EC fines banks record sums for interest rate rigging
The handing down of record fines by the European Commission at the start of December to banks involved in interest rate fixing has highlighted the substantial risks for institutions engaged in illegal behaviour. Nonetheless, banks still appear not to have learnt the lessons of earlier scandals.
Fines totalling €1.7bn (£1.4bn) were levied on institutions involved in fixing euro and Japanese yen-denominated interest rate derivatives (EIRD and YIRD respectively) based on the London interbank offered rate (Libor), the benchmark interest rate for over $350tn of securities worldwide. The EC’s fines follow earlier settlements with the UK and US authorities and the launch of criminal investigations into individual traders.
‘The “greed is good” ethos still seems to be alive and well,’ says Robert Wardle, until 2008 Director of the UK Serious Fraud Office (SFO) and now a consultant to DLA Piper.
‘Some institutions seem content to give up individuals when wrongdoing becomes public, but they cannot expect the regulators to constantly police their own businesses. A cultural change has to come from within, to communicate that the pursuit of profit – or bigger bonuses – at any cost will not be tolerated.’
Three banks were collectively fined almost €1bn by the EC for being members of a cartel fixing EIRDs between 2005 and 2008: Deutsche Bank, RBS and Société Générale. Barclays escaped a € 650m fine under the EU leniency scheme for revealing the existence of the cartel, while proceedings have now also been opened against Crédit Agricole, HSBC and JPMorgan.
In addition, fines totalling €700m were levied on banks found to be engaged in a cartel rigging YIRDs, running from 2007 to 2010: RBS, Deutsche Bank, Citigroup and JPMorgan, along with the broker RP Martin. UBS avoided a €2.5bn fine under the leniency scheme, while proceedings have now been opened against the cash broker ICAP.
The fines follow record settlements with the UK and US authorities by Barclays in July 2012 totalling $453m, after it acknowledged the attempted manipulation of Libor and Euribor rates by traders. UBS likewise settled claims with US, UK and Swiss regulators, paying $1.5bn in fines.
Following Barclays’ revelations, responsibility for oversight of Libor has passed from the British Bankers Association to the newly-created UK Financial Conduct Authority. From January 2014 the administration of Libor will also pass to NYSE Euronext.
‘When scandals arise it always seems to be the fault of a “rogue trader”. Where was the oversight or the disincentives to prevent such behaviours happening in the first place?’
Partner, BCL Burton Copeland and Chair of the IBA’s Business Crime Committee
In addition, the UK Financial Services Act 2012 created a new offence of ‘knowingly or deliberately making false or misleading statements in relation to benchmark-setting’.
Following the revelation in July 2012 of Libor rate-rigging at Barclays, both the bank’s chairman and chief executive resigned. Despite the fact that, at the time, there was no proof that they were directly responsible for the rate-rigging, in resigning they did what many regarded as ‘the right thing’. Since then a potentially precedent-setting action has been launched in the UK against the bank, alleging that knowledge of Libor rate-rigging reached the highest echelons of management. But will the right people be held to account after such key figures have resigned?
‘We do not need people honourably falling on their swords; we need managerial responsibility,’ says Brian Spiro, partner at London-based BCL Burton Copeland and Chair of the IBA’s Business Crime Committee. ‘When scandals arise it always seems to be the fault of a “rogue trader”. Where was the oversight or the disincentives to prevent such behaviours happening in the first place?’
From a regulatory point of view it may seem relatively easy to identify a problem, but it is much more difficult to apply a solution, he adds:
‘The cost of wrongdoing can be very high, as recent settlements have shown, so the best protection remains the willingness of institutions themselves to ensure that the correct checks and balances are in place.’
In December, Lloyds Bank was fined £28m by the UK Financial Conduct Authority for bonus schemes that ‘tolerated’ poor sales practices of payment protection policies.
‘So many of the banking sector’s wounds are self-inflicted. Why is this so? Clearly not because of under-regulation, it is indicative of a more systemic and cultural issue. Excessive risk-taking may help generate market-beating profitability in the short term, but it is no way to sustain a business,’ says Simon Morris, banking regulatory partner with CMS Cameron McKenna in London.
This seems to be a costly lesson to learn. Not just in terms of profitability, but also from a reputational perspective.
‘In the Libor case, certain behaviours seem to have been tolerated so long as they did not become public. Where problems did arise there seems to have been relatively little analysis of the environments in which these behaviours were allowed to occur,’ adds Morris.
