Banking Scandals

State-owned banks Wasit customer .. our money "stolen" in public

Thursday, July 30, 2015 19:56

State-owned banks Wasit customer .. our money "stolen" in public

Wasit / Baghdadi News / .. the banking sector in Wasit province, and Like most state institutions, also suffering from financial corruption, but Atakhlua scattered across the province of some banks "spoilers".

Where some grumbling Auditors banks of "stealing" the bank staff responsible for the delivery window, for a fraction of the amounts citizens before they are delivered to them, and they're handing them over especially small denominations are difficult to count the amount in the bank.

The spread of this phenomenon, most recently in the branches of state banks in the province, and carried out "thefts" in cases of large loans, remittances and with the elderly citizens, Treasurer they believed "to Aegedon counting the amount."

Where between Mohammed Jassim Laidi, in Hadth L / Baghdadi News / "I checked before the period of one government banks in Kut to receive the transfer from my account in progress and, as valued at 50 million dinars, so the bank employee handed me, but I was surprised that the amount of the five category thousand dinars, and I told him Is it possible to replace it the category of 25 thousand being a large sum, he said to me can not and you should count the amount before departure, but you do not have the right to claim inferiority, if there is a shortage. "

He continues, "then asked the bank employee giving me the machine counting money, but he refused, I said to myself that there is no problem I'll go and God willing there not be a shortage in the amount, as a government bank, and at the same time I can not count the amount in it," he said. "I got home I got up after Alambghann turned out to be minus 285 000 dinars, and from different packages, so she went back to the bank employee and asked him not to me defines the importance of, and I have said I do not work for you the right to claim after discharge from the bank. "

Laidi indicates that "he went to the director of the bank, but it is the other denied the subject, and said to me, if you give me guide him until convicted by an employee and I address the financial penalty and a fine against him."

The Baqir Ali, accounts clerk in a conservative circles, between in his speech / Baghdadi News / "We as a committee staff salaries distribution, we go every month to withdraw the amount of salaries owed to employees of 232 million dinars, from our circle in the bank account, and I always find cases the same amount in salary ranges between million and below, borne of the Commission dividing the salaries of its members from the private and we pay our account, or we collect from staff selection, our universe may be tired of recurrence of a repeat of the bank staff Fund cases of deliberate theft of the salaries of our circle. "

He adds, "We are living in a state, either manually counting the money in the bank, which may take 8 hours and thus the official working hours have ended, and either taking the salary of a circle and waiting to learn the amount of the shortfall, according to the mercy of the employee in us."

One government banks in Kut manager, who declined to be named, pointed out in his speech / Baghdadi News / that "no punitive action against an employee who proves it theft administrative penalty of up to removal and a fine of a certain amount."

He continued, "We do a search from time to time in order to stand on some cases to bypass the staff at the bank clients money, and at the same time staff may faulting in amounts reading some of these instruments and in case you get sometimes is returned amounts to their owners."

Either one of the bank employees in Kut, drew out that "some of my colleagues Trustees Alsnadiguen delivery periods were exploiting the money or staff salaries circles citizens loans or receivables peasants, where large amounts, they start to withdraw some money from the bundles multiple funds, so as not to be robbery phenomenon for the bank's customer. "


Why Is The EU Forcing European Nations To Adopt ‘Bail-In’ Legislation By The End Of The Summer?

By Michael Snyder, on June 5th, 2015

Question Smiley - Public DomainAre they expecting something to happen?  As you will read about below, the European Union says that any nation within the EU that does not enact “bail-in” legislation within the next two months will face legal action.  The countries that are being threatened in this manner include Italy and France.  If you fast forward two months from this moment, that puts us in early August.  So clearly the European Union wants everything to be squared away by the end of the summer.  Is there a reason for this?  Are they anticipating that something really bad will happen in September or thereafter?  Why such a rush?

We all remember what happened when major banks were “bailed out” during the last financial crisis.  A tremendous amount of taxpayer money was given to the big banks to help prop them up so they wouldn’t fail.  This greatly upset a lot of people.

Well, when the next great financial crisis hits Europe, banks are not going to get “bailed out” this time.  Instead, we are going to see “bail-ins”.

So precisely what is a “bail-in”?  Essentially, what happens is that wealth is transferred from the “stakeholders” in the bank to the bank itself in order to keep it solvent.  That means that creditors and shareholders could potentially lose everything if a major bank in Europe fails.  And if their “contributions” are not enough to save the bank, those holding private bank accounts will have to take “haircuts” just like we saw in Cyprus.  In fact, the travesty that we witnessed in Cyprus is being used as a “template” for much of the new legislation that is being enacted all over Europe.

The bottom line is that not a single bank account in the European Union will ever be truly safe again.

By this time, everyone in the EU was already supposed to have enacted “bail-in” legislation, but some countries in Europe have been dragging their feet.  So now the European Commission (the executive body of the European Union) is giving them a hard deadline.  According to Reuters, any nation that has not passed “bail-in” legislation within two months will be subject to legal action…

The European Commission on Thursday gave France, Italy and nine other EU countries two months to adopt new EU rules on propping up failed banks or face legal action. The rules, known as the bank recovery and resolution directive (BRRD), seek to shield taxpayers from having to bail out troubled lenders, forcing creditors and shareholders to contribute to the rescue in a process known as “bail-in”. So which countries are being threatened?

