Sunday, July 01, 2012

What's The Problem?

I have been following the LIBOR-rigging scandal while on holiday, and I am a bit puzzled about the frequent assertion that the 'bankers' concerned were not doing anything illegal.

If Justin contacts Julian at Tristram's suggestion and asks him to supply a third party with information that he knows to be incorrect, and the third party uses that information in good faith to do something that might be to the prejudice or benefit of unrelated parties, but might equally assist Justin Julian and Tristram to make some money, or even to avoid a loss, surely that amounts to Conspiracy to Defraud?

36 comments:

  1. How about 'Obtaining a pecuniary advantage by deception'?

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    1. I like it shows your thinking about it- only a shame the powers that be aren't

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    2. Obtaining a pecuniary advantage by deception is no longer an offence. The fraud act replaced it with a number of fraud offences. In any event, a pecuniary advantage is strictly defined and this would be covered by the old statute.

      It's a conspiracy to defraud

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    3. I'm obliged to m'learned friend.

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  2. Yes, precisely. How do these people (a) think they are above the law and (b) won't be found out. What cloud (of fumes?) are they actually on?

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  3. It doesn't need to be that complicated. If Tom asks Bob what rate Bob can borrow at, and Bob dishonestly tells Tom information that Bob knows to be false with the intention of causing gain to Bob, then Bob has committed fraud (s1 by s2 Fraud Act 2006).

    Interposing a third party is necessary to make out conspiracy to defraud, but hardly necessary since the 2006 Act.

    In practice, however, Bob may have a good defence: he wasn't dishonest, in that although his conduct was dishonest by the standards of ordinary people, he wasn't an ordinary person and didn't know any ordinary people, and in his banking ivory tower it was fine.

    Good luck persuading either a jury or a bench of that, though...

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    1. Ed (not Bystander)2 July 2012 at 03:38

      R v Ghosh defines dishonesty. Look it up.

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    2. So long as the jury was drawn from amongst his banking peers, he really wouldn't need to worry.
      I think it was Richard Littlejohn who wrote recently that we should be as concerned about the activities of the feral rich as we are about those of the feral poor. Whoever it was who wrote it, It's one of those I wish I'd thought of.

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  4. In the instances of the traders asking for adjustments that seems fairly clear-cut.

    In the instances of the submitting desk putting in lower forecasts because of management pressure I'm not so sure. Barclay's numbers were not actually used in the final LIBOR for most of that period as even the dodgy numbers were still too high compared to the rest of the sector. It's not acting with integrity, but is it illegal?

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  5. It's not just that Julian can go to jail under section 2 of the Fraud Act. The directors of his company can go to jail under section 12.

    A certain practical problem arises, though, when the Met (and the City police) get millions a year from the banks to subsidise their fraud squads. Even if this were not so, there is an issue with the centralisation of the British state. An American prosecutor can make a banker do the perp walk, and so can a Spanish magistrate. However, what ambitious Deputy Assistant Commissioner at the Met would allow a keen young DI to arrest Bob Diamond, knowing that the Home Secretary would intervene?

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    1. Didn't stop an eager police officer arrest an MP in his own office in the House of Commons...

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  6. The issue that the FSA are hiding behind is that under FSMA (the Financial Services and Markets Act 2002)which defines their powers, there are certain financial investment categories that are 'specified'as regulated. Setting the LIBOR rate (and being involved in that process) isnt one of them and therefore not regulated, meaning that the FSA has limited power to prosecute or regulatyory enforce.

    Whilst that is strictly true, it misses the point and for me shows how spineless the FSA are. This is about two things - firstly, confidence in both markets and the City (which are the FSA's stated objective to protect) and secondly, the role of senior management of regulated firms.

    There are a variety of other mechanisms that might be used to protect the former and go after the latter. For example, the market abuse regime, the FIT test for approved persons, the new Significant Influence functions etc etc etc

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  7. north bucks jp2 July 2012 at 14:48

    Breaking news this lunchtime on the BBC News website is that "the SFO said it was working closely with the FSA and was now considering whether it is both appropriate and possible to bring criminal prosecutions". Going from the above posts it should be possible - fraud is fraud however you dress it up, even if it is between banks - but the whether part of it is where the FSO usually fails to act.

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  8. It all looks like they haven't got the guts to do what is necessary.
    If we will prosecute the poor who fiddle a few pounds in benefit we surely should prosecut the thieving bastards that have almost brought the country to its knees whilst making millions for themselves.
    It is time to take the gloves off!!!

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  9. The SFO has a pretty poor track record of dealing with complex financial crime involving institutions...

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    1. The SFO have a poor record of distinguishing their gluteus maximus from their synovial hinge join.

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    2. If SFO means what I think it does, they can't even spell!

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    3. The SFO have put together some very good cases. Fraud cases are notoriously difficult to prove in front of lay juries. Put the cases in front of a judge or a few accountants and the convictions would follow.

