Two merchants jailed for rigging rates of interest have been the unique whistleblowers of the scandal, the BBC has discovered.
Leaked audio recordings reveal Peter Johnson and Colin Bermingham alerted the US central financial institution to a fraud that the tapes recommend was directed from the highest of the monetary system.
However no senior determine was prosecuted. The Severe Fraud Workplace concluded the take a look at for prosecution was not met.
As a substitute the whistleblowers have been themselves despatched to jail.
Audio recordings, obtained solely by BBC Radio 4, reveal Peter Johnson, identified at work as “PJ”, was repeatedly instructed by senior managers at Barclays to interact within the fraud, often called “lowballing”.
It concerned mendacity concerning the rates of interest banks have been paying through the monetary disaster, pretending they may borrow money rather more cheaply than they actually may.
The conversations, proof of a prison fraud within the midst of the worst monetary disaster in eighty years, are a part of a cache of secret audio recordings leaked to the BBC and revealed in The Lowball Tapes, a pioneering collection investigating the key historical past of rate of interest “rigging”.
They reveal that Johnson, convicted individually for manipulating charges on a a lot smaller scale, in reality tried to deliver lowballing to the authorities’ consideration, beginning in 2007.
He repeatedly alerted the US central financial institution, the Federal Reserve (the Fed) to the truth that banks have been mendacity concerning the rates of interest they have been paying to borrow {dollars}.
The stakes have been excessive. This was initially of the “credit score crunch” – the early days of the monetary disaster when banks have been changing into afraid to lend to one another, and charging larger charges to mirror their fears.
In a number of weeks, this may result in the Northern Rock financial institution collapse, and develop right into a monetary disaster the next yr.
For months, his marketing campaign fell on deaf ears. Whereas his quick bosses have been sympathetic, they stated they have been passing on directions from above.
Towards his vehement protests, Johnson joined in the identical fraud he was searching for to show, making dishonest statements about the price of borrowing money which didn’t mirror the actual price his financial institution was paying on the markets.
The recordings recommend board administrators have been involved that if Johnson instructed the reality, it would look to journalists like Barclays was paying larger rates of interest as a result of it was determined for cash.
To keep away from giving that impression, Barclays and different banks engaged in lowballing, a critical type of misconduct for which banks have since paid a whole bunch of thousands and thousands in fines.
‘Sick and incorrect’
In November 2007, after months of strain from his bosses to lie, Johnson vented his frustration on the telephone to a 25-year-old colleague at Barclays’ Wall Road workplace known as Ryan.
In an expletive-laden name, an extract of which is under, Johnson calls it “sick” and “incorrect.”
Ryan: “Must be larger?”
Johnson: “A lot, a lot larger… consider me, you’ve acquired no thought how a lot larger.”
He tells Ryan: “I believe it’s changing into a type of moral and authorized factor now. I’m patently giving a false fee!”
Johnson additionally protested to his boss, Mark Dearlove, saying: “I believe we must always take a stand. I’m going to jot down you an e mail and you are able to do with it what you need.”
Dearlove: “Okay, truthful sufficient. You’re proper ‘cos I wish to get one thing written down for the blokes upstairs…”
Johnson: “So I’ll simply write a factor. I’ll simply say I believe its bringing the Libor market into disrepute, Barclays into disrepute, me into disrepute…”
Johnson wrote an e mail for Dearlove to flow into to senior administration saying the financial institution was being “dishonest by definition”. However that didn’t cease him being ordered to lowball.
What does ‘rigging’ Libor or Euribor imply?
What the FTSE 100 is to share costs, Libor is to rates of interest – an index that tracks the price of borrowing money. For many of the previous 35 years, 16 banks have answered a query each morning at 11am: At what rate of interest may you borrow cash?
They submit their solutions (eg RBS estimates 3.14%, Lloyds 3.13% and so forth) and a median is taken to get Libor, brief for “London Interbank Provided Price”. To set Euribor, the method is comparable however with extra banks concerned.
The proof towards the merchants jailed for fee “rigging” consisted completely of requests they’d made to colleagues to tweak these estimated rates of interest up or down, usually by one hundredth of a proportion level (identified on the cash markets as a ‘foundation level’).
The hope was that it would shift the Libor common marginally in the best course to profit the financial institution’s trades which went up or down linked to Libor.
