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James Henry, former chief economist at McKinsey & Co., says the ruling demonstrates that there is no systemic or institutional accountability to prevent interest rate manipulation

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SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to the Real News Network. I’m Sharmini Peries coming to you from Baltimore. In London on Wednesday, five of the six stockbrokers in the Libor case accused of helping convicted interest rate manipulator Tom Hayes were acquitted by a jury. Tom Hayes was a former trader at UBS and Citigroup. The brokers acquitted worked at British Financial firms ICAP, RP Martin, and Tullett Prebon Group, and they were accused of conspiring to manipulate the London Inter-Bank Offered Rate,also known as Libor. Now joining us to give us his take on the acquittals is James Henry. James is a leading economist, attorney, and investigative journalist. James served as chief economist at the international consultancy firm McKinsey and Co. James, thank you so much for joining us today. JAMES HENRY: You’re quite welcome. PERIES: James, why did the jury decide to acquit these traders? HENRY: They were charged with conspiracy to defraud, and apparently the jury just didn’t believe that they subjectively had entered into an agreement with this UBS trader, Tom Hayes, who is now serving, I guess, the latest figure is 11 years. He’s one of the few people who’s actually been convicted for this rigging scandal, which involves one of the most important benchmark interest rate settings that we have. It sets the price for up to $450 trillion of securities around the planet, and nine banks have already paid about–twelve banks have already paid about $9 billion in fines regarding this rigging. But in terms of sending people to jail for this behavior, we’ve only sent one to jail, and the securities fraud prosecution in the UK just failed miserably. PERIES: So James, it seems to me that this kind of fixing has been going on for a long time. In fact, even the financial press is reporting that it has, partly because it is a self-regulated business, poor oversight. And in fact, Libor was administered at the time by the British Bankers Association, an industry lobby group. This sounds a bit absurd. Is this what’s still going on in the industry? HENRY: Well, there’s a move to transfer responsibility for setting this benchmark away from the banks on a sort of self-policing basis. Obviously they haven’t been doing a very good job. In this case, 16 banks would get together every day, and basically agree on what the benchmark for Libor should be. And you know, that opened the door to this kind of circle of friends, where they were basically conniving to take positions on the benchmark that were favorable to their trading portfolios. But in this case we had one guy who was at a bank, and all of the other ones were at so-called inter-bank brokers, and they were able to say, look, we’re not regulating. We’re not banks. We didn’t really–we were just leading this fellow astray. And by the way, big players in this business, not only Tom Hayes but a senior trader at UBS and Citibank, but also all the other banks, UBS, HSBC, Deutsche Bank, some of the major Swiss banks like Credit Suisse as well, you know, where is the penalty that makes it a corporate crime for the failure to prevent this kind of activity? It’s awfully hard to prove these kind of individual conspiracies against traders. You know, they can argue that they knew nothing or that they were just leading this fellow astray. And really it was a systems crime. It was something that could not have been–there were 45,000 or more trades involved here from 2006-2010. Here we are six years later. Only one guy has gone to jail. The banks just take the fines and they pass along these fines to their customers, or to the public at large. And there’s not much behavior that’s actually changed. So this is an example of the failure of the current regulatory system, where we rely on–these kind of individual prosecutions, take a long time. This one took four months to prosecute these six brokers, five of whom have been acquitted. And you know, took the jury one day to decide, you know, you just didn’t prove that these people intended to defraud. PERIES: Right. So if the problem was the charge, which was conspiring to fraud, and they weren’t able to prove it, what’s a solution here? How do–how does it get regulated, and at what level, so that it can be prevented? HENRY: Well, I think one thing we do would be to have a criminal statute that goes after banks as opposed to individual traders at banks. You know, this is a fiction that these individual traders are themselves bad apples in greater organizations. This is an institutional crime. The institutions involved should be held responsible, and there should be a corporate criminal statute that holds banks responsible for the failure to prevent this kind of activity. And that kind of legislation is being considered in both the U.S. and the UK, but as yet has been held up by the banking lobby. So we have a string of these prosecutions to look forward to. They’re hard cases to prove. The SFO in the UK is going after another case involving Barclays traders in February, and then another case after that. But stringing this out over time and not really putting responsibility on the institutions as opposed to these traders, lower-level brokers in this case, is really a mistake. PERIES: All right, James. We’ll follow them with you. I hope to have you back very soon. HENRY: Sure. Nice being with you. PERIES: And thank you for joining us on the Real News Network.


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James S. Henry is an investigative economist and lawyer, a Global Justice Fellow at Yale University, and a Senior Advisor at the Tax Justice Network. Previously, James served as Chief Economist at the international consultancy firm McKinsey & Co. As an investigative journalist his work has appeared in numerous publications like Forbes, The Nation and The New York Times.