FBI’s Washington Office Homes in on Financial Fraud Cases
The FBI’s Washington field office, long known for its work on terrorism and public corruption, has taken a central role in the U.S. probe of the manipulation of interest rates that has entangled banks around the world.
The office is conducting the U.S. investigation into the rigging of benchmarks including the London Interbank Offered Rate, and its work up to this point has led in part to two international resolutions, including the $1.5 billion settlement with UBS AG in December and charges against two of the bank’s former traders.
The settlement, which included a guilty plea from the company’s Tokyo subsidiary, and investigations into banks and traders across the globe underscore how attacking “major fraud” has become a priority for the office, Timothy Gallagher, the head of the Washington criminal division who is overseeing the probe, said in an interview.
“We’ve got an enormous amount of resources devoted to this,” said Gallagher, who took the helm of the criminal division in October after a stint as the chief of the Financial Crimes Section at FBI headquarters.
The Federal Bureau of Investigation’s role at the center of financial fraud cases isn’t new, as the New York office has spearheaded some of the largest corporate and securities fraud cases in history. Still, the Washington office’s emergence, bolstered by its two financial fraud squads and relationship with Justice Department lawyers leading the probe, has pushed it to the forefront of Wall Street’s radar.
“People think that financial fraud is pursued in New York, but we’re pursuing it vigorously here,” Gallagher said at his office six blocks from Justice Department headquarters. “There’s more than enough to go around.”
The settlement with UBS, along with criminal charges against two former traders, may be the template for more resolutions with banks around the world. Along with the Justice Department and Commodity Futures Trading Commission, regulators from at least five countries, including the U.K.’s Serious Fraud Office and Financial Services Authority, are investigating the banks involved.
Barclays Plc (BARC) agreed to pay 290 million pounds in June. Regulators have sought information from more than a dozen banks that set rates in the U.S., Europe and Japan that underpin more than $300 trillion in contracts worldwide.
The Royal Bank of Scotland Group Plc is in settlement negotiations with regulators, according to people with knowledge of the matter. Traders at Deutsche Bank AG, Credit Agricole SA (ACA) and HSBC Holdings Plc (HSBA) also are under investigation, according to a person with knowledge of the matter who asked not to be identified because the probes are continuing.
Libor is derived from a survey of banks. Lenders are asked how much it would cost them to borrow from one another for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and francs.
FBI officials have been to London and, in the weeks leading up to the UBS settlement, international officials met in Washington on the case, Gallagher said. The FBI’s role has been to lead the investigative component, with forensic accountants, analysts and special agents all taking part.
Gallagher, who first became involved in the probe through his position at FBI headquarters, said the scope and importance of the investigation was clear to him from the moment he was first briefed on its details. He declined to discuss the specifics of the investigation, which has included regulators and law enforcement authorities from across the world.
“It’s huge,” said Robertson Park, a 20-year veteran of the Justice Department’s fraud section who worked on the Libor case until his August departure for Murphy & McGonigle in Washington. “It’s got all sorts of players and moving parts.”
The Washington office’s increased focus on financial fraud mirrors a bureau-wide effort after the 2008 financial crisis.
FBI Director Robert Mueller told lawmakers in testimony last year that the bureau had a 49 percent increase in corporate and securities fraud cases since September 2008, when Lehman Brothers Holdings Inc. filed for bankruptcy, sending global financial markets into freefall. At the end of 2011 the FBI had more than 2,600 fraud cases, Mueller said.
To handle the load, the FBI has bolstered its corporate fraud response teams -- groups of accountants, analysts and special agents run out of FBI headquarters that can be deployed on major cases. A “large number” of special agents from the response teams came to Washington for the Libor investigation, Kevin Perkins, the FBI’s associate deputy director, said at the December press conference announcing the UBS settlement.
“As you can imagine in such cases, there is a significant amount of data to be pored over and analyzed,” Perkins said.
Gallagher said the expertise within his financial fraud teams has become a valuable resource for U.S. attorneys around the country -- and may help open a pipeline to Washington for future cases with the size and scope of the Libor probe.
The Washington operation also is able to easily coordinate with the lawyers less than a mile away in the Justice Department’s fraud section, the group taking the lead on the criminal investigation.
Assistant Attorney General Lanny Breuer, the head of the Justice Department’s criminal division, called the FBI’s Washington office a “tremendous partner.”
“The FBI Washington Field Office’s pursuit of sophisticated financial fraud schemes has been essential in building some of the department’s most complex and labor- intensive cases,” Breuer said in an e-mail.
Gallagher said the proximity to Justice Department officials allows him to have lunch regularly with Denis J. McInerney, the chief of the section. They speak about the Libor case at least once a week, he said. Special agents have quick access to the lawyers working on the case -- a valuable tool in a investigation that spans more than a dozen banks and regulators from across the globe.
“You have the agents and the prosecutors at the same table as much as possible,” he said.
In a town where federal regulators, congressional staff and lawmakers hold reams of sensitive information that could be used to move financial markets, the Libor investigation, which lawyers say could go on for years, may foreshadow a continuing role for the Washington office, Gallagher said.
“Nothing succeeds like success,” he said.
To contact the reporter on this story: Phil Mattingly in Washington at firstname.lastname@example.org