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Citibank NA and Japanese affiliates to pay 175 million USD for benchmark abuses

First Published 25th May 2016

Citibank, N.A. has been subject to three CFTC enforcement actions for benchmark abuses (FX, ISDAFix, and LIBOR) imposing a total of $735 million in penalties and requiring extensive remediation.

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) has issued an Order filing and settling charges against Citibank, N.A. (Citi); Citibank Japan Ltd. (CJL); and Citigroup Global Markets Japan Inc. (CGMJ) (collectively, Citi and its affiliates) relating to abuses of the London Interbank Offered Rate (LIBOR) and the Euroyen Tokyo Interbank Offered Rate (Euroyen TIBOR) benchmarks. Specifically, CGMJ is charged with attempting to manipulate Yen LIBOR and Euroyen TIBOR, and CJL with false reporting of Euroyen TIBOR, to benefit derivatives trading positions that were priced based on Yen LIBOR or Euroyen TIBOR. Separately, Citi is charged with the false reporting of U.S. Dollar LIBOR at times to avoid generating negative media attention and to protect its reputation during the financial crisis from the spring of 2008 through the summer of 2009.

Citi and its affiliates are ordered jointly and severally to pay a civil monetary penalty of $175 million, immediately cease and desist from further violations of the Commodity Exchange Act as charged, and adhere to specific undertakings to ensure the integrity of its LIBOR, Euroyen TIBOR, and other benchmark interest rate submissions.

Aitan Goelman, CFTC Director of Enforcement, commented: "The CFTC remains steadfast in its commitment to ensure the integrity of global benchmarks that are critical to the U.S. and international financial markets. As evident by today's actions, the CFTC's vigilance includes holding a financial institution, like Citi, responsible each time it acts to undermine a benchmark for its personal profit or benefit. At the same time, the CFTC recognizes Citi for promptly self-reporting the Yen LIBOR misconduct to the Division of Enforcement. The value of self-reporting violations in a timely and effective manner and providing cooperation consistent with that of a responsible player in our markets will not go unnoticed by the CFTC."

Acts of Attempted Manipulation

The CFTC Order specifically finds that CGMJ, by and through the acts of certain of its traders, attempted to manipulate Yen LIBOR on multiple occasions from at least February 2010 through August 2010, and Euroyen TIBOR, at times, from April 2010 through June 2010, to benefit the derivatives trading positions of those traders. Specifically, a Tokyo-based senior Yen derivatives trader (Senior Yen Trader), hired by CGMJ to enhance the bank's reputation in the Tokyo derivatives market, attempted to manipulate the benchmark fixings by using his contacts at other Yen LIBOR panel banks and at interdealer brokers to influence the Yen LIBOR submissions of other Yen panel banks. In addition, a senior manager who ran CGMJ's Tokyo interest rates derivatives trading desk (Senior Yen Manager) pressured CJL's Euroyen TIBOR submitters to adjust their submissions to benefit the Senior Yen Trader's derivatives trading positions. CJL's Euroyen TIBOR submitters, on a few occasions, took the Senior Yen Manager's requests into account when making Euroyen TIBOR submissions.

Desire to Protect Citi's Reputation

The Order further finds that at times from the spring of 2008 through the summer of 2009, Citi's U.S. Dollar LIBOR submitters based its U.S. Dollar LIBOR submissions on a desire to avoid generating negative media attention and to protect Citi's reputation in the market. As the financial crisis progressed through 2008, Citi experienced financial challenges that included liquidity concerns. During this time, Citi received a significant infusion of funds from the U.S. Government to alleviate the stresses in its funding. Citi, at times, had difficulty securing funding in the London interbank market at or below Citi's LIBOR submissions, particularly in the longer tenors. Citi's U.S. Dollar LIBOR submitters became concerned about the signaling effect that the Citi's U.S. Dollar LIBOR submissions could have in the market. The submitters realized that the Citi's submissions could draw negative media attention and raise questions about the stability of the bank. Accordingly, during this period, Citi's submitters, at times, made U.S. Dollar LIBOR submissions based in whole or in part on a desire to avoid that negative scrutiny, rather than based on the fact that Citi, at times, would have had to pay above LIBOR in the London interbank market, particularly in the longer tenors, when securing funding for the bank. As a result, according to the Order, Citi's U.S. Dollar LIBOR submissions, at times, did not accurately or solely reflect Citi's assessment of the costs of borrowing unsecured funds in the London interbank market.

Conduct Occurred after Citi Was on Notice of the CFTC's Investigation

According to the Order, Citi and its affiliates engaged in this conduct after they knew that the CFTC was investigating Citi's U.S. Dollar LIBOR submission practices. Moreover, during late 2009, in meetings with Citi senior managers, the Senior Yen Trader talked openly about how he had tried to manipulate Yen LIBOR at his prior place of employment. Even though they were aware of the CFTC's investigation, the senior managers did not notify the legal or compliance departments about the Senior Yen Trader's admissions.

The Order recognizes the cooperation of Citi and its affiliates with the CFTC Division of Enforcement's investigation. The CFTC also notes that in the summer of 2010, Citi identified the misconduct with respect to Yen LIBOR and Euroyen TIBOR, and promptly self-reported the misconduct of the Yen traders to the CFTC.

With this Order, the CFTC has now imposed penalties of over $2.84 billion on entities for manipulative conduct with respect to LIBOR and other benchmark interest rates. In addition, for similar misconduct relating to the ISDA fix and foreign exchange benchmarks, the CFTC has imposed over $2.2 billion in penalties, for a total of over $5 billion in penalties in the CFTC's enforcement program focused on ensuring the integrity of global financial benchmarks. Below is a list of the CFTC's benchmark enforcement actions: