A leading barrister considers the case for prosecutions

IN 2011, the Serious Fraud Office (SFO) decided not to investigate allegations concerning Libor manipulation. At that stage, one reason was that it did not have the necessary resources to take on such an investigation. Although the FSA has conducted its own investigation, the results of which will have been passed to the SFO, the emphasis of the FSA investigation has been regulatory in nature rather than criminal.

Any criminal investigation is likely to be complex. The prospect of criminal proceedings under the market manipulation provisions of the Financial Services and Markets Act (FSMA) 2000 is limited, as the Libor rate is not a ”qualifying investment”. So the investigation may have to focus on offences under the Fraud Act 2006 and the Theft Act 1968, both of which, unlike FSMA, require proof of dishonesty.

The knock-on effect of Barclays’ contact with the Bank of England in 2008 is difficult to gauge. However, it would appear to provide a basis for those involved to assert that they believed that their activities had been sanctioned by the authorities and that they were not therefore behaving dishonestly. Much will depend on whether the evidence reveals that this featured at all in the minds of those involved.

So negating assertions that it was “common practice” and “sanctioned by the authorities” and therefore not dishonest may be difficult. A further difficulty is likely to be establishing who in the chain of command knew what and when. Those higher up may assert that they were unaware of the full extent of what was happening – in particular that Libor was being manipulated for profit, whereas those lower down may say they believed their activity had been approved from on high.

There may well be a distinction to be drawn between those at the coal face and those higher up the chain of command. The email traffic between the derivatives traders and those responsible for the submission of Barclays’ interest rate data to the Britsh Bankers Association (BBA), identified in the FSA report, would appear to provide good grounds for a criminal investigation. Under Section 2 of the Fraud Act 2006, a person is guilty of the offence of fraud by false representation if he dishonestly makes a false representation thereby intending to make a gain for himself or another or to cause loss to another or to expose another to the risk of loss. There would appear to be little doubt that the representations made to the BBA were false. The nature and tone of the emails would be key in determining whether those involved were behaving dishonestly. However, without similar documented exchanges, those higher up may well be able to successfully maintain that they genuinely believed that the manipulation of Libor had been sanctioned by the authorities.

Any investigation is likely to start at the centre of the wrong-doing and then work its way upwards.

Andrew Oldland QC is partner at Michelmores LLP and has conducted a number of prosecutions for the SFO.