Corruption in the financial sphere is as old as capitalism itself. Historically, the British East India Company is credited with shaping the modern corporation: it was a wholly unethical business structure which, in its quest for profit, amputated the hands of Bengali muslin weavers, made the Chinese peasantry addicted to opium, facilitated slavery and, in the interests of its ownership and directors, imposed astronomical taxes on the people living under its writ. UBS does not have a lot to do with the Company in that way. But through its rigging of global financial benchmarks such as Libor and Euribor, the bank’s corruption matches the historic treachery and corrupt practices adopted by the most venal of capitalists – such as Robert Clive and his friends.
Adam Smith, Karl Marx and Edmund Burke, albeit for their different reasons, will have the last laugh on this. But this post is not about them. As indicated in the title, it is about the fines imposed on UBS for eviscerating any residual trust which common people had left in the world financial system. Is our trust in the banks worth nothing at all?
Describing the abuse as “widespread”, the Financial Services Authority (FSA) said that “UBS’s breaches of the FSA’s requirements encompassed a number of issues, involved a significant number of employees and occurred over a period of years in a number of countries.” The FSA went on to explain that “between 1 January 2005 to 31 December 2010 the misconduct included”:
- UBS’s traders routinely making requests to the individuals at UBS responsible for determining its Libor and Euribor submissions to adjust their submissions to benefit the traders’ trading positions.
- Giving the roles of determining its Libor and Euribor submissions to traders whose positions made a profit or loss depending on the Libor/ Euribor fixes. This combination of roles was a fundamental flaw in organisational structure given the inherent conflict of interest between these two roles.
- Colluding with interdealer brokers in co-ordinated attempts to influence Japanese Yen (JPY) Libor submissions made by other panel banks. Corrupt brokerage payments were made to reward brokers for their efforts to manipulate the Libor submissions of panel banks.
- Colluding with individuals at other panel banks to get them to make JPY Libor submissions that benefited UBS’s trading positions.
- Adopting Libor submissions directives whose primary purpose was to protect the bank’s reputation by avoiding negative media attention about its submissions and speculation about its creditworthiness.
Thus, following Barclays which was ordered to pay $450m to UK and US authorities earlier in the year, UBS has become the second global bank to be punished for rigging global interest rate benchmarks.
UBS has stated that it has agreed to pay fines to financial watchdogs in Europe and the US. These include:
- $1.2bn or £740m in combined fines to the US Department of Justice (DoJ) and the Commodities Futures Trading Commission
- £160m to the FSA
- 59m Swiss francs or £40m to Switzerland’s Financial Market Supervisory Authority
As a lump sum, the above penalties comprise the second largest fine to be imposed in banking history: the first largest, of course, was when HSBC opted to pay US $1.9 billion to US authorities to settle allegations of money laundering.
But do these fines go far enough?
Not really. Surely, the people, these modern day Robert Clives, behind all this rigging and manipulation should be charged under the criminal law and sentenced accordingly. Maybe then, hopefully, like Clive himself, they will commit suicide. (To incorporate Henrick Immonen‘s comment, which he left on the Institutional Corporate Governance Network after this post was published, “the golden parachutes should be replaced by golden handcuffs.” Well said sir!)
Inevitably, the fines punish shareholders – who are not responsible for any wrongdoing and that is pretty unfair – while individual traders and bankers get away with cheating.