The Dutch firm Rabobank has agreed to pay more than $1 billion in criminal and civil penalties to settle investigations by US, UK and other regulatory authorities into its role in manipulating global benchmark interest rates. Rabobank’s chief executive stepped down immediately after the announcement.

The Dutch firm Rabobank has agreed to pay more than $1
billion in criminal and civil penalties to settle investigations by US, UK and other regulatory
authorities into its role in manipulating global benchmark interest rates.
Rabobank’s chief executive stepped down immediately after the announcement.

The bank is the fifth financial firm to settle accusations
that its employees manipulated the London Interbank Offered Rate and the Euro Interbank
Offered Rate. The settlement with Rabobank is the second largest agreement
after the $1.5 billion penalty imposed on UBS related to the manipulation of
benchmark rates, which help determine the borrowing costs for trillions of
dollars of mortgages, business loans, credit cards and other financial
products.

As part of the settlement, Rabobank will avoid criminal
charges as long as it continues to cooperate with investigators. The firm will
pay a $325 million criminal penalty to the US
Justice Department and $475 million to the Commodity Futures Trading
Commission, as well as $170 million to the UK’s Financial Conduct Authority
and about $96 million to the Dutch authorities.

To set the LIBOR and EURIBOR rates, banks submit the rates
at which they could borrow money, on an unsecured basis, in various currencies
and varying maturities. Those rates are averaged, after the highest and lowest
ones are eliminated, and that becomes that day’s rate. According to US
authorities, derivatives swaps traders at Rabobank and other banks requested
that Rabobank employees make rate submissions that would benefit their trading
positions.

“Such accommodations were a regular part of the rate-setting
process at Rabobank,” said the Justice Department.

Rabobank also ignored a conflict of interest created by
assigning traders with positions tied to the benchmark rates to serve as the
submitters of rates used to calculate LIBOR, added the CFTC.

“This conflict was exacerbated by traders and submitters
sitting together so that traders could simply shout requests for unlawful
submissions across the trading desk,” said the financial watchdog.

In light of the findings in the LIBOR and EURIBOR
investigation, Piet Moerland, the chairman of Rabobank’s executive board and
its chief executive, resigned immediately, said a Reuters report.

“I fully understand and share the sense of indignation that
the findings of the Libor and Euribor investigations will cause,” Moerland said
in a statement.

“I wish to send a strong message on behalf of the bank and
on behalf of the executive board: We sincerely apologize for, and strongly
condemn, this inappropriate behavior.”

Rinus Minderhoud, a banker and member of Rabobank’s
supervisory board, will succeed Moerland as chairman of its executive board.

According to the CFTC statement, more than two dozen traders
were involved in the inappropriate conduct. No Rabobank employees have been
charged criminally, although the investigation is continuing, the regulator
said.

With the Rabobank fine, the LIBOR case is far from over for UK and US
regulators. Financial heavy-hitters like Deutsche Bank and Citigroup are still
under investigation, just as The Royal Bank of Scotland
and ICAP, an interdealer broker based in London,
are expected to settle on charges in the coming weeks.

“The sheer number of institutions and individuals involved
in these cases reflects a truly shocking and brazen degree of unlawfulness,
warranting the historic enforcement response we bring forth today and in our
prior cases,” said David Meister, director of enforcement for the CFTC.