British trader jailed for 14 years for rigging Libor rates

Alice Ritchie
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British trader Tom Hayes leaves Southwark Crown Court in London, on July 31, 2015

British trader Tom Hayes leaves Southwark Crown Court in London, on July 31, 2015 (AFP Photo/Niklas Halle'n)

London (AFP) - A British trader was jailed Monday for 14 years for rigging the Libor lending rate while working for UBS and Citibank, in a landmark conviction the judge said would send a message to the banking world.

Tom Hayes, 35, is the first person to be found guilty by a jury of rigging the benchmark inter-bank lending rate, a key reference for financial products around the world from consumer loans to savings accounts.

"The conduct involved here must be marked out as dishonest and wrong and a message sent to the world of banking accordingly," judge Jeremy Cooke told Hayes as he sentenced him at London's Southwark Crown Court.

Many of the world's top banks have been hit by scandals over the rigging of the Libor rate, which is estimated to underpin some $500 trillion of contracts.

Following his arrest in December 2012, Hayes admitted his crimes to Britain's Serious Fraud Office (SFO) in a bid to avoid extradition to the United States, where he also faces charges.

However, he later pleaded not guilty, insisting his actions were "commonplace" in the banks.

Cooke said the fact that others were doing the same was "no excuse", saying Hayes played a "leading role" in exerting pressure on and training colleagues in how to rig the rates, and making corrupt payments to brokers for their help.

The manipulation required "sophistication and planning" during more than three years at Swiss bank UBS and nine months at US rival Citigroup, both in Tokyo, the judge said.

"You, as a regulated banker, succumbed to temptation in an unregulated activity because you could," he said, adding that Hayes was motivated by money.

Hayes stared ahead, emotionless, as the court heard the jury had found him guilty on eight counts of conspiracy to defraud between 2006 and 2010. His wife and parents sat in court with bowed heads.

He must serve half of his 14-year sentence in jail, and the rest on conditional release.

- 'Probity, honesty are essential' -

The London interbank offered rate -- Libor -- is calculated daily using estimates from banks of their own interbank rates.

However, the system has been found to be open to abuse, with some traders lying about borrowing costs to boost trading positions or make their bank seem more secure.

Banks including Barclays, UBS, Royal Bank of Scotland and Deutsche Bank have been fined billions of dollars for manipulating the rates.

In the first criminal conviction arising from a British investigation into Libor, a top banker pleaded guilty in October to manipulating rates. The individual and their employer cannot be named for legal reasons.

In the United States, two former traders at Dutch bank Rabobank have also pleaded guilty to manipulating Libor.

"The reputation of Libor is important to the City as a financial centre and of the banking industry in this country," the judge told Hayes in London.

"Probity and honesty are essential, as is trust which is based upon it. The Libor activities, in which you played a leading part, put all that in jeopardy."

- Entire industry 'complicit' -

Hayes joined UBS in Tokyo in 2006, where he was paid a salary of £1.3 million ($2 million, 1.85 million euros) before tax.

He then moved to Citigroup, where he earned £3.5 million before tax for nine months' work before being sacked for "compliance" issues.

He worked as a trader in yen Libor derivatives, betting on movements of the daily rate. The judge had previously described him as "by nature a gambler".

Hayes was diagnosed with Asperger's Syndrome before the trial, but the judge said this was of "no relevance to the issue of dishonesty".

Ben Rose, a partner at law firm Hickman and Rose with experience in the financial services industry, said the conviction was a boost for the SFO which had "a number of other Libor cases in the pipeline".

However, he said it emphasised how "odd" it was that no institutions have been prosecuted for their role.

"When an entire industry... is complicit in a practice it can seem very harsh to pick off isolated individuals," he said.