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Commercial Question

The Libor rigging scandal: a victimless crime?

updated on 27 October 2015


Was the recent conviction of Tom Hayes for rigging the London Interbank Offered Rate (Libor) and subsequent 14-year sentence disproportionate for what some see as an essentially victimless crime?


While there is currently no clearly identifiable victim of Tom Hayes' crimes, Mr Justice Cooke made clear in his sentencing remarks that the 14-year prison sentence was reflective of the fact that Hayes' actions had a more widespread and profound effect than any immediate losses that they may have caused. It was held that Hayes had jeopardised the integrity of the markets in which Libor plays a crucial role and risked the credibility of the United Kingdom's wider financial services industry. With many, including Cooke, viewing his crimes as far from 'victimless' and with public opinion of the banking industry at an all-time low, Hayes' sentence was seen as an example to the wider banking sector. Combined with the Serious Fraud Office's (SFO) renewed confidence in pursuing individuals involved in white collar crime, this example demonstrates that the courts are willing take a very strong stance on the matter and is one that many in the industry will be taking notice of.


Libor – the London Interbank Offered Rate – is the rate at which banks pay to borrow from each other, effectively the cost of inter-bank lending. There are many different Libor rates published each day which cover different borrowing periods and currencies.

The rate is calculated by a panel of major banks (the number of which differs between each currency), which each submit what they would charge to lend to other banks that day. These rates are then collected, the four highest and lowest rates disregarded and the remaining rates averaged to produce the Libor rate.

As well as setting the cost of inter-bank lending, the Libor rate is seen as a measure of the trust that is held in the financial system as it effectively shows the confidence that the banks have in each other's ability to repay the loans. It is estimated that $450 trillion worth of deals are conducted using Libor rates each year.

The Libor scandal

In August 2015 the UBS trader Tom Hayes was the first person to be convicted in the United Kingdom for involvement in the Libor rigging scandal, being found guilty of eight counts of conspiracy to defraud and given a 14-year prison sentence. While working as a UBS and Citigroup yen derivatives trader between 2006 and 2010, Hayes was found to be the 'ringmaster' of a network of brokers and traders across the world who collectively rigged the Libor rate to suit Hayes' needs. This was done by Hayes cajoling, bribing and rewarding a network of traders and brokers at a range of different banks with vast sums of money (although one was allegedly bribed with nothing more than the promise of a free curry) in return for submitting rates that were artificially high or low. Hayes would then place large bets on financial markets that were sensitive to Libor changes and vastly increase his trading profits.

These actions should be seen in the wider context of an industry-wide Libor rigging scandal that stretches back to at least 2010 (however most likely goes back much further). In July 2012 Barclays was fined £290 million by regulators for its role in rigging Libor rates, with UBS being fined $1.5 billion just months later. This was followed by a range of different banks paying penalties to settle with regulators across Europe and the United States for involvement in the Libor scandal.

A harsh punishment

At first glance, Hayes' 14-year sentence can be viewed as particularly harsh. His defenders have argued that, while undoubtedly against the law, Hayes' crimes were in reality victimless ones. Thus, to hand him a sentence that is longer than what sentencing guidelines set out for intentional grievous bodily harm, aggravated rape and robbery involving serious injury, and which is short of the starting sentence for murder by just one year, is disproportionate.

In contrast to the actions of individuals such as Bernie Madoff, Enron chief executive Jeff Skilling or Magnus Peterson, all of whose actions defrauded identifiable, private individuals out of life savings and pensions and destroyed lives, Hayes' rigging of the Libor rate has no clear, identifiable human victims. While some individuals who owned financial products such as mortgages that were linked to Libor are claiming for loss and are testing this in the courts, the predominant effect of Hayes' actions was on very complicated inter-bank trades. Any losses that were suffered, if indeed there were any (as many would have actually made money out of the artificial Libor rates), and the level of these losses will be almost impossible to assess.

Hayes further argued that he was only a player in what was an industry-wide system of wrongdoing, with rigging the Libor rate having become a common and easy activity in banking. As Hayes put it, “Not even Mother Teresa wouldn’t manipulate Libor if she was setting it and trading it". Hayes therefore portrayed himself as a scapegoat for the entire banking industry, claiming that he "acted with complete transparency to my employers. My managers knew, my manager's manager knew. In some cases the [chief executive] was aware of it".

