Dutch banking giant Rabobank will pay more than $1 billion to settle charges it manipulated benchmark global interest rates from 2005 to 2011.
The biggest piece of the settlement - $425 million - will go to the U.S. Commodity Futures Trading Commission for what Enforcement Division chief David Meister called "a truly shocking and brazen degree of unlawfulness" in rigging the Libor and Euribor rates.
It's the fifth case against a bank for interest rate manipulation, and the second-largest penalty to date. Swiss bank UBS AG paid U.S. and overseas regulators $1.5 billion in December 2012 to settle similar charges.
As part of the settlement, Rabobank agreed to pay a fine of $325 million for one criminal count of wire fraud, admitting in a deferred prosecution agreement with the U.S. Department of Justice that the allegations were “true and accurate.” The bank will also pay $170 million to financial regulators in the United Kingdom and $96.5 million to Dutch prosecutors.
Rabobank announced today that chairman Piet Moerland has resigned, and said 30 employees were involved in wrongdoing, but that “top management was neither involved in nor aware of inappropriate conduct.” The bank, represented in the investigation by David Gelfand and James Cavoli of Milbank, Tweed, Hadley & McCloy, said it “did not sufficiently appreciate the risks associated with the Libor and Euribor submission processes.”
The U.S. Justice Department said Rabobank did not self-disclose the misconduct, but ”fully cooperated” once the inquiry began, and is assisting in ongoing investigations of other banks.
“Other banks should pay attention: our investigation is far from over,” Mythili Raman, acting head of DOJ’s criminal division, said in a statement.
Deutsche Bank in its third quarter report issued yesterday said a pending Libor-related investigation has “the potential to result in the imposition of significant financial penalties.” Reuters has previously reported that Citibank and JPMorgan Chase are also under investigation for interest rate rigging.
To date, U.S. prosecutors have only brought charges against foreign entities—Barclays plc paid $453 million in June 2012 and Royal Bank of Scotland paid $612 million in February for rigging the Libor and Euribor. British interdealer broker ICAP plc paid $87 million last month.
Like the other global banks under fire, Rabobank submitted borrowing rate information on a daily basis for use in the calculation of the London Interbank Offered Rate, or Libor, and the Euribor, for the U.S. dollar, Yen, and Pound Sterling. According to the CFTC, the bank made submissions that traders at the time called “ridiculous” “obscenely high” and “silly low” in the hopes of fraudulently moving the market.
CFTC Chairman Gary Gensler warned that the problem is still not solved. “I wish I could say that this won’t happen again, but I can’t,” he said in a written statement. “Libor and Euribor are not sufficiently anchored in observable transactions. Thus, they are basically more akin to fiction than fact. That’s the fundamental challenge so sharply revealed by Rabobank and our prior cases.”