It turns out that there are 11 of them.  The following comes from Mark O’Byrne

The article “EU regulators tell 11 countries to adopt bank bail-in rules” reported how 11 countries are under pressure from the EC and had yet “to fall in line”. The countries were Bulgaria, the Czech Republic, Lithuania, Malta, Poland, Romania, Sweden, Luxembourg, the Netherlands, France and Italy. France and Italy are two countries who are regarded as having particularly fragile banking systems.

But why only two months to get this done?

When I was in law school, I took an entire course on European Union law.  Normally, things in Europe take a very long time to get done.  It is out of character for the European Commission to rush to get something like this done so quickly. Could they be anticipating that this legislation will need to be put into use very soon?

What we do know is that bonds in Europe have already been crashing, and it appears that the European Central Bank is starting to lose control over European financial markets.

And we also know that there has been a sustained bank run in Greece.  In fact, it is being reported that 700 million euros were pulled out of Greek banks on Friday alone.  Personally, I think that anyone that still has any money in Greek banks is absolutely insane.  Some day in the not too distant future, Greek bank account holders are going to be in for a “haircut” just like we saw in Cyprus.  The following comes from Zero Hedge

While the Greek government believes it may have won the battle, if not the war with Europe, the reality is that every additional day in which Athens does not have a funding backstop, be it the ECB (or the BRIC bank), is a day which brings the local banking system to total collapse.

As a reminder, Greek banks already depends on the ECB for some €80.7 billion in Emergency Liquidity Assistance which was about 60% of total deposits in the Greek financial system as of April 30. In other words, they are woefully insolvent and only the day to day generosity of the ECB prevents a roughly 40% forced “bail in” deposit haircut a la Cyprus.

But of course Greece will only be just the beginning.  In the end, I expect major banks to fail all over Europe as we head into the greatest financial crisis that Europe has ever seen.  Bank account holders all over the continent could end up having to take “haircuts”, and that would just make the coming deflationary cycle in Europe a lot worse.

And I actually expect events in Europe to start accelerating greatly by the end of this calendar year.  Apparently the top dogs in the European Union are also concerned about the immediate future, because they are rushing to get “bail-in” legislation passed in every nation in the EU by the end of the summer.

Fortunately, the United States has not moved in a similar direction – at least not yet.  It is always possible that during an “emergency situation” anything can happen.  We saw that in Cyprus.  But for the moment, European bank accounts appear to be more vulnerable than U.S. bank accounts.

Not that any of us should have much confidence in the major banks in the United States either.  Since the end of the last financial crisis they have become more reckless than ever.  At this point, the six largest banks in this country collectively have 278 trillion dollars of exposure to derivatives.  A day is coming when the “too big to fail” banks will actually start failing, and that will absolutely cripple our economy.

We are moving into a time of great financial instability.  During such a time, one of the keys will be to not have all of your eggs in one basket.  That way it will be more difficult for your wealth to be wiped out by a single event.

So what other advice would you give to people that are wondering how to deal with the coming global banking crisis?


Bank scandals: Somebody must go to jail

Joseph W. Cotchett
Updated 6:45 p.m., Saturday, August 18, 2012

"I believe that banking institutions are more dangerous to our liberties than standing armies." - Thomas Jefferson, 1816

When Thomas Jefferson spoke those words, banks were local and very small compared with the financial behemoths of today. Banks are more dangerous now than in Jefferson's time, and they are totally out of control.

During the Depression of the 1930s, President Franklin Roosevelt referred to banks as the "money changers in the temple of our civilization," and little has been done since. It is well past the time that people on Wall Street live by the rule of law - not just pay fines - and some executives go to jail for their conduct.

Consider just a few examples:

HSBC: This Wall Street bank is one of the largest in the world. The latest revelation is that it has been doing business with terrorist-linked businesses and helped launder money for Iran and Mexican drug cartels. A Senate panel said HSBC Mexico shipped $7 billion in cash to its parent bank in 2007-08, money that could have come only from the illegal drug trade. The bank ignored terrorist ties of its affiliate bank in Saudi Arabia and had banking transactions with Iran that violated American sanctions. The comptroller of the currency fined the bank for repeated violations of its money-laundering controls.

Barclay's Bank: This banking giant has admitted that it put together one of the biggest financial frauds in history, Libor, by rigging interest rates on trillions of dollars of mortgages, loans and investments. Its recently stated defense is that all the major banks do it. This will cost cities, counties and states hundreds of millions of dollars, and no one will end up in jail, but the firm will pay fines and pledge not to do it again.

Bank of America: The bank has admitted to the Department of Justice that it defrauded schools, hospitals and state and local government entities by engaging in bid-rigging activities involving the investment proceeds from municipal bond sales. It has been fined for so many banking violations in recent years that one cannot keep track of them all - from foreign financial frauds to failing to tell its shareholders the full details of its acquisition of companies like Merrill Lynch.