Neither Johnson nor Bermingham has ever granted the media an interview. However the BBC has been capable of piece collectively their extraordinary tales and listen to the precise phrases they stated as a result of their telephones traces, as is regular on banks’ buying and selling flooring, have been recorded.
Within the confidential tapes, we hear Johnson being instructed by his bosses that the necessity to repair rates of interest got here from above: first from senior managers at Barclays Financial institution, then from directions from the Financial institution of England, then from the UK authorities, together with Downing Road.
The tapes reveal that Johnson and Bermingham repeatedly blew the whistle to the US central financial institution about his and different banks publishing false estimates of the price of borrowing money, often called “Libor submissions”.
On 11 April 2008, Bermingham alerted the Fed to what he considered a damaged market, frankly telling them that Barclays, like different banks, just isn’t posting “trustworthy” estimates of the price of borrowing money. The Fed official says she understands totally and doesn’t report against the law.
On the peak of the monetary disaster, a number of weeks after the collapse of the funding financial institution Lehman Brothers despatched inventory markets plunging, then Prime Minister Gordon Brown introduced unprecedented emergency measures on 8 October 2008, together with £50bn to recapitalise the banks.
On the identical day, seven central banks from the US to Japan to Europe introduced a co-ordinated minimize of their official rates of interest. Then RBS and Lloyds needed to be rescued and nationalised.
However the actual price of borrowing money, as measured by Libor, wasn’t dropping quick sufficient to indicate the emergency measures have been working.
On 24 October 2008, Johnson instructed an official on the Fed about false charges being posted, saying “Please don’t consider it, it’s absolute garbage.”
On 29 October 2008, the then deputy governor of the Financial institution of England (BoE) Paul Tucker known as Barclays chief government Bob Diamond and instructed him that “senior figures” in Whitehall have been asking why Barclays’ Libor charges have been at all times too excessive.
Mr Diamond was involved the federal government would assume it meant that Barclays was struggling to get the funds it wanted and needed to be nationalised.
The identical day, Johnson acquired a name from his boss Mr Dearlove, who instructed him: “PJ, you’re going to utterly hate this… however we have had some very critical strain from the UK Authorities and the Financial institution of England about pushing our Libors decrease.”
Agreeing it’s “the incorrect factor to do,” Mr Dearlove says, “I’m as reluctant as you might be… These guys don’t see it, they’re bent off form. They’re calling everybody…”
Each the US Division of Justice and the Severe Fraud Workplace had entry to all of the recordings obtained by the BBC, handed to them by Barclays’ authorized division.
However they didn’t rush to search out out extra about all of the proof pointing to the highest. A lot of the proof revealed within the tapes has by no means been printed
Removed from being thanked for his or her whistleblowing, Johnson and Bermingham have been individually prosecuted by the UK’s Severe Fraud Workplace (SFO) for collaborating in a a lot smaller sort of rate of interest “rigging” which in most international locations of the world just isn’t seen as prison.
Each Johnson and Bermingham have been convicted and jailed as a part of what merchants allegeis a complete collection of miscarriages of justice involving 9 prison trials on each side of the Atlantic.
After initially defending himself, Johnson selected to not struggle the costs and pleaded responsible in 2014 to conspiring to govern Libor.
Bermingham was discovered responsible in 2019 of conspiring to govern the sister fee of Libor, Euribor, and jailed for 5 years.
In all, 38 merchants and brokers have been prosecuted, 24 of them within the UK and 14 in the US, for “rigging” two benchmark rates of interest, Libor and Euribor. In 9 trials, seven of them within the UK, extra have been acquitted than convicted as juries doubted the case towards them.
Not one of the senior Barclays figures contacted by the BBC wished to remark, however former Barclays boss Diamond has maintained there was no authorities or Financial institution of England strain to lowball and has denied information of it on the time.
The Financial institution of England has additionally denied that it put strain on banks to lowball and acknowledged that Libor was not regulated on the time.
The SFO stated it carried out a radical investigation into lowballing however concluded that the take a look at for prosecution was not met.
The Federal Reserve declined to remark. However in an announcement from 2012, it stated it had acquired “occasional anecdotal studies from Barclays of issues with Libor” in 2007, and shared strategies for reform with related UK authorities.
Libor is presently being changed with a unique methodology of setting market rates of interest.