Barclays Bank today agreed to pay $360 million to settle charges brought by U.S. regulators that it attempted to manipulate interest rates and made false reports to benefit its derivatives trading positions.
The Commodity Futures Trading Commission and the Justice Department's Criminal Division brought the charges against the London-based bank, with $200 million of the penalty going to resolve the CFTC's civil case — the agency's biggest-ever fine — and $160 million to settle the DOJ fraud case. Barclays will pay another $93 million to resolve charges brought by regulators in the United Kingdom.
The charges revolved around Barclays’ submissions to 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.
Barclays is one of the financial institutions that contribute information used in the calculation of the rates, which are meant to reflect each bank’s assessment of the rates at which it could borrow unsecured interbank funds.
The rates "form the basis for hundreds of trillions of dollars of transactions and affect nearly every corner of the global economy,” said David Meister, the CFTC’s director of enforcement. “Banks that contribute information to those benchmarks must do so honestly. When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports that result from senior management orders to lower submissions to guard the bank’s reputation, the integrity of benchmark interest rates is undermined.”
According to the Justice Department, between 2005 and 2007, and at times 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 CFTC also alleged that from late August 2007 through early 2009, senior executives directed Barclays to routinely make "artificially low Libor submissions to protect Barclays’ reputation from negative market and media perceptions concerning Barclays’ financial condition."
Barclays Chief Executive Officer Bob Diamond in a statement said that “[t]he events which gave rise to today’s resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business." According to the settlement agreement, Barclays was represented by Steven Peikin, David Braff, Jeffrey Scott and Matthew Fitzwater of Sullivan & Cromwell.
In addition to the monetary penalty, the CFTC order requires Barclays to cease and desist from further violations and take steps such as making the determinations of benchmark submissions transaction-focused and improve related internal controls.
Also, the Justice Department agreed not to pursue a criminal prosecution against Barclays. In a news release, DOJ noted that Barclays was "the first bank to cooperate in a meaningful way." Other large banks are reportedly still under investigation for manipulation of benchmark interest rates.