Missing reports and discrepancies with Europe’s policy – UK approach to LIBOR gets under fire

The manipulation of LIBOR (London Interbank Offered Rate) has continued to make headlines this year, especially after a recording implicated the Bank of England in the rate rigging scandal. More pressure has been piled on the way the UK has handled the issues amid reports of critical evidence “disappearing”.

On Monday, the House of Lords heard the statement of Lord James of Blackheath who starkly criticized the way UK regulators and authoritative bodies have handled LIBOR-related issues.

Lord James noted the sequence of four LIBOR cases which have passed through the High Court in the last 18 months. There have been 15 prosecutions, five convictions, two cases where the juries have failed to agree and eight acquittals. As a result, he said, there are “so many confusions and unresolved issues from this process and our parallel LIBOR market in Europe, called Euribor, is complaining so much that it may seek to shut us out and take the entire market, to our significant financial detriment.”

One of the key issues is that the UK is apparently at variance with the remainder of Europe, which has stated that it will have no LIBOR prosecutions for any incident that occurred prior to April 15, 2013, as the new regulations came into force on that date. All the prosecutions that the UK has seen go back as far as August 2006, so they would not have been relevant.

Tom Hayes, a former derivatives trader at UBS and Citigroup in Tokyo, was arrested in Surrey on December 11, 2012 by officers from the Serious Fraud Office (SFO) and City of London Police in connection with an SFO investigation into the manipulation of in Japanese Yen LIBOR. Lord James reminded the fellow Lords that back in the days the Financial Conduct Authority convened an expert committee, which examined the situation and said that the senior executive to whom Mr Hayes had had to report his fixings on a daily basis had behaved correctly. It said that there was no question of his disqualification and all accusations were discarded.

The FCA then sent a copy of its report of the proceedings to the SFO, asking that it be placed in the hands of the defence counsel for the trial against Mr Hayes. Three weeks into the trial, it was found that the SFO had never released the report, and it was never seen again. The judge refused to allow it to be submitted as late evidence and the jury accordingly convicted. Mr Hayes got a prison sentence and a fine.

Lord James also slams the SFO over the “experts” it provided with regards to LIBOR-related trials. He notes that the expert witness provided by the SFO had broken down in the fourth trial, and had confessed that “he did not know the first thing about LIBOR, had never worked a day in the LIBOR market and had been given coaching by the SFO as to what to say to convince the jury”.

Lord James calls on to the new government to address three LIBOR issues:

• “First, as a matter of common justice they need to decide how we are going to sort out the mess we are in with this one.
• Secondly, we have to work out how we are going to amend the statute book and codes of practice to ensure that we are clean for the future.
• Thirdly, we have to get ourselves back into LIBOR permanently and stay there.”