HomepageCommercial LawPrivate LawPublic Law & Human RightsCriminal LawEU & International LawCareers


Have Irlen Syndrome, or need different contrast? Click the button below for options.

Background Colours


Enter you email address below to subscribe to free customisable article notifications.

Alternatively, click the button below for our various RSS Feeds (available journal wide, or per section).

Complex Criminal Cases – what next?

About The Author

Thomas Horton (Former Writer)

Thomas studied Law at the University of Birmingham, and graduated with a 2:1 in July 2013. In the elapsed time, Thomas has worked for law firm HowardKennedyFsi LLP as a paralegal in the property department. Thomas has also been awarded a Major Scholarship by the Honourable Society of the Inner Temple and will begin the BPTC with City Law School in September 2014.

The London Interbank Offered Rate (LIBOR) scandal: a huge black cloud looming over Barclays. The Serious Fraud Office (SFO) last week launched criminal proceedings against Jay Vijay Merchant, Alex Julian Pabon and Ryan Michael Reich (formerly of Barclays) for their conspiracy to defraud following their involvement with the manipulation of LIBOR. Such cases are notoriously complex, and are therefore known as very high cost cases (VHCC). However, such cases are facing a bleak foreseeable future following the stay of a serious fraud trial by HHJ Anthony Leonard QC last week.

Acting as a caveat to this discussion, as the SFO’s press release hyperlinked above details, is the Contempt of Court Act 1981. In addition, the writer has adhered to the sub judice rules following the issuing of the criminal proceedings. Accordingly, the analysis of Barclays’ dealings in the LIBOR scandal is simply a discussion of public affairs; all materials referred to are readily available to the public and have been hyperlinked accordingly.

What is the LIBOR?

The interbank market is a market within which banks lend to each other. Banks will borrow from other banks in order to fund the loans that they provide to companies and public bodies. London is the nucleus of this market; banks charge each other an interest rate called LIBOR.

In order to calculate the LIBOR, each Contributor Panel bank would submit to the British Bankers’ Association (the new administrator is the Intercontinental Benchmark Administration (IBA)) their cost of borrowing, i.e. the rate at which they could borrow funds. This information was submitted every London business day at 11:00 a.m. (London Time) in order to calculate the LIBOR by 11:30a.m. Upon submission, these rates were then ranked; the highest and lowest quartiles are excluded from the calculation; the 50% of the original rates remaining are then averaged to formulate the LIBOR “fix”. 

This LIBOR fix is then used as a benchmark to be used by banks for many other financial instruments such as: swaps, derivatives, and over-the-counter markets. This ramification of the LIBOR demonstrates why Barclays attempted to fix the LIBOR in its favour; Barclays could capitalise upon a LIBOR rate that was fixed to a certain level that would then increase their profits or minimize their losses in derivative transactions.

What are derivatives?

To assist in your understanding of the LIBOR scandal, I shall explain what derivatives are. Summarily, a derivative is a product whose price is based on (derived from) an underlying product. There are three main types of derivatives:

