In December 2012, UBS AG entered into a settlement agreement with the U.S. Department of Justice (DOJ), in which the U.S. agreed not to prosecute the bank on the condition that it “commit no United States crime whatsoever” for the two-year term of the agreement. Prosecutors later extended that agreement by a year. After UBS self-reported new infractions regarding interest-rate rigging and provided evidence that will culminate in settlements with five of the world’s largest banks for allegedly manipulating foreign currency rates, UBS had been optimistic that the DOJ would ignore that pesky little “commit no crime” clause.
DOJ, however, took an unprecedented move, voiding the 2012 settlement after more than a year of discussions with the bank. Some people familiar with the negotiations say that UBS officials are surprised that DOJ voided the 2012 settlement. UBS believes its early cooperation helped prosecutors break open the foreign exchange investigations and that the antitrust division’s grant of immunity should have insulated the bank. In September 2013, when the bank first reported the potential foreign-currency rigging violations, UBS was given a leniency marker for antitrust immunity with the DOJ, which holds an immunity applicant’s place at the front of the line while the U.S. investigates further. Prosecutors in a different division, the Criminal Fraud Section, disagreed: the earlier settlement clearly only protected UBS from prosecution if it did not break the law and UBS broke the agreement when its traders violated the law and engaged in currency-market misconduct after the 2012 agreement. Additionally, UBS was viewed as a repeat offender having reached previous settlements including one in 2011 related to antitrust violations in the municipal-bond investments market. “UBS has a ‘rap sheet’ that cannot be ignored,” Leslie Caldwell, the head of the Justice Department’s criminal division, told reporters. “Within the past six years, the department has resolved criminal investigations of UBS three times.”
The negotiations resulting from this second wave of LIBOR-related allegations mean an extra $203 million to the DOJ and a guilty plea to some criminal charges – wire fraud, for example. But, because UBS was the first company to self-report the violations, it has immunity from criminal prosecution for the antitrust charges the other banks that recently settled LIBOR allegations faced. That brings UBS’ total payments for this round of negotiations to $545 million and is in addition to the $1.7 billion in the LIBOR case and the $800 million UBS paid last year to U.S., U.K. and Swiss regulators over its role in rigging foreign exchange rates.
The bigger problem for UBS, though, is the criminal plea. The bank will have to seek permission from U.S. regulators to keep operating in certain lines of business after the guilty plea, including managing mutual funds and pensions for Americans. It will need a waiver from the U.S. Department of Labor.
The DOJ said it would support a request by UBS to adjourn sentencing to give the bank time to obtain the exemption. The Securities and Exchange Commission already granted the necessary waivers for the five guilty banks to continue doing business. If you need additional information, contact Rebecca Gilliland, a lawyer in our firm’s Consumer Fraud and Commercial Litigation Section, at 800-898-2034 or 334-269-2343, or by email at Rebecca.Gilliland@beasleyallen.com.
Sources: Bloomberg.com and Wall Street Journal
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