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    4. The SFO knows that its cases need to be presented to lay juries. Claiming that the jury is not sufficiently sophisticated to understand its case should simply result in the SFO apologist losing his or her job forthwith. Like it or not, in this country we still require a case to be proven beyond reasonable doubt to a jury of the defendant's peers.

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  10. Couple of things here -

    What seems to have happened is that Barclays middle to senior management found out what was happening and turned the evidence over to the FSA/SEC. The result was a plea bargin, basically,

    If the stuff about the deputy governor of the Bank of England leaning on Barclays to reduce LIBOR is remotely true, prosecution would become somewhat difficult.

    LIBOR is largely fictional at the moment. Not very much lending happening between banks.

    Finally, from people I know, it would be a good idea to exclude people in finance from any jury. They would (personal straw poll) convict before hearing any evidence. A significant proportion also suggested giving the "defendants" "a bit of a kicking"....

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  11. For once the extradition agreement with the US might be popular - I guess American companies may also have been affected by any 'conspiracy'.

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    1. north bucks jp3 July 2012 at 09:49

      An extradition may not be required. As Mr Diamond has resigned this morning, presumably his work permit expires with his job, and he will soon be on his way home to the US of A.

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    2. He doesnt need a work permit, he's a British Citizen!! He will however almost certainly go back to the US!!

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    3. He has dual US/British citizenship. Where he goes is up to him. He's a free man.

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  12. It might help put things in to perspective to understand how the London Inter-Bank Offered Rate (LIBOR) is set. There is a panel of up to 18 banks who submit their figures daily at 11.00. The highest and lowest are ignored (the number depends on the number of submissions received), and then the average of the remaining figures becomes that day's LIBOR.

    The reason for the trimming of the highest and lowest rates is to stabilise the calculation and reduce the ability of any one bank to skew the rate one way or another.

    And before anyone starts jumping on the ‘all bankers are evil’ bandwagon, the number of individuals involved in this is very small and they will have been identified through the investigation. Depending upon their role within the bank, they may have personal responsibility to the regulator and if so, they will undoubtedly face direct regulatory sanction in due course – but this is not always publicised. The sanction can range from a formal warning to a lifetime prohibition from working in the industry and unlimited personal fines.

    Any allegations of fraud are, of course, another issue and that is up to the Police and CPS to determine.

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    1. Very helpful. But isn't part of the point that the figures submitted aren't based on actual loans, or even quoted rates from other banks, but are themselves an aggregate of sample rates?

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    2. The actual definition is "The rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11.00 London time".

      So it's the bank's perception of what it would expect to be charged for borrowing from other banks. There is an element of skill and judgement involved, in much the same way as a actuary might determine a perceived level of risk in a given activity.

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    3. The LIBOR 'question' asks for an opinion, not for data regarding actual transactions. There is wiggle room here.

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    4. Again, many thanks, Gordo, most helpful.

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  13. This comment has been removed by the author.

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  14. The FSA is able to take enforcement action against those involved, including BD, for breaching various of the FSA Principles in FSMA 2000. This is not a criminal charge but could result in a very large financial penalty and / or a ban from working in the industry. Unlikely though - it did not do so in the case of Fred Goodwin.

    I left Barclays in 2005 after 26 years with them. It was a great company to work for, I had an enjoyable job with lots of travel, made good friends and gained good experience as a senior manager, but never saw huge bonuses, nor do 99.5% of the firm's employees. The culture changed over that period and I was not too sorry to leave.

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  15. The Fraud Act 2007 came into force on 15th January 2007. It would not catch any conduct prior to that date.

    It is a tricky point whether the old "Obtaining a Pecuniary Advantage by Deception" offence (Theft Act 1968 s16)would apply to any individual involved in erroneous Libor submissions.

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    1. I meant to say Fraud Act 2006 -- (typo)!

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  16. Never underestimate the ability of anyone with sufficiently expensive lawyers to always stay within the letter of the law, even as they trample over the spirit.

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  17. I really dont want to be defending Barclays, people are making a big deal about LIBOR. I don't even think, the public understand the issues. The banks have done something wrong, so lets punish them.

    The LIBOR rate is measured to 4 decimal places. e.g. 0.5324% These traders, play with markets, using the last these small margin, and leveraging amplifies their profit / loss.

    I have a small (business) mortgage linked to LIBOR. Am I going to notice anything?. Probably not. At most +/-£100. My LIBOR is not based on the 'daily' LIBOR rate, but the 3month LIBOR rate.

    However, the LIBOR manipulation during the banking crisis helped me, as my mortgage shot up, so by reducing it, banks actually helped me.

    Incidently, my LIBOR mortgage is not with Barclays, but another small commercial lender....

    There is a sense of a mob mentality on bankers.

    Banks have gone bust. No one has been prosecuted selling these sub-prime loans. Bradford & Bingley went bust due to buying an american company which had a stack of sub-prime loans. Why have n't people being prosecuted for this?

    People have lost their life saving. One scottish guy interviewed on TV, said he put £200,000 of his life saving into RBS. He has lost everything.

    If people want to lynch banks, then do it for the right reasons...

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  18. "The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."

    Otis

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