The recent acquittal of our client Stylianos Contogoulas and his co-defendant Ryan Reich on a charge of conspiracy to defraud by manipulation of Libor whilst working for Barclays in 2005-2007, calls into question once again the efficacy of the decision made by the SFO to prosecute a number of individuals for behaviour, which at the relevant time had not attracted any censure or disciplinary action. During the trial it became clear from evidence given by three managers employed by Barclays that the bank did not provide any training to any of its employees as to the correct basis for making Libor submissions. No trader had ever been disciplined for seeking a submission that sought to benefit a derivative trading position. This was despite the fact that all employees were encouraged to believe that all of their internal communications were being monitored on a daily basis. Why, it might thus be posited, were none of the many emails relied on by the Crown in the trial picked up? The answer appears to be that in fact the level of monitoring did not extend to looking for such communications. When pressed, witnesses conceded that this type of behaviour was simply not on their radar. Further evidence from employees of the BBA (including the manager of Libor John Ewan) established that manipulation for the commercial benefit of the banks was a practice which had been flagged up to the BBA during the indictment period. It might therefore be concluded that such behaviour was simply not considered to be wrong or, if it was wrong, was not deemed to be worthy of any kind of regulation.
The Court of Appeal first opined on this subject during an interlocutory appeal in R v Hayes in 2014 in which they ruled in clear terms that seeking to manipulate Libor for commercial advantage was not a genuine answer to the Libor question. Thus, if a trader sought a submission for such a purpose and did so dishonestly, they were guilty of a criminal act. This was not, the Court of Appeal found, an example of ex post facto law but merely the application of the existing law of conspiracy to defraud to a specific factual scenario. On the face of it this could be construed as criminalising behaviour which had hitherto been considered by those concerned at least to be accepted practice within the industry.
There are inherent dangers in prosecuting individuals retrospectively for behaviour which appears to have been accepted practice at the relevant time. Especially when dealing with persons who are operating at a junior level and following instruction from their more experienced peers. The speed with which the jury returned their verdicts in the most recent trial is a clear indication that convincing a jury that such behaviour as “dishonest” is problematic.
The more appropriate response to the discovery of Libor manipulation was the route taken by the Financial Conduct Authority (then the Financial Services Authority (FSA)). Once a systemic form of abuse had been established, the imposition of stiff financial penalties and the implementation of amended internal controls, training and procedures was clearly necessary. Whether it was appropriate to then seek to prosecute a small minority of more junior employees for the same behaviour is to say the least debatable, especially where their individual culpability (if any) has to be understood within the context of the over-arching failings of their employers as set out at length in the FSA Final Notices.
The recent disclosure by Panorama of evidence suggesting that the Bank of England was encouraging another form of Libor manipulation known as “low-balling” following the financial crash in 2008 merely adds weight to those questioning the integrity of the whole Libor setting process and the complicity of senior bank officials and regulators in a “cover up” of what was a tacitly endorsed market practice. It must surely raise further questions as to the public interest in prosecuting traders and submitters who would maintain that they were simply doing their job.
The recent acquittal of our client Stylianos Contogoulas and his co-defendant Ryan Reich on a charge of conspiracy to defraud by manipulation of Libor whilst working for Barclays in 2005-2007, calls into question once again the efficacy of the decision made by the SFO to prosecute a number of individuals for behaviour, which at the relevant time had not attracted any censure or disciplinary action. During the trial it became clear from evidence given by three managers employed by Barclays that the bank did not provide any training to any of its employees as to the correct basis for making Libor submissions. No trader had ever been disciplined for seeking a submission that sought to benefit a derivative trading position. This was despite the fact that all employees were encouraged to believe that all of their internal communications were being monitored on a daily basis. Why, it might thus be posited, were none of the many emails relied on by the Crown in the trial picked up? The answer appears to be that in fact the level of monitoring did not extend to looking for such communications. When pressed, witnesses conceded that this type of behaviour was simply not on their radar. Further evidence from employees of the BBA (including the manager of Libor John Ewan) established that manipulation for the commercial benefit of the banks was a practice which had been flagged up to the BBA during the indictment period. It might therefore be concluded that such behaviour was simply not considered to be wrong or, if it was wrong, was not deemed to be worthy of any kind of regulation.
The Court of Appeal first opined on this subject during an interlocutory appeal in R v Hayes in 2014 in which they ruled in clear terms that seeking to manipulate Libor for commercial advantage was not a genuine answer to the Libor question. Thus, if a trader sought a submission for such a purpose and did so dishonestly, they were guilty of a criminal act. This was not, the Court of Appeal found, an example of ex post facto law but merely the application of the existing law of conspiracy to defraud to a specific factual scenario. On the face of it this could be construed as criminalising behaviour which had hitherto been considered by those concerned at least to be accepted practice within the industry.
There are inherent dangers in prosecuting individuals retrospectively for behaviour which appears to have been accepted practice at the relevant time. Especially when dealing with persons who are operating at a junior level and following instruction from their more experienced peers. The speed with which the jury returned their verdicts in the most recent trial is a clear indication that convincing a jury that such behaviour as “dishonest” is problematic.
The more appropriate response to the discovery of Libor manipulation was the route taken by the Financial Conduct Authority (then the Financial Services Authority (FSA)). Once a systemic form of abuse had been established, the imposition of stiff financial penalties and the implementation of amended internal controls, training and procedures was clearly necessary. Whether it was appropriate to then seek to prosecute a small minority of more junior employees for the same behaviour is to say the least debatable, especially where their individual culpability (if any) has to be understood within the context of the over-arching failings of their employers as set out at length in the FSA Final Notices.
The recent disclosure by Panorama of evidence suggesting that the Bank of England was encouraging another form of Libor manipulation known as “low-balling” following the financial crash in 2008 merely adds weight to those questioning the integrity of the whole Libor setting process and the complicity of senior bank officials and regulators in a “cover up” of what was a tacitly endorsed market practice. It must surely raise further questions as to the public interest in prosecuting traders and submitters who would maintain that they were simply doing their job.
