Commission offers discount on fines to banks for competition infringements

Press conference by Joaquín Almunia, Vice President of the EC in charge of Competition on cartel decisions. Almunia shows with both his hands how he fought the beasts of cartel. (EC Audiovisual Services, 4/12/2013).

Press conference by Joaquín Almunia, Vice President of the EC in charge of Competition on cartel decisions. Almunia shows with both his hands how he fought the beasts of cartel. (EC Audiovisual Services, 4/12/2013).

Today, the European Commission fined 8 major banks a total of € 1.7 billion for participating in cartels rigging interest rate benchmarks in markets for financial derivatives covering the European Economic Area (EEA). According to the Commission, four of these firms participated in a cartel relating to interest rate derivatives denominated in euro, and six of them participated in one or more bilateral cartels relating to interest rate derivatives denominated in Japanese yen.

The Commission opened the proceedings in February 2013, that is three full years after those banks colluded to set interest rates to their benefit. It is true that those fines are the largest ever imposed by the Commission on competition infringements. It is also true however, that the EU executive arm didn’t explore the full extent of the benefits those banks pocketed nor did it refer the case to the penal justice in the EU countries where those infringements took place.

Pocketing the benefits

Concerning the extent of the benefits, the relevant Press release clarifies that in order to calculate the fines “the Commission took into account the banks’ value of sales for the products concerned within the European Economic Area”. Everybody knows however, that those benchmarks are used as the base for loans, derivatives, futures, options and a God knows what other financial products. The banks fined are major firms worldwide (Barclays, Deutsche Bank, RBS and Société Générale, UBS, Citigroup, JPMorgan and the broker RP Martin).

All those major banking institutions though, do not restrict their activities in the EEA. They have extended presence all over the world. Interestingly enough, the Commission didn’t base the calculation of the fines on their worldwide activities which depended on those manipulated benchmarks. Obviously the fines could have been much higher than €1.7bn.

Calculating the fines

However, in another similar case, the Commission has threatened thirteen western giant investment banking groups and two support bodies with fines of up to 10% of their worldwide turnover. The case was that those banks have created a trust, setting prices in the over the counter trade of Credit Default Swaps and Derivatives, a multi trillion business. The investment banks were the following: Bank of America-Merrill Lynch, Barclays, Bear Stearns (now part of JP Morgan), BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, UBS and the Royal Bank of Scotland as well as Markit, a financial information firm and the International Swaps and Derivatives Associations (ISDA).

Of course in that case it was only a threat. Who knows how the Commission may calculate the fines when that affair will finalise. In any case, some hours ago Joaquín Almunia, the responsible Commission Vice-President in charge of competition policy, said: “What is shocking about the LIBOR and EURIBOR scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other. Today’s decision sends a clear message that the Commission is determined to fight and sanction these cartels in the financial sector…”

Today’s decisions are the eighth and ninth settlement decisions since the introduction of the settlement procedure for cartels in June 2008. Almunia boasts that they are the swiftest cartel settlements decided by the Commission. Under a cartel settlement, companies that have participated in a cartel acknowledge their participation in the infringement and their liability for it. After that, their fines may be reduced even to 0 (zero) as it was that case for Barclays and UBS today.

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