The UK authorities do not tend to arrest people at their desks, as the US authorities are prone to do, but more individual responsibility is welcome. But there is also no doubt that the revelations around Libor and currency-rigging are damaging, not only to the institutions involved, but also to the credibility of the City itself.
Nominations sought for IBA elections
All IBA elections as detailed below will take place at the IBA Annual Conference in Tokyo in October 2014.
The deadline for all nominations is
15 March 2014.
Senior IBA and BIC Officers
We are now accepting nominations for IBA Officers (President, Vice President, Secretary General), Legal Practice Division (Chair, Vice-Chair and Secretary-Treasurer), Section on Public and Professional Interest (Chair and Secretary-Treasurer), Bar Issues Commission (Chair, two Vice-Chairs and up to seven Officers-at-Large). Successful candidates will serve a two-year term until 31 December 2016. Details of nominated candidates will be published on the IBA website.
LPD Council Members
Successful candidates will serve a four-year term until 31 December 2018. Details of nominated candidates will be published on the IBA website.
To download a nomination form see tinyurl.com/LPD-nomination-form.
IBA at UN corruption conference in Panama
From 25–29 November 2013, the 5th Conference of States Parties to the UN Convention against Corruption (UNCAC) took place in Panama. The IBA organised a side event, chaired by Gonzalo Guzman, head of the IBA Legal Projects team, regarding ‘The Legal Profession’s Contribution to the Global Fight against Corruption’ in the framework of the IBA, OECD and UNODC’s Anti-Corruption Strategy. The IBA also took an active role in the discussions relating to anti-corruption education and during the launch of two new anti-corruption
Read more about the conference at tinyurl.com/IBA-UNCAC-Panama.
IBA President Michael Reynolds on the exciting year ahead
2013 was an extremely rewarding year in which to represent the IBA. I had the opportunity to meet with Bar Association leaders and law firms in Thailand, Vietnam, Russia, Australia, India, Peru and many other countries to learn about the changes and challenges in their jurisdictions. I believe it is incredibly important for the IBA to make a tangible difference in legal matters and it was a particular privilege to meet Aung Sang Suu Kyi who outlined to me how she would like the IBA to help Myanmar’s legal community. I pledged that I would do that and the IBA Human Rights Institute has now been officially mandated to co-ordinate and implement a long term capacity-building programme for lawyers in Myanmar, starting with a major legal seminar in February 2014 which I will attend along with Mark Ellis.
I also set up two task forces at the start of my term of office. The IBA President’s Task Force on Climate Change Justice and Human Rights brings together experts and practitioners in environment law and human rights to address the alarming effects of climate change that most of us have witnessed in recent years. The Task Force is preparing recommendations to government and world institutions as to legal measures that could be implemented to aid in the prevention and mitigation of climate change and protect vulnerable communities. These recommendations will be showcased in Tokyo, and delegates will have the opportunity to find out more about the contribution lawyers, the judiciary and government leaders can play. The results of the Human Trafficking Presidential Task Force will also be presented in Tokyo.
The IBA has an exciting year ahead with much more online content being planned with the aim that, where jurisdictions allow, this can contribute to your CLE programme for the year. We also continue to have up-to-the-minute insight on global developments such as our interview, available online, with economist Jim O’Neill on the growing economies in Nigeria and Turkey, part of the recently defined ‘MINT’ (Mexico, Indonesia, Nigeria and Turkey) group.
Finally, as you plan ahead for 2014, I encourage you to set aside the week of 19–26 October to join us in Tokyo to take part in what has become the largest gathering of international lawyers in the world.
For more information on the 2014 IBA Annual Conference in Tokyo see tinyurl.com/IBATokyo2014.
First Anti-Corruption Strategy workshop in Nigeria
The IBA, OECD and UNODC hosted an anti-corruption workshop in Lagos, Nigeria on 11 December 2013. The workshops are part of the global organisations’ joint Anti-Corruption Strategy for the Legal Profession – a project designed to raise awareness of the risks of international corruption on legal practice and offer strategies and toolkits to enable lawyers to address those risks within their organisations. Arranged in partnership with Nigerian Institute of Advanced Legal Studies, this marks the first time these events were held in West Africa. The workshop delegates included senior lawyers from leading law firms that regularly handle business transactions with a cross-border element. Other participants included corporate in-house counsel and public interest lawyers.
Read more about the workshop at tinyurl.com/Anti-Corruption-workshop.
