Tom Hayes LIBOR rigging case: A message sent to the world of banking

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By Theodora Christoforou on

Theodora Christoforou, runner up of the BARBRI Global Financial Crime Blogging Prize, explores the first of its kind case

The London Interbank Offered Rate (LIBOR) is a daily average interest rate at which banks borrow short-term funds from banks in the London Interbank Market. LIBOR is fundamental in the world of finance because it is used as a benchmark by financial institutions to set interest on more than $350 trillion of securities, from mortgages to complex derivatives. Since LIBOR is used to measure performance and funding costs of most investment returns, it affects most people’s lives in one way or another.

LIBOR rigging is a serious financial crime which leads to public distrust on the integrity of the financial services sector. Under sections 91 and 92 of the Financial Services and Markets Act 2012 someone accused of false or misleading statements or conduct creating false or misleading impressions in relation to specified benchmarks (including LIBOR), can be liable for fines and/or imprisonment.

There have been numerous reported cases where banks were alleged to have manipulated LIBOR.

Barclays and Royal Bank of Scotland are notable examples of banks that manipulated LIBOR rates in order to gain more profits and also portray a strong image. However, there has been no reported case of an individual accused of LIBOR rigging, until very recently.

Tom Hayes is the first individual to have faced trial for LIBOR rigging. Taking advantage of the rudimentary way in which LIBOR is set, which is based on submissions from individual banks, Hayes leveraged his personal connections to influence the rate in a direction that would enhance the profitability of his business transactions.

Hayes was initially sentenced to 14 years in prison by the Southwark Crown Court, which was reduced to 11 years on appeal. This is surprising given the fact that the statutory maximum for specified benchmarks manipulation is a term of seven years’ imprisonment.

On a practical level, the main penalties for LIBOR rigging have, for many years now, taken the form of fines imposed on the defrauding institutions. High profile banks engaged in such behaviour were fined large sums of money and many of the senior members within those banks were forced to resign. For example, regarding the 2005 accusations that Barclays undertook efforts to manipulate the dollar and euro rates, Barclays was fined £290m.

However, in the case of Hayes, the penalty was extended to the actual imprisonment of the individual fraudster. Hayes, a yen derivatives trader in the UBS and Citigroup, was found guilty by the court on eight counts of conspiracy to defraud, in an attempt to influence the LIBOR rates, for his business benefit. Hayes accepted making concerted efforts to influence LIBOR but contended that he had no compliance training and that senior managers of UBS were aware of and encouraged his actions. However, none of his contentions were enough to help him.


Hayes was sentenced to nine and a half years imprisonment for each of counts of conspiracy to defraud relating to his time at UBS, to run concurrently, and to four and a half years imprisonment for each of counts of conspiracy to defraud during his time at Citibank, to run concurrently to each other, but consecutively to the UBS related counts, resulting in a total sentence of fourteen years imprisonment. The sentence was reduced to eleven years at the Court of Appeal, by judges who considered factors such as his age, lack of seniority and a diagnosis of Asperger’s syndrome.

Hayes follows Kallakis and Williams; which is not a LIBOR rigging case but concerns a different attempt to defraud. Kallakis, who played a leading role in two separate conspiracies to defraud, received a total sentence of seven years imprisonment. However, the Attorney-General referred the case to the Court of Appeal on the basis that the sentence was unduly lenient. The court agreed and quashed the sentence of seven years and replaced it with one of elevent years.

The reasoning behind the decision of Mr Justice Cooke in Hayes was that there is a real and genuine public interest in ensuring that the financial services market is working properly and fairly. He emphasised that it is of fundamental importance that the whole financial services industry must have confidence and trust in the LIBOR rate. Thereby, in order to safeguard that public interest, the courts must pass deterrent sentences in cases where bankers and traders abuse a position of trust for private gain. As Mr Justice Cooke said:

The conduct involved here must be marked out as dishonest and wrong and a message sent to the world of banking accordingly.

That message would have been weakened if the judge had passed a sentence that was too low.

The toughness of the penalty undoubtedly acts as a deterrent to such forms of white collar crime and accords with Foucault’s “punish exactly enough to avoid repetition”. It is notable that Hayes, a gifted mathematician who was also called ‘Tommy chocolate’ because in his social life he preferred to drink hot chocolate rather than beer, was sentenced for more years than the minimum sentence of aggravated rape, which is ten years. Since this case is the first of its kind, the courts will consider it in future if other defendants are convicted.

The case of Hayes is a landmark case since it is the first time where an individual was sentenced for rigging LIBOR rates. The case underscored weaknesses in the banking regulatory framework by illustrating the absence of integrity that ought to characterise banking. The legal system is trying to send a message that it’s not just the institutions that pay, but individuals themselves should be held liable. However, this kind of personal liability should perhaps extend beyond the person engaged in the misconduct to the senior executives who should have exercised adequate supervision to avoid such behaviours or else, the likes of Hayes may be used as scapegoats.

Theodora Christoforou is an LPC student at BPP University in Holborn. She studied her LLB at the University of Essex and her LLM in International Commercial law at Brunel University London. Her BARBRI Global Financial Crime Blogging Prize article was highly commended by the judges.

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