U.S. and European regulators ordered Dutch lender Rabobank to pay $1.07 billion to settle allegations it aided a six-year scheme to rig benchmark interest rates, imposing the fifth fine in a scandal that has helped to shred faith in the industry.
Rabobank said on Tuesday it was fined 774 million euros by U.S., British and Dutch regulators after 30 staff were involved in "inappropriate conduct" linked to a scam to manipulate the London Interbank Offered Rate (Libor) and its Euribor cousin - benchmarks for more than $300 trillion of financial products.
Rabobank's Chief Executive Piet Moerland resigned, saying he was shocked by the language his staff had used in the scam between 2005 and 2011 and understood the sense of indignation this would cause internally and externally.
"Such behavior is entirely contrary to our core values, of which integrity is the most important," he said.
The scandal surrounding the interbank rates that oil the wheels of global finance has prompted authorities to fine five institutions $3.7 billion to date. They have also charged seven men with criminal offences amid a sprawling, global inquiry that has laid bare the failings of regulators and bank bosses.
Around five years after the world's financial system buckled and forced taxpayers to fund huge bank bailouts, public and political outcry has been stoked in part by industry gripes about tough new rules to rein in excessive risk-taking and fat bonuses blamed for feeding greed.
Dutch Finance Minister Jeroen Dijsselbloem said Rabobank's "shameless fraud by financiers" stood far from the cooperative idea behind Rabobank.
But the size of the fine imposed on Rabobank - a cooperative that finances Dutch cheese and tulip producers and abolished executive board member bonuses in October - sends a stark message to institutions such as Germany's Deutsche Bank <DBKGn.DE>, which have yet to reach regulatory settlements.
It is the second largest penalty to date and bigger than initially expected at a time when banks are also setting aside billions of euros to cover civil litigation costs from clients who allege they were short-changed by the scam.
Deutsche Bank, Germany's largest bank, earlier on Tuesday set aside an extra 1.2 billion euros to deal with potential litigation costs, while Swiss UBS <UBSN.VX> was told to hold extra capital to cover looming liabilities.
Britain's Financial Conduct Authority (FCA) said the Rabobank fine was particularly high because it had failed to act after an employee responsible for submitting the bank's yen-denominated Libor rates told an internal audit group in 2009 his submissions were based on instructions from traders.
In March 2011, Rabobank had also told the UK regulator its Libor-related systems and controls were "fit for purpose".
The FCA said it had found over 500 instances of attempted Libor manipulation, directly or indirectly, involving at least 9 managers and 19 other individuals based across the world.
"Rabobank's misconduct is among the most serious we have identified on Libor," said Tracey McDermott, head of financial crime at the FCA. "This is unacceptable."
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The U.S. Justice Department agreed to defer criminal charges against Rabobank for two years - and drop them if the lender complied with demands to tighten systems and controls.
When one yen derivatives trader in 2007 asked a submitter for a high Libor rate, the submitter responded by email: "Don't worry mate - there's bigger crooks in the market than us guys!"
In 2006, a Rabobank dollar derivatives trader repeatedly asked the head of the bank's money market desk in London, who supervised the rate submitters, for rates that favored his positions. After one request in December, the desk head wrote back: "I am fast turning into your LIBOR bitch!!!!"
Rabobank, which said it was committed to "learning the lessons of the past", has tightened systems and controls, and fired, warned, fined and demoted staff involved. The bank stressed it was financially strong enough to withstand the fine.
Although it said no executive board members had been aware of or involved in the misconduct, the board had voluntarily forfeited remuneration worth a total of 2 million euros.
UBS has faced the largest Libor penalty to date. It was ordered to pay $1.5 billion last December and two of its former traders, Tom Hayes and Roger Darin, have been charged with taking part in an alleged multi-year scheme to rig rates.
Hayes, who is accused of conspiring with 22 employees from more than 10 financial institutions including Rabobank, and two former brokers from RP Martin are the first to face trial in Britain. Hayes has yet to plead.
The Libor scandal has prompted regulators to scrutinize benchmarks across financial markets, from crude oil and swaps and gold to the $5.3 trillion-a-day foreign exchange market in an effort to stamp out misconduct.
"I wish I could say that this won't happen again, but I can't," noted Gary Gensler, the chairman of the U.S. Commodity Futures Trading Commission (CFTC). "Libor and Euribor are not sufficiently anchored in observable transactions. Thus, they are basically more akin to fiction than fact."