Royal Bank of Scotland (LSE: RBS.L - news) (RBS) will face the prospect of tough criminal sanctions from US regulators under a deal to be announced later to settle its involvement in the Libor rate-fixing scandal.
I have learnt that RBS' UK subsidiary has signed a two-year deferred prosecution agreement with the US Department of Justice (DoJ) as part of a package of measures that will include almost £400m in fines.
The deal, which will be announced at about 1pm today, will make RBS the third major bank - after Barclays (LSE: BARC.L - news) and UBS - to admit its involvement in attempts to manipulate Libor, which is used to set trillions of pounds-worth of financial contracts around the world.
The deferred prosecution agreement will mean that if RBS commits any form of criminal offence during the two-year period, it could have grave consequences for the bank's ability to operate in the US, one of its most important markets.
I have also learnt that RBS will say that 21 of its employees have either left the bank or been disciplined as a result of Libor-related misconduct. The bank is unlikely to name the individuals.
Under the deal with the Financial Services Authority (FSA), the DoJ and the Commodity Futures Trading Commission (CFTC (Taiwan OTC: 1586.TWO - news) ), RBS's Japanese subsidiary will plead guilty to a criminal charge, resulting in a fine of approximately $50m (£32m) for the Japanese business.
I can also reveal that the settlement will disclose that UK customers who had sterling Libor-linked products were not impacted by any of the malpactice at RBS, because the manipulation was predominantly focused on Yen and Swiss Franc currency Libor.
Sky News revealed yesterday that John Hourican, head of RBS's investment bank, will step down and forfeit about £4m in deferred share awards despite having had no involvement in or knowledge of the malpractice.
People familiar with the settlement documents said they would include lurid emails and instant messages sent by RBS traders who were involved in the manipulation.
The FSA and US authorities had uncovered evidence of 'book bias', where traders had manipulated rates to inflate profits and therefore their bonuses, according to insiders.
Hundreds of millions of pounds are either being cut from the bonus pot currently being negotiated or clawed back from senior investment bankers at RBS, which is 82%-owned by the taxpayer.
RBS and the authorities declined to comment ahead of the announcement.
Earlier on Wednesday, RBS issued a holding statement which said: "The Royal Bank of Scotland Group plc ("RBS") notes the recent media coverage in connection with potential settlements with the Financial Services Authority in the United Kingdom, the United States Commodity Futures Trading Commission and the United States Department of Justice pursuant to investigations into submissions, communications and procedures around the setting of the London Interbank Offered Rate.
"RBS confirms that it is in late-stage settlement discussions with these authorities.
"Although the settlements remain to be agreed, RBS expects they will include the payment of significant penalties as well as certain other sanctions. RBS will update the market on all pertinent issues relating to this matter shortly."
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