Citigroup: It has agreed to pay more than $3 billion in fines and legal settlements for its role in financing the fraud at Enron Corp. In 2004, Citigroup paid $2.65 billion for its role in selling stocks and bonds for the fraud at WorldCom. In 2005, it paid millions for fines for the scam at Global Crossing. In 2010, Citigroup agreed to pay a fine of millions because it misled investors over potential losses from high-risk mortgages after it falsely certified the quality of loans to qualify for insurance from the Federal Housing Administration.

Goldman Sachs: In 2010, Goldman agreed to pay $550 million in fines regarding allegations by the Securities and Exchange Commission that the bank and its employees misled investors and omitted key disclosure in documents relating to the sale of debt instruments. A book could be written detailing all of Goldman's Wall Street shenanigans - and it has.

JPMorgan Chase: The bank has paid millions in fines for deceiving investors with fake research on the sales of stocks and bonds. Chase was fined $2 billion in a settlement for its role in financing Enron Corp. In 2009, the bank agreed to an almost billion-dollar settlement with the SEC to end a probe into sales of derivatives that caused public entities to lose millions. And in 2011, Chase was charged with overcharging several thousand military families for their mortgages, including active-duty personnel in Afghanistan and Iraq.

Morgan Stanley: It has paid fines for improperly using customers' accounts as collateral for management loans. It settled a sex-discrimination suit brought by the Equal Employment Opportunity Commission for millions and paid the National Association of Securities Dealers a $2.2 million fine for more than 1,800 late disclosures of reportable information about its brokers to cover mistakes and fraud. The bank has paid millions in fines imposed by the New York Stock Exchange for inaccurate reporting of trading information, short-sale violations and failure to file required disclosures. The SEC has accused the firm of deleting e-mails and failing to cooperate with its investigators. Morgan agreed to pay a fine for having employees improperly execute fictitious sales in Eurodollar and Treasury note contracts. No one has gone to jail.

Wells Fargo: Wells has paid fines for failing to monitor alleged money laundering in narcotics trafficking and, in an agreement with the Justice Department, it will pay a multimillion-dollar fine to subprime borrowers in cases in which its allegedly discriminated against African American, Hispanic and other minority borrowers.

These are just a few of the scams that have put our economy in such trouble. Yet these firms are bailed out of their own mess with our tax dollars. In 2008, the much-publicized Troubled Assets Relief Program bailed out banks and Wall Street to the tune of $700 billion with taxpayer money. While the banks were bailed out of the trouble they caused, they continued to pay out enormous executive bonuses with taxpayers' money in multimillion-dollar year-end gifts. JPMorgan received $25 billion from the government in 2008 and gave out nearly $9 billion in bonus money that year.

When the derivative-driven housing market collapsed in 2008, Citigroup and Bank of America, the major banks in that market, and eight other top Wall Street firms got $1.2 trillion in then-secret loans of taxpayer money from the Federal Reserve. The Fed even went to court in an attempt to hide the identities of those banks from the public. With secrecy the watchword both on Wall Street and in Washington, we are lucky to know as much as we do about the relationships between Wall Street banks and the government agencies that are supposed to regulate them.

Who pays the fines? Not the executives - the shareholders, the teachers, police, firefighters and many public pensions end up paying for the criminal acts of the executives.

Regulating the banks and bringing the rule of law to Wall Street banks is necessary now. Sending a few Wall Street banksters to jail would stop some of the abuse as well.

Where are the prosecutions?

-- Financial-fraud prosecutions by President Obama's Department of Justice are at 20-year lows - lower than in the Bush years, according to a recent report.

-- The failure to criminally prosecute top executives - such as John Corzine and his cohorts at MF Global - is directly related to political ties to Wall Street .

-- A Department of Justice task force for investigating bank mortgage lenders is understaffed and has not produced any criminal convictions.

- Joseph W. Cotchett

Joseph W. Cotchett is a trial lawyer who tried the case against Charles Keating in the S&L scandal, and he is the only lawyer to interview Bernard Madoff in jail as he pursued his Ponzi scheme. He is the author of "Greed and the Casino Society" (Matthew Bender & Co.) and is a resident of San Mateo and San Francisco. Send your feedback to us through our online form at

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AP source: 7 banks, including JPMorgan and Citi, subpoenaed in rate-fixing scandal

By Michael Virtanen, The Associated Press | Associated Press – Wed, Aug 15, 2012

ALBANY, N.Y. - A person with knowledge of the matter tells The Associated Press that the attorneys general of New York and Connecticut have issued subpoenas to seven banks over the possible manipulation of an important global interest rate.

The person says subpoenas have been issued to Barclays, Citigroup, Deutsche Bank, JPMorgan Chase, HSBC, Royal Bank of Scotland and UBS.

The person spoke on condition of anonymity because the person was not authorized to discuss the matter publicly.

American and British regulators have already fined Barclays $453 million. The bank has admitted that it submitted false information to keep the rate, known as LIBOR, low.

