US and European regulators are cracking down fast on traders who have allegedly colluded to manipulate key global interbank lending rates and are close to arresting traders from a number of banks, say media reports.
According to a number of un-named sources that are familiar with "a sweeping investigation into the rigging scandal" cited by Reuters, "federal prosecutors in Washington have recently contacted lawyers representing some of the suspects to notify them that criminal charges and arrests could be imminent."
"The individual criminal charges have no impact on the regulatory moves against the banks but banks are hoping that at least regulators will see that the scandal was mainly due to individual misbehaviour of a gang of traders. More than a handful of traders at different banks are involved," said an un-named European source familiar with the matter, cited by Reuters.
While many reports decline to name individuals and banks, the focus is surely to fall on traders or currently suspended traders at Barclays, Deutsche Bank, HSBC, Societe Generale and Credit Agricole.
Meanwhile, at RBS, senior staff conspired to fix the key interest rate, the London Interbank Offered Rate (LIBOR) between at least 2007 to 2011, says a former head trader in a court filing.
In the court papers filed in New York and with the Singapore High Court, Tan Chi Min, the former head of delta trading for RBS's global banking and markets division in Singapore, alleged that managers condoned its staff to set the Libor rate artificially high or low to maximise profits.
Tan was sacked for gross misconduct from RBS in November 2011 because, he claims, he was made a "scapegoat" for malpractice condoned by managers.
He is currently suing for wrongful dismissal and within the claim, he names five staff members that he alleges, made requests for the Libor rate to be altered and subsequently, three senior managers knew the situation while the practice 'was known to other members of [RBS]'s senior management'.
According to a number of media reports, traders at the five banks are currently under investigation for interest-rate manipulation as part of a global probe as part of Europe's central banks and regulators accelerated efforts to address the way the Libor is currently calculated and investigate most banks, not just Barclays, when it comes to rate manipulation.
Philippe Moryoussef has left his derivatives trading post in Singapore with Nomura, as he is also under investigation for the time he period he spent working for Barclays, which was between 2005 to 2007.
A spokesperson at Nomura told IBTimes UK that "Nomura is aware of the investigation into the setting of Euribor and Libor rates. The allegations against Mr Moryoussef are related to a period of time before he joined Nomura. We would point out that Nomura is not a member of either the Euribor panel or the Libor panel, and therefore has no role in the setting of those rates."
Citing unnamed sources and with no confirmation or comment from the people or the banks themselves, reports said that regulators are also investigating the possible roles of Michael Zrihen at Credit Agricole, Didier Sander at HSBC and Christian Bittar at Deutsche Bank.
SG has since confirmed that it has been contacted as part of a broad probe into the alleged manipulation of interbank lending rates but there has so far been no allegation of wrongdoing against the French bank.
While some regulators have explicitly disclosed bank or broker names they are investigating, some have indirectly disclosed names, when they say they are reviewing all banks or brokerages that are involved in the interbank lending rate setting process.
In the UK the Financial Services Authority (FSA) confirmed that seven other banks are currently under investigation in relation to manipulating Libor through submissions falsification.
Tracey McDermott, acting director of enforcement and financial crime at the FSA told the Treasury Select Committee (TSC) that while it was unlikely that there would be any criminal prosecutions of those implicated in the market manipulation, the British regulator is investigating seven lenders that are "not all British banks" but could not identify the firms as the "investigations are still on-going".
Deutsche Bank, HSBC and Credit Agricole did not respond to calls for comment from the IBTimes UK by the time this article was printed.
Individual vs Bank Prosecution
The seemingly swift crackdown on individual bankers follows global mass outcry over the Libor fixing scandal that saw Barclays settle with US and UK prosecutors for a record fine of £290m.
As part of the settlement, Barclays has signed a non-prosecution agreement with U.S. prosecutors and is the first bank to settle during this Libor rigging scandal. Such agreements and bargains mean the bank cannot be prosecuted once it has settled.
However, despite civil proceedings against the bank and individuals at Barclays being "settled," individuals at the banks are not protected under these clauses and have reportedly hired defence lawyers to help them against individual charges of fraud and collusion to rig rates.
The Serious Fraud Office (SFO) confirmed to the IBTimes UK recently that it is formally investigating Barclays and other undisclosed banks and individuals for criminal activity in relation to Libor rigging.
Although the SFO is investigating to see if it can criminally prosecute individuals at institutions, critics have said that it is either too difficult or unlikely that it will be able to launch criminal proceedings, even though civil proceedings have been successful.
Barclays has taken most of the flak so far as it was the first bank to settle in such a case. However, analysts at Morgan Stanley recently estimated that the 11 global banks linked to the Libor scandal may face $14bn in regulatory and legal settlement costs through 2014.
