ABA Banking Journal
Case: United States v. Deutsche Bank AG
Issue: Deutsche Bank AG’S (Deutsche Bank) $2.5 billion settlement to resolve allegations regarding the manipulation of London Interbank Offered Rate (Libor).
Case Summary: Deutsche Bank agreed to pay a $2.5 billion to settle allegations from the U.S. Department of Justice (DOJ), the New York Department of Financial Services (NYDFS), the U.S. Commodity Futures Trading Commission (CFTC), and the U.K. Financial Conduct Authority (FCA) about its role in manipulating Libor.
According to government officials, from 2003 to 2011, Deutsche Bank’s derivatives traders regularly conspired with rate submitters from other firms, including Barclays, BNP Paribas SA, Citigroup Inc, Merrill Lynch, Societe Generale SA and UBS, to rig their Libor submissions to benefit Deutsche Bank’s trading positions. For instance, during the financial crisis in 2008, Deutsche Bank admitted that it profited substantially through its traders employing a trading strategy that bet on the widening of the Libor spread between 1 month, 3 months, and 6 months after conspiring with rate submitters to alter the rates to align with their trading strategy. According to the NYDFS, the price-fixing conspiracy involved at least 29 Deutsche Bank employees, including managers, traders and submitters, primarily based in London but also in Frankfurt, Tokyo and New York.
Deutsche Bank entered into a Deferred Prosecution Agreement (DPA) with the DOJ to resolve wire fraud claims and agreed to (1) pay a $625 million penalty; (2) continue to cooperate fully with the DOJ and other regulators until the conclusion of all investigations and prosecutions; and (3) strengthen its internal controls and install a corporate monitor. Deutsche Bank’s London subsidiary, DB Group Services (UK) Ltd. (DB Group), agreed to plead guilty to one count of wire fraud and pay a $150 million fine. As part of the settlement, Deutsche Bank also agreed to pay $600 million to the NYDFS, $800 million to the CFTC, $775 million to the DOJ, and £227 million ($340 million) to the FCA.
Similar to previous settlements, no individuals at Deutsche Bank entered a guilty plea or were named specifically in the court documents, but the NYDFS required Deutsche Bank to terminate one London-based managing director, four London-based directors, one London-based vice president and one Frankfurt-based vice president.
Bottom Line: Deutsche Bank’s DPA is the largest of the Libor-rigging settlements. Barclays settled for $450 million in June 2012, Royal Bank of Scotland pled guilty and paid $612 million in February 2013, and UBS pled guilty and paid approximately $1.5 billion in December 2014.