An impossible task


By Hussein Shobokshi

Hussein Shobokshi
A Businessman and prominent columnist. Mr. Shobokshi hosts the weekly current affairs program Al Takreer on Al Arabiya, and in 1995, he was chosen as one of the "Global Leaders for Tomorrow" by the World Economic Forum. He received his B.A. in Political Science and Management from the University of Tulsa.
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Clear deceptions

I know some friends who work as bankers and whenever they are asked in a public gathering or a party to introduce themselves, they lower their voice and mumble their profession, barely uttering a few words. This is because today the banking profession is not as it was in the past; it no longer has the same prestige, status, appreciation and respect. Since the 1980s, banking has been associated to a number of high profile scams and violations that have become known as "white-collar crimes".

Today, the global financial crisis continues to reveal a variety of new transgressions within a number of major international banks, where alarming financial violations have taken place, as expressed by the investigation authorities. In this context, the long-standing Barclays Bank has been greatly shaken and was forced to sacrifice its chairman, several Swiss banks are tottering under current investigations, and Standard Chartered is facing a series of charges lodged by the US judicial authorities. This is in addition to similar crises being suffered by other giant international banks.

Did this rushing torrent of charges, suspicions and allegations instill fear into the heart of the international banking industry in Switzerland, in a manner that prompted major banks there to issue an important circular to their senior executives urging them to spend their annual leave within Swiss borders and not leave the country, fearing the legal prosecution of the US judicial authorities across the world?

Banks, in their dominating and prevailing form, have transformed into an influential and effective tool for social engineering, and to check or sometimes disturb the balances within a society. In this endeavor, banks are assisted by a weak and unaware supervisory system that sometimes plays the role of the accomplice in some central banks, where some officials directly "derive financial benefits" via partnerships, bribes, "special" bonuses and incentives, or through recruiting their cronies in important posts, aiming to consolidate and extend their influence. This created a corrupt environment allowing for the transfer of hot, suspicious, dirty money to be re-circulated in bank accounts and behind appropriate facades, whereby such finance could then be transformed into legitimate sums and figures. This criminal circle could only be achieved with internal assistance and through the officials within these banks, as well as with the approval of those who observe them.

I remember a businessman friend of mine telling a joke he had heard from a university professor in the US, when giving a description of bankers. The joke is as follows: Why are bankers always safe from heart attacks? Because none of them have a heart in the first place. The university professor added that banking is an industry lacking in values, conscience, morality or a frame of reference. It is not a case of survival of the fittest or the smartest; in this particular domain it is survival of the lowest!

Today, in the West, there is an extensive review of the "quality" of employees who are accepted to work in banks. The career ladder and the incentives offered are all being reconsidered in a manner that ensures both the moral considerations and the prospected financial elements are taken into account. This is a new approach to a profession that has long been a glaring example of exploitation, greed and bloodsucking, regardless of the glamor of skyscrapers, advanced technological mechanisms, fashionable suits and striking elegance. Liters of expensive cologne cannot mask the rubbish that lies beneath.

The world expects to see a moral uprising in the banking sector so that the profession can regain some respect, yet there are some who would wager that such a task is impossible.


The Cartel Behind the Scenes in the Libor Interest Rate Scandal

Photo Gallery: The Vast Extent of the Libor Scandal

There have been plenty of banking scandals, but none quite like this: Investigators and political leaders believe that the manipulation of the Libor benchmark interest rate was the result of organized fraud. Institutions that participated could face billions in fines and penalties. By SPIEGEL Staff

Eduard Pomeranz and Rolf Majcen are small fish in the shark tank of international high finance. Their hedge fund, FTC Capital, is headquartered in tranquil Vienna and manages only €150 million ($189 million) in assets. But now Pomeranz, the founder, and Majcen, the head of the legal department, have been able to strike fear in the hearts of the big fish.

"The Libor manipulation is presumably the biggest financial scandal ever," says Majcen, a man with slightly disheveled-looking hair and Viennese sarcasm. Yes, he says, it did shock him that something like this was even possible, namely that a group of international banks had been manipulating interest rates for years. But Majcen takes a matter-of-fact approach to it all. As a financial professional, he is only one of many who want to get back the money that they feel they've been cheated out of.

At the end of June, British and American regulators imposed a $500 million fine on Barclays, the major British bank, and forced its CEO Bob Diamond to resign. Since then, a war of sorts has erupted in the financial sector. Investigators are attacking presumed offenders, banks that are involved are denouncing others in the hope of mitigating their own penalties, and small investors like Majcen are inundating Libor banks with lawsuits.

Deutsche Bank and more than a dozen other financial giants have come under sharp criticism due to the alleged manipulation of the Libor ( London Interbank Offered Rate), a benchmark interest rate. Some are even referring to the banks that are instrumental in calculating that rate a cartel, the sort of vocabulary not normally associated with the financial industry.

Regulators are using terms like "organized fraud." European Justice Commissioner Viviane Reding has suggested that bankers ought to be called "banksters." But in the case of some agencies, especially in New York and London, the outcry is also convenient; it diverts attention away from their own failures. For years, regulators overlooked what was happening right in front of their eyes.

Now that the authorities have woken up, they are aggressively pursuing the offenders -- and are reaching all the way up to the boardrooms. More than half a dozen government agencies, from Canada to Japan, are investigating the case.

