Libor scandal

The Libor scandal was a series of manipulative behaviour, alleged by financial authorities to have been fraudulent, connected to the Libor (London Inter-bank Offered Rate) and also the resulting investigation and reaction. Libor is an average interest rate calculated through submissions of interest rates by major banks across the world. The scandal arose when it was discovered in 2012 that banks were inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were. Libor underpins approximately $350 trillion in derivatives. It was later administered by Intercontinental Exchange (ICE), which took over running the Libor in January 2014, though Libor was later phased out as a market benchmark. Some bank traders in the United States and Britain were convicted of fraud or conspiracy to defraud.

The banks were supposed to submit the actual interest rates they are paying, or would expect to pay, for unsecured borrowing from other banks; in fact little inter-bank borrowing took place on this basis and instead estimates had to be submitted. Libor was supposed to be the total assessment of the health of the financial system because if the banks being polled feel confident about the state of things, they report a low number and if the member banks feel a low degree of confidence in the financial system, they report a higher interest rate number. In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the scandal.

Because Libor was used in US derivatives markets, an attempt to manipulate Libor could have been an attempt to manipulate US derivatives markets, and thus a violation of American law. Since mortgages, student loans, financial derivatives, and other financial products often rely on Libor as a reference rate, the manipulation of submissions used to calculate those rates could have significant effects on consumers and financial markets worldwide.

On 27 July 2012, the Financial Times published an article by a former trader which stated that Libor manipulation had been common since at least 1991. Further reports on this have since come from the BBC and Reuters. On 28 November 2012, the Finance Committee of the Bundestag held a hearing to learn more about the issue.

The British Bankers' Association (BBA) said on 25 September 2012 that it would transfer oversight of Libor to UK regulators, as proposed by Financial Services Authority managing director Martin Wheatley's independent review recommendations. Wheatley's review recommended that banks submitting rates to Libor must base them on actual inter-bank deposit market transactions and keep records of those transactions, that individual banks' LIBOR submissions be published after three months, and recommended criminal sanctions specifically for manipulation of benchmark interest rates. Financial institution customers may experience higher and more volatile borrowing and hedging costs after implementation of the recommended reforms. The UK government agreed to accept all of the Wheatley Review's recommendations and press for legislation implementing them.

Significant reforms, in line with the Wheatley Review, came into effect in 2013 and a new administrator took over in early 2014. The UK controls Libor through laws made in the UK Parliament. In particular, the Financial Services Act 2012 brings Libor under UK regulatory oversight and creates a criminal offence for knowingly or deliberately making false or misleading statements relating to benchmark-setting.

As of November 2017, 13 traders had been charged by the UK Serious Fraud Office as part of their investigations into the Libor scandal. Of those, eight were acquitted in early 2016. Four were found guilty (Tom Hayes, Alex Pabon, Jay Vijay Merchant and Jonathan James Mathew), and one pleaded guilty (Peter Charles Johnson). The UK Serious Fraud Office closed its investigation into the rigging of Libor in October 2019 following a detailed review of the available evidence. It is estimated that the seven-year investigation of the Libor scandal in the UK cost at least £60 million.

BBC Radio 4 produced a programme, The Lowball Tapes, that questions whether the right people were convicted for rigging rates. The programme also alleges that at the height of the 2008 financial crisis, the Bank of England was giving instructions to banks to rig Libor to a much greater extent than the traders ever did on their own account. This was subsequently published as a book.

Following a series of related convictions of others in the United States for conspiracy for wire fraud and bank fraud, the US Court of Appeals for the Second Circuit in 2022 overturned the convictions of Matthew Connolly and Gavin Campbell Black on the grounds that the cases had not demonstrated that the Libor submissions were made with 'fraudulent intent'. This led to other similar convictions in the United States being overturned.

In the United Kingdom, the Supreme Court on 23 July 2025 allowed the appeals of Tom Hayes (originally convicted of conspiracy to defraud in 2015) and Carlo Palombo (2019), saying their convictions were unsafe because "It was wrong for the judge [Judge Anthony Leonard] to direct the jury that, if the submitter took any account of the commercial interests of the bank or a trader, the rate submitted was for that reason not a genuine or honest answer to the question posed by the [LIBOR or EURIBOR] definitions as a matter of law".