With 10 bankers having been charged over Euribor, it seems as if change is in the air.
Ten former employees of Deutsche Bank and Barclays have been charged in relation to allegations that they plotted to fix benchmark euro interest rates. Charges of conspiracy to defraud have been brought; with nine men and one woman due to appear at Westminster Magistrates Court on January 16.
The charges are the first relating to Euribor; an interest rate similar to Libor used to price euro loans and credit. The Serious Fraud Office (SFO) and other agencies have already investigated allegations of yen and dollar Libor rate fixing. In announcing the Euribor charges, the SFO made it clear that more charges are likely; with more individuals likely to face intense questioning.
Such charges are the first in relation to Euribor. But they are not the first to be brought regarding interest rate fixing. Taken as a whole, the charges that have been brought - and the admissions of guilt and payment of fines already made by some banks in relation to certain allegations - indicate two things:
That the issue of such fraud is high on the agenda of the investigating authorities.
That the authorities are having success when it comes to identifying fraudulent activity in The City.
The centre piece of the 2006 Fraud Act is undoubtedly the creation in section 1 of a new single offence of fraud - a single offence that can be committed in one of three different ways; fraud by false representation; fraud by failure to disclose and fraud by abuse of position. Fraud by false representation is the clearest alternative to a common-law conspiracy to defraud allegation. It involves dishonestly making a false representation with intent to gain or cause loss to another, or to expose another to risk of loss. There does not have to be actual loss or even risk of loss. Dishonesty is the key issue. For a 'representation' to be 'false' the person making it must know it is, or might be, untrue or misleading.
Time will tell how successful the SFO is with its conspiracy to defraud charges in relation to Euribor. The coming months may see yet more people charged and those charges may vary from individual to individual. But whatever the precise nature and number of charges that are brought, Euribor has already shown us one thing – compliance must now be a top priority in The City.
The Financial Conduct Authority (FCA) has stated previously that currency trading practices have to change. More than one billion pounds in fines has already been issued to banks regarding manipulation of currency benchmarks, the FCA is on record as saying that having things remain as they are is not a viable option and there is an appetite among investigating authorities to boost the case for reform by prosecuting successfully anyone who appears to have been carrying out the practices that they want to ban.
If you want to continue trading, therefore, it would appear that a huge emphasis has to be placed on making sure your activities are above suspicion. And such an outcome can only be achieved with a thorough and dedicated adherence to a policy of compliance.
Compliance is a concept that receives a mixed reception from those in The City. Many regard it as a pointless exercise in box ticking, to be avoided wherever possible. Others may think it uses time and resources that could otherwise be put towards generating further business. Yet maybe those now facing Euribor charges or those banks who were hit with a billion pounds in fines over other rate fixing may have rethought their views on the need for compliance.
Bearing in mind what has happened recently regarding currency manipulation prosecutions, now appears to be a perfect time for those in The City to give their compliance policies (or lack of them) some serious consideration. If anything, a commitment to compliance may spare The City regulation imposed from above.
Having helped many companies - both in The City and beyond – devise compliance policies, we know that it is not always something that is easy to create or implement. The law that has to be followed may be complex, subject to change or even open to misinterpretation. But the fact remains: it is essential that the law relating to your business has to be adhered to.
Making sure that everyone working for you or representing you is acting legally at all times is never simple. But it will be much harder if strong compliance procedures are not in place. Such procedures can only be worthwhile if they are completed and introduced following an in-depth analysis of a firm’s workings, the people or bodies working for it or with it and the potential for wrongdoing committed by or against the organisation. Any policies created as a result of such a process have to be constructed carefully and publicised intensively to staff and associates. They can only be effective if they are reviewed and, when necessary, altered.
At Rahman Ravelli, our legal expertise and experience of fraud cases has helped us complement the business expertise in many companies by helping them implement robust and appropriate compliance procedures. Euribor wrongdoing may well prove to be costly for individuals and organisations in 2016. For some, there is the chance that strong, expert legal representation – the type that we specialise in – may help them have the charges dropped or reduced or the penalties minimised. The right defence in such a case has to be proactive, robust, immediate and appropriate. Such a defence requires experience and expertise: fraud allegations can be damaging. In the right hands, evidence can be analysed and the authorities’ allegations challenged successfully. Our track record proves this.
But with The City being scrutinised closer than ever, only appropriate compliance procedures will help prevent individuals and organisations joining the list of those prosecuted for Euribor and other forms of rate rigging. It is always better to prevent wrongdoing rather than have to deny it or explain it.
Compliance is never free. But its potential savings make it a worthy investment when the intentions and resources of the SFO and other agencies are considered.