Banking Law

UBS to Pay $1.5B to Settle Probe into Interest Rate Manipulation

Swiss bank UBS AG has agreed to pay $1.5 billion to settle accusations it tried to manipulate interest rates.

Bank employees were accused of scheming to manipulate the London interbank offered rate, known as Libor, as well as other benchmark rates, report the New York Times DealBook blog and the Wall Street Journal (sub. req.). Libor is determined based on bank estimates of the rate at which they could borrow funds from other banks. The figure “underpins interest rates on everything from residential mortgages to corporate loans to complex derivatives,” the Wall Street Journal says.

The Justice Department’s Criminal Division entered into a nonprosecution agreement with UBS, but obtained a guilty plea to a fraud count from a UBS subsidiary in Japan. The guilty plea to a criminal charge is the first by a unit of a large bank in more than a decade, the Times says. The fine is one of the largest against a bank; HSBC agreed last week to pay a larger sum—$1.9 billion—to settle a money-laundering probe.

The Justice Department is also expected to announce charges against a former UBS trader, DealBook says.

The Criminal Division and the Commodity Futures Trading Commission obtained about $1.2 billion in fines, while regulators in the United Kingdom and Switzerland obtained more than $300 million in fines and disgorged profits. UBS cooperated in the investigation and expressed “deep regret” for the “inappropriate and unethical behavior” of some of its employees.

The UBS deal is the second involving alleged Libor manipulation. Barclays paid $450 million to settle charges earlier this year, saying it understated borrowing costs to appear in better shape. The Wall Street Journal cites another reason that some bank traders manipulated benchmark rates: to increase profits on their own portfolios of derivatives and other products tied to benchmarks.

Prior coverage: “Report: Law Prof, Other Critics Complain About DOJ Approach to ‘Too Big to Jail’ Bank Crimes” “Are Some Banks Too Big to Indict? HSBC to Pay $1.9B in Money Laundering Probe” “Baltimore Leads Federal Court Battle over Borrowing Benchmark Known as Libor”

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