Andy Verity, the BBC’s Economics Correspondent, writes today that evidence indicates UK and US regulators were told of a state led drive to rig interest rates in the 2008 financial crisis, but covered it up.

Libor and Euribor rates were estimates that banks provided of the cost of borrowing money from each other, and that influenced interest rates for mortgages and loans.

Andy Verity refers to evidence indicating that in October 2008, central banks including the Bank of England, the Banque de France, the European Central Bank, Banca d’Italia, Banco de Espana and the Federal Reserve Bank of New York intervened on a large scale in the setting of Libor and Euribor. He goes on to say:

Some evidence has previously emerged of Bank of England and UK government involvement in manipulation of interest rates. But the evidence indicating it was part of a broader, international drive not just by the UK but by central banks across the western world to push key interest rates down in October 2008 has never been published before.

In the UK, 39 people were prosecuted for fraud relating to the manipulation of Libor and Euribor, 19 were convicted, and nine jailed. However, this emerging information about the possible scale of state involvement in Libor rigging begs the question as to whether anyone ought to have been prosecuted for Libor rate rigging if rate manipulation went right to the top, even far beyond the banks where they were working. Were the Libor prosecutions an example of double standards in the UK’s approach to fraud prosecutions?

A widespread attempt at state level to manipulate Libor might also be relevant to a jury’s assessment of whether the accused was acting dishonestly – a key ingredient of fraud offences. Before 2017, the legal test for dishonesty under Ghosh required juries to consider whether the defendant was acting dishonestly according to the standards of ordinary reasonable people and whether the defendant realised that what they were doing was dishonest by those standards. Following rulings by the Supreme Court In Ivey v Genting Casinos and the Court of Appeal in Barton in 2020, the test for dishonesty now requires a jury to consider what facts the accused actually knew or believed at the time, and whether their conduct was dishonest when viewed by the standards of ordinary people. Either way, evidence of who may have been doing the same thing in the defendant’s organisation or beyond and the existence of permissive cultures can be highly relevant to a dishonesty assessment. 

A new corporate offence of failing to prevent fraud is being introduced by the Economic Crime and Corporate Transparency Bill. The government’s fact sheet states that under the new offence, an organisation will be liable where a fraud offence is committed by an employee for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. The fact sheet goes on to provide ‘dishonest practices in financial markets’ as one example of a way employees can commit fraud. However, the lessons still being learned from Libor mean that investigators looking into allegations of fraudulent market practices will do well to consider precisely how widespread those practices were and prevailing cultural influences within an organisation and beyond before deciding whether it is appropriate to prosecute.