Hausfeld agrees $120m Libor settlement with Barclays

BY Fraser Tennant

Following four years of complex private litigation, global claimants’ law firm Hausfeld has announced a $120m settlement with Barclays Bank plc regarding Libor (London Interbank Offered Rate) fraud claims made by Over-The-Counter (OTC) investors.

Barclays, along with 15 other global financial institutions, had been accused of manipulating Libor – the mechanism used to set the cost of borrowing on mortgages, credit cards, loans and derivatives worth more than $450 trillion (£288 trillion) globally – so that its traders could make big profits on derivatives pegged to the base rate.

It is believed that Barclays first manipulated Libor during the global economic upswing of 2005–2007 before coming under suspicion from a number of regulatory authorities (based in the US, Canada, Japan, Switzerland, and the UK, among others). This particular litigation stretches back to 2011 when the City of Baltimore and other purchasers filed lawsuits against Barclays and other international banks alleging that they conspired to artificially suppress the US dollar LIBOR rate during the financial crisis.

Barclays previously admitted to manipulating LIBOR (in the run up to the financial crisis and in its aftermath) during settlements with US and UK regulators - the US Commodity Futures and Trading Commission and the FSA, respectively - in June 2012. In this instance, the bank was fined £290m and chief executive Bob Diamond resigned amid the fallout.

In addition to the monetary compensation agreed this week, Barclays, which only last month agreed to pay $94m in a separate litigation involving manipulation of Libor's euro-denominated equivalent, Euribor, has also committed to assisting the OTC plaintiffs in their continuing litigation against the other bank defendants .

The settlement with the OTC plaintiffs was achieved shortly before the Second Circuit Court of Appeals heard arguments on whether the plaintiffs’ antitrust claims should be reinstated after they were dismissed by the trial court.

“The settlement with Barclays, which comes over four years after the case was first filed, not only represents an important breakthrough in resolving this long-running litigation, it also provides significant monetary recovery and cooperation that will benefit the victims of the banks’ conduct," said Michael D. Hausfeld, chairman of Hausfeld.

Hilary Scherrer, a partner at Hausfeld LLP, called the settlement with Barclays an “icebreaker that could open up this litigation to future settlements".

News: Barclays to pay $120 million in U.S. Libor litigation - lawyers

Volkswagen chief quits as emissions gloom gathers

BY Richard Summerfield

Volkswagen’s chief executive, Martin Winterkorn, announced his resignation yesterday in light of the increasing scandal around the German car manufacturer’s rigging of emission tests in the US.

Mr Winterkorn’s resignation was a long time coming. Analysts had expected his departure from the firm as soon as the news broke, but Mr Winterkorn remained in his position until Wednesday, only tendering his resignation following an emergency board meeting in the company’s native Germany.

“I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group” said Mr Winterkorn is a statement released at the conclusion of the meeting. “As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group. I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part. Volkswagen needs a fresh start - also in terms of personnel. I am clearing the way for this fresh start with my resignation.”

Volkswagen also vowed to prosecute those individuals responsible for the scheme to cheat US anti-pollution testing, though the company has not yet stated how many people were involved or whether their identities are known. A special investigative subcommittee has been established by Volkswagen in order to establish the facts of the case.

Volkswagen has championed diesel vehicles in both Europe and the US. Diesel engines account for just three percent of new cars sold in the US, compared to around half in Europe. Better fuel economy and lower carbon emissions have proven to be key selling points for Volkswagen and the wider automotive industry, however the suggestion that the German manufacturer – and possibly other firms – utilised ‘defeat devices’ to beat emissions tests could have long-term repercussions.

To date, Volkswagen has recalled nearly half a million vehicles in the US alone, setting aside around $7bn to cover costs. However, should it be required to modify the 11 million vehicles worldwide that are believed to have the software responsible for the falsified figures, $7bn would be grossly inadequate. Furthermore, Volkswagen could face fines of more than $18bn from the US Environmental Protection Agency. In addition to the internal probe launched by the company, the US Department of Justice has also launched a criminal investigation that could result in indictments against Volkswagen executives.

News: Volkswagen boss quits over diesel scandal

Banks agree $1.9bn antitrust deal

BY Richard Summerfield

A number of the world’s biggest banks have agreed a $1.9bn settlement to resolve the claims of investors who alleged that the banks conspired to fix prices and freeze competitors out of the market for credit default swaps.

Twelve banks and two industry groups stuck a preliminary agreement with the plaintiffs in a civil suit which will see the financial institutions pay $1.87bn to settle the case, which was borne out of a raft of regulatory activity and private lawsuits which alleged that the banks manipulated foreign-exchange and commodity markets, as well as interest-rate benchmarks. Those cases have resulted in a number of banks paying fines worth billions of dollars.

Should the deal win final approval it will see the group of defendant banks - Bank of America Corp, Barclays PLC, BNP Paribas SA, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc, HSBC Holdings PLC, J.P. Morgan Chase & Co, Morgan Stanley, Royal Bank of Scotland Group PLC and UBS Group AG – agree to pay one of the largest antitrust settlements in US history.

Though a tentative agreement has been reached there are still some issues which must be resolved. The settlement would also need to meet with a judge’s approval, but this is a significant step as it would avert a costly and expensive trial.

