This week’s Department of Justice “catch of the week” goes to Deutsche Bank AG. Yesterday, the German-based bank and its UK-based subsidiary DB Group Services (UK) Limited agreed to pay more than $2.5 billion to settle US and UK charges relating to their role in manipulating the London Interbank Offered Rate (LIBOR). LIBOR is a leading benchmark interest rate used in financial products and transactions around the world. In addition to the monetary payout, DB Group Services agreed to plead guilty to wire fraud in connection with the scheme. And Deutsche Bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust charges for its role in both manipulating US Dollar LIBOR and engaging in a price-fixing conspiracy to rig Yen LIBOR. Together, they will pay the DOJ $775 million in criminal penalties and another $1.744 billion in regulatory penalties and disgorgement — $800 million to the Commodity Futures Trading Commission (CFTC); $600 million to the New York Department of Financial Services (DFS); and $344 million to the UK Financial Conduct Authority. See DOJ Press Release.
Deutsche Bank was a member of the panel of banks whose submissions were used to calculate the LIBORs for a number of currencies, including US Dollar, Yen, Pound Sterling and Swiss Franc LIBOR, as well as EURIBOR (the Euro Interbank Offered Rate). From at least 2003 through early 2011, numerous Deutsche Bank derivatives traders engaged in efforts to move these benchmark rates in a direction favorable to their trading positions. Specifically, these traders requested that LIBOR submitters at Deutsche Bank and other banks submit contributions favorable to trading positions, rather than rates that complied with the definition of LIBOR. The government pointed to several examples of this active manipulation scheme to which Deutsche Bank admitted:
- In an electronic chat on March 22, 2005, a Deutsche Bank US Dollar LIBOR submitter explained how he would manipulate the rate for a trader in New York, stating, “if you need something in particular in the libors i.e. you have an interest in a high or a low fix let me know and there’s a high chance i’ll be able to go in a different level. Just give me a shout the day before or send an email from your blackberry first thing.”
- On May 17, 2006, the supervisor of LIBOR submissions in London received a request from a trader in New York asking, “If you can help we can use a high 3m fix tom.” The supervisor replied to the trader and a US Dollar LIBOR submitter, “I’m off but [submitter] is your libor man  [submitter] could you take a look at 3s libor in the morning for [trader].” The submitter agreed to accommodate the request, replying, “Will do chaps.” The following morning, after he submitted the bank’s contribution, the submitter wrote to the trader, “I went in at 19+ for the 3m libor, as you’ll see it almost manage to reach 19.”
- In an example from March 2007, a trader thanked one of Deutsche Bank’s EURIBOR submitters for his help in successfully manipulating EURIBOR, saying in an electronic chat: “Great job on this [Submitter], we can do more of this stuff,” to which the submitter replied, “WE CAN MY FRIEND. WE CAN….” Later that day, the submitter bragged about Deutsche Bank’s manipulation by offices in Frankfurt and London in an email to the head of Deutsche Bank’s Global Finance Unit: “HAVE U SEEN THE 3MK FIXING TODAY? THAT WAS AN EXCELLENT CONCERTED ACTION FFT/LDN. CHEERS.”
- In a May 2009 electronic chat exchange, a UBS trader asked a Deutsche Bank trader, “cld you do me a favour would you mind moving you 6m libor up a bit today, i have a gigantic fix. . .” The Deutsche Bank trader agreed. The next day, the Deutsche Bank trader confirmed that the Yen LIBOR submission had been beneficial to the UBS trader, asking “u happy with me yesterday?” The UBS trader acknowledged, “thx.”
In announcing the settlement, the government highlighted the extent of Deutsche Bank’s transgressions and the broad impact it had in undermining financial markets across the globe. Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division said: “For years, employees at Deutsche Bank illegally manipulated interest rates around the globe – including LIBORs for U.S. Dollar, Yen, Swiss Franc and Pound Sterling, as well as EURIBOR – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank’s counterparties.” Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division echoed this outrage: “Deutsche Bank secretly conspired with its competitors to rig the benchmark interest rates at the heart of the global financial system. [This] not only harmed its unsuspecting counterparties, it undermined the integrity and the competitiveness of financial markets everywhere.”
Deutsche Bank is the sixth major financial institution that has admitted its misconduct in the government’s ongoing LIBOR investigation. The other banks with which the government has reached settlements include Barclays Bank PLC, UBS AG, The Royal Bank of Scotland plc, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) and Lloyds Banking Group plc. The Deutsche Bank deal represents the largest penalty to date. The investigation leading to these cases has involved a cross-agency, multi-national cooperative effort including the Justice Department, CFTC, DFS, SEC, UK Financial Conduct Authority, UK Serious Fraud Office, BaFIN and the European Central Bank.
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