19 August 2015

Andrew Smith interviewed by Lexis PSL regarding LIBOR and the SFO

LIBOR conviction–the SFO fulfils its role

The long-running SFO investigation into the manipulation of LIBOR has culminated in the conviction of a former trader, the first verdict of its kind. Tom Hayes was found guilty by a jury to eight counts of conspiracy to defraud and was sentenced to 14 years imprisonment.

Could you provide some background as to the nature of the offence Tom Hayes has been convicted of?

Mr Hayes was convicted of eight counts of conspiracy to defraud. This is a common law offence. It is committed when two or more people agree dishonestly to prejudice the economic interests of another. The offence is sometimes called the ‘prosecutor’s darling’ because it captures a range of offending far broader than any of our statutory fraud offences. Moreover, there is no need to prove that the conspiracy had any impact in terms of harming anyone. The intended prejudice can be potential. The emphasis is almost entirely on what was agreed and whether any such agreement was dishonest.

What is the significance of this case? Is it likely to pave the way for more prosecutions?

The case is a vindication of the approach of David Green QC, the SFO’s director, who reversed the decision of his predecessor by obtaining blockbuster funding from the Treasury to investigate LIBOR manipulation. Having taken these steps, and having devoted so much of its resources to investigating LIBOR, the SFO could not afford to lose this case. The SFO now stands a better chance of being granted a reprieve from Theresa May’s plans to fold it into the National Crime Agency. The decision demonstrates that, when properly resourced, the SFO is able to secure convictions in precisely the types of complex financial cases it was established to prosecute. So yes, it will encourage the SFO to prosecute more individuals for manipulation of benchmark rates–and not just LIBOR. In addition, as the judge commented, it sends a message to the financial services sector that individuals, regardless of their position, can be convicted of criminal offences and receive lengthy custodial sentences if a jury accepts that they acted dishonestly.

Was the level of sentencing to be expected?

Many commentators were surprised by 14 years. Three factors explain this length. First, the potential losses were substantially greater than the £1m threshold referred to in the most serious category of offending contemplated in the sentencing guidelines, which creates a starting point of seven years. Second, the judge imposed consecutive (rather than concurrent) sentences on the conspiracies involving UBS and Citibank, which stretched the total sentence beyond the maximum period of ten years for a single count of conspiracy to defraud. Third, the judge was clearly impressed by Mr Hayes’ manipulation of his assisting offender agreement with the SFO, which deprived him of any opportunity to mitigate his sentence. Fourteen years may appear lengthy compared to historic cases of ‘rogue traders’, but in fact it is part of a growing trend over the past couple of years that white-collar fraudsters have been punished by prison sentences comparable to those handed to offenders convicted of the most serious general crimes.

How might this decision affect future investigations related to LIBOR?

It will embolden the SFO to continue stoking the fire of its investigations into LIBOR, as well as other benchmarks such as the Euro interbank offered rate and foreign exchange. Mr Green’s comments on the conviction suggest that it will continue to seek blockbuster funding for this purpose. However, it is important to remember that each of these cases will be judged on its own facts. Mr Hayes’ conviction does not make that much easier to secure convictions in any future case. The evidence against other traders or submitters may not be as compelling. The recorded communications may be less blatant, less frequent or may not suggest the same degree of inter-bank collusion. There may be no evidence that brokers were bribed or asked to undertake fictitious wash trades. They are unlikely to have made admissions of dishonesty to the SFO that they would need to explain at a trial. So, while the SFO will rightly feel vindicated in its approach to prosecuting Mr Hayes, his conviction does not pre-determine the outcome of any future case.

In your opinion, is LIBOR manipulation as widespread as Hayes claimed during his trial?

It is difficult for a lawyer to speculate about these matters. Certainly a number of those being investigated by the SFO will no doubt assert, as Mr Hayes did, that they believed their banks routinely condoned the manipulation of LIBOR at numerous desks to suit the banks’ own positions, and hence they considered they were doing nothing wrong in trying to set LIBOR rates. The jury’s conviction of Mr Hayes should not necessarily be interpreted as a rejection of the point that LIBOR manipulation was widespread. Rather, it is possible to conclude that a widespread practice can also be a dishonest one. The Financial Conduct Authority (FCA), of course, has examined the totality of the evidence in more detail than any lawyer. They have published a sequence of damning final notices outlining institutional failings that suggest LIBOR manipulation was regularly practised at a number of banks.

Are there any surprising features in this case?

Some commentators have expressed surprise or even anger that Mr Hayes has been held up as a scapegoat for systemic problems in the financial sector. There is undoubtedly some merit in this point, but history suggests that criminal fraud prosecutions often target the low-hanging fruit. To my mind, the more surprising (and interesting) feature of the case is the way in which the prosecution and defence dealt with Mr Hayes’ extensive admissions of dishonesty during his SFO interviews. Mr Hayes tried to explain away these admissions as lies designed to stymie the threat of extradition to the US. However, with each admission Mr Hayes was asked to address, the less convincing he became. Mr Hayes’ strategy of trying to manipulate the SFO interviews to suit his own purposes backfired and he ended up receiving the kind of lengthy custodial sentence he feared receiving in the US.


Andrew Smith is an experienced criminal litigator who has advised on a range of white-collar criminal and regulatory matters, much of it international in nature. Andrew’s white-collar criminal and regulatory practice includes numerous extradition cases as well as domestic and cross-border investigations and prosecutions brought by the SFO, FCA, Crown Prosecution Service and HMRC into allegations including conspiracy to defraud, tax fraud, money laundering, market abuse, false accounting, and bribery and corruption. He also has extensive knowledge of the European Arrest Warrant scheme.


This interview was originally published on Lexis PSL.