Could the LIBOR riggers go to jail?

31st July 2012

The Telegraph says that it is highly likely that Britain's mayor banks, including Barclays, Lloyds Banking Group and Royal Bank of Scotland, which are already the subject of several international investigations, are among the institutions being looked at by the SFO.

In a statement on its website, the SFO said it was "satisfied that existing criminal offences are capable of covering conduct in relation to the alleged manipulation of Libor and related interest rates".

Nevertheless, according to one legal expert interviewed by FT Adviser, it will be difficult for the SFO to secure criminal sanctions against individuals in this case because of the lack of clear rules governing the legality or otherwise of setting Libor.

Michael Clarke, commercial litigation specialist and partner at law firm Clarke Willmott, said: "They may have made dishonest statements but [you must prove] intent to make financial gain. The SFO will need to find some really explicit emails which explains how the banks will make financial gains out of this."

Meanwhile, Bruce Maiman of The Sacremento Bee, contends that the libor scandal is an extraordinary example of our crumbling ethics. Maiman says the bad news, however, isn't that these things happen. It's that perpetrators too often get away with it.

"That's the gloomy reality here. Today's ethical improprieties are like playing a slot machine: They sometimes pay off in a big way."

He says what's needed is a modern-day upgrade of Old Testament penance. Not on the order of he who is without sin, but he whose sins have harmed countless others.

"Economic crimes do that. We vigorously punish when one person robs another, yet aside from occasional poster boys such as Michael Milken Bernie Madoff or Enron executives, we punish few who rob so many when they game systems on which we are all dependent."

"Yet corporations and banks regularly oppose even toothless regulation. Unions rail against even popular pension reforms. Each pours millions into the accounts of the coat-holders we call elected officials, who then bow to their masters."

"And we wonder why so few go to jail?"

Similarly, James Rickards, a hedge fund manager and the author of "Currency Wars: The Making of the Next Global Crisis" argues that while we should expect some individual arrests, perhaps soon (but only when the public has been carefully prepared and it has been made clear that these are "rouge" individuals and not the bank itself being charged with a crime), the larger problem remains.

"Unless banks are allowed to fail, whether it be for mismanagement or crimes, the feeling of being above the law will remain. The government reinforces that arrogance by its failure to prosecute."

"In the end, those who don't enforce the law are just as much to blame for bank crimes as the pinstriped perpetrators."

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