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Libor scandal could lead to criminal charges for bank employees

The U.S. Department of Justice is currently in the process of building cases against large financial institutions and their employees for manipulation of a key interest rate used in derivatives contracts.

Criminal charges may ensue in the investigations as U.K. and U.S. authorities probe deeper into the interest-rate scandal, Business Standard reports.

Allegations surfaced earlier this year that some banks, including Barclays, JPMorgan and Citigroup, manipulated the London interbank offered rate, commonly known as Libor, in order to improve profits and dispel concerns regarding the health of the institutions.

The multiyear investigation involves more than 10 major banks, both domestic and international. Several firms, including two European institutions, plan to arrange deals with authorities to avoid the same kind of publicity that was associated with the Barclays scandal.

Libor is a benchmark used to assess the rate at which banks may borrow from one another. The rate is used to estimate borrowing costs for a variety of products and services, including mortgages, credit cards and student loans.

While the American public continues to simmer over Wall Street abuses leading up to the recent financial collapse, the Libor investigation could be an opportunity for authorities to hold big banks accountable.

“It’s hard to imagine a bigger case than Libor,” a government official involved with the investigation said, according to Business Standard.

UBS could be next in line for regulatory enforcement and prosecution. The Commodity Futures Trading Commission plans to pursue a civil case against the bank, though CFTC regulators have yet to file suit. UBS has reached an immunity deal with a division of the Justice Department that could protect the Swiss bank from criminal prosecution.

U.S. authorities, however, may run into difficulty building their cases, as they lack access to important documentation from big banks. Before being allowed to gather records from overseas institutions, U.S. regulators and the Justice Department must seek permission from British authorities, who have been slow to respond to the requests, Business Standard reports.

Both U.K. and U.S. lawmakers are investigating whether regulators knew of Libor manipulation. Last week, documents surfaced that revealed a Barclays employee notified the New York Federal Reserve in April 2008 that the bank had submitted low rate estimations.

Additionally, in April 2008, Vincent McGonagle, a senior enforcement official at the CFTC, began investigating the matter. Initially, the case remained stagnant as the regulatory agency waited to receive a number of documents from Barclays. By 2009, however, the agency received massive amounts of information providing insight into the abuses, according to Business Standard.

In 2010, the agency involved the Justice Department in the investigation, which continued until January 2012, when the CFTC notified Barclays attorneys that a decision regarding enforcement action was close. Last month, Barclays agreed to pay $450 million to U.K. and U.S. regulatory authorities in a settlement regarding Libor manipulation, though the deal does not protect employees and executives from criminal prosecution.

As part of the settlement with authorities, regulators pushed Barclays to adopt and implement “firewalls” to prevent traders from associating with employees that report interest rates. Additionally, Barclays was required to pay a $200 million fine to the CFTC, the largest fine in the commission’s history, Business Standard reports.

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