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LIBOR scandal: Will Feds target not just employees, but a whole bank?

If a bank reporting its lending rates has given intentionally inaccurate numbers, that could be a crime, say experts. Prosecutors have been poring over documents related to LIBOR for two years.

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If the banks reporting their lending rates have been giving intentionally inaccurate numbers, that could be a crime, says Robert Mintz, a former prosecutor who is now a partner at McCarter & English in Newark, N.J.

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“If you issue false statements and you know someone is relying on them, that is enough for criminal liability,” he says.

Mr. Keneally says the banks could be charged with “fraud.” 

Normally, in the case of a bank, a shot across the bow is usually enough to get the board of directors busy. That’s what apparently happened at Barclays, which agreed to pay a $450 million fine and allow its chief executive, Robert Diamond, and other top executives to resign.

An indictment would be the equivalent of a knockout. 

“Basically no bank can survive a conviction,” says Annemarie McAvoy, an adjunct professor at Fordham Law School who was formerly in the legal department at Citibank. “Banking is based on trust, and if the customers lose faith, they can move to another bank.”

Ms. McAvoy thinks federal prosecutors are using the threat of prosecution as a bargaining chip. She expects banks will agree to fines, outside monitors, and the tightening up of their compliance programs.

“The government has a big stick it can use,” she says.

How big that stick can be was apparent in 2002, when the government indicted the accounting firm Arthur Andersen in the wake of the Enron collapse. Andersen had been Enron’s accountant and did not catch the fraud perpetrated by the company and its executives. After the indictment, Andersen collapsed.

Three years later, the US Supreme Court ruled that the Department of Justice had overreached, and it threw out the case. But it was too late for the firm.

“Arthur Andersen was a miscalculation by the government,” Mr. Mintz says. “They threatened to indict but expected the partnership to work out some resolution that would have prevented that from occurring. But that did not happen.”

In the wake of Andersen, he thinks prosecutors have become more warier, since an indictment can harm innocent people. “If it’s a publicly held company, innocent shareholders can be hurt,” he says. “Even if it’s not a publicly held company, innocent employees could be harmed, which is why they usually focus on individuals.”

That may be one reason that now, prosecutors might opt for a “deferred prosecution agreement,” which would give a bank time to put in new systems to prevent future abuse. “The implication is if you don’t do something to prevent future abuse, you can be hit with criminal charges,” says McAvoy. “Banks are so petrified of criminal prosecution.”


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