In a landmark settlement highlighting the severity of benchmark interest rate manipulation, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., widely known as Rabobank, has agreed to pay a staggering $325 million penalty to the United States Department of Justice (DOJ). This resolution addresses violations stemming from Rabobank’s fraudulent submissions concerning the London InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (Euribor), critical benchmark interest rates that underpin trillions of dollars in financial products globally.
The DOJ formally announced the agreement, revealing that a criminal information would be filed in the U.S. District Court for the District of Connecticut. This information charges Rabobank under a Deferred Prosecution Agreement (DPA) for wire fraud related to its role in manipulating LIBOR and Euribor. Beyond the substantial financial penalty, the DPA mandates that Rabobank openly admit and accept responsibility for the misconduct detailed in a comprehensive statement of facts. Furthermore, Rabobank is obligated to continue its cooperation with the Justice Department’s ongoing investigation into the manipulation of benchmark interest rates by other financial institutions and individuals.
“For years, employees at Rabobank, often collaborating with traders at other global banks, engaged in the illegal manipulation of four distinct interest rates – Euribor and LIBOR for the U.S. dollar, the yen, and the pound sterling,” stated Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division. “Their aim was to fraudulently influence the market to boost profits for their traders, at the expense of Rabobank’s counterparties. Today’s criminal resolution, the second-largest penalty in the Criminal Division’s active investigation into the manipulation of global benchmark interest rates by major banks, follows closely on the heels of charges against three former ICAP brokers last month. Rabobank is now the fourth major financial institution to admit misconduct in this extensive criminal investigation, and this should serve as a clear warning to other banks: our investigation is far from concluded.”
Deputy Assistant Attorney General Leslie C. Overton of the Justice Department’s Antitrust Division added, “Rabobank deliberately rigged multiple benchmark rates, enabling its traders to secure inflated profits at the detriment of unsuspecting counterparties. This conduct was not only fraudulent but also undermined the integrity of globally utilized interest rate benchmarks, thereby destabilizing financial markets worldwide.”
Valerie Parlave, Assistant Director in Charge of the FBI’s Washington Field Office, emphasized the direct impact of Rabobank‘s actions. “Rabobank admitted to manipulating LIBOR and Euribor submissions, which directly affected rates referenced by financial products held by companies and investors globally. Rabobank’s actions caused deliberate harm to counterparties holding products linked to these manipulated rates. Today’s announcement underscores the relentless efforts of FBI special agents and forensic accountants dedicated to investigating complex fraud schemes and, in collaboration with prosecutors, bringing those involved to justice.”
This $325 million criminal penalty from the Justice Department, combined with approximately $740 million in criminal and regulatory penalties from other agencies for the same misconduct, pushes the total amount Rabobank must pay to over $1 billion. These additional penalties include $475 million from the Commodity Futures Trading Commission (CFTC), $170 million from the U.K. Financial Conduct Authority (FCA), and approximately $96 million from the Openbaar Ministerie (the Dutch Public Prosecution Service).
Understanding LIBOR and Euribor Manipulation
LIBOR, or the London Interbank Offered Rate, is a crucial average interest rate benchmark. It is calculated based on submissions from leading banks worldwide, reflecting the rates at which these banks believe they could borrow funds from other banks. LIBOR serves as the primary benchmark for short-term interest rates globally and is a reference rate for a vast array of financial instruments, including interest rate contracts, mortgages, credit cards, student loans, and other consumer lending products. The Bank of International Settlements estimated that, as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion, highlighting the immense scale of financial products tied to LIBOR.
LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London. During the period relevant to the criminal charges against Rabobank, LIBOR was calculated for 10 currencies across 15 borrowing periods, known as maturities, ranging from overnight to one year. The LIBOR for a specific currency and maturity is derived from submissions made by a panel of banks (the Contributor Panel) selected by the BBA. From at least 2005 through 2011, Rabobank was a prominent member of the Contributor Panel for several currencies, including United States dollar (dollar) LIBOR, pound sterling LIBOR, and yen LIBOR.
Euribor, the Euro Interbank Offered Rate, is similarly vital for the Eurozone. Published by the European Banking Federation (EBF) in Brussels, Belgium, Euribor is calculated for 15 maturities, also ranging from overnight to one year. Euribor represents the rate at which Euro interbank term deposits are expected to be offered by one prime bank to another within the Eurozone at 11:00 a.m. Brussels time. Like LIBOR, Euribor is calculated based on submissions from Euribor Contributor Panel banks. Rabobank was also a member of the Euribor Contributor Panel from at least 2005 through 2011.
The manipulation occurred when certain derivatives traders at Rabobank improperly influenced the bank’s LIBOR and Euribor submissions. According to the statement of facts accompanying the agreement, from as early as 2005 until at least November 2010, these traders requested that Rabobank submitters alter their LIBOR and Euribor contributions to benefit the traders’ trading positions. Instead of submitting rates that accurately reflected borrowing costs as defined by LIBOR and Euribor guidelines, submitters were pressured to skew the rates.
