requests of traders for favorable LIBOR and EURIBOR submissions were taken into account by the rate submitters, Barclays’ rate submissions were false and misleading.
Further, according to the agreement, between approximately August 2007 and January 2009, in response to initial and ongoing press speculation that Barclays’ high U.S. Dollar LIBOR submissions at the time might reflect liquidity problems at Barclays, members of Barclays management directed that Barclays’ dollar LIBOR submissions be lowered. This management instruction often resulted in Barclays’ submission of false rates that did not reflect its perceived cost of obtaining interbank funds. While the purpose of this particular conduct was to influence Barclays’ rate submissions, as opposed to the resulting fixes, there were some occasions when Barclays’ submissions affected the fixed rates.
The agreement and monetary penalty recognize Barclays’ extraordinary cooperation. Barclays made timely, voluntary, and complete disclosure of its misconduct. After government authorities began investigating allegations that banks had engaged in manipulation of benchmark interest rates, Barclays was the first bank to cooperate in a meaningful way in disclosing its conduct relating to LIBOR and EURIBOR. Barclays’ disclosure included relevant facts that at the time were not known to the government. Barclays’s cooperation has been extensive, in terms of the quality and type of information and assistance provided, and has been of substantial value in furthering the department’s ongoing criminal investigation. Barclays has made a commitment to future cooperation with the department and other government authorities in the United States and the United Kingdom.
Assistant Attorney General Breuer further stated, “As today’s agreement reflects, we are committed to holding companies accountable for their misconduct while, at the same time, giving meaningful credit to companies that provide full and valuable cooperation in our investigations.”
In addition, Barclays has implemented a series of compliance measures and will implement additional internal controls regarding its submission of LIBOR and EURIBOR contributions, as required by the Commodity Futures Trading Commission (CFTC). Barclays will also continue to be supervised and monitored by the FSA.
The agreement and monetary penalty further recognize certain mitigating factors to Barclays’ misconduct. At times, Barclays employees raised concerns with the British Bankers’ Association, the United Kingdom Financial Services Authority (FSA), the Bank of England, and the Federal Reserve Bank of New York in late 2007 and in 2008 that the Dollar LIBOR rates submitted by contributing banks, including Barclays, were too low and did not accurately reflect the market. Further, during this time, notwithstanding Barclays’s improperly low dollar LIBOR submissions, those submissions were often higher than the contributions used in the calculation of the fixed rates.
As a result of Barclays’s admission of its misconduct, its extraordinary cooperation, its remediation efforts and certain mitigating and other factors, the department agreed not to prosecute Barclays for providing false LIBOR and EURIBOR contributions, provided that Barclays satisfies its ongoing obligations under the agreement for a period of two years. The non-prosecution agreement applies only to Barclays and not to any employees or officers of Barclays or any other individuals.
In a related matter, the CFTC brought attempted manipulation and false reporting charges against Barclays, which the bank agreed to settle. The CFTC imposed a $200 million penalty and required Barclays to implement detailed measures designed to ensure the integrity and reliability of its benchmark interest rate submissions.
The FSA issued a final notice regarding its enforcement action against Barclays and has imposed a penalty of £59.5 million against it.
The case is being handled by Deputy Chief Daniel Braun, Assistant Chiefs Rebecca Rohr and Robertson Park, Trial Attorney Alexander Berlin, and Special Trial Attorney Luke Marsh of the Criminal Division’s Fraud Section. The investigation is being conducted by the FBI’s Washington Field Office, jointly with the Antitrust Division of the Department of Justice.
The Department acknowledges and expresses its appreciation for the significant assistance provided by the CFTC’s Division of Enforcement, which referred the conduct to the department, as well as the FSA’s Enforcement and Financial Crime Division.
This agreement is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: http://www.stopfraud.gov.