‘Everyone was doing it!’: The LIBOR rigging scandal

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By Edward Nyman on

A closer look at the law on dishonesty in the context of financial crime

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Tom Hayes and others agreed to manipulate Yen LIBOR between 2006 and 2010 in order to advance trading interests, the profits of the bank for which he worked and, indirectly, the rewards which he would receive in the form of bonuses and status — all of which, of course, was to the disadvantage of the counter parties to the trades.

Following a nine week trial in Southwark Crown Court back in July 2015, Hayes was convicted for 14 years (reduced to 11 on appeal) for the common law offence of conspiracy to defraud. Here to ‘defraud’ means to dishonestly prejudice or injure someone else’s rights, knowing that you are not entitled to do so.

This offence has potentially a very broad reach and has been limited over time with a few qualifications, principally that conduct which may be commercially or morally reprehensible cannot necessarily be criminalised solely by invocation of the common law offence of conspiracy to defraud.

By way of example, participation in a secret price-fixing cartel is not necessarily to be taken as an offence. This comes from the decision in Norris v Government of the USA which held that, in such circumstances, there needs to be an ‘aggravating factor’ — such as misrepresentation, intimidation or inducement of breach of contract.

On 21 December 2015, the Court of Appeal handed down judgment against Hayes’ appeal, the main ground of which related to the issue of dishonesty. The same issue was hotly debated during the trial, as a key element of Hayes’ defence was that his actions were common practice in the banking industry at the time, and so, although he sought to influence LIBOR, he did not do so dishonestly.


Upon cursory reflection, “everyone was doing it!” doesn’t sound like a convincing defence. This is especially because there is a whole host of ‘dishonesty offences’ in the criminal canon, from bilking to benefit fraud. However, on closer inspection, Hayes’ defence was a little more nuanced, requiring an understanding of both the law on dishonesty and the art of manipulating the jury trial system.

For over 30 years, juries have applied the two-limbed test from R v Ghosh to determine whether a defendant has been dishonest. The first limb is whether the behaviour was dishonest by “the ordinary standards of reasonable and honest people” (the objective limb). The second limb is, if the behaviour was objectively dishonest, whether the “defendant himself must have realised that what he was doing was by those standards dishonest” (the subjective limb). Nothing nuanced here.

The more interesting issue, which was brought up during the appeal, was the issue of context. Should evidence of industry-wide practice be included in the consideration of the objective limb of the test? If the answer were to have been ‘yes’, then this could have divided the jury along the lines of their biases — with those who believe that bankers share “the ordinary standards of reasonable and honest people” and those who do not.

Of course, however, the court was resolute in its position that to take evidence of banking industry practice into consideration in the first limb of the Ghosh test would be to undermine its objectivity. In fact, to introduce such a contextual consideration of what it is to be dishonest would undermine the dishonesty offences altogether — or, at the very least, introduce a double standard. If Hayes had succeeded in his appeal on these grounds, would it not then be unjust for a burglar to be put away if all his friends were burglars and all that he knew in life was burglary?

This segues nicely on to the second, subjective limb of the test. On this point, it was agreed that industry standards could be relevant to whether Hayes was aware that what he was doing was dishonest. This means that the door has been left ajar for future defendants to point to evidence of industry-wide practice in order to argue that they were not aware their behaviour was dishonest.

Although dishonesty was not central to the defences of five of the six brokers acquitted on 27-28 January 2016, it was at the heart of Terry Farr’s. Farr’s lawyers argued that, despite being aware of the behaviour that was occurring around him by his colleagues, he did not realise that his actions were dishonest.

While contextual evidence was considered in the subjective limb of the Hayes appeal, and was key to Farr’s exoneration, this is not to say, however, that “everyone was doing it!” is a get-out-of-jail-free card. In fact, in the current socio- political climate, where ‘banker-bashing’ abounds, one can never be sure which way a jury will sway.

If there is anything bankers should take from the Hayes trial, it is that they should not go about their day-to-day in docile complacency. Rather, perhaps they should take heed of the public resentment and found a new archetypal banker — the banker with moral integrity, who is always ready to challenge the questionable actions of her colleagues and employers.

Edward Nyman is a philosophy graduate who completed the LPC last year. He has been working as a paralegal at a litigation specialist firm while he searches for a training contract. This post was one of the standout entries we received for the BARBRI Global Financial Crime Blogging Prize.

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