Access to justice: UK pushes ahead with legal aid cuts despite widespread criticism
The issue of access to justice has again been brought to the fore as the UK’s Lord Chancellor and Secretary of State for Justice, Chris Grayling, stated that further spending cuts of 17.5 per cent in fees for legal aid announced in the autumn will not be delayed, despite widespread opposition.
As the next round of cuts were announced, the House of Commons Joint Committee on Human Rights (JCHR) launched an inquiry into the impact the legal aid reforms are having, and could have, on access to justice. It will report on this later this year.
The Chair of the JCHR recently urged Grayling to wait until the impact of the first round of cuts introduced in April has been assessed and for its own report on access to justice to be published before implementing further reform. But Grayling tells Global Insight: ‘We cannot delay our plans for reform.’
The recent round of cuts triggered rallies in London in October as well as the Criminal Bar Association stating that its barristers may refuse to work if and when advocacy fee cuts are enacted – an unprecedented act of defiance. At the same time, the body representing solicitors in England and Wales, the Law Society, faces a vote of no-confidence from its members for having agreed a ‘detrimental’ deal with the Ministry of Justice (MoJ) to implement 17.5 per cent cuts.
The latest round of cuts follows changes in April that removed legal aid for family and civil cases. The legal community argues that there is no rationale for further cuts. Nigel Lithman QC is chair of the Criminal Bar Association and a barrister at 2 Bedford Row. He says: ‘The MoJ refuses to acknowledge that the most recent figures for 2013/2014 show that legal aid has reduced by £50m and that (according to figures from the Legal Aid Agency and the Legal Services Commission) since 2009/2010, legal aid has fallen by over £200m so the savings have already been made.’
Grayling tells Global Insight: ‘Existing savings are not sufficient and legal aid cannot be immune from further review… our savings and efficiencies are not being directed at legal aid alone.’
The detrimental impact on access to justice of the cuts in civil legal aid in April has already been felt; there are reports of advice ‘deserts’ and increases in litigants in person. Tim Soutar, Chair of the IBA’s Pro Bono Committee and a consultant at Clifford Chance, says: ‘The reduction in the scope of legal aid has made the problem of access to justice even more urgent and lawyers working pro bono are a critical part of softening the blow.’
Criminal advocacy costs are under specific scrutiny as criminal legal aid takes up half the total legal aid budget. Reforms include reducing fees in very high cost cases by 30 per cent and proposed further reductions in the advocacy graduated fee scheme. Lithman says Grayling estimated that ‘the savings they want to make in crown court advocacy is £24m. According to media reports, this is the amount G4S are offering to pay back to the Ministry of Justice for over-charging on tagging offenders.’
Criminal barristers argue that no advocates of any quality or experience will be able to sustain these kinds of cuts. Mark George QC is a barrister at Garden Court North. He says that once barristers leave ‘they won’t come back’ and criminal advocacy for the poor will be delivered by a ‘lowest-price justice system’, which raises serious equality of arms concerns.
Grayling remains unconvinced, citing that he is undertaking a separate review of the provision of independent criminal advocacy – the Jeffrey Review – and that he believes ‘part of the future has to include some willingness on the part of the Bar and the legal professions to adapt, innovate, and look at new ways of working.’ The response from barristers is that in that case, wouldn’t it be better to wait for the outcome of that review before sweeping cuts are introduced?
The Government has also reduced the scope of prisoners’ eligibility for legal aid by, it estimates, 11,000 cases per year, arguing that prisoners should rely on the internal complaints system rather than access to a lawyer. Grayling says: ‘I am very clear that we should stop criminal legal aid being given for prisoners unnecessarily. The prisoner complaints system does not… require input from a lawyer.’
Opponents of the changes disagree and argue that this comes at a time of unprecedented change within prisons including budget cuts and that the complaints system is woefully inadequate, particularly where there are disputes of fact.
In its evidence to the JCHR the Howard League argued: ‘Even with the help of lawyers, the complaints system has been inadequate to protect prisoners from abuse behind closed doors. The Howard League has represented children and young adults who have been subjected to unlawful punishments, physical restraints resulting in broken limbs, and moves to mental health facilities. Without legal action these would not have been remedied and the abuse would have continued.’
Laura Janes, Acting Legal Director of the Howard League, who gave evidence to the JCHR, adds: ‘having appropriate legal advice in prison disciplinary cases strengthens a prisoner’s sense of fairness and trust in the system which is vital if they are to be successfully rehabilitated.’