Often, the scandal is not what is illegal but rather what is legal. Last week, a US federal appeals court overturned the conviction of two former Deutsche Bank traders who had previously been convicted of wire fraud, stemming from the massive Libor-fixing scandal of more than a decade ago. Deutsche Bank itself has paid $2.5bn around the world to settle charges that its employees had manipulated the benchmark interest rate to favour the firm’s own trading positions.
The US court noted last week that the traders’ action “may have violated any reasonable notion of fairness”. However, the prosecutors failed to show that the traders’ actions were inconsistent with the byzantine submission instructions provided by the British Bankers’ Association, which oversaw Libor interest rate setting.
How business gets done in the trenches of Wall Street can appear unsavoury when exposed in court. However, just because it looks bad from the outside does not mean an actual law has been broken. Expensive defence lawyers hired by well-heeled clients cleverly help judges to come to that conclusion.
US prosecutors have long received criticism for their reluctance to charge individual executives and employees in criminal cases. But the specific requirements of the law — and thus finding the smoking gun evidence to win convictions — partly explains the cause of that hesitation.
Libor rates were traditionally set by compiling data from a group of banks submitting their own figures on what it would cost to borrow and lend to each other. The government argued that the rates that Deutsche Bank had submitted were self-serving.
The prosecution’s arguments leaned on the testimony of various Deutsche Bank cooperators and expert witnesses specifically to emphasise that point. The appeals court decided that the evidence did not prove conclusively that those figures were demonstrably “false”, whatever data Deutsche Bank chose to submit. The court saw the Libor setting process as complex, enough so that those submissions by the bank could have been bona fide.
That decision sits oddly with the fact that multiple banks have paid steep fines and fired many employees over what apparently is not a crime. Civil penalties and fines have proved to be unpopular because shareholders shoulder the cost and wrongdoers tend to just move on.
President Joe Biden’s administration has been keen to shine a bright light on corporate crime. Unfortunately, bad behaviour in high finance remains tough to prosecute.
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