Monday, 9 July 2012

Banking crisis

RBS fights to keep its Libor records secret

Royal Bank of Scotland is fighting a court order requiring it to co-operate with an international criminal investigation into allegations its staff fixed a key banking lending rate.

The move represents a potential political embarrassment with George Osborne, the Chancellor, potentially facing questions over why a bank ultimately controlled by the Treasury, is attempting to resist international law enforcement investigations into the practice

By Jason Lewis, Investigations Editor, and Glenn Johnson in Ottawa

7:00AM BST 08 Jul 201243
RBS, the partly-nationalised bank, is one of a number of institutions being investigated for possible rigging of Libor, the inter-bank interest rate, a probe which last week saw high street rivals Barclays fined £290m and Bob Diamond, its chief executive, forced to resign.

Now it can be revealed that RBS is battling a court ruling to hand over confidential internal documents which could contain evidence that its traders were also actively involved in the manipulation of the inter bank rate.

RBS has been resisting for more than a year investigators pursuing documents which allegedly detail wrongdoing by its staff.

The move represents a potential political embarrassment with George Osborne, the Chancellor, potentially facing questions over why a bank ultimately controlled by the Treasury, is attempting to resist international law enforcement investigations into the practice.

Asenior Canadian judge has ordered the bank, and several of its rivals to hand over evidence to investigators from the Canadian Competition Bureau, a law enforcement agency which protects the country’s business and money markets from fraud.

The court order was issued after a whistleblower revealed how a group of international bankers based in London had manipulated the Libor governing inter bank lending in Yen, the Japanese currency.

The papers suggest that the group used emails and instant messaging to communicate artificially high or low bids, but RBS, apparently alone among the banks under investigation, has instructed its lawyers to fight the order to release these files.

Court papers name eight London-based bankers based on the testimony of a former colleague working for a rival bank.

Both the unnamed witness, known in the documents as “Trader A”, and his employers, believed to be Swiss bank UBS, have been granted immunity from prosecution in return for their testimony.

In all the Canadian case, which has not yet filed charges against any of the banks or individuals, has named six banks as being involved in fixing the Yen Libor rate.

As well as RBS, the papers feature claims against London-based bankers from HSBC, Citigroup, Deutsche Bank, JP Morgan and UBS.

RBS is the only bank involved in the Canadian court challenge, according to the court documents.

The Libor affair, described by the prime minister as a scandal, has led to the resignation of three of Barclays’ most senior executives, including chief executive Bob Diamond.

According to the court papers t Canada’s Competition Bureau is examining whether the bankers “conspired to enhance unreasonably the price of interest rate derivatives from 2007 to March 11, 2010 … conspired to prevent or lessen, unduly, competition in the purchase, sale, or supply of interest rate derivatives”.

An affidavit from Brian Elliott, a competition law officer, named two senior RBS interest rate differential traders, Brent Davies and Will Hall, both based in London, who he said were involved in the attempts to manipulate the Libor rate.

He told the court “both were registered by the Royal Bank of Scotland PLC and with the Financial Services Authority during the time of the transactions”.

FSA records show that both men are no longer registered as regulated approved traders.

The other accused bankers include Peter O’Leary, an executive at HSBC, Stuart Wiley and Paul Glands from JP Morgan, and Guillaume Adolph, from Deutsche Bank.

The papers alleged there were agreements to “submit artificially high or artificially low Libor submissions in order to impact the Yen Libor interest rates published by the British Bankers Association. This was done for the purpose of adjusting the price of financial instruments that use Yen Libor rates as a basis.”

Mr Elliot told the Court: “The Royal Bank of Scotland Group PLC...are believed to possess documents related to the investigation under way into the Yen Libor inquiry and have employees involved in the alleged offences.”

But earlier this year RBS, through its Canadian subsidiary, filed papers objecting to the court order to produce the evidence the Competition Bureau requested and asked the court to quash an order requiring it to comply.

RBS’s Canadian lawyers told the court the bank should not be required to produce confidential records under Canada’s Competition Act, claiming part of the law violated the constitution of Canada.

Royal Bank of Scotland (Canada) was ordered early in 2011 to hand over records related to any trading of Yen Libor. But in court documents, Canadian employees of the bank maintain the records are under the control of UK bank officials and that the Canadians do not have access to any of those records.

A lawyer for the bank has asked the court to quash the order to turn over financial records, claiming they are protected under British privacy laws.

In a letter to the court, lawyers for RBS also asked for assurances that any records obtained in Canada would not be used against the Canadian arm of the bank in any future criminal investigations. Public prosecutors refused to give those assurances.

Last night a spokesman for RBS said: "RBS is cooperating with regulators in their investigations. We want to cooperate with the CCB and have proposed ways to do that which allow us to comply with our English legal obligations."