CARTELS : LIBORGATE': COMMISSION SLAPS FINE OF 1.71 BN EURO ON BANKS.

The verdict is out. After a three-year investigation, the European Commission announced, on 4 December, a first round of fines of 1.71 billion for participation in cartels in markets for financial derivatives covering the European Economic Area (EEA). This record combined financial penalty for cases concerning cartels or abuse of dominant position has been slapped on six banks and a broker that cooperated with the EU executive. Other cases are pending.

The institutions involved participated in regular, organised exchanges of their strategies and commercially sensitive information in breach of EU competition rules, practices that led to large-scale manipulation of benchmark interest rates to the advantage of banks, either to settle transactions to their advantage or to mask their financial situation. These rates are used as a reference for the pricing or remuneration of hundreds of thousands of billion euro in assets and financial products worldwide, including mortgages and derivatives. The case surfaced in 2012 and has already resulted in fines of US$3.5 billion, imposed among others by the United States on four banks - Barclays, Royal Bank of Scotland (RBS), Union des Banques Suisses (UBS) and Rabobank - and on a British cash broker, ICAP.

With this decision, the Commission "has two aims: to punish and to deter," said Competition Commissioner Joaquin Almunia. It nevertheless took into account the cooperation of eight financial institutions that recognised their wrongs and reached a settlement with it. This resulted in either a reduction of their fines or total immunity for revealing the fraud. The executive distinguished two types of infringement: one concerning euro interest rate derivatives (Euribor), which involved four institutions, and the other consisting of one or more bilateral cartels concerning yen (JPY) interest rate derivatives, involving six entities. Certain banks - RBS and Deutsche Bank - participated in both infringements. Deutsche Bank alone has been fined 725 million (see table).

For the Euribor rate cartel, which lasted from September 2005 to May 2008, Deutsche Bank, RBS, Gale and Barclays settled with the EU executive. They benefited from immunity, thus dodging a fine of 690 million.

For the JPY Libor and Tibor (Tokyo interbank offered rate) cartel, which ran from 2007 to 2010, the institutions concerned by the decision are RBS, Deutsche Bank, Citigroup and JP Morgan, as well as UBS, which received immunity for its...