The plaintiff group, made up of a number of hedge funds, pension funds, university endowments, small banks and other investors, alleged that the banks "made billions of dollars in supracompetitive profits’ by taking advantage of ‘price opacity in the CDS market".

In an interview with Bloomberg TV Daniel Brockett, a partner at the plaintiffs’ law firm Quinn Emanuel Urquhart & Sullivan LLP, noted that the formal agreement of the deal would take about 10 days to come through. “We are pleased to have reached agreement on many of the important terms, including the amount of the settlement, but there are a few issues that remain to be discussed and negotiated," said Mr Brockett.

Under the terms of the settlement the banks will pay different amounts towards the settlement. The size of each bank’s contribution will be derived from its share of CDS trading.

A spokesman for the International Swaps and Derivatives Association (ISDA) said the group was “pleased the matter is close to resolution". He added: “ISDA remains committed to further developing [swaps] market structure to ensure the market functions safely and efficiently." ISDA had previously noted that the allegations against the banks were without merit.

News: Big banks in $1.865bn swaps price-fixing settlement

Compliance professionals foresee increasing risk of bribery and corruption

BY Fraser Tennant

More than 50 percent of compliance professionals are expecting to be faced with an increasing risk of bribery and corruption over the coming year, according to a new report by the corporate investigations and risk consulting firm Kroll and Compliance Week.

The 2015 Anti-Bribery and Corruption Benchmarking Report – ‘How do companies navigate bribery and corruption?’ – is based on a survey of senior-level compliance professionals, 72 percent of whom say they expect to see the risk of bribery and corruption increase due to business expansion into new and unfamiliar markets.

Furthermore, despite 65 percent of compliance professionals stating that their businesses are likely to increase the number of their third-party relationships in future, 48 percent conceded that they never train third parties on anti-bribery and corruption matters – an “alarmingly high” figure, says the report, given the number of enforcement actions taken by regulators that involve third parties.

Recognising the issue with third parties, Kevin Braine, managing director with Kroll’s Compliance practice in EMEA, said: “While there has been phenomenal progress in the extent to which anti-bribery and anti-corruption issues have now made it on the training agenda for most large organisations, that’s still not really the case when it comes to training third parties.” 

Militating against this, only 8 percent of compliance professionals admit to not performing due diligence to hire or retain a third party, with the majority of companies employing risk-based factors to determine how much diligence they actually perform. On this point, the report reveals that 58 percent of compliance professionals rate their due diligence procedures as either “effective” or “very effective".

Further key findings in the report include: (i) more than 50 percent anticipate the bribery and corruption risks to their company will increase; (ii) 66 percent automate their anti-corruption program in some way; (iii) most automated tasks are limited to training; only 26 percent automate the vetting of third parties; and (iv) a majority (52 percent) are not confident in their financial controls to catch potential books-and-records violations of the Foreign Corrupt Practices Act (FCPA).

“Due diligence is really one of the keys to any type of compliance program, whether related to human trafficking, conflict minerals, anti-bribery and corruption, or anti-money laundering,” said Lonnie Keene, managing director with Kroll. “It is one of those elements that cuts across all of those obligations.”

Report: The 2015 Anti-Bribery and Corruption Benchmarking Report – How do companies navigate bribery and corruption?

Forex five fined $5.7bn

BY Richard Summerfield

Five of the world’s largest banking groups have been handed fines totalling $5.7bn for their role in manipulating the foreign exchange market.

For the banks - JPMorgan, Barclays, Citigroup, RBS and UBS - the fines continue to stack up as the latest scandal to hit the banking sector once again makes headlines.

According to regulators, forex traders from the banks met in online chatroom groups, named ‘the Cartel’ and another ‘Mafia’, and colluded to set rates that cheated customers while adding to their own profits. "They acted as partners - rather than competitors - in an effort to push the exchange rate in directions favourable to their banks but detrimental to many others," said US Attorney General Loretta Lynch.

The fines, meted out by the US Department of Justice, and separately by the US Federal Reserve, bring total penalties related to rate rigging of the foreign exchange markets to nearly $9bn, according to the Justice Department. Indeed, in November 2014 a number of the same banks agreed to pay $4.25bn to resolve foreign exchange investigations by a raft of regulators.

Four of the five banks under investigation by the DoJ plead guilty – namely Barclays, RBS, Citigroup and JP Morgan. However UBS was granted immunity for being the first to report the manipulation of the $5 trillion a day forex. A sixth bank - Bank of America - was separately fined $205m by the Fed. Announcing the settlements, Ms Lynch said: “The penalty they will pay is fitting, it’s commensurate with the pervasive harm that was done. It should deter competitors from chasing profits without regard to fairness to law or public welfare."

Barclays has been the hardest hit institution; in total, the bank has been fined $2.4bn – the highest amount any bank has paid for the scandal. US banks JPMorgan Chase and Citigroup will pay $900m and $1.2bn in fines respectively. Citigroup’s fine included a $925m antitrust settlement. The firm called the scandal "an embarrassment to our firm, and stands in stark contrast to Citi's values”. RBS agreed to pay around $660m. UBS agreed to pay more than $500m in fines, some of which was earmarked for Libor crimes and the rest for currency manipulation.

News: Global banks admit guilt in forex probe, fined nearly $6 billion