Part of an ongoing investigation into LIBOR price manipulations among major global brokers and banks; the CFTC and FCA have announced the issuing of an Order against Rabobank, requiring them to pay $475 million and £105 million respectively. Rabobank is being charged for “bringing and settling charges of false reporting and attempted manipulation of the London Interbank Offered Rate (Libor ) for U.S. Dollar, Yen and Sterling, and of the Euro Interbank Offered Rate (Euribor) and charges of successful manipulation of Yen LIBOR.” As well as charges that “Rabobank, at times, aided and abetted the attempts of derivatives traders at other banks to manipulate Yen LIBOR and Euribor.”
According to the CFTC Order, the violations occurred over a period of six years and included more than two dozen employees from six offices. The Order marks the fifth bank charged by the CFTC, following earlier penalties issued to Barclays, RBS, ICAP and UBS. Altogether, fines of the five banks total $1.765 billion in respect to penalties for manipulation of LIBOR and other benchmark rates. Due to the penalties, the bank is expected to see changes in its leadership as Rabobank CEO, Piet Moerland is set to submit his resignation shortly.
The Charges
In its charges, the CFTC explained that Rabobank was among banks that submitted rates that were used to calculate benchmark LIBOR for various currencies as well as the Euribor. In addition, the bank held securities positions whose values were affected by the benchmark rates. According to the CFTC, between 2005 and 2011, “Rabobank traders engaged in hundreds of manipulative acts undermining the integrity of U.S. Dollar and Yen LIBOR, Euribor and, to a lesser extent, Sterling LIBOR.”
According to the FCA, the regulator found over 500 instances of attempted LIBOR manipulation that involved at least 28 individuals. They added that among the individuals, “At least one manager was actively involved in attempted manipulation and facilitated a culture where this practice appeared to be accepted, or even endorsed by the bank.”
Examples cited by the CFTC include:
• Rabobank traders, some of whom doubled as LIBOR and Euribor submitters, regularly made and accommodated their fellow traders’ requests to make favorable rate submissions to benefit their trading positions through attempts to manipulate U.S. Dollar and Yen LIBOR and Euribor. On occasion, they did the same with respect to Sterling LIBOR. Making submissions that were, as some Rabobank employees said at the time, “ridiculous,” “obscenely high” and “silly low,” more than two dozen traders, including several desk managers and at least one senior manager located in Rabobank’s New York, London, Utrecht, Tokyo, Hong Kong, and Singapore offices engaged in this wrongful conduct or knew it was ongoing at the time but did nothing to stop it.
• At times, Rabobank was successful in its attempts to manipulate Yen LIBOR. In fact, the misconduct with respect to Yen LIBOR was so entrenched that as traders assumed the role of submitter, their predecessors would train them on the unlawful practices.
• Rabobank also, at times, aided and abetted other banks’ attempts to manipulate Yen LIBOR and Euribor, including coordinating with an interdealer broker on Yen LIBOR submissions to aid the manipulations of the Senior Yen Trader at UBS AG. As one senior Rabobank employee put it: “You know, scratch my back, yeah, and all,” to which the broker observed, “Yeah oh definitely, yeah, play the rules.”
Regulator Statements
Commenting on the CFTC’s Order, David Meister, Director of Enforcement at the CFTC stated, "The CFTC has now charged five global financial institutions for LIBOR manipulative schemes, with nearly $1.8 billion in penalties imposed by the Commission alone. The sheer number of institutions and individuals involved in these cases reflects a truly shocking and brazen degree of unlawfulness, warranting the historic enforcement response we bring forth today and in our prior cases. I want to personally commend Gretchen Lowe and the Division staff who have all painstakingly worked to investigate and prosecute these cases in the finest traditions of law enforcement."
Also commenting, Tracey McDermott, the FCA’s director of enforcement and financial crime said, “Rabobank’s misconduct is among the most serious we have identified on LIBOR. Traders and submitters treated LIBOR submissions as a potential way to make money, with no regard for the integrity of the market. This is unacceptable.”
