RBS Securities Japan Sentenced, Fined US$612m for Manipulating Yen Libor

RBS Securities Japan, which engages in investment banking operations with its principal place of business in Tokyo, has been sentenced for its role in manipulating the Japanese yen (JPY) London interbank offered rate (Libor), a leading benchmark used in financial products and transactions around the world.

The Royal Bank of Scotland (RBS) subsidiary was sentenced by US District Judge Michael Shea in the District of Connecticut. RBS Securities Japan pleaded guilty on 12 April 2013, to one count of wire fraud for its role in manipulating JPY Libor benchmark interest rates. RBS Securities Japan signed a plea agreement with the government in which it admitted its criminal conduct and agreed to pay a US$50m fine, which the court accepted in imposing sentence.

In addition, parent company RBS entered into a deferred prosecution agreement (DPA) with the government requiring RBS to pay an additional US$100m penalty, to admit and accept responsibility for its misconduct and to continue cooperating with the Justice Department in its ongoing investigation. The DPA reflects RBS’s cooperation in disclosing Libor misconduct within the financial institution and recognises the significant remedial measures undertaken by new management to enhance internal controls.

Together with approximately US$462m in regulatory penalties and disgorgement – US$325m as a result of a Commodity Futures Trading Commission (CFTC) action and approximately US$137m as a result of a UK Financial Conduct Authority (FCA) action – the Justice Department’s criminal penalties bring the total amount of the resolution with RBS and RBS Securities Japan to approximately US$612m.

“Today’s sentencing of RBS is an important reminder of the significant consequences facing banks that deliberately manipulate financial benchmark rates, and it represents one of the numerous enforcement actions taken by the Justice Department in our ongoing Libor investigation” said acting assistant attorney general, Mythili Raman.

“As a result of the department’s investigation, we have charged five individuals and secured admissions of criminal wrongdoing by four major financial institutions. Our enforcement actions have had a lasting impact on the global banking system, and we intend to continue to vigorously investigate and prosecute the manipulation of this cornerstone benchmark rate.”

According to the plea agreement, between 2006 and 2010, certain RBS Securities yen derivatives traders engaged in efforts to move Libor in a direction favourable to their trading positions, defrauding RBS counterparties who were unaware of the manipulation affecting financial products referencing JPY Libor.

The scheme included efforts to manipulate more than one hundred JPY Libor submissions in a manner favourable to RBS Securities Japan’s trading positions. Certain RBS Securities yen derivatives traders, including a manager, engaged in this conduct in order to benefit their trading positions and thereby increase their profits and decrease their losses.

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