Secret Recording Implicates Bank of England In Libor Rigging
While it may seem like yesterday, it was nearly five years ago that the Libor scandal first broke, and with it brought scandalous suggestions that none other than the Bank of England was implicated.
As we first reported in July 2012, according to Barclays then CEO Bob Diamond, it was high level individuals at the BOE who may (or may not) have been aware that Libor had been “manipulated” and were (or were not) also active in the setting process:
- BARCLAYS SAYS BANK OF ENGLAND CALLED ON OCT. 29, 2008 ON LIBOR
- BARCLAYS SAYS DIAMOND MADE NOTE OF CALL; RECEIVED CALL FROM PAUL TUCKER
- BARCLAYS SAYS TUCKER SAID `CERTAIN’ BARCLAYS DIDN’T NEED ADVICE; SAID LIBOR DIDN’T ALWAYS NEED TO BE SO HIGH
And yet, concerned about how deep the rabbit hole would go if a central banker was implicated, Diamond tried to cover it up:
- BARCLAYS SAYS DIAMOND DIDN’T BELIEVE HE HAD GOT INSTRUCTION
- BARCLAYS SAYS DEL MISSIER CONCLUDED INSTRUCTION HAD BEEN GIVEN; TOLD RATE SETTERS TO LOWER RATES
The note in question was represented below:
Needless to say, when it comes to the central bank nothing happened: a few BOE personnel were reassigned, some quietly lost their jobs, and nobody was prosecuted or charged. Certainly, nobody went to prison.
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Fast forward nearly five years later, when the Libor scandal may have reemerged after a secret recording that implicates the Bank of England in Libor rigging has been uncovered by BBC Panorama.
According to the BBC, the 2008 recording adds to evidence the central bank repeatedly pressured commercial banks during the financial crisis to push their Libor rates down, just as suggested by Bob Diamond in 2012.
The recording calls into question evidence given in 2012 to the Treasury select committee by former Barclays boss Bob Diamond and Paul Tucker, the man who went on to become the deputy governor of the Bank of England. In the recording, a senior Barclays manager, Mark Dearlove, instructs Libor submitter Peter Johnson, to lower his Libor rates.
Dearlove tells him: “The bottom line is you’re going to absolutely hate this… but we’ve had some very serious pressure from the UK government and the Bank of England about pushing our Libors lower.” To which Johnson objects, saying that this would mean breaking the rules for setting Libor, which required him to put in rates based only on the cost of borrowing cash.
Mr Johnson says: “So I’ll push them below a realistic level of where I think I can get money?”
His boss Mr Dearlove replies: “The fact of the matter is we’ve got the Bank of England, all sorts of people involved in the whole thing… I am as reluctant as you are… these guys have just turned around and said just do it.”
The phone call between Mr Dearlove and Mr Johnson took place on 29 October 2008 the BBC notes, the same day that Tucker, who was at that time an executive director of the Bank of England, phoned Barclays boss Diamond. Barclays’ Libor rate was discussed.
Diamond and Tucker were called to give evidence before the Treasury select committee in 2012. Both said that they had only recently become aware of lowballing, despite Diamond’s abovementioned tacit admission, which he then tried to cover up.
In its report, Panorama says it played the October 2008 recording to Chris Philp MP, who sits on the Treasury committee.
He told the programme: “It sounds to me like those people giving evidence, particularly Bob Diamond and Paul Tucker were misleading parliament, that is a contempt of parliament, it’s a very serious matter and I think we need to urgently summon those individuals back before parliament to explain why it is they appear to have misled MPs. It’s extremely serious.“
Responding to the recording, Diamond told the BBC: “I never misled parliament and… I stand by everything I have said previously.” Tucker did not respond to our questions. Peter Johnson, the Barclays Libor submitter, was jailed last summer after pleading guilty to accepting trader requests to manipulate Libor.
Two traders who made requests for Mr Johnson to move Libor up or down, Jay Merchant and Alex Pabon, were found guilty last June of conspiracy to defraud along with another submitter, Jonathan Mathew.
However, the jury could not reach a verdict on two other traders then on trial, Ryan Reich and Stelios Contogoulas. The Serious Fraud Office requested a retrial which concluded last week. Both Mr Reich and Mr Contogoulas were unanimously acquitted. Panorama also played Contogoulas the October 2008 recording. He said he believed that if it had been played during the criminal trials it might have affected the outcomes.
He said: “That’s the thing, you know in these trials that we went through they separated everything, separated trading requests and lowballing. So anything that has to do with this they don’t go in. So you’re asking me do I think that if all this was in would it make a difference? Probably, is the answer.”
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Another notable “criminal” to emerge from the Libor scandal was Tom Hayes, the UBS and Citi-based Libor manipulating protagonist of the recent book “The Spider Network“, and who was arguably at the center of the prosection’s LIbor case. He has repeatedly claimed that the real culprits are not those – like him – who executed the Libor rigging, but the ones at the very top who have the instructions to do so.
Like, as the case may be, the Bank of England.
Yet while some junior people went to prison, nobody in the corner office, and certainly nobody at the BOE has faced any criminal consequences from their actions.
The BBC adds that the Serious Fraud Office, which brought the Barclays prosecutions told Panorama that evidence of lowballing, was provided to the recording. They also say they are still investigating lowballing and that they follow the evidence “as high as it goes and aim to charge the most senior people wherever there is a realistic prospect of conviction”.
The Bank of England said: “Libor and other global benchmarks were not regulated in the UK or elsewhere during the period in question…. Nonetheless, the Bank of England has been assisting the SFO’s criminal investigations into Libor manipulation by employees at commercial banks and brokers by providing, on a voluntary basis, documents and records requested by the SFO.”
Ironically, it is precisely that it was unregulated that may have given the Bank of England the green light to assume it can manipulate it with impunity.
It remains to be seen if, nearly a decade after the Libor manipulation took place, any central banker will go to prison over it.