Jail the trader - not the drug gang's go-to bank
Who’s more deserving of jail? The trader who asked colleagues for tweaks of interest rate estimates of one hundredth of a percentage point? Or bankers who helped a murderous drug gang launder $881m?
The top lawyers at the United States Department of Justice gave a clear answer to that question in December 2012: the trader. For the vast money laundering of ill-gotten gains, no banker would be prosecuted.
What they weren’t telling anyone at the time was that, unlike the trader, the drug cartel’s go-to bank, HSBC, had powerful forces seeking to prevent it being prosecuted. Not the Mexican drug gang – but the British government.
Then it turned out, 10 years later, that the trader had done nothing wrong at all, according to none other than the United States Department of Justice itself.
I jest not. One of the deepest secrets buried in the history of interest rate rigging is the role of the top law officials in the USA in December 2012. On 11 December, then assistant attorney general for the DoJ’s criminal division, Lanny Breuer, gave a press conference about what remains one of the most spectacular episodes of bank misconduct ever exposed. HSBC was to be fined a record sum - $1.25 billion – for two things: first, laundering at least $881m of drug cash for the vicious Sinaloan drug cartel; and second, carrying out hundreds of millions of transactions to Iran and other countries that violated US sanctions.
“HSBC is being held accountable for stunning failures of oversight,” said Assistant Attorney General Breuer. “The record of dysfunction that prevailed at HSBC for many years was astonishing. Today, HSBC is paying a heavy price for its conduct, and, under the terms of today’s agreement, if the bank fails to comply with the agreement in any way, we reserve the right to fully prosecute it.”
‘Reserve the right? What – you mean you’re not going to prosecute them for that?’ cried the media.
‘It’s the case that has everything – everything except an arrest,’ said an astonished-looking CBS anchor, John Miller. At a press conference that day, Lanny Breuer faced a shocked response from members of the press.
‘Outrageous HSBC settlement proves the drug war is a joke,’ wailed Rolling Stone magazine. ‘If you’re suspected of drug involvement, America takes your house. HSBC admits to laundering cartel billions, loses five weeks’ income and execs have to partially defer bonuses.’
On the defensive, Breuer talked of ‘collateral damage’ for the financial system if HSBC were criminally charged; HSBC was apparently ‘too big to jail’. But Breuer and President Obama’s top legal official Eric Holder were seeing their reputations panned. Critics pointed out they had worked together at the upmarket law firm Covington & Burling, which drew a very large chunk of its fee income from banks like HSBC.
What Breuer didn’t disclose at the time was a state secret, dug out three years later by a Congressional committee’s report. On 10 September 2012, a day before US agencies were set to approve charges against HSBC, the UK’s then Chancellor of the Exchequer, George Osborne (second in power at the time only to then Prime Minister David Cameron) had written to Ben Bernanke, the chair of the US central bank, the Federal Reserve, copying in Obama’s Treasury Secretary Tim Geithner, insinuating that the U.S. was unfairly targeting UK banks by seeking settlements that were significantly higher than “comparable” settlements with US banks. It also warned that prosecuting a “systemically important financial institution” such as HSBC “could lead to [financial] contagion” and pose “very serious implications for financial and economic stability, particularly in Europe and Asia.”
The intervention worked. Informed of the British government’s concerns, Breuer gave his underlings their orders. No HSBC banker was arrested or charged for the most outrageous bank misconduct anyone could remember.
Just a few hours earlier on the same day, 11 December, at 7am British time, former UBS trader Tom Hayes trotted downstairs in his boxer shorts to answer an insistent banging on his door. Dozens of plainclothes police officers and members of the Serious Fraud Office were in attendance, waiting to arrest him for manipulating an interest rate benchmark they couldn’t even pronounce (the arresting officer referred to something called ‘Lee-bor’) and he was carted off to the police station to be interviewed. According to a then member of the SFO prosecuting team, it was quite unnecessary legally. Instead it was an exercise in public relations. The press were informed about the arrests by an SFO keen to portray itself as determined to pursue bank corruption.
Unfortunately for Tom Hayes, and unlike HSBC executives, he didn’t have a line in to the occupant of Number 11 Downing Street.
A week later, on 19 December, Breuer and Holder had an opportunity to silence their critics. This time, they were fining UBS $1.5bn for ‘rigging’ interest rates (though no-one was quite sure exactly what that meant). Holder told the press in attendance with an angry expression that it ‘underscores our willingness to bring criminal charges’ against banks. Sweating under the lights, Breuer again stated how the indicted behaviour was just ‘astonishing’. From his home in England, Tom Hayes watched in horror as Breuer condemned him in public with little or no presumption of innocence.
‘UBS, like Barclays before it, saw fit repeatedly to fix Libor for its own ends, so UBS traders could maximise profit on their trading positions...In addition to UBS Japan’s agreement to plead guilty, two former UBS traders – Tom Alexander William Hayes and Roger Darin – have been charged in a criminal complaint unsealed today.’ That was the first Tom Hayes knew that he was being charged in the United States. There was nothing – nothing subtle – about these traders’ alleged conduct […] Make no mistake: for UBS traders, the manipulation of Libor was about getting rich.’
It was watching that press conference, live on TV, that sent Tom Hayes into a desperate downward spiral. Terrified at extradition and the risk of 30 years in a US jail, stressed and sleepless for weeks, he suffered a serious nervous breakdown and eventually made a false confession he didn’t believe so he could get charged in the UK instead – that the tweaks in interest rates he had asked for were ‘dishonest’. In fact, as the United States Department of Justice was to accept ten years later after a decisive ruling from the higher US court, what he was doing was not even against rules.
In the middle of Tom Hayes’s 2015 trial, Bank of England governor Mark Carney publicly demanded tougher sentences for ‘rogue traders’. Thus encouraged, the judge, Mr Justice Jeremy Cooke, gave him 14 years inside - more than some get for killing someone - reduced on appeal to eleven. Between 2015 and 2021, he served his full tariff.
In 2022, the US Department of Justice withdrew the indictment that Breuer had announced ten years before, without which no confession would have been made.
Yet even now, in 2024, the UK stands alone in the world in criminalising what Tom Hayes, along with 36 others similarly accused, had done. On Wednesday 27 March 2024, three judges at the Court of Appeal - Lord Justice Popplewell, Lord Justice Bean and Mr Justice Bryan - cited that false confession, coerced by fear of an unfair trial and giant sentence in the US, as one reason (among other controversial reasons) to avoid overturning his conviction. Tom Hayes’s lawyers are now concerned Popplewell, Bean and Bryan will seek to block an appeal to the Supreme Court by maintaining that in their ruling there is no point of law of public importance.
But given the history, can that really be maintained with a straight face?
Both Breuer and Holder were contacted for their comments ahead of the publication of Rigged but declined to comment on these matters in detail, as did the United States Department of Justice and the Bank of England.