Dutch Bank Settles Case Over Libor Deceptions

Updated, 8:37 p.m. | The Dutch lender Rabobank admitted on Tuesday to criminal wrongdoing by its employees and agreed to pay more than $1 billion in criminal and civil penalties to settle investigations by United States, British and other authorities into its role in setting global benchmark interest rates. Its chief executive stepped down immediately.

The bank is the fifth financial firm to settle accusations that its employees manipulated the London interbank offered rate, or Libor. The settlement with Rabobank is the second-largest agreement after the $1.5 billion penalty imposed on UBS related to the manipulation of benchmark rates, which help determine the borrowing costs for trillions of dollars of mortgages, business loans, credit cards and other financial products.

As part of the settlement, Rabobank, which started out as an agriculture cooperative in the Netherlands in the late 19th century and has become the country’s biggest lender, entered into a so-called deferred prosecution agreement, in which it will avoid criminal charges as long as it continues to cooperate with investigators and stays out of further trouble. Rabobank will pay a $325 million criminal penalty to the Justice Department and $475 million to the Commodity Futures Trading Commission, as well as $170 million to the Financial Conduct Authority in Britain and about $96 million to the Dutch authorities.

The long-running investigations focused on suspected wrongdoing related to Libor and another benchmark rate, the Euro interbank offered rate, or Euribor, from 2005 to 2011. The cases, after more than four years of international investigation, have alarmed the banking industry and emboldened government authorities around the globe.

“The sheer number of institutions and individuals involved in these cases reflects a truly shocking and brazen degree of unlawfulness, warranting the historic enforcement response we bring forth today and in our prior cases,” said David Meister, director of enforcement for the C.F.T.C.

The cases are not yet done. Some of the biggest names in finance remain under investigation in the Libor case: Deutsche Bank, Citigroup and other large American banks. Yet it is unclear whether any American banks will ultimately face action in the case, people briefed on the case said.

And the pattern of Libor cases suggests that the most significant actions came at the beginning of the crackdown. After focusing on two of the world’s biggest banks last year — Barclays and UBS — the last three cases involved more obscure financial players like Rabobank, an institution unknown to most Americans. The Royal Bank of Scotland and ICAP, a so-called interdealer broker based in London, are the other two financial firms to settle.

The fines further reflect the government’s decision to prioritize its most explosive cases. The Barclays case was a touchstone moment, with the bank paying about $450 million even though it received a discount for cooperating with the case. UBS then paid $1.5 billion, a number likely to eclipse all other Libor settlements.

In setting the penalties, federal authorities are relying on a multipart test. While the gravity of misconduct is the driving force in setting the penalties — UBS’s payouts surpassed others because the bank was cited for more than 2,000 instances of “unlawful conduct” — the authorities are also focused on how many employees were involved in misconduct and whether any senior executives took part in the scheme. The authorities are also willing to award credit to banks that struck a cooperative tone with the government, like Barclays and Rabobank. And for small firms like ICAP, which paid only $87 million, the government is offering a discount.

In light of the findings in the investigation, Piet Moerland, the chairman of Rabobank’s executive board who functions as the chief executive, resigned immediately.

“I fully understand and share the sense of indignation that the findings of the Libor and Euribor investigations will cause,” Mr. Moerland said in a statement. “I wish to send a strong message on behalf of the bank and on behalf of the executive board: We sincerely apologize for, and strongly condemn, this inappropriate behavior.”

To set the Libor and Euribor rates, banks submit the rates at which they could borrow money, on an unsecured basis, in various currencies and varying maturities. Those rates are averaged, after the highest and lowest ones are eliminated, and that becomes that day’s rate. United States authorities said that derivatives swaps traders at Rabobank and other banks requested that Rabobank employees make rate submissions used in the calculation that would benefit their trading positions. The Justice Department, in court papers, said such accommodations were a regular part of the rate-setting process at Rabobank.

At times, Rabobank ignored a conflict of interest created by assigning traders with positions tied to the benchmark rates to serve as the submitters of rates used to calculate Libor, according to the C.F.T.C.

“This conflict was exacerbated by traders and submitters sitting together so that traders could simply shout requests for unlawful submissions across the trading desk,” the futures trading commission said.

Emails disclosed by the Justice Department showed the cooperative nature between traders and rate submitters. For example, when one trader requested a specific rate and then expressed concern that the submitter might encounter resistance, the submitter replied: “Don’t worry mate — there’s bigger crooks in the market than us guys!”

No Rabobank employees were charged criminally on Tuesday. The investigation is continuing, however.

“We’re going through our investigation in a systematic and aggressive way,” said Mythili Raman, an acting assistant attorney general in the Justice Department. “We intend to keep the pressure up.”

Rabobank said 30 employees were involved in some fashion in the inappropriate conduct. Those employees, if they remained with the bank, have been disciplined and employees who engaged in the most serious conduct are no longer with the company, Rabobank said. The bank has reclaimed about $5.8 million in bonuses from employees who participated in the conduct that led to the settlement.

The bank said it cooperated fully in the investigation and did not sufficiently appreciate at the time the risk associated with Libor and Euribor. It has since installed additional systems and controls intended to better govern the rate-submission process.

Bank officials said Mr. Moerland’s decision to resign was a personal one and that top management was not involved or aware of the conduct.

“I want to emphasize that neither Piet Moerland nor any other member of the executive board had any involvement in these events,” said Wout Dekker, the chairman of Rabobank’s supervisory board. “The supervisory board has accepted Piet’s decision with regret.”

Rinus Minderhoud, a longtime banker and member of Rabobank’s supervisory board, will succeed Mr. Moerland as chairman of its executive board.

Last week, the Serious Fraud Office Britain’s said it had identified 22 individuals at various banks as potential co-conspirators in its wide-ranging inquiry into the manipulation of Libor.

So far, only three individuals have been charged criminally in Britain: Tom A.W. Hayes, a former Citigroup and UBS trader; and James Gilmour and Terry Farr, two former brokers at RP Martin Holdings in London. Mr. Hayes is also facing criminal charges in the United States. The three have yet to enter pleas in the case.

Benjamin Protess contributed reporting from New York.