German authorities are also involved. A dozen employees of Germany's central bank, the Bundesbank, have paid several visits to Deutsche Bank in recent weeks. They work for BaFin, the German federal financial supervisory authority, which has ordered a special audit, and are poking around the bank's headquarters in Frankfurt, traveling to London, where its money market traders are based, and flying to Tokyo. Even the bank's two new co-CEOs, Anshu Jain and Jürgen Fitschen, are expected to sit down for a question and answer session with the auditors. This is particularly unpleasant for Jain, who, as head of the investment banking division during the period in question, was ultimately responsible for money market transactions.

Libor, Anchor of the Financial World

The Libor and Euribor (Euro Interbank Offered Rate) are used worldwide as the benchmark rates for financial transactions worth hundreds of trillions of euros. When a savings bank issues a loan to a business at a variable interest rate, the loan agreement is based on the Euribor. "In many cases, the Euribor is even the key guideline for the structuring of call money," says Falko Fecht, a professor at the Frankfurt School of Finance, referring to overnight and other such short-term loans. In Spain, in particular, tens of thousands of construction loans are based on the Euribor, while millions of mortgage loans in the United States are pegged to the Libor rate.

But the bankers in the cartel initially had their sights set on a completely different business. They wanted to influence the giant market for interest rate and foreign currency derivatives in their favor. The volume of outstanding transactions in this area amounted to €567 trillion at the end of 2011 alone. Changes of as little as 0.01 percentage points can translate into hundreds of millions in profit or loss for some banks. This makes the lax approach to the calculation of rates taken for years by banks and regulators alike seem all the more astonishing.

A total of no more than 18 banks, including Deutsche Bank, are involved in the calculation of the Libor. Every morning, they submit estimates of the costs at which they believe they could borrow money on the markets without collateral. Using the resulting data, financial services provider Thomson Reuters calculates averages -- for 10 different currencies and 15 different borrowing periods.

A similar method is used to calculate the Euribor, except that there significantly more banks -- 43 -- involved in the process.

Nevertheless, it is hardly a rigorous calculation. The averages are based on rule-of-thumb estimates; the market supposedly reflected in the data sent to Thomson Reuters has been dead since the financial crisis. Only very few banks can borrow money today without furnishing collateral.

Furthermore, neither bank executives nor regulators have shown much interest in how the important benchmark rate is determined. Inputting the data was often left to ordinary money market traders, who had serious conflicts of interest and acquired a dangerous amount of influence on the financial world. "The Libor interest rate was practically an invitation to manipulate," says BaFin head Elke König.

The Cartel Emerges

In 2005, a young trader with Moroccan roots came to Barclays: Philippe Moryoussef, who is now 44. For him, it was only one station of many: Société Générale, Barclays, Royal Bank of Scotland, Morgan Stanley and, finally, Nomura. The Japanese had let him go when it became clear what role Moryoussef allegedly played in the interest-rate cartel.

In the London financial district, Moryoussef was seen as cool and unassuming. He liked diving, read books and didn't put on airs in public, even when he moved into a £2.5-million ($3.9 million) apartment in London's St. John's Wood neighborhood with his wife and two children.

Moryoussef traded in interest rate derivatives during his time at Barclays. He and his fellow traders knew exactly how much money they stood to lose or gain if the Libor or Euribor changed by only a fraction of a percentage point in one direction or the other.

And they apparently did everything they could to eliminate happenstance. Moryoussef communicated by phone or email with colleagues inside and outside the bank almost daily to steer interest rates in the right direction. To do so, they sent inquiries to the people who were responsible for inputting the Libor rates: the money market traders.

In the glitzy world of investment banking, money market traders were at the bottom of the pecking order before the financial crisis. They were not involved in major deals, and they could only dream of the kinds of bonuses stock and bond traders received. "They were always at the bottom of the food chain," says a former investment banker.

It was a conspiratorial group of underdogs who worked for various banks and met at least once a month for a beer or a mojito in New York, London or Frankfurt. By the middle of the last decade, when there seemed to be a surplus of money at the banks, they all had the same problem: They were derided or, worse yet, ignored by their colleagues in the trading rooms of major banks.

But what if it were possible to know where interest rates were headed at the end of the day, or even in the next hour? What if a few traders could manipulate the ups and downs of interest rates?

By 2005 at the latest, the traders would seem to have begun realizing just how much power they had were they able to collaborate within their small group. There was no need for formal contracts between large institutions, merely agreements among friends. A pointer here, a few traders meeting for lunch there, and soon the group had formed a global cartel that, according to investigators, reached from Japan to Europe to Canada.

"Come on over; I'll open a bottle of Bollinger," a trader, inebriated with his success, wrote to a colleague after the Libor rate had been set. Adair Turner of the British regulatory agency quotes the email as evidence of "a culture of cynical greed in the trading rooms."

The Organized Fraud

"If the rate remains unchanged, I'm a dead man," a trader emailed to a colleague who was responsible for Libor in October 2006. The traders sent at least 173 inquiries of this nature between 2005 and May 2009 for the dollar Libor alone. They were often successful.

