NEW HAVEN, Ct. (CN) - Royal Bank of Scotland and a Japanese subsidiary will pay $150 million to settle charges filed Wednesday accusing them of manipulating Libor benchmark interest rates.
In a criminal information, federal prosecutors charged RBS Securities Japan with one count of wire fraud for engaging in a scheme to defraud counterparties to interest rate derivatives trades by secretly manipulating the London Interbank Offered Rate, or Libor, benchmark interest rates for Japanese yen.
RBS Securities Japan said it will plead guilty and pay a $50 million fine.
Prosecutors also filed a criminal information as part of a deferred prosecution agreement against the RBS parent company.
That information charges RBS with wire fraud for its role in Libor manipulation. Prosecutors said the bank violated the Sherman Act in a price-fixing conspiracy to rig the yen Libor benchmark interest rate.
RBS must admit and accept responsibility for its misconduct under the deferred prosecution agreement. In addition to assisting the ongoing federal Libor investigation, the bank will also pay a separate $100 million penalty.
The Libor is based on the interest rates leading banks charge when loaning money to other banks overnight. That rate is supposed to represent the cost of a bank's lending activities.
As the primary benchmark for short-term interest rates globally, Libor is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer-lending products.
Prosecutors said the charges concern the membership of RBS to the Contributor Panel for a number of currencies, including yen LIBOR and Swiss franc LIBOR, from at least 2006 through 2010.
RBS is accused of having certain yen and Swiss franc derivatives traders move Libor in a direction favorable to their trading positions.
Prosecutors said the RBS scheme operated in conjunction with the alleged Libor manipulation practiced by former UBS Tokyo trader Tom Alexander William Hayes.
In a previously filed complaint, Manhattan federal prosecutors charged Hayes with conspiracy, wire fraud and price-fixing. Hayes is accused of making false yen LIBOR submissions on behalf of UBS, and of causing cash brokerage firms to disseminate false and misleading information about short-term interest rates for yen.
He allegedly communicated with interest rate derivatives traders employed at three other yen Libor panel banks to have them make similarly false yen Libor submissions to the British Bankers' Association.
The latest charges cite an electronic chat that Hayes had in 2007 with an RBS derivatives trader.
The transcript purportedly shows Hayes tell the trader to ask a "submitter" for a low three-month yen LIBOR submission.
Prosecutors have generated about $612 million in criminal penalties over Libor manipulation since Barclays Bank admitted to similar allegations this summer.
That figure includes approximately $462 million in regulatory penalties and disgorgement, the Justice Department said in a statement. Of that amount, $325 million came from a Commodity Futures Trading Commission action and approximately $137 million came from action by the U.K. Financial Services Authority.
In addition to Barclays and Royal Bank of Scotland, UBS Securities Japan pleaded guilty over a month ago to its role in the Libor scheme.
The Bank of International Settlements estimated that, as of the second half of 2009, outstanding interest rate contracts were estimated at approximately $450 trillion.
The British Bankers' Association calculates the Libor for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The Libor for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks.
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