While Barclays may have settled with several regulators, it is still under investigation under different jurisdictions, such as Switzerland.
Other banks and brokers that are under investigation from a wide range of global regulators for their possible involvement in Libor fixing, and have been detailed by IBTimes UK, include Citigroup, Credit Suisse, JP Morgan, Rabobank, Icap, brokerage RP Martin Holdings, Sumitomo Mitsui Banking Europe Limited, a subsidiary of Japanese parent group Sumitomo Mitsui Banking, Deutsche Bank, Mizuho Financial Group and Bank of Tokyo-Mitsubishi UFJ, SG, HSBC, UBS and Citigroup.
UBS has similarly reached a settlement with some regulators, mainly the Japanese authorities.
Over the past year, Japanese regulator Securities and Exchange Surveillance Commission (SESC) has cracked down on banks that have been seen to manipulate or attempt to rig the Tokyo interbank offered rates (Tibor).
Katsunori Nagayasu, the former Japanese Bankers Association (JBA) chairman said in February this year that the group may take measures to improve the way the JBA compiles Tibor, much like the BBA, following the Financial Services Agency's (FSA) penalties for Citigroup and UBS.
Japanese regulators have already suspended some banks' operations, such as Citigroup and UBS, after the SESC found that some staff attempted to manipulate Tibor rates.
The JBA revealed that is considering a review of as many as 16 banks to make sure they adhere to the lobbying group's guidelines for making honest and accurate submissions for yen-denominated Tibor.
Hisanao Aoki, a spokesman for the association, confirmed that all reference banks may be reviewed for how they submit rates in the "offshore" market for Tibor rates, known as euro-yen Tibor.
In UBS' last quarterly report, the Swiss bank said it had reached immunity deals with the Department of Justice and regulators in Switzerland and Canada, giving it protection against enforcement action in relation to certain transactions and submissions for Yen Libor and Euroyen Tibor.
Civil versus Criminal Prosecution
Due to these immunity or settlement deals, it could be easier for politicians and regulators to take actions against individuals that colluded to manipulate interbank lending rates, rather than an institution as a whole.
However, lawyers have warned that while the public are baying for blood, calls for a criminal investigation into Barclays' recently resigned CEO Bob Diamond and individuals involved in the Libor fixing scandal may meet a wall as would "too difficult" to mount a criminal charge against them.
"Despite the findings from the FSA and others, it is still very difficult to mount a successful criminal prosecution," said Owen Watkins, corporate barrister at Lewis Silkin, who used to work at the FSA and before that the Securities and Investments Board. "The authorities already know who they are and if the SFO [Serious Fraud Office] did want to bring about criminal charges, it would be the traders at the coalface that would most likely be the targets. The SFO would need to consider whether the evidence would support a charge of fraud and/or conspiracy to defraud."
"In a criminal case, the prosecution has to satisfy a higher burden of proof - beyond reasonable doubt. People may think this is easier with the addition of civil proceedings but this is not the case. "There are really long odds on a successful criminal prosecution of the most senior individuals for events that happen at the coalface of operations - they may simply not be aware of what is going on. But in this case the regulators can take civil action against them, for a failure to have proper systems and controls in place, for example," he added.
Lawyers like Watkins say that launching a criminal charge would not be as fruitful as critics might think and sometimes civil proceedings should be "enough" as punishment.
"We should perhaps not be too hung up over whether people are being prosecuted under civil or criminal charges because other than the understandable desire from the public and politicians to see some form of punishment applied, such as seeing handcuffs put onto people, it is the result that matters," said Watkins. "With civil proceedings, there is the prospect of the regulators imposing an unlimited fine and banning individuals from the industry. This is potentially a very severe penalty and removes the possibility of that person offending again, which is a desirable regulatory outcome. What you have to also realise is that if criminal proceedings do take place there are still exceptional hurdles such as a higher standard of proof required - beyond reasonable doubt - to bring a successful prosecution."
According to the FSA's annual report published this month, the number of people being banned from the banking and mortgage industries has fluctuated over the last few years, with a recent peak in year ending April 2011.
During that year, some 71 people were excluded from the industry - up from 56 the previous year.
In the year ending April 2012, 47 were banned. In 2003, the figure stood at four.
During the unravelling of the Libor fixing scandal, critics called for prosecutions under the Sarbanes Oxley Act 2002 for failure of corporate officers to certify financial reports.
Under it, Diamond and other executives could face a personal fine of up to $1m and/or imprisonment of up to 10 years. The act was ratified in the aftermath of the collapse of Enron and WorldCom.
Sarbanes Oxley only applies to US courts. Experts said that in the UK there should be enough redress available through the FSA through other proceedings.