The settlement with U.S., British, and Swiss regulators caps a tough year for the company and the reputation of the global banking industry. The fine on UBS, which will also see two former traders charged with conspiracy, is triple the amount that British bank Barclays PLC agreed to pay in June to settle similar charges.
And it comes a week after HSBC agreed to pay nearly $2 billion to settle allegations of laundering money for Mexican drug cartels and countries under U.S. embargoes, such as Iran.
UBS, Switzerland’s largest bank, said some of its employees tried to rig the LIBOR rate — short for London Interbank Offered Rate — in several currencies. The rate is set daily using information that banks provide and is used to price trillions of dollars in contracts around the world, including mortgages and credit cards.
Some UBS traders voluntarily submitted — or pressured others to submit — inaccurate data to gain some financial advantage.
The bank’s Japan unit, where much of the manipulation took place, entered a plea to one count of wire fraud in an agreement with the U.S. Justice Department.
The Justice Department said two former UBS senior traders, Tom Alexander William Hayes, 33, of Britain, and Roger Darin, 41, of Switzerland, will be charged with conspiracy, while Hayes also will be charged with wire fraud in New York federal court. Justice Department officials said they believed the two men were in Britain and Switzerland, and would be seeking their extradition.
UBS will pay $1.2 billion of its fine to the Justice Department and U.S. Commodity Futures Trading Commission. The CFTC will get $700 million, the largest fine it ever ordered. The remaining $300 million will go to regulators in Britain and Switzerland.
As a result of the fines, litigation, unwinding of real estate investments, restructuring, and other costs, UBS said it expects to lose between 2 billion and 2.5 billion Swiss francs ($2.2 billion to $2.7 billion) in the fourth quarter. Nevertheless, the Zurich-based bank maintained that it “remains one of the best capitalized banks in the world.”
The LIBOR scandal is likely to make headlines again in coming months. Other big global banks are also being investigated for rigging the same market and are expected to be fined.
UBS said some of its personnel had “engaged in efforts to manipulate submissions for certain benchmark rates to benefit trading positions” and that some employees had “colluded with employees at other banks and cash brokers to influence certain benchmark rates to benefit their trading positions.”
Britain’s financial regulator called the misconduct by UBS “extensive and broad,” with the rate-fixing carried out from UBS offices in London and Zurich.
Different desks were responsible for different rate submissions. At least 2,000 requests for inappropriate submissions were documented. An unquantifiable number of oral requests were also made, the U.K.’s Financial Services Authority said.
“Manipulation was also discussed in internal open chat forums and group emails, and was widely known,” the FSA said. “At least 45 individuals including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions.”
With more than 2.2 trillion Swiss francs ($2.4 trillion) in invested assets, UBS is one of the world’s largest managers of private wealth assets. At last count, the bank had 63,745 employees in 57 countries and said it aims for a headcount of 54,000 in 2015.
Along with Credit Suisse, the second-largest Swiss bank, UBS is on the list of the 29 “global systemically important banks” that the Bank for International Settlements – the central bank for central banks – considers too big to fail.
It’s not the first time that UBS has fallen afoul of regulators. In 2009, U.S. authorities fined UBS $780 million for helping U.S. citizens avoid paying taxes.
The U.S. government has since been pushing Switzerland to loosen its rules on banking secrecy. The country has been trying to shed its image as a tax haven, signing deals with the U.S., Germany and Britain to provide greater assistance to foreign tax authorities seeking information on their citizens’ accounts.
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