Thursday, February 07, 2013

The LIBOR Crimes - A Tale of Two Cultures


The Royal Bank of Scotland has been fined for its role in the Libor rate-fixing scandal, a major fraud which has been going on for years, and which has defrauded many thousands of innocent people. No-one has yet been prosecuted in this country for any kind of Libor fraud, although there are on-going investigations being continued by the Serious Fraud Office. The figures to define the scale of the fraud are so huge they are unquantifiable.

At the same time as the Libor frauds were being investigated, in Plymouth, a single mother who claimed more than £44,000 in benefits but failed to tell the authorities she was living with a man, has been sent to prison.

Her crime, she failed to tell the authorities that over the last five years she had been living intermittently with a working man.

She admitted two charges of failing to disclose a change of circumstances which would affect her benefit, two offences of fraud by failing to disclose information and one of making a false statement to obtain benefit.

Her lawyer said that her boyfriend had "contributed very scantily to the household finances" and she had not lived an extravagant lifestyle.

In interview, she had claimed that had she declared her change of circumstances, she would not have been able to afford to feed her children.

She had four children aged 16-21 but the Recorder Stephen Parish told her: "I accept that you didn't set out to act fraudulently, but the plain fact is that for five years you have consistently defrauded the public purse.

"This is not a victimless crime; you have been stealing from hard-working families who pay their taxes.

She was jailed for six months.

On January 23, 2013, a single mother from Birkenhead was sent to prison for 12 months after being found guilty of £60,000 benefit fraud. The charges on which she was convicted related to her failure to notify a change of circumstances involving income support, housing benefit and council tax benefit, after she had begun a loving relationship.

 The point of my including these two vignettes is to demonstrate the scandalous state of affairs that has now been allowed to become endemic in the UK, where bankers are allowed to brazenly commit frauds involving sums of money beyond our wildest imaginations; where traders openly compete with each other to criminally manipulate major interest rates, and where senior banking executives are still paid bonuses of vomit-inducing sums of money, all the time their institutions are being investigated for criminal activities; while all the while single mothers on benefits, struggling to make ends meet, are imprisoned for the heinous crime of failing to admit that they were finding comfort and companionship with a man, because to make such an admission would immediately reduce their right to benefit, thus potentially depriving their children of food, warmth and clothing.

How, in the name of all that is decent, have we allowed matters to get to this stage, where you can commit every fraud, scam, or other financial crime under the sun with the utmost impunity if you work in the Square mile, but you are denied basic human companionship if you are on benefit?

Let us put this piece of financial nausea in its proper context.

Libor is the rate at which banks lend to each other. The London interbank offered rate is the main interest rate in the London wholesale money market for pounds, dollars and euros. Libor is set by the demand and supply of money as banks lend to each other to balance their books on a daily basis.

The rate was compiled by the British Bankers' Association once a day. The most-closely watched rate was three-month sterling Libor and is based on submissions by da panel of 16 major players. The BBA ranked them, removes the top and bottom quartiles, and published the average.

So, the calculation of the standard Libor rate should be a strictly accurate figure, because it determines the way in which other customers for loans, mortgages etc on a worldwide basis, pay for their commitment.

The charges brought against RBS relate to the successful manipulation, attempted manipulation, and false reporting relating to LIBOR for Yen and Swiss Franc.

They cover the period between mid-2006  until 2010. That means the practice continued after the bank was partially nationalised.

The discredited Financial Services Authority's announcement contains the following statement..
"...The practice of Libor rate-rigging was "widespread", with "at least 219 requests for inappropriate submissions" were documented – an unquantifiable number of oral requests, which by their nature would not be documented, were also made.

The FSA also says that at least 21 people were involved, including "derivatives and money market traders" and at least one manager.

What we do know is that the activities of the criminals inside the bank who were engaged in these actions thought the whole episode was a wonderful way of enriching themselves. They laughed about it, they  joked, it was all so easy.

The documents released by the CFTC and the FSA are riddled with examples of RBS traders conspiring to fix Libor. What was meant to be an honest, reliable measure of the cost of borrowing between banks, became the subject of a criminal enterprise. Just as at Barclays and UBS - it's clear that some traders conspired to fix the rate by changing the rate that they submitted to the Libor panel.

Yen Trader 1: can we lower our fixings today please [Primary Submitter]
Primary Submitter: make your mind up[,] haha , yes no probs!
Yen Trader 1: I'm like a whore's drawers

Interdealer Broker B: can you do me a favour … you’re not going to get paid any bro (Commission) for this and we’ll send you lunch around for the whole desk. Can you flat…can you switch two years semi at 5 3/4 , 100 yards [meaning 100 billion] … between UBS. Just get … take it from UBS, give it back to UBS. He wants to pay some bro. We won’t bro you…
Yen Trader 1: Yeah, yeah
Interdealer Broker B: Yeah. Yeah. 100 yards … actually can you make it 150 and I’ll send lunch around for everybody?
Yen Trader 1: Yeah.
Interdealer Broker B: Thanks very much. Cheers. Cheers, mate and you choose lunch.

