The Serious Fraud Office is investigating claims that banks rigged benchmark interest rates to boost their bonuses in a scandal that has already forced out three Barclays executives.
Allegations of a global bank conspiracy – stretching from Tokyo to Toronto – have resulted in five separate criminal probes, kicked open a hornet’s nest of litigation worldwide, and sparked a hostile war of words among British politicians over who is to blame.
SFO Director David Green issued a terse, one-line statement on Friday saying he would formally “accept the Libor matter for investigation.” The SFO, contacted by Channel 4 News, refused to discuss the expected length of the investigation, the scope or whether the probe includes banks other than Barclays.
The Libor “has lost a huge amount of credibility as a benchmark and barometer, but it was always known that it was open to abuse,” said Chris Huddleston, head of money markets at Investec.
Bank of England Deputy Governor Paul Tucker is to give evidence to MPs on Monday after being dragged into the scandal by former Barclays chief executive Bob Diamond this week. While Mr Diamond maintains the BoE was just doing its job, he said there may have been outside pressure from “senior Whitehall officials” to fiddle with the Libor rate after the 2008 crash of Lehman Brothers.
Barclays paid a record $461m fine to the US Justice Department and UK Financial Services Association last week for its involvement in rate rigging.
It is not over yet, however. The European Commission and Japan’s Financial Service Authority are conducting their own probes while Canada’s Competition Bureau investigates the possible collusion of international banks in setting the Libor rate.
Libor is set every day in London for 10 currencies for a range of maturities. The rate is supposed to reflect the rate at which banks lend to one another, and it is linked to trillions of dollars in mortgages, student loans and financial derivatives.
“For years, traders at Barclays encouraged the manipulation of Libor and Euro Interbank Offered Rate submissions in order to benefit their financial positions,” US Assistant Attorney General Lanny Breuer said in announcing Barclays’ fine. “For this illegal conduct, Barclays is paying a significant price.”
Barclays admits submitting false Libor rates to benefit derivatives trades and bolster its own financial position.
But Mr Diamond told MPs on Wednesday that he did not hear Barclays’ bankers openly yelling across the trading floor for years as they discussed manipulating the Libor rates. Nor, Mr Diamond testified, was he aware there were 177 e-mailed requests between Barclays traders to others at the bank who set the Libor rates.
Mr Diamond said did not know why none of the Barclays line managers or compliance officers brought the criminal activity to his attention in the 16 years he worked at the bank, but he assured MPs seven times that he “loved” Barclays, and when he finally learned about the Libor meddling in July he threw up.