JPMorgan Chase & Co. (JPM) and two other banks rejected a European Union deal to end an antitrust probe into the rigging of Euribor lending rates, risking higher fines and challenging the future of the EU’s settlement process.
The EU is seeking to announce two sets of settlements as soon as today with banks accused of colluding to rig the London interbank offered rate and Euribor, according to a person familiar with the EU’s probe who asked not to be identified because the process is private.
While global fines for rate-rigging have already topped $3.7 billion, the cost to banks may climb as they face lawsuits worldwide. An EU accord includes a finding of liability that can be used in civil cases.
JPMorgan joined HSBC Holdings Plc (HSBA) and Credit Agricole SA (ACA) in pulling out of the Euribor settlement talks, according to the person. ICAP Plc (IAP) won’t take part in the Libor settlement process, which relates to the yen, the Financial Times reported yesterday, without saying where it got the information.
Rejecting a settlement and facing a higher fine could be worth the risk, said Noelle Lenoir, a lawyer at Kramer Levin Naftalis & Frankel LLP in Paris.
Companies “know full well that admitting to what they are charged with would be a money pit,” she said.
The only previous case in which the EU failed to clinch a global settlement involved Timab, a maker of livestock-feed additives, snubbed a deal saying the European Commission tried to push the company to admit conduct it didn’t commit.
The three dissenting banks in the Euribor probe were part of talks that also included Barclays Plc (BARC), Deutsche Bank AG (DBK), Royal Bank of Scotland Group Plc and Societe Generale SA (GLE), a person said last month.
HSBC, Europe’s biggest lender by value, pulled out of the negotiations amid an impasse over the possible size of a fine and liability issues, a person familiar with the probe said last month.
“Our ideas are very clear -- we have a very good case,” Credit Agricole Chief Executive Officer Jean-Paul Chifflet said in Nov. 7. “I’ve refused the idea of a settlement because it would have put into question our responsibility.”
Joe Evangelisti, a JPMorgan spokesman, declined to comment.
In a parallel probe into rigging of yen Libor, lenders, including Citigroup Inc. (C), are set to be fined as part of a settlement with the EU, two people with knowledge of the case said in November.
ICAP didn’t respond to an e-mail seeking comment on that probe.
The FT said the fines for Euribor would be greater than for yen Libor breaches.
While JPMorgan, the biggest U.S. lender by assets, decided to pull out of the Euribor deal, the U.S. bank is part of the yen-Libor settlement, according to a person familiar with the probe. The set of evidence is different in both cases, said the person.
There are conflicting signs as to the financial rewards of participating in the EU settlements. While the EU promises companies that strike a deal get a 10 percent discount on any fine, Timab said in a court challenge that its penalty actually jumped by 25 percent after it pulled out of talks.
While the EU has said that the settlements aren’t a negotiation, during the talks companies involved in cartel cases can have a say on issues such as the length of time the illegal conduct took place, said Marc Hansen, a lawyer at Latham & Watkins LLP who has participated in EU settlements.
“The impression is that the dialog with the commission in the months leading to a settlement is able to influence the scope and duration of the infringement,” he said, without referring to the EU’s rate-rigging cases.
Pulling out of the EU’s deal will also slow the process. While the settling banks will be done with the EU anti case, JPMorgan, HSBC and Credit Agricole will be dealing with a formal EU complaint and hearings before a final fine is announced in about a year.
Such a delay may mean EU Competition Commissioner Joaquin Almunia’s successor is the person responsible for sanctioning the three banks. The Spaniard’s term as EU antitrust chief runs out at the end of October.
Antoine Colombani, Almunia’s spokesman at the European Commission in Brussels, didn’t respond to calls on his mobile phone and office line seeking comment.
The reticence of the three banks has led EU officials to question the effectiveness of the EU settlement procedure, which was introduced five years ago to speed up the process, according to three people familiar with the internal discussions. It has completed global deals in six of its seven settlements. The latest deal came in July, when the commission fined makers of automotive wire harnesses, including Yazaki Corp.
“You have a lot of going back and forth with commission staff,” said Simon Hirsbrunner, a lawyer at Heuking Kuehn Lueer Wojtek in Brussels, who was also involved in the livestock-feed additives cartel case. “It doesn’t really save time.”
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