DOJ: RBS SECURITIES JAPAN LIMITED AGREES TO PLEAD GUILTY

(The following is a reformatted version of a press release
issued by The U.S. Justice Department and received via
electronic mail. The release was confirmed by the sender.) 
FEBRUARY 6, 2013 
RBS SECURITIES JAPAN LIMITED AGREES TO PLEAD GUILTY
IN CONNECTION WITH LONG-RUNNING MANIPULATION
OF LIBOR BENCHMARK INTEREST RATES 
Second Financial Institution to Plead Guilty to LIBOR Fraud and
Pay Substantial Criminal Penalties 
RBS Parent Company Also Admits Fault in Deferred Prosecution
Agreement 
WASHINGTON - RBS Securities Japan Limited, a wholly owned
subsidiary of The Royal Bank of Scotland plc (RBS), has agreed
to plead guilty to felony wire fraud and admit its role in
manipulating the Japanese Yen London Interbank Offered Rate
(LIBOR), a leading benchmark used in financial products and
transactions around the world, Assistant Attorney General Lanny
Breuer of the Justice Department’s Criminal Division, Deputy
Assistant Attorney General Scott D. Hammond of the Justice
Department’s Antitrust Division and Special Agent in Charge
Timothy A. Gallagher of the FBI’s Washington Field Office
Criminal Division announced today. 
A criminal information, being filed in U.S. District Court for
the District of Connecticut, charges RBS Securities Japan with
one count of wire fraud for engaging in a scheme to defraud
counterparties to interest rate derivatives trades by secretly
manipulating Yen LIBOR benchmark interest rates.  RBS Securities
Japan has signed a plea agreement with the government admitting
its criminal conduct, and has agreed to pay a $50 million fine. 
In addition, the government is filing a criminal
information in the District of Connecticut which charges parent
company RBS as part of a deferred prosecution agreement (DPA).
The information charges RBS with wire fraud for its role in
manipulating LIBOR benchmark interest rates, and with
participation in a price-fixing conspiracy in violation of the
Sherman Act by rigging the Yen LIBOR benchmark interest rate
with other banks.  The DPA requires the bank to admit and accept
responsibility for its misconduct as described in an extensive
statement of facts, to continue cooperating with the Justice
Department in its ongoing investigation and to pay a $100
million penalty beyond the fine imposed upon RBS Securities
Japan. 
Together with approximately $462 million in regulatory penalties
and disgorgement - $325 million as a result of a Commodity
Futures Trading Commission (CFTC) action and approximately $137
million as a result of a U.K. Financial Services Authority (FSA)
action - the Justice Department’s criminal penalties bring the
total amount of the resolution with RBS and RBS Securities Japan
to approximately $612 million. 
“As we have done with Barclays and UBS, we are today holding RBS
accountable for a stunning abuse of trust,” said Assistant
Attorney General Breuer.  “The bank has admitted to manipulating
one of the cornerstone benchmark interest rates in our global
financial system, and its Japanese subsidiary has agreed to
plead guilty to felony wire fraud.  The department’s ongoing
investigation has now yielded two guilty pleas by significant
financial institutions.  These are extraordinary results, and
our investigation is far from finished.  Our message is clear:
no financial institution is above the law.” 
“RBS secretly rigged the benchmark interest rates upon which
many transactions and consumer financial products are based,”
said Deputy Assistant Attorney General Hammond. “RBS’ conduct
not only harmed its unsuspecting counterparties, it undermined
the integrity and the competitiveness of financial markets
everywhere.” 
“The manipulation of LIBOR by RBS and its subsidiary directly
affected the rates referenced by financial products held by and
on behalf of American companies and investors. The FBI works to
uncover wrongdoing such as this in order to protect American
consumers and the integrity of financial markets,” said Special
Agent in Charge Gallagher.  “Today’s announcement is the result
of the hard work of the FBI special agents, financial analysts,
and forensic accountants as well as the prosecutors who
dedicated significant time and resources to investigating this
case.” 
According to court documents, LIBOR is an average interest rate,
calculated based upon submissions from leading banks around the
world, reflecting the rates those banks believe they would be
charged if borrowing from other banks.  LIBOR serves as the
primary benchmark for short-term interest rates globally, and is
used as a reference rate for many interest rate contracts,
mortgages, credit cards, student loans and other consumer
lending products.  The Bank of International Settlements
estimated that as of the second half of 2009, outstanding
interest rate contracts were valued at approximately $450
trillion. 
LIBOR, published by the British Bankers’ Association (BBA), a
trade association based in London, is calculated for 10
currencies at 15 borrowing periods, known as maturities, ranging
from overnight to one year.  The LIBOR for a given currency at a
specific maturity is the result of a calculation based upon
submissions from a panel of banks for that currency (the
Contributor Panel) selected by the BBA.  From at least 2006
through 2010, RBS has been a member of the Contributor Panel for
a number of currencies, including Yen LIBOR and Swiss Franc
LIBOR, which are the focus of the plea agreement and DPA. 
According to the filed charging documents, at various times from
at least 2006 through 2010, certain RBS Yen and Swiss Franc
derivatives traders - whose compensation was directly connected
to their success in trading financial products tied to LIBOR -
engaged in efforts to move LIBOR in a direction favorable to
their trading positions.  Through these schemes, RBS allegedly
defrauded counterparties who were unaware of the manipulation
affecting financial products referencing Yen and Swiss Franc
LIBOR.  The alleged schemes included hundreds of instances in
which RBS employees sought to influence LIBOR submissions in a
manner favorable to their trading positions in two principal
ways: internally at RBS through requests by derivatives traders
for Yen and Swiss Franc LIBOR submissions, and externally
through an agreement with a separately charged derivatives
trader to request Yen LIBOR submissions.  The trader, Tom
Alexander William Hayes, was formerly employed by a Japanese
subsidiary of another Contributor Panel bank, UBS AG (UBS). 
