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Comply or die (…or at least go to jail)

John Cassels


United Kingdom

Details emerged this week of the activities and communications of some of the traders implicated in the global LIBOR investigations.

Details emerged this week of the activities and communications of some of the traders implicated in the global LIBOR investigations. The European Commission, Serious Fraud Office (SFO) and US Department of Justice (DoJ) have been at the enforcement forefront with various criminal and civil actions ongoing.

Libor rates are used to determine the value of various global financial products. The rate is based on a set of panel banks submitting the interest rate that they would expect to be charged by another bank over various timeframes (i.e. 3, 6 or 12 months). The Libor is formed by removing the highest/lowest submissions and averaging the rest. Various individuals were charged with directly or indirectly manipulating the submission rates. By influencing enough of the individuals, it is claimed it pushed the Libor rate in different directions for the benefit of certain trades.

Documents already in the public domain highlight a number of compliance lessons. These are:

  • Lesson 1: New and novel ways of communication. Chat rooms were commonly used to request changes in the rates submitted. Once compliance teams started asking questions of the traders they moved to text messages on personal mobiles to stay under the radar. Plans should be put in place to counter such behaviour.
  • Lesson 2: Concurrent investigations in a myriad of jurisdictions. This can lead to substantial management time being consumed and serious issues like extradition charges to the US being dealt with. Contingency plans should always be in place so that there are clear pathways to follow.
  • Lesson 3: Educating employees on the potential risks of non compliance. Jail time focuses the mind quickly. Internal communications between traders highlighted losing business rather than the criminal and reputational consequences of their activities.
  • Lesson 4: Where data is located. One of the reasons the DoJ became involved was because incriminating data was accessible from servers in the US. It is important to be continually considering the most appropriate places to store data.

This investigation clearly demonstrates that behaviours that start out as relatively innocuous can unravel so spectacularly without robust compliance and risk management procedures in place. Effective compliance and warning systems should be at the forefront for any company's strategic, operational and reputational thinking. Get your compliance processes in place, and guess what; we can help.

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