June 28 (Bloomberg) — It would look awfully strange if the U.S. government wound up targeting only foreign banks as part of its investigation into the manipulation of the London InterBank Offered Rate. It’s too soon to say if that will be the end result. But time is marching quickly.
A year ago this week, London-based Barclays Plc cut a $160 million nonprosecution agreement with the U.S. Justice Department and became the first bank to admit to falsifying its LIBOR submissions. Two other European banks — Zurich-based UBS AG and Edinburgh-based Royal Bank of Scotland Group Plc — have reached LIBOR-related settlements with U.S. prosecutors since then, each with much harsher penalties than Barclays got.
LIBOR is the interest-rate benchmark used in hundreds of trillions of dollars’ worth of financial contracts, from derivatives to mortgage loans. It is based on daily surveys of large banks about their borrowing costs. That it was rigged for years by large banks is well established. Still unclear is which other lenders will be held accountable, or when.
Will the feds go after any U.S. banks? Last week’s criminal charges in the UK against Tom Hayes, a former derivatives trader at UBS and Citigroup Inc., only add to the curiosity. They came six months after U.S. prosecutors filed their own criminal complaint against Hayes and another former UBS trader. A comparison of the allegations in the two cases yields some noteworthy differences.
The eight criminal counts filed by UK prosecutors include the period of time that Hayes worked for Citigroup in late 2009 and into 2010, as well as the three years he worked at UBS before then. UK officials said he conspired with employees of at least five other banks and three interdealer brokers to manipulate yen LIBOR rates. The UK court documents identified all the companies allegedly involved, including JPMorgan Chase & Co. (Hayes, 33, appeared in a London court last week and hasn’t indicated how he will plead.)
In the U.S., by comparison, the complaint against Hayes listed three criminal counts, the timeline for which ended in September 2009, when Hayes left UBS. The complaint cited UBS by name but not Citigroup or other companies.
Put another way, the criminal counts against Hayes in the UK include conduct while he worked at both UBS and Citigroup. The three counts against him in the U.S. refer to the time he worked at UBS but not at Citigroup.
A separate section in the U.S. complaint does cite illegal acts that Hayes allegedly committed in 2010, when he was a Citigroup employee. However, those weren’t referred to in the fraud, conspiracy and antitrust counts that Hayes was specifically charged with. The Justice Department’s Dec. 19 news release about the charges against Hayes didn’t mention Citigroup, either.