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LIBOR rigging (view source)

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:— Charles Dickens, ''Oliver Twist''}}
:— Charles Dickens, ''Oliver Twist''}}


This appeal from Tom Hayes’ conviction for “[[LIBOR]] rigging” follows the US acquittals in 2022 of Matt Connolly and Gavin Black of equivalent charges relating to the same actions, and centres on a two-limbed question:  
Tom Hayes’ appeal from his conviction for “[[LIBOR]] rigging” follows Matt Connolly’s and Gavin Black’s acquittals in 2022 on equivalent US charges relating to the same actions. It centres on a two-limbed question:  
{{L3}}What do the LIBOR and EURIBOR fixing rules mean and, given they were found in a previous trial to mean one thing, while the appellants believed them to mean another, and <li>
{{L3}}What do the LIBOR and EURIBOR fixing rules mean and, given they were found in a previous trial to mean one thing, while the appellants believed (and a US court) found them to mean another, and <li>
Whose job was it to decide what they meant? Was it, in other words, a matter of fact or law?</ol>
Whose job was it, and by reference to what, to decide what they meant? Was the meaning of the LIBOR Definition, in other words, a matter of fact or law? Or both?</ol>


====“A conspiracy to defraud”====
====“A conspiracy to defraud”====
Hayes and Palombo were indicted on the ancient [[common law]] offence of “conspiracy to defraud”, rather than under the Fraud Act of 2006. Criminal law minutiae, perhaps, but that act followed a Law Commission report which recommended ''abolishing'' “conspiracy to defraud”,  because it is “unfairly uncertain, and wide enough to have the potential to catch behaviour that should not be criminal”.<ref>{{plainlink|https://www.gov.uk/guidance/use-of-the-common-law-offence-of-conspiracy-to-defraud--6|Attorney General guidance to the legal profession on use of conspiracy to defraud}}, November 2012. “The government decided to retain it for the meantime, but accepted the case for considering repeal in the longer term. Whether there is a continuing need for retention of the common law offence is one of the issues that will be addressed in the Home Office review of the operation of the Fraud Act 2006, which will take place 3 years after its implementation.” </ref>
Hayes et al were indicted on the ancient [[common law]] offence of “conspiracy to defraud”. Criminal law minutiae, perhaps, but they were not charged under the more modern  Fraud Act 2006, which followed a Law Commission report which also recommended ''abolishing'' common law “conspiracy to defraud”,  because it is “unfairly uncertain, and wide enough to have the potential to catch behaviour that should not be criminal”.<ref>{{plainlink|https://www.gov.uk/guidance/use-of-the-common-law-offence-of-conspiracy-to-defraud--6|Attorney General guidance to the legal profession on use of conspiracy to defraud}}, November 2012.</ref>
Conspiracy to defraud was not, however abolished in 2006:
{{Quote|
“The government decided to retain it for the meantime, but accepted the case for considering repeal in the longer term.” <ref>Ibid.</ref>


In any case, the elements of the common law offence are, more or less:
In any case, the elements of the common law offence are, more or less:
{{L1}}'''Conspiracy''': That there was an agreement between two or more persons. <li>
{{Quote|That there was an agreement between two or more persons who intended to defraud another by doing something dishonest, like misrepresenting or making false promises and there was a likelihood of resulting loss it did not occur.<ref>This is in JC’s plainly non expert words.</ref>}}
'''Fraudulent intent''': That they intended to defraud another person or group. <li>
'''Dishonesty''': Their agreement involved doing something dishonest, like misrepresenting or making false promises. <li>
'''Likelihood of loss''': That there was a likelihood of resulting loss or disadvantage even if no loss ever occurred.</ol>
These are the legal principles. Their application, it seems to this old commercial hack, demands marrying the facts — who did what to whom — to their specific legal meanings as “terms of legal art”.
These are the legal principles. Their application, it seems to this old commercial hack, demands marrying the facts — who did what to whom — to their specific legal meanings as “terms of legal art”.


The crux of these was Hayes ''dishonest'' when he submitted his LIBOR rates? That, in turn, came down to whether he “deliberately disregarded the ''proper basis'' for the submission of those rates”, intending thereby to prejudice the economic interests of others.
The crux of these was Hayes ''dishonest'' when he submitted his LIBOR rates? That, in turn, came down to whether he “deliberately disregarded the ''proper basis'' for the submission of those rates”, intending thereby to prejudice the economic interests of others.
   
   
That came down, so thought the court, to whether Hayes’ submission conformed to the BBA’s “Instructions to BBA LIBOR Contributor Banks”. The critical part of the instructions — what the court called the “LIBOR Definition” ran as follows:
And ''that'' came down to whether Hayes’ submissions complied to the BBA’s “Instructions to BBA LIBOR Contributor Banks”.  
 
It does not seem to be disputed that if Hayes complied with the rules, QED he was conspiring to defraud anyone, though no particular emphasis fell on whether this was because it was not a fraud in the first place, or because Hayes was not therefore being dishonest.  The court focused on the dishonesty.
 
The critical part of the instructions — what the court called the “LIBOR Definition” ran as follows:


{{Quote|“An individual BBA LIBOR Contributor Panel Bank will contribute '''''the rate at which it could borrow funds''''', were it to do so by asking for and then accepting inter-bank offers in reasonable market size just prior to 1100.”}}
{{Quote|“An individual BBA LIBOR Contributor Panel Bank will contribute '''''the rate at which it could borrow funds''''', were it to do so by asking for and then accepting inter-bank offers in reasonable market size just prior to 1100.”}}


It was not disputed that on any day there would be a range of rates available to a bank at which it ''could'' borrow, whether these took the shape of firm offers, or good faith estimates, or model outputs, but which of these rates was, for the purpose of the LIBOR Definition, “the rate at which it could borrow funds”.
It was not disputed that on any day there would be a range of rates available to a bank at which it ''could'' borrow, whether these took the shape of firm offers, or good faith estimates, or model outputs, but which of these rates was, for the purpose of the LIBOR Definition, “the rate at which it could borrow funds”.
Plainly, a submitter could not submit all of them.  It seems to JC the logical options were:
{{L1}}Choose one rate from those that were genuinely available per the bank’s good faith enquiry as above; <li>
Contrive some artificial rate from within that range, reflecting a weighted average. <li>
Submit a rate that did not fall within that range.</ol>
Option 3 plainly falls outside the scope of the LIBOR Definition. Option 2 does not quite match the literal text, but perhaps captures its spirit.
Option 1 is what Hayes actually did. The complication is that in choosing the rate to submit for a given day, Hayes actively sought out opinions as to what was in the best interests of the bank’s derivative trading books.
The bank trades interest rates with its customers: one customer might swap fixed for floating, another floating for fixed. Fixed rates, obviously, are fixed. Floating rates fluctuate daily based on a fixed spread over a fluctuating “benchmark rate”. Until this gory business, LIBOR was that benchmark.
If you swap a fixed rate for a floating rate, and LIBOR goes up, by definition you make money. The replacement value of that incoming floating rate, while the replacement cost of the outgoing fixed rate stays the same.increases.
Largely, it has a flat position, but may well end the day “long” or “short”


In particular, did a submitter have any leeway, when choosing between rates which otherwise might be valid, to consider its own best trading interests? The back might be positioned some days to benefit from raised interest rates, other days lower ones.
In particular, did a submitter have any leeway, when choosing between rates which otherwise might be valid, to consider its own best trading interests? The back might be positioned some days to benefit from raised interest rates, other days lower ones.
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