Libor criminal probe in U.K. starts as U.S. readies indictments

U.K. still considering case merits

Libor, coins Libor, coins

July 27 (Bloomberg) -- The U.S. Justice Department is preparing to file charges this fall against traders from several banks in the global probe of interest rate-rigging. Meanwhile, U.K. prosecutors haven’t even decided whether they have a case.

The U.K. Serious Fraud Office opened a criminal investigation this month after Barclays Plc was fined a record 290 million pounds ($450 million) by U.K. and U.S. authorities. Politicians including U.K. Chancellor of the Exchequer George Osborne and Ed Miliband, leader of the opposition Labour Party, called for a criminal probe, and the agency was told it would be given a budget to take on the case.

The SFO had declined to get involved in the investigation for more than a year, despite briefings with the U.K. Financial Services Authority and a compilation of findings from U.S. enforcement agents. The U.S. evidence was provided as early as late last year, according to a person familiar with the case who wasn’t authorized to discuss it.

“It’s partly the difference in culture,” said Andrew Haynes, a law professor at the University of Wolverhampton in England. “In America, economic crime is something that’s regarded as desperately serious. In this country it is regarded as a problem, but there’s sometimes a slothful response.”

Dozen Banks

The U.K. joins the U.S. in criminally investigating how derivatives traders and rate submitters colluded to rig the London Interbank Offered Rate, or Libor, and other interest rates. At least a dozen banks are being probed by regulators worldwide.

Royal Bank of Scotland Group Plc, UBS AG, Deutsche Bank AG and Credit Suisse Group AG are among banks awaiting their fate as regulators from Tokyo to London to New York investigate.

“Now the priority is to come to an assessment whether the available offenses are there for us to prosecute in a criminal court,” SFO spokesman David Jones said. If “the answer to that is yes we can, then we start going hell for leather and putting together a formal investigation team,” he said.

Regardless of the detailed findings involving manipulation of Libor, the SFO didn’t express any interest in the matter until recently, the person said. The agency appointed a new director, David Green, in late April.

“We were in constant liaison with the SFO, and have been throughout, but ultimately the SFO’s decisions as to what they do are matters for the SFO,” Tracey McDermott, the FSA’s acting head of enforcement, told British lawmakers July 16.

Low Submissions

Barclays employees tried to manipulate Euribor and Libor for profit, while managers instructed rate-setters to make artificially low submissions to avoid the perception the lender was under stress amid turmoil in credit markets in 2007 and 2008, according to the settlement.

As part of the U.S. and U.K. settlements, Barclays admitted rigging rates as early as 2005. Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier resigned over the scandal.

The U.S. charges against individuals, which would probably be filed by October, center on alleged rate-fixing activity that goes beyond the conduct described in last month’s settlement between Barclays and regulators, according to the person familiar with the case.

Initially prosecutors aimed to bring charges as soon as Labor Day, the U.S. holiday on Sept. 3, against traders who illegally manipulated Libor rates. The eruption of political and public anger following the Barclays settlement captured the attention of other regulators in the U.S. and U.K., as well as lawmakers in Congress and Parliament.

Wider Interest

The wider interest in the Libor case in turn has altered the trajectory of the criminal probe, changing the timetable of criminal charges, the person said.

The Justice Department investigation of criminal activity related to Libor is moving on a parallel course with civil probes of the banks being conducted by the U.S. Commodity Futures Trading Commission, the U.S. Securities and Exchange Commission and U.K. regulators, including the Serious Fraud Office.

The Barclays settlement required approval of the CFTC, the Justice Department and the U.K.’s Financial Services Authority. Future civil settlements will also require agreement from the SEC and the Serious Fraud Office.

U.S. prosecutors have been criticized for failing to bring any “meaningful” cases against individuals stemming from the financial crisis, said Michael Perino, a law professor at St. John’s University in New York.

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