Rabobank of the Netherlands has agreed to pay about $1 billion to settle U.S., British and Dutch charges of manipulating a key global interest rate. The bank's chairman resigned as it became the fifth financial firm sanctioned in the international rate-rigging scandal.
The amount Rabobank is paying includes $325 million in an agreement with the U.S. Justice Department that allows the bank to avoid criminal prosecution in exchange for its continued cooperation in the investigation of major banks' conduct regarding LIBOR.
The authorities said Tuesday that Rabobank, one of the world's largest banks, engaged in rigging of the London interbank offered rate, or LIBOR, from 2005 to 2011.
Rabobank announced that Piet Moerland, chairman of the executive board, resigned, effective immediately. "On behalf of the bank and the executive board I want to send a very clear signal: a sincere apology and strong condemnation of these inappropriate acts," Moerland said in a statement. "I have decided to resign."
The LIBOR rate affects trillions of dollars in contracts around the world, including mortgages, bonds and consumer loans. A British banking trade group sets the rate daily after more than a dozen big banks submit estimates of their borrowing costs.
Britain's Barclays and Royal Bank of Scotland, Switzerland's biggest bank UBS and British brokerage ICAP have paid a total of about $2.6 billion to settle charges of rigging the LIBOR.
Dutch Finance Minister Jeroen Dijsselbloem said the Libor scandal "has once again damaged the confidence of citizens and bank customers. It's exceptionally serious."
Moerland's resignation was "the most powerful signal possible from the Rabobank board that this is unacceptable and they accept the consequences," Dijsselbloem told reporters.
The U.S. Commodity Futures Trading Commission levied a $475 million civil penalty against Rabobank, saying its traders engaged in "hundreds of manipulative acts" that hurt the integrity of the LIBOR rate. The traders caused inaccurate submissions of its borrowing costs to be made that benefited banks' trading positions, the agency said. It said some Rabobank employees themselves called the submissions at the time ludicrously high or low.
Over the six years, more than two dozen Rabobank employees in six offices in Europe, the U.S. and Asia were involved in the violations, the CFTC said.
Rabobank settled the CFTC's charges of manipulation and false reporting, and aiding the attempts of traders at other banks to manipulate the LIBOR. In addition to paying the penalty, the bank agreed to take steps to ensure that it submits accurate estimates of its borrowing costs used to calculate the rate.
In addition, Britain's Financial Conduct Authority fined Rabobank about $170 million, citing "serious, prolonged and widespread misconduct." Rabobank's London office was one of those where traders and desk managers were said to have engaged in manipulation. The Dutch Public Prosecutor's Office signed a deferred prosecution agreement with Rabobank in which the bank is paying $96.5 million.
The U.S. Justice Department said Rabobank admitted manipulating its submissions that affected the LIBOR rate and agreed to cooperate in the broad LIBOR investigation.
"Other banks should pay attention: our investigation is far from over," Mythili Raman, the acting assistant attorney general who heads the department's criminal division, said in a statement.
The $325 million criminal penalty levied on Rabobank is the second-largest for the Justice Department in the LIBOR investigation, after the $500 million paid by UBS.
CFTC Enforcement Director David Meister said the five LIBOR cases brought to date show "a truly shocking and brazen degree of unlawfulness."
Rabobank, with about $961.6 billion in assets and an estimated 10 million customers in 47 countries, grew out of local loan cooperatives founded mainly by Dutch farmers over a century ago when they had little access to the capital markets. The bank is made up of independent local Rabobank branches and an umbrella group, Rabobank Nederland.
Rabobank, based in Utrecht in the Netherlands, said in a statement it has agreed "to continue to implement the significant package of remedial measures already underway to enhance compliance, reduce risk and improve [corporate] culture."
The process of setting the LIBOR came under scrutiny after Barclays admitted in June 2012 that it had submitted false information to keep the rate low. Barclays agreed to pay a $453 million fine, and its chief executive and chairman both resigned soon afterward.
A number of U.S. cities and municipal agencies have filed lawsuits against banks that set the LIBOR rate. They are seeking damages for losses suffered as a result of an artificially low rate. Local governments hold bonds and other investments whose value is pegged to LIBOR.
Under a change announced in July, the London-based company that owns the New York Stock Exchange, NYSE Euronext, will take over supervising the setting of LIBOR from the British Bankers' Association. The changeover is scheduled to be completed by early next year.
Rabobank is the only Dutch bank among those that set LIBOR. In addition to Rabobank, Barclays, UBS and RBS, they are Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp., HSBC, Lloyds Bank, Societe Generale, BNP Paribas, Credit Agricole, Credit Suisse, Deutsche Bank, Royal Bank of Canada, Bank of Tokyo-Mitsubishi, Sumitomo Mitsui Bank and Norinchukin Bank.