The latest fallout in the banks manipulating the LIBOR scandal were criminal charges against two UBS traders. LIBOR is a key financial rate and the Justice Department this week fined UBS $1.5 billion for rate rigging. The Japan UBS subsidiary also pleaded guilty to wire fraud.
UBS Securities Japan Co. Ltd. (UBS Japan), an investment bank, financial advisory securities firm and wholly-owned subsidiary of UBS AG, has agreed to plead guilty to felony wire fraud and admit its role in manipulating the London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world, Attorney General Eric Holder announced today. The criminal information, filed today in U.S. District Court in the District of Connecticut, charges UBS Japan with one count of engaging in a scheme to defraud counterparties to interest rate derivatives trades by secretly manipulating LIBOR benchmark interest rates.
As part of the ongoing criminal investigation by the Criminal and Antitrust Divisions of the Justice Department and the FBI into LIBOR manipulation, two former senior UBS traders also are charged. Tom Alexander William Hayes, 33, of England, and Roger Darin, 41, of Switzerland, were both charged with conspiracy in a criminal complaint unsealed in Manhattan federal court earlier today. Hayes is also charged with wire fraud, based on the same scheme, and a price fixing violation arising from his collusive activity with another bank to manipulate LIBOR benchmark rates.
The Justice Department’s decision stops short of imperiling the broader financial system because it shields UBS’s parent company from losing its charter, among other major repercussions. But by securing a guilty plea against a subsidiary, the department has shown that it is willing to punish severely one of the world’s most powerful banks. It was the first guilty plea from a major financial institution since Drexel Burnham Lambert admitted to six counts of fraud in 1989.
In other words, while we have some criminal prosecutions, it's a token in comparison to the damage. U.S. state and local governments have losses estimated to be $10 billion due to rate rigging. Fannie Mae and Freddie Mac has an estimated $3 billion loss due to LIBOR manipulations.
Fannie Mae and Freddie Mac may have lost more than $3 billion tied to the rigging of a key interest rate, according to internal memos by the auditor of the Federal Housing Finance Agency.
The level of losses are so vast, the damage so great, once again a record setting $1.5 billion fine becomes chump change, a pay to play fee in light of the massive losses from regular folk with the billions in profits made by banks. Earlier we had another pay to play fine for HSBC's money laundering.
The outrage over HSBC getting a slap on the wrist for money laundering was universal. Matt Taibbi called the settlement a joke. Senators took to coining the phrase Too Big To Jail to express their outrage. The lack of real criminal prosecutions against the big banks is becoming a pattern too glaringly obvious. Too big to fail has turned into too big to jail and we have one system of justice for regulator people and another for large corporations, especially banks.
In a sharply-worded letter to Attorney General Eric Holder, Merkley criticized the government’s recent agreement with British bank HSBC, which brazenly facilitated the laundering of $800 million in illicit narcotics proceeds that drug traffickers ran through the bank’s Mexican and American affiliates, and engaged in over $600 million in transactions that violated U.S. sanctions against Cuba, Iran, Libya, Sudan, and Burma.
“I am deeply concerned that four years after the financial crisis, the Department appears to have firmly set the precedent that no bank, bank employee, or bank executive can be prosecuted even for serious criminal actions if that bank is a large, systemically important financial institution,” wrote Merkley. “This ‘too big to jail’ approach to law enforcement, which deeply offends the public’s sense of justice, effectively vitiates the law as written by Congress. Had Congress wished to declare that violations of money laundering, terrorist financing, fraud, and a number of other illicit financial actions would only constitute civil violations, it could have done so. It did not.”
It isn't just a few Democrats piping up, GOP Senator Chuck Grassley is outraged and explains why in the below interview along with Neil Barofsky.
Even retiring financial swiss cheese reform legislation author Barney Frank confronted the Department of Justice asking where are criminal prosecutions of the big banks?
Officials of the Administration have argued with some basis that instituting criminal proceedings against financial institutions can be destabilizing, and have instead opted for civil proceedings against acknowledged violators of laws that are important for the maintenance of the stability and integrity of our financial system.
But these constraints do not apply to prosecution of the individuals who have perpetrated these acts, and this should be vigorously pursued. From the standpoint of deterrence, prosecuting individuals is preferable as this raises few if any questions about institutional stability.
To this day there is still major at least negligent acts by banks being kept secret by the SEC and the above interview implies the Treasury department is complicit in not prosecuting the big banks over such egregious violations of the law.
Seems the Justice Department is cracking just a tad under pressure to explain the sudden criminal charges against two UBS traders. Yet unless Senators keep up the pressure as well as the public, odds are this will be the token prosecution of individuals beyond the rogue trader or scam artist who has no effect on a large corporate institution.