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Britain's Serious Fraud Office on a high after Libor rollercoaster

By Kirstin Ridley

LONDON (Reuters) - When David Green was appointed head of Britain's Serious Fraud Office (SFO) in 2012 he predicted he would be judged by how he fared prosecuting allegations of global interest rate rigging, a symbol of banker greed during the financial crisis.

Six months ago, he had just one conviction under his belt after six former brokers were acquitted of manipulating the benchmark Libor rate.

But the convictions of three former Barclays traders and a guilty plea from another in London's third Libor trial, after a bitterly-fought case, will help to silence critics ahead of the agency's next benchmark rate rigging trial, scheduled for 2017.


The SFO, set up to deal with the most serious and complex fraud cases, has had a chequered record in securing white collar convictions over its 28-year history.

"These results will buoy up the SFO, but they were desperately needed to save its reputation after the not guilty verdicts in the second Libor trial," David Corker, a partner at law firm Corker Binning, said.

In January, an English jury swiftly acquitted six former brokers of conspiring with convicted trader Tom Hayes to manipulate Libor. Hayes, a former star trader, had been unanimously convicted on much the same evidence in the world's first Libor rigging trial last August.

Two months after the six brokers walked free, the SFO surprised the financial services industry by dropping an investigation into allegations of rigging in the $5.3 trillion per day foreign exchange market.

But it robustly dismissed suggestions at the time that this showed it had lost its appetite for risk.


The convictions of two former Barclays derivatives traders, Indian-born Jay Merchant and American Alex Pabon, and two British former Libor submitters Jonathan Mathew and Peter Johnson, bring to five the number of convictions delivered in the London arm of a global investigation.

The jury was unable to reach a verdict on two other Barclays traders, who now face the prospect of a re-trial.

Proving financial crime beyond reasonable doubt is difficult and some lawyers question whether the rigging of Libor, a benchmark for $450 trillion of financial contracts and loans worldwide, should be treated as a criminal offence or if the right people are being prosecuted.

The former Barclays traders were relatively junior, the British financial regulator dropped similar cases against others involved in interest rate benchmarks and prosecutors produced no victims and did not quantify losses.

Corker said the Libor cases revolved around conduct widely condoned or encouraged in a broken, poorly regulated system.

Frankfurt prosecutors brought this problem into sharp relief when they ruled earlier this year that alleged rigging Euribor, Libor's Brussels-based equivalent, did not constitute a criminal offence under German law at the time.


Defendants in the Libor trials have focused arguments on the second of a two-stage test of dishonesty in English law. Under the test, a jury has to decide that defendants realised they were dishonest by the ordinary standards of reasonable and honest people - the so-called subjective dishonesty test.

Mathew, Merchant and Pabon, charged with skewing Libor for just over two years to September 2007, admitted they tried to influence rates but denied they knew it was wrong. The jury was told Libor rules were only clarified in 2013.

That line of defence has echoed across courtrooms since Hayes, a former UBS and Citigroup trader convicted last August, first told a London court that he had been "thrown under the bus" by two $50 billion banks and a posse of authorities for just doing his job really well.

But Hayes confessed to dishonesty during 82 hours of SFO interviews in 2013 in which, he said later in court, he had been so desperate to be charged in Britain and avoid extradition to the United States, where he was wanted on similar charges, he would have admitted to anything.

Hayes has, to date, appealed unsuccessfully against his conviction.

The SFO's Barclays case was given a fillip by the guilty plea of Johnson, a 61-year-old senior Libor submitter responsible for choosing and sending the bank's daily rate to a London administrator.

The SFO can bask in its latest success for now. But Interior Minister Theresa May has been tipped by the Financial Times as keen to bring the agency under the remit of Britain's National Crime Agency, dubbed Britain's FBI.

She is a favourite to succeed David Cameron as prime minister as Britain reels from its vote to leave the European Union.

"Whilst historically there have been questions raised about the effectiveness of the SFO, I doubt that any politician, least of all Theresa May, will have the future of the SFO on their mind at the moment," Sarah Wallace, a partner at British law firm Irwin Mitchell, said.

"If the new corporate criminal liability offences (such as failure to prevent economic crime) currently under government consultation make it into our law then the SFO could be busy - assuming their prosecution budget is not reduced through post Brexit public spending cuts."

May did not respond to an email and the Home Office declined to comment. The SFO did not comment beyond a statement issued after the outcome of the Barclays' trial.

(Reporting by Kirstin Ridley. Editing by Jane Merriman)