Furthermore, from January 2006 through October 2008, a Rabobank yen LIBOR submitter and a Rabobank Euribor submitter had separate agreements with traders at other banks to coordinate submissions. These agreements aimed to manipulate yen LIBOR and Euribor submissions to favor specific trading positions, again deviating from the proper definitions of these benchmark rates.
Rabobank’s LIBOR and Euribor submitters frequently complied with these improper requests. On numerous occasions, Rabobank’s manipulated submissions directly impacted the fixed rates, demonstrating the effectiveness and reach of the fraudulent scheme.
Evidence of Manipulation: Electronic Communications
The Justice Department’s investigation revealed extensive electronic communications detailing the manipulation. Emails and electronic chats provided clear evidence of the collusion and intent to manipulate rates.
For example, an email exchange from September 21, 2007, shows a Rabobank Yen derivatives trader emailing the Rabobank Yen LIBOR submitter with the subject “libors.” The trader explicitly requested, “If you can, I would like 1mth libors higher today.” The submitter confirmed the request, and after some negotiation regarding the exact level, agreed to set the 1-month Yen LIBOR submission at 0.90%, even acknowledging potential scrutiny but dismissing concerns with “Don’t worry mate – there’s bigger crooks in the market than us guys!” That day, Rabobank’s 1-month Yen LIBOR submission significantly increased, becoming the highest submission on the Contributor Panel, while other banks’ submissions decreased on average.
Another example from November 29, 2006, shows a Rabobank dollar derivatives trader communicating with Rabobank’s Global Head of Liquidity and Finance and the head of Rabobank’s money markets desk in London. The trader requested “low 1s high 3s LIBOR pls !!!” and admitted to having “Sold the market today doooooohhhh!” The money markets desk head complied, replying “ok mate , will do my best.” Further communication on December 1, 2006, reveals the trader again requesting, “Appreciate 3s go down, but a high 3s today would be nice… cheers chief.” The money markets desk head’s response, “I am fast turning into your LIBOR bitch!!!!” underscores the pressure and inappropriate nature of these requests.
Collusion with external banks is also evident. On July 28, 2006, a Rabobank rate submitter and trader discussed their shared desire for a high fixing. The submitter stated, “setting a high 1m again today – I need it!” and the trader from another Contributor Panel bank responded, “yes pls mate…I need a higher 1m libor too.” Subsequently, the Rabobank submitter contacted a trader at another bank, writing, “morning skipper…..will be setting an obscenely high 1m again today…poss 38 just fyi.” The other bank’s trader responded, “(K)…oh dear..my poor customers….hehehe!! manual input libors again today then!!!!” Both banks then moved their submissions up to 0.38, becoming the second-highest submissions that day.
These communications, among others, demonstrate a clear and concerted effort to manipulate LIBOR and Euribor for trading gains, disregarding the integrity of these crucial benchmarks and harming market participants.
Factors Considered in the Deferred Prosecution Agreement
The Justice Department’s decision to enter into a DPA with Rabobank considered several mitigating factors. Notably, Rabobank had no prior history of similar misconduct and had not been subject to previous criminal or significant regulatory enforcement actions in the United States, the Netherlands, or elsewhere.
Furthermore, Rabobank has undertaken substantial measures to enhance its legal and regulatory compliance program and has taken extensive steps to remediate the misconduct. The DOJ also acknowledged the significant remedies and sanctions imposed on Rabobank by other regulators and the Dutch Public Prosecution Service. These factors contributed to the DOJ’s decision to resolve the charges through a DPA rather than pursuing a full criminal prosecution.
Ongoing Investigation and Collaborative Effort
The investigation into Rabobank and broader LIBOR manipulation is ongoing and represents a significant collaborative effort among various enforcement agencies both in the United States and internationally. The FBI’s Washington Field Office, along with prosecutors from the Criminal Division’s Fraud Section and Antitrust Division, are leading the charge.
The Justice Department specifically acknowledged the critical role of the CFTC’s Division of Enforcement, which initially referred the matter, and the U.K. Financial Conduct Authority (FCA), which played a major role in the investigation. Close cooperation with the Dutch Public Prosecution Service and De Nederlandsche Bank (the Dutch Central Bank) was also highlighted. Numerous agencies and enforcement authorities from other nations are also involved in the broader investigation into LIBOR and other benchmark rates, reflecting the global scale of the issue. The Securities and Exchange Commission and the United Kingdom’s Serious Fraud Office were also specifically thanked for their assistance.
This prosecution is part of the broader efforts of President Obama’s Financial Fraud Enforcement Task Force, established to combat financial crimes. The task force aims to aggressively investigate and prosecute financial fraud, ensure effective punishment, and recover proceeds for victims.
The Rabobank settlement serves as a stark reminder of the serious consequences of benchmark rate manipulation and the unwavering commitment of global regulatory bodies to ensuring the integrity of financial markets. For Rabobank, this penalty marks a significant financial and reputational blow, underscoring the importance of robust compliance and ethical conduct within the banking industry.