According to court documents, RBS employees engaged in this
conduct through electronic communications, which included both
emails and electronic chats.  For example, in an electronic chat
on March 16, 2009, an RBS Swiss Franc derivatives trader,
(Trader-7), sought to benefit his trading book by asking the RBS
LIBOR submitter (Submitter-1), “can we pls get a very very very
low 3m [3 month] and 6m [6 month] fix today [please]” because
“we have rather large fixings!”  Submitter-1 responded,
“perfect, if that’s what u want.”  After thanking Submitter-1,
Trader-7 informed Submitter-1 that “from tomorrow . . .  we need
them thru the roof!!!!!” 
In another electronic chat on May 20, 2009, involving an RBS Yen
derivatives trader, (“Trader-2”), Submitter-1, and others, the
following exchange occurred: 
Trader-2:       high 3s and low 6s pls [Submitter-1] 
Submitter-1:    no problems 
Trader-2:       grazias amigo . . . where will you lower
6s to? 
Submitter-1:    70 
That day, RBS’s 6-month Yen LIBOR submission dropped two basis
points from .72 to .70, before reverting to .72 the following
two days. 
RBS employees also allegedly furthered their collusive scheme
with Hayes to fix the price of derivative instruments tied to
Yen LIBOR through electronic communications.  For instance, in
an electronic chat on April 20, 2007, Hayes requested that an
RBS derivatives trader, (“Trader-3”), ask Submitter-1 for a low
3 month Yen LIBOR submission: 
Hayes:  . . . if you could ask your guys to keep 3m low wd be
massive help as long as it doesn’t interfere with your stuff . .
. tx in adavance. 
Approximately 30 minutes later, Hayes and Trader-3 had the
following exchange: 
Hayes:           mate did you manage to spk to your cash boys? 
Trader-3:        yes u owe me they are going 65 and 71 
Hayes:          thx mate yes i do . . . in fact i owe you big
time 
Approximately 45 minutes later, Hayes sent the following message
to Trader-3: 
Hayes:          mater they set 64! . . . thats beyond the call
of duty! 
* * * * 
Trader-3:       no worries 
By entering into a DPA with RBS, the Justice Department credits
RBS’ cooperation in disclosing LIBOR misconduct within the
financial institution, recognizes the significant remedial
measures undertaken by RBS’ management to enhance internal
controls, and acknowledges the additional reporting, disclosure
and cooperation requirements undertaken by the bank.  The DPA
does not prevent the Justice Department from prosecuting
individuals for related conduct. 
The pending charges against Hayes are merely accusations and he
is considered innocent unless and until proven guilty. 
The prosecution of RBS is being handled by Deputy Chief
Patrick Stokes and Trial Attorney Gary Winters of the Criminal
Division’s Fraud Section, and New York Field Office Assistant
Chief Elizabeth Prewitt and Trial Attorneys Eric Schleef and
Richard Powers of the Antitrust Division.  Deputy Chiefs Daniel
Braun and William Stellmach, Assistant Chief Rebecca Rohr and
Trial Attorney Alex Berlin of the Criminal Division’s Fraud
Section, Trial Attorneys Daniel Tracer and Kristina Srica of the
Antitrust Division, Jeremy Verlinda of the Antitrust Division’s
Economic Analysis Group, Assistant U.S. Attorneys Eric Glover
and Liam Brennan of the U.S. Attorney’s Office for the District
of Connecticut and the Criminal Division’s Office of
International Affairs have also provided valuable assistance in
this matter.  The investigation is being conducted by special
agents, forensic accountants and intelligence analysts of the
FBI’s Washington Field Office. 
The investigation leading to these cases has required, and has
greatly benefited from, a diligent and wide-ranging cooperative
effort among various enforcement agencies both in the United
States and abroad.  The Justice Department acknowledges and
expresses its deep appreciation for this assistance.  In
particular, the CFTC’s Division of Enforcement referred this
matter to the department and, along with the FSA, has played a
major role in the investigation.  The Securities and Exchange
Commission has also played a significant role in the LIBOR
series of investigations.  Various agencies and enforcement
authorities from other nations are also participating in
different aspects of the broader investigation relating to LIBOR
and other benchmark rates, and the department is grateful for
their cooperation and assistance. 
This prosecution is part of efforts underway by President Barack
Obama’s Financial Fraud Enforcement Task Force.  President Obama
established the interagency Financial Fraud Enforcement Task
Force to wage an aggressive, coordinated and proactive effort to
investigate and prosecute financial crimes.  The task force
includes representatives from a broad range of federal agencies,
regulatory authorities, inspectors general and state and local
law enforcement who, working together, bring to bear a powerful
array of criminal and civil enforcement resources.  The task
force is working to improve efforts across the federal executive
branch, and with state and local partners, to investigate and
prosecute significant financial crimes, ensure just and
effective punishment for those who perpetrate financial crimes,
combat discrimination in the lending and financial markets and
recover proceeds for victims of financial crimes. For more
information about the task force visit: www.stopfraud.gov. 
(bjh) NY 
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