December 19, 2012 10:20 pm

UBS case hints at direction of other probes

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UBS’s record fine to settle allegations of Libor manipulation – and accompanying US criminal charges against two of its former traders – underscore what may lie ahead for dozens of other banks, brokers and traders around the world.

The revelation, made in authorities’ investigative findings, that UBS made “corrupt brokerage payments” to reward efforts at manipulation could indicate the direction of travel of criminal inquiries, legal experts said.

The UK’s Serious Fraud Office is probing the payments, a person with knowledge of the inquiry told the Financial Times. The SFO declined to comment.

Criminal charges laid by the US Department of Justice – although they share a suspect in common with the SFO – have concentrated on conspiracy and wire fraud.

A UBS trader engaged in so-called wash trades to generate fees of £170,000 for one favoured broker, while the bank paid £15,000 every three months to another brokerage “as a reward for the provision of a ‘fixing service’,” the FSA said in its investigation notice published on Wednesday.

This could assist the SFO’s criminal investigation; commentary has hitherto focused on the fact that any UK prosecution for Libor manipulation via charges of false accounting or fraud would be legally tricky to prove.

In contrast, the prosecution of corrupt payments would ostensibly be more straightforward, even if the SFO is likely to have to look at breaches of an anti-corruption law dating back to 1906 because the alleged wrongdoing falls before 2011, when the UK overhauled its anti-bribery laws.

“In the Libor cases, it is quite possible for the SFO to have the basis for bringing a criminal prosecution against a trader or broker if it can be shown that the broker or trader received a gift as an inducement to show favour in relation to their employer’s affairs or business,” said lawyer Jonathan Fisher, QC.

While banks may be keen to settle by paying even eye-watering fines, investigations against individuals are often bitterly contested.

The FSA has expanded its probe into individuals, sending at least five notices of investigation to people in the past two weeks.

“The more senior you are and the more contact you had with London, the more likely it is that we will look at you,” Tracey McDermott, the FSA’s enforcement head, told the FT. She has 50 staff dedicated to investigating Libor manipulation.

Barclays and UBS remain the only banks to have paid fines to settle allegations that they manipulated Libor. Citigroup was sanctioned by the Japanese regulator a year ago, but it remains under investigation by US authorities.

Royal Bank of Scotland, which is majority owned by the UK government, is in advanced negotiations with regulators, with a settlement expected by February.

Deutsche Bank has provisioned for Libor-related losses – signalling that it too could be preparing for settlement negotiations – though the German bank has not made public the amount set aside.

Ms McDermott said: “The reality is that we are going to be dealing with Libor-related issues for several years.”

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