Moryoussef, listed in the files of Britain's Financial Services Authority (FSA) as "Trader E," specialized in the Euribor. He reportedly bet €30 billion on certain movements of the interest rate, a normal dimension in the fast-paced money market. "The trick is that you can't do it alone," he bragged to outside colleagues at HSBC, Société Générale and Deutsche Bank, who allegedly cooperated with him.

While the traders were initially out to increase their bonuses, the manipulation took on a different dimension during the crisis. When the first banks began to wobble in 2007, it became more difficult for many financial companies to borrow money -- a problem that would normally be reflected in higher Libor rates.

Now even top managers at Barclays, alarmed by media reports, were instructing the Libor men to input lower rates. In October 2008, the manipulation became a question of survival for Barclays. On Oct. 29, a concerned Paul Tucker, now the deputy governor of the Bank of England, contacted Barclays CEO Diamond. Tucker wanted to know why the bank was consistently inputting such high interest rates into the daily Libor report.

Diamond told a parliamentary committee that Tucker had seemed to imply that lower interest rates be reported for the Libor, which Tucker staunchly denies. Diamond, for his part, prepared a transcript of the telephone conversation he had had with Tucker on that day, in which he had mentioned political pressure. After that, his chief operating officer spoke with the money market traders. The underdogs were suddenly being heard on the executive board, and had become the bank's potential saviors.

Barclays wasn't the only bank that was having trouble gaining access to money in the fall of 2008. UBS, Citigroup and the Royal Bank of Scotland, now prime suspects in addition to Barclays, had to be bailed out by their respective governments. Germany's WestLB, which was involved in the Libor calculation at the time, was also seen as a problem case, although this wasn't reflected in the Libor rates it was reporting.

Deutsche Bank

As early as the fall of 2011, Deutsche Bank's chief risk officer at the time, Hugo Bänziger, ordered an internal audit. Millions of emails had to be reviewed and chat minutes read. Bänziger hired an outside auditing firm, and soon there were 50 people on the team responsible for the scandal. But it was a deeply frustrating task for the auditors; they didn't even know where to begin.

Only when British investigators released the names of two suspicious traders was the audit team able to report success to then CEO Josef Ackermann. Seemingly sensing what was in store for his bank, he inquired about the progress of the audit on a weekly basis. Two traders were fired.

Since the departures of Ackermann, Bänziger and former Supervisory Board Chairman Clemens Börsig, Börsig's successor Paul Achleitner has managed the bank's handling of the Libor scandal. He is reportedly firmly convinced that the bank never tried to push down the Libor to improve its own position. Financing problems? Not at Deutsche Bank, says Achleitner. He also notes that there are no indications that executive board members, or even Anshu Jain, were directly involved in the scandal.

But is it possible that only two wayward traders took part in the cartel? Why were no supervisors and no compliance officers aware of their activities? Deutsche Bank prides itself on being a world leader in the trade in foreign currencies and interest rates. It is part of all panels involved in determining the Libor. And yet Deutsche Bank merely sees itself as a bit player in the Libor-fixing scandal.

But why then was Alan Cloete, thought to have been responsible for the money market business and other areas during the wild Libor years, unaware of the manipulation? And why did Jain promote the stocky South African to the expanded executive board in March, while the investigations and internal audits in the Libor matter were already underway? There are those associated with the bank who think this is odd, while others see it as proof that Cloete is blameless in the Libor case.

The Failure of the Regulators

On April 11, 2008, a member of the Barclays money market team called Fabiola Ravazzolo, an employee of the Federal Reserve Bank of New York.

Barclays employee: "LIBORs do not reflect where the market is trading, which is, you know, the same as a lot of other people have said."

Ravazzolo: "Mm hmm."

A few moments later, the Barclays man, according to the transcript of the conversation released by the bank, said: "We're not posting, um, an honest Libor."

Ravazzolo: "Okay."

Barclays-Mann: "We are doing it, because, um, if we didn't do it it draws, um, unwanted attention on ourselves."

Ravazzolo: "Okay."

There was no sense of outrage, nor did Ravazzolo question the Barclays employee about the details. A similar conversation transpired with another Fed employee a few months later.

These are transcripts of failure. Barclays employees also contacted British regulators 13 times to report possible misconduct among the competition in determining the Libor, FSA chief Adair Turner admitted in a hearing before the British investigative committee. No one sounded the alarm.

In the United States, the issue ultimately did make it further up the ladder, reaching the desk of Timothy Geithner, who was chairman of the New York Fed at the time before becoming US treasury secretary. At the end of May, he sent an email on the subject of the Libor to the governor of the Bank of England, writing: "We would welcome a chance to discuss these and would be grateful if you would give us some sense of what changes are possible." Attached to the message were two pages of "Recommendations for Enhancing the Credibility of LIBOR". It was anything but a warning about manipulations.

At first, there was no reaction from the other side of the Atlantic, and Geithner's office had to send a reminder email on June 1. Two days later, Bank of England Governor Mervyn King finally responded, writing that the recommendations seemed "sensible" and that he would be happy to discuss the matter further with Geithner.