Taking these factors into account, an argument can certainly be made that Hayes' sentence is disproportionately long. Other recently convicted white collar criminals have been given much lighter sentences. For example, UBS's Kweku Adoboli was given seven years in 2012 for losing $2.3 billion in unauthorised trades (and was released in June 2015) and the Societe Generale trader Jerome Kerviel was only sentenced to three years for losing the French bank nearly $5 billion. These individuals, like Hayes, caused losses that were suffered solely by banks and brought disrepute on the industry. However, unlike Hayes, they were lone traders that caused clearly identifiable, if substantial, losses that primarily only affected the banks for which they worked, with fewer wider consequences.

A fitting punishment

Firstly, there are a number of technical reasons why Hayes’ sentence was 14 years in length. He was found guilty on eight separate charges for the crimes committed at UBS and Citigroup. This, Cooke said, "must drive the sentence up". By comparison, Adoboli's seven-year sentence was based on only two charges. The starting sentence for each charge in high culpability cases (where the loss is over £1 million – a figure that Cooke was confident was exceeded here) is seven years; Hayes therefore – were it not for Cooke looking at the 'totality' of the crime – could theoretically have been facing a much longer sentence.

Furthermore, despite Hayes cooperating early with the SFO (freely admitting his role in the scandal, partly in order to minimise his risk of being extradited to the United States), his abrupt change of stance to plead not-guilty throughout the remainder of the investigation and trial removed any possibility of a reduction of sentence (which could have been up to a third).

Beyond the technicalities of the sentencing, there are some more fundamental reasons why Hayes was given such a lengthy sentence that go wider than the immediate losses that his actions may have caused.

Crucially, although Hayes' didn't cause the same clear and quantifiable loss as Adoboli did, his actions had a more profound effect. The United Kingdom is the world's leading global financial services centre and it contributes nearly 10% of the national output, providing one in 14 jobs. The cornerstone of this industry's success is its integrity and reliability, attributes that Hayes' actions threatened to the core. As Cooke put it: "The reputation of Libor is important to the City as a financial centre and of the banking industry in this country. Probity and honesty are essential, as is trust which is based upon it. The Libor activities, in which [Hayes] played a leading part, put all that in jeopardy."

The potential impact of Hayes' crimes, beyond any immediate losses that may have resulted, was to risk the world's trust in the United Kingdom's financial markets, thus jeopardising the important trade and investment that these markets bring to the United Kingdom.

Hayes may also have, in a way, suffered some misfortune in being the first to be convicted by the UK courts in relation to the Libor scandal. The scandal was perceived, in the wake of the financial crisis, to be the latest in a long line of examples of bankers acting dishonestly and purely out of self-interest at the expense of everyone else. It was felt that a clear example needed to be made to demonstrate that there would be repercussions for financial wrongdoing that threatened the stability of financial markets. Cooke put it clearly when he stated: “The conduct involved here must be marked out as dishonest and wrong and a message sent to the world of banking accordingly.” In an industry that is notoriously hard to regulate, and with the practice so apparently widespread, it was hoped that Hayes' long sentence would act as an effective deterrent to the industry in the future. This is supported by the SFO's renewed vigour in prosecuting individuals such as Hayes after an initial reluctance to do so – Hayes’ conviction has encouraged the SFO.


The arguments that critics of Hayes' sentence put forward are numerous. Such arguments as the fact that he was acting within a culture in which his actions were implicitly accepted, that he was held out as a scapegoat by his employers or that he was treated as an example to the wider industry may have some merit. However, these arguments fundamentally miss the point that the judge sought to make; that although there is no clear numerical value or identifiable victim that can be attributed to Hayes' crimes, the effects of his actions are more profound. It was held that rigging the Libor rate was a threat to the worldwide credibility and integrity of the United Kingdom's most important industry and was just an example of what some allege to be wider corruption that is symptomatic of the banking industry. Hayes' sentence reflected this and demonstrates to the industry that while the regulators may fine the banks, the court will take a tough stance on the individuals involved with rigging financial markets. As one journalist covering the case put it, "Manipulating exchange rates is not a ‘victimless crime’. We’re all victims of it". Hayes is appealing his sentence.

Michael Chattle is a second-year trainee solicitor at Taylor Wessing.