Interest rate derivatives cartel: Commission imposes the highest fines (thus far)

On 4 December 2013 the European Commission adopted decisions against the cartels in Euro interest rate derivatives (EIRD) and Yen interest rates derivatives (YIRD), imposing fines to eight banks and financial institutions totalling € 1.71 billion. Taken together, these fines are the highest imposed by the Commission in cartel cases to the present day¹.

The EIRD and YIRD cartels

In the EIRD cartel, which lasted between 2005 and 2008, traders of different banks discussed their bank’s submissions for the calculation of the EURIBOR as well as their trading and pricing strategies, with the aim of distorting the normal course of setting the pricing components for these derivatives.

The YIRD cartel included seven distinct bilateral infringements, lasting between 1 and 10 months in the period from 2007 to 2010. According to the Commission, the collusive behaviour consisted of discussions between traders of the participating banks on certain Yen (JPY) LIBOR submissions. The traders involved are also reported to have exchanged on several occasions commercially sensitive information relating to trading positions or to future JPY LIBOR submissions. The Commission also found that the brokerage company RP Martin facilitated one of the infringements by using its contacts with several banks that did not take part in the infraction, with the aim of influencing their JPY LIBOR submissions.

Leniency and Settlements

The two cases where initiated further to leniency submissions from Barclays (in the EIRD case) and from UBS (in the YRD case). For revealing to the Commission the existence of an undisclosed cartel, the two banks received full immunity, thereby avoiding fines of approximately € 690 million and € 2.5 billion, respectively.

The remaining financial institutions involved also received reductions in fines ranging from 5% to 50%. Under EU leniency rules, infringing companies can also benefit from fine reductions after a cartel is known to the Commission if they voluntarily submit “significant value added” evidence. This was the case of Deutsche Bank, Citigroup, RBS, Société Générale, and JP Morgan (in the YIRD case), as well as of the broker RP Martin.

These companies also benefitted from a further reduction of 10% in fines under the settlement procedure. Settlements allow the Commission to offer a 10% discount to defending companies that acknowledge their participation in the infringement and their liability for it, thereby renouncing their right of appeal against the decision before the EU courts. The use of the settlement procedure enabled the Commission to conclude the investigations concerning these companies in approximately two years after the first dawn raids were conducted, a relatively short period for cartel cases.

The investigation proceedings still continue under the “standard” cartel procedure against four other alleged infringers (Crédit Agricole, HSBC, JP Morgan as to one of the cases, and broker ICAP), which opted for not acknowledging their liability and not submitting settlement proposals. If sanctioned, these companies may challenge the Commission’s decision before the EU General Court.

Comment

These decisions, the first adopted by the Commission concerning anticompetitive practices in the financial sector since the start of the financial crisis in 2008, illustrate the intense and added scrutiny to which the financial sector, and banking in particular, have been subject by competition authorities, in the EU and elsewhere.

An example of such added scrutiny is the Commission’s on-going review under EU State aid rules of Member State measures granting financial support to banks, including the recapitalisation measures taken by Portugal concerning CGD, BCP and BPI², whose restructuring plans have been approved by the Commission in the course of this year, and BANIF (investigation still pending)³.

The decisions on the EIRD and YIRD cartels also reflect a growing trend of companies under investigation to settle the case with the Commission, under the settlement procedure created in 2008, which allows companies to quickly “turn the page” on the case and to benefit from an additional 10% reduction in the fine. (To the Commission this mechanism means a simplified procedure and the absence of prolonged and costly judicial appeals). The settlement procedure is also available in Portuguese law, and the first cartel settlement case (Foam Cartel), decided in August 2013, is analysed on page 7 of this Newsletter.

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