Wednesday, December 5, 2012
Posted by D. Daniel Sokol
David Flower (Grant Thornton) theorizes on The LIBOR Scandal and Lessons for Antitrust Compliance Programs.
ABSTRACT: In June of 2012, when regulators in the United States and United Kingdom announced settlements totaling USD $451,000,000 with Barclays Bank, news that a large bank apparently falsified its submissions used to set the LIBOR index outraged lawmakers and the public in both countries. The revelations, for those just hearing them, seemed particularly shocking-one of the world's largest banks deliberately misstated information used to set the interest rate index relied upon by hundreds of trillions of dollars' worth of financial instruments, consumer and residential loans, and public financing arrangements. That some bank personnel were so cavalier in doing this, reflected in the now all too familiar e-mails ("Always happy to help, leave it with me, sir" and "Done . . . for you big boy" being but two examples of statements from helpful LIBOR submitters) only inflamed a public perception that at least some people at a powerful financial institution had seemingly gone off the ethical rails.
As eye-opening as the LIBOR scandal was for the general public, it was old news for the banking industry, which had been expecting the hammer to eventually drop ever since the Commodity Futures Trading Commission in the United States and the Financial Services Authority in the United Kingdom began large scale LIBOR investigations of a number of large banks in late 2008 and early 2009. That Barclays had long been viewed as possibly one of the least egregious LIBOR manipulators no doubt made the public relations disaster that befell it, as the bank that settled first, all the more painful for that organization.
What is also old news is the apparent compliance and ethical gaps that damaged Barclays-and the broader incentives in the industry that apparently created the environment for such problems at many of the LIBOR panel banks. Although the LIBOR scandal on the surface might strike many outside the industry as a complicated issue involving obscure interest rates, trading and banking issues, and financial products, the story is actually fairly simple: it appears that certain professionals in positions of opportunity, unchecked by adequate internal controls or oversight, falsified information in order to self-deal on behalf of their institutions, and placed information in the public that presented their institutions in a better light.
What can advisors and attorneys counseling companies on antitrust compliance, or the compliance professionals within such companies, take away from this story? The lessons of LIBOR for compliance and ethical professionals are particularly sharp and disappointingly familiar.