But nothing further happened in the ensuing months. The financial crisis was coming to a head with the bankruptcy of investment bank Lehman Brothers. The central bankers had other worries. This remains the regulators' line of defense today. If the world hadn't happened to be on the edge of an abyss, they say, the Libor scandal would certainly not have slipped through their fingers as easily.

Meanwhile, the US Commodities Futures Trading Commission (CFTC) had been investigating the issue since 2008, and its efforts eventually led to a worldwide investigation.

The Episode Is Blown Wide Open

"Mechanisms are now taking effect that I only knew of from mafia films," a shaken financial regulator said recently. Since investigations have gone into high gear in New York, London, Brussels and elsewhere, suspected bank executives have been coming clean.

They are under great pressure. Last year, the European Commission filed several antitrust suits against various banks. Antitrust suits are considered to be the sharpest weapons in business law because they allow Brussels to impose stiff penalties on cartel participants.

"In our investigations, we concentrate on suspicious cartel agreements that include derivatives. This includes possible secret agreements about the determination of these lending rates," says European Competition Commissioner Joaquín Almunia. In other words, the investigators are interested in more than the manipulation of global interest rates to benefit specific parties. It's also possible that the enormous market for derivatives was manipulated.

"Derivatives traders are also believed to have agreed upon the difference between the buy and sell prices (spreads) of derivatives, thereby selling these financial instruments to customers under conditions that were not customary in the market," says the Swiss Competition Commission, which is also investigating possible cartels.

It is difficult to find clear evidence, such as a written cartel agreement. But in Brussels alone, more than 40 banks have contacted authorities to report what they know about years of manipulation. The first star prosecution witness to reveal new information about a cartel and provides evidence stands to see his own fine eliminated entirely. The second can expect Brussels to reduce his fine by up to 50 percent and the third by up to 30 percent.

The European Commission can demand up to 10 percent of a year's profits from the banks. "There could be new record-breaking fines," says an employee at the Directorate-General for Competition in Brussels. Individual banks could expect to be slapped with fines of more than €1 billion by the EU.

In the United States, the Justice Department has joined financial regulators in conducting the investigations. This means that the scandal could also have criminal and not just civil consequences for a number of banks, say sources in Washington. Charges will likely be filed against at least one bank this year. US Congress has also announced plans to launch its own investigation.

It wasn't until the fall of 2011 that German financial regulators at BaFin headquarters in Bonn learned of the dimensions of the scandal from their counterparts in the United States and Great Britain. They had been largely unaware of the problem until then. Raimund Röseler, the chief executive for banking supervisor at BaFin, then prepared a special investigation, which has been underway since May.

What the Banks Could Now Face

German banks must have pricked up their ears when BaFin President Elke König recently spoke about the Libor scandal. "Basically, banks must establish suitable reserves for possible losses," König concluded.

Investors, like Vienna hedge fund FTC Capital, have made it clear that they do not intend to let up. They feel obligated to their customers to file claims for damages, explains FTC executive Majcen. Friedrich von Metzler, whose bank feels harmed by the rate manipulation through a fund subsidiary, has filed a lawsuit for the same reason.

There are already 20 lawsuits in the United States, some of which have been combined into class action suits. The plaintiffs range from the City of Baltimore to police and firefighter's pension funds, the City of Dania Beach, Florida, and Russian oligarch Vladimir Gusinsky.

They feel encouraged by the actions of regulators. "Both the American CFTC and the FSA have done excellent investigative work," says Majcen. Bank analysts expect that other institutions could face fines similar to the one imposed on Barclays. In fact, it ought to be in the banks' best interest to quickly settle their cases. "But they're afraid, because since Barclays, they know that it isn't just about money, but also about making heads roll," says a major shareholder of Deutsche Bank.

German attorneys are also lining up to represent potential clients. "A few institutional investors have already contacted us," says Marc Schiefer of the law firm TILP in the southern German city of Tübingen.

Years could go by before damage suits are ruled on. FTC executive Majcen expects that it will take until at least the spring of 2013 for the courts to decide whether to hear the cases, while the evidentiary hearings and trials could take another three to five years. Nevertheless, investment bank Morgan Stanley has already made its projections, estimating the total cost to the banks, including fines and damage payments, at $22 billion, of which $1.5 billion would apply to Deutsche Bank.

Possible Libor-related liabilities would cause serious problems at WestLB, or its successor company Portigon. The once-proud state-owned bank is in the process of being liquidated, at a cost of billions to its former owners, the western German state of North Rhine-Westphalia and savings banks. The Libor scandal could further increase the burden on taxpayers.

BaFin has launched a major offensive to determine whether WestLB and possibly other German banks were involved in the rate-fixing scandal. Letters were sent to all banks that assist in the calculation of the Euribor, giving them until last Thursday to explain their internal processes for calculating the euro interest rate and, most of all, their monitoring mechanisms. If responses suggest possible lapses, these banks could also see special auditors knocking on their doors.

Fund companies also received mail from Bonn. They were asked to determine which of their products are affected and, if possible, to report their possible losses.

Things will get especially uncomfortable for Deutsche Bank, because BaFin intends to double its regulatory capacities for the bank in the near future. Instead of two departments, there will be three or four devoted to Deutsche Bank. The regulator will reshuffle its internal organization to free up the necessary employees.