Swiss Franc Trader: can u put 6m Swiss libor in low pls?
Primary Submitter: NO
Swiss Franc Trader: should have pushed the door harder
Primary Submitter: What's it worth
Swiss Franc Trader: ive got some sushi rolls from yesterday?
Primary Submitter: ok low 6m , just for u
Swiss Franc Trader: wooooooohooooooo[,] 0.01%? that'd be awesome
Primary Submitter: 1.33
Swiss Franc Trader: perfect[.] u r a nice man

So, while single mothers were going to prison for having the temerity to claim money  to feed and clothe their children, money which they would have been entitled to anyway, except for the fact that they failed to disclose the fact that they were seeking comfort with a man, these over-fed, and over-paid traders were openly defrauding people all over the world by criminally manipulating the prices they would have to pay for their bank loans, insurance policies and their mortgages. The only difference is that the traders haven't been sent to prison, and neither have any of their managers, who would have known perfectly well what was going on. Neither have any of their directors or senior executives been charged or convicted, yet they would surely have seen the sums of money being made on these trading desks in the daily reconciliation statistics.

Did no-one in RBS stop to ask how these vast sums were being made? Clearly not, and just as clearly, no-one wanted to know.

This is the fact that I find so odd. Stephen Hester, the CEO of RBS says;

"...We condemn the behaviour of the individuals who sought to influence some LIBOR currency settings at our bank from 2006-10. There is no place at RBS for such behaviour..." yet at the same time, he was appointed to be CEO of RBS on 21st November 2008 to clear up the mess the bank was in, after arch-chancer, Fred 'the Shred' Goodwin departed with his tail between his legs! So the whole thing was carrying on while he was sitting upstairs, but apparently no-one thought to bring these criminal activities to his attention!

Here's another live example of trader conversations taking place on 14th May 2009, while Mr Hester was trying to sort out the mess RBS was in.

Swiss Franc Trader: [Primary Submitter] pls can we get super high 3m[,] super low 6m
Swiss Franc Trader: PRETTY PLEASE!
Primary Submitter: 41 & 51
Swiss Franc Trader: if u did that[,] i would love u forever
Primary Submitter: 41 & 55 then …
Swiss Franc Trader: if u did that i would come over there and make love to you[,] your choice
Primary Submitter: 41+51 it is
Swiss Franc Trader: thought so
Primary Submitter: so shallow

Obviously Mr Hester was clearly doing a good job at rooting out the rotten apples!

The total fine for Libor rigging faced by RBS comes to around £390m, made up as follows;

The US Commodity Futures Trading Commission is fining RBS $325m, or around £207m. :
The Financial Services Authority: £87.5m 
The US Department of Justice $150m (£95m)

Philip Hampton, the RBS Chairman has said;

 "...The RBS Board acknowledges that there were serious shortcomings in our systems and controls and also in the integrity of a small group of our employees. This is a sad day for RBS, but also an important one in continuing to put right the mistakes of the past...No one should be left in any doubt about how seriously RBS takes these failings..."

Well what we can say is that RBS has revealed that action has been taken, or is still being undertaken, against the 21 staff members implicated in fixing Libor

• Six staff have been dismissed for LIBOR related misconduct, including two managers.
• Six have been severely disciplined or are going through a disciplinary process.
• Eight left the organisation before disciplinary action could be taken...

There are some who might be willing to think that this is where the story should end!  There is no doubt that RBS would love the story to finish here, and no doubt a lot of City apologists, City editors and City banking sycophants would enjoy the same outcome.

No doubt, when the editorials are all written, the special pleading has been made, the apologias are all collected together, the City establishment will be able to put this whole rotten episode behind it and move on to the next series of scandals, which will undoubtedly follow as night follows day. It will happen because the British banking industry, as it exists today, is a rotten edifice, its culture is corrupt, its remuneration practices are obscene, and its administrators are impervious to the lessons of history, the most important of which is that wherever there is a major financial scandal or an economic collapse, there is always a large group of banksters in the middle of it!

But all the time the banking frauds, the money laundering, the criminal banking activities and all the other crimes of the powerful are being whitewashed out of the public consciousness, there will still be single mothers on benefits going to prison and having their children put into care, (imprisonment separates around 17,000 children from their mothers every year),  merely for having the desire to bring a little human warmth, love and companionship into their otherwise dreary lives.  

7 comments:

  1. Really great post again and very powerful imagery. The contrast in the treatment between those who have defrauded the taxpayer out of a few thousands by having a boyfriend while claiming benefits in an effort to make ends meet fot their families and those who have defrauded the taxpayer (and beyond) out of billions by fabricating LIBOR rates to feed their egos and their avarice is very powerful. This determination not to address the crimes of the banksters can not go on but,of course, it is.

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  2. Bravo on this, really great post. Really does point out the disparity that we're facing.

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  3. Great post Rowan.

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