BaFin has also just prepared a position paper on a subject that is especially sensitive for Jain. The agency is now intensively addressing the question of how, in investment banking, the dangerous practice of proprietary trading could be isolated from the rest of the business through holding structures.

The regulators speculate that relevant draft legislation proposed by Britain's Vickers Commission could also apply to German banks. Nikolaus von Bomhard, CEO of insurance giant Munich Re and a member of the supervisory board of Commerzbank, Germany's second-largest bank, recently made the case for a breakup of major banks. Achleitner, a member of the board of Allianz under recently, was reportedly deeply upset about former colleagues in the industry.

The call for stricter regulation is also getting louder in politics once again. Sigmar Gabriel, chairman of the center-left Social Democratic Party (SPD), has discovered bank-bashing as an effective campaign tool, and has declared the next election, in the fall of 2013, as a "decision on the taming of the banking and financial sector."

Finance Minister Wolfgang Schäuble, a member of the center-right Christian Democratic Union (CDU), accused Gabriel, a potential SPD candidate for the chancellorship, of "cheap populism." But the remark sounded more duty-bound than genuine, especially given the fact that there is also considerable outrage over the Libor scandal in Berlin.

"This is a real zinger," says an insider. In the past, bank manager lapses resulted from their stupidity for having bought securities without understanding them. "Now that was bad enough. But manipulating a market rate is criminal." A portion of the industry, adds the insider, apparently doesn't realize that the writing is on the wall.

The parties involved, including Deutsche Bank and its new co-CEO Jain, cannot expect leniency when charges are investigated. "We can't make any allowances for high-profile names," say officials in the capital.


Translated from the German by Christopher Sultan

06 July 2012 - 22H03  

Libor scandal spotlight on Citi, JPMorgan
A sign is displayed on the exterior of a CitiBank branch office in San Francisco, California in 2011. The harsh light of the Libor rate-fixing scandal has crossed the Atlantic, with both Citigroup and JPMorgan Chase saying regulators and investigators have requested information from them in a so-far preliminary probe of the case.
A sign is displayed on the exterior of a CitiBank branch office in San Francisco, California in 2011. The harsh light of the Libor rate-fixing scandal has crossed the Atlantic, with both Citigroup and JPMorgan Chase saying regulators and investigators have requested information from them in a so-far preliminary probe of the case.
The harsh light of the Libor rate-fixing scandal has crossed the Atlantic, with both Citigroup and JPMorgan Chase saying regulators and investigators have requested information from them in a so-far preliminary probe of the case.
The harsh light of the Libor rate-fixing scandal has crossed the Atlantic, with both Citigroup and JPMorgan Chase saying regulators and investigators have requested information from them in a so-far preliminary probe of the case.

AFP - The harsh light of the Libor rate-fixing scandal has crossed the Atlantic, with both Citigroup and JPMorgan Chase saying regulators and investigators have requested information from them in a so-far preliminary probe of the case.

Share prices for both -- as well as Bank of America, which has not said if it was asked for information -- have fallen sharply this week amid worries they could be in line for the type of heavy fines laid on Britain's Barclays Bank, at the center of the scandal.

Barclays has been fined $452 million (360 million euros) by British and US regulators for attempted manipulation of the markets for Libor and Eurobor benchmark interest rates between 2005 and 2009.

Three top Barclays executives have resigned and on Friday Britain's Serious Fraud Office said it would formally investigate the case, which has dented London's reputation as a top financial center.

But speculation runs to other banks because the Libor rate is set based on information from 16 international banks, and many think that manipulating it would take more than one bank.

The issue affects not just banks but commercial and retail borrowers around the world -- in the United States, the payments of a floating rate home mortgage loan are often tied to the Libor base rate.

Citi, JPMorgan and Bank of America are three of the 16 banks that fix the rate, as an average of what they say they pay for funds in London's interbank market.

All three have declined to comment on the scandal.

But JPMorgan and Citi have said that they had received requests for information from regulators and were cooperating.

Citigroup noted in its reports that the Japanese Financial Services Agency, among several regulators involved in the cross-border investigations, had taken administrative action against its Citigroup Global Markets Japan unit over "certain communications" made by two CGMJ traders about Libor and the Euroyen Tokyo interbank rate, or Tibor.

The unit was given a two-week suspension from trading in yen-linked derivatives in January.

JFSA also took administrative action against Citibank Japan in part related to the handling of the communications made by the CGMJ traders.

"The inquiries by government agencies into various interbank offered rates are ongoing," the bank said in a report to the Securities and Exchange Commission.

Citigroup and JPMorgan also acknowledged private civil and class-action lawsuits filed against the Libor-setting banks beginning in April over the issue.

The suits have been assembled together into one action proceeding in the New York federal district court.

Even if there is not yet any formal investigation of the US banks over the Libor rate manipulation, their shares have already taken falls over worries they could be involved.

JPMorgan shares were off 5.1 percent for the week in afternoon trade Friday; Citi shares were down 4.4 percent and Bank of America 6.5 percent.