  • Forwards – a contract upon terms (i.e. a price) agreed at that present contracting time whereby performance (i.e. payment and taking of delivery) takes place at a fixed date in the future. This type of agreementis something that originated from the commodities market. These contracts can then be traded; in which case they are known as “futures”. These types of trades are valuable, as they provide for a locked-in price of a commodity so that manufacturers can keep their prices constant for the benefit of their consumers.
  • Options – these are similar to a forward, except they only provide the right (the option) but not the obligation to buy something. For example: shares in Biotech PLC are trading at £5 each. The price of these shares could riseif Biotech PLC patents a crucial component of all biotechnology advancements. Rather than missing out completely on the current price of £5, and instead of taking the gamble and buying the shares immediately, I buy options. Each option allows me to purchase a share at £5.50 (known as the “strike price”; each of these options costs £0.10. Options usually have an expiry date of three months from their date of purchase. If within this time period the share price of Biotech PLC goes above £5.50, the option is known as “in-the-money”, and I would exercise the option to buy the shares (obviously!). The option itself can begin to develop its own intrinsic value that will rise in accordance with the rising value of the underlying shares in Biotech PLC. In the aforementioned example, in order to breakeven, the share price would have to reach £5.60 to accommodate for the £0.10 cost of each option purchase. As the share price rises, the option can be traded for a gain (this, of course, must be done before the expiry date, otherwise the option is worthless). The synthetic exposure to Biotech PLC means that I can benefit from any upside in the increase of value in their shares during the term of the option.
  • Swaps – Swaps are a series of forwards, and are usually an interest rate or currency swaps.
    • Interest Rate Swaps – If Party A was to take out a loan of £10,000 at a fixed rate of 5%, and that Party B similarly took out a loan of £10,000 at a floating rate of interest that is currently also 5%. We each pay £500 per year in interest. The reason why Party A opted for the fixed rate of interest, and Party B for the variable rate of interest could be due to Party A’s desire for stability, whereas Party B was less concerned of the change of interest rate and believes interest rates will drop.  If our respective views were to change, i.e. if Party B was having cash flow problems and wanted the stability of a fixed interest rate, and Party A was now interested in the variable market rate, Party A and Party B may enter into a swap agreement to effectively swap the interest rate (or method of calculating interest) that is paid. Following this swap, imagine that interest rates over the year have increased to 10%. Over that year, Party A pays £500 (fixed rate), and Party B pays £1000 (variable rate). The swap agreement provides for each party servicing their own debt, and for the parties involved to settle up between each other, as if the debts had been swapped. Accordingly, in this example, Party A has paid £500 too little, and Party B has paid £500 too much; Party A therefore pays Party B £500 (as if Party A was paying for the variable rate, and Party B was paying a fixed rate). The profitability of such an agreement is dependent upon the synthetic effect experience from the underlying value of the variable interest rate. A bank’s role in this type of agreement is to act as an intermediary between the two parties. This type of deal is commonly referred to as a “plain vanilla”.
    • Currency Swaps – the currency swap is effectively the same as the interest rate swap, except for the two cash flow streams being in two different currencies.  For example, Party A raises funds in sterling (i.e. a loan) and then wishes to swap the proceeds from that funding into US dollars. Party B raises funds in US dollars, and then wishes to swap the proceeds from that funding into sterling. The two parties enter into a swap agreement upon the then exchange rate (the “spot”). The agreement eliminates the risk of the fluctuation in the exchange rate for one party or the other. At the end of the deal, the principal amount is swapped back. In the meantime each company is servicing its own domestic debt, yet the parties have avoided any loss of the principal sum had the currencies’ respective values dropped.

As you can see, even the basic principles involved are not easy to follow. It therefore takes an extremely experienced and talented advocate to present such cases to a court of inexperienced jurors. Even for the most talented advocate, the preparation time involved will be significantly greater than that for a regular criminal case. I come back to this point further below.

What did Barclays do?

The LIBOR scandal focuses on swaps, which is dependent upon synthetic exposure to the interest rates that are affected by the LIBOR. If you are new to such financial mechanisms, you may be pleased to know that the way in Barclays proceeded to manipulate the LIBOR rate was not that technical.

As a point of clarification: Barclays delegates the responsibility for determining and making LIBOR submissions to certain individuals known as Submitters on the Money Markets Desk within Barclays.

At paragraph 53 of the Financial Standard Authority’s (FSA) Final Notice to Barclays served 27 January 2012, a summary of Barclay’s actions is provided:

On numerous occasions between January 2005 and June 2009, Barclays’ Derivatives Traders made requests to its Submitters for submissions based on their trading positions. These included requests made on behalf of derivatives traders at other banks. The Derivatives Traders were motivated by profit and sought to benefit Barclays’ trading positions. The aim of these requests was to influence the final benchmark LIBOR…

The most outlandish example demonstrated in the FSA’s Notice is detailed at paragraph 83:

For example, on 26 October 2006, an external trader made a request for a lower three month US dollar LIBOR submission. The external trader stated in an email to Trader G at Barclays “If it comes in unchanged I’m a dead man”. Trader G responded that he would “have a chat”. Barclays’ submission on that day for three month US dollar LIBOR was half a basis point lower than the day before, rather than being unchanged. The external trader thanked Trader G for Barclays’ LIBOR submission later that day: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger”.

Quite simply: requests were made by Barclays’ and external derivatives traders to Barclays’ submitters for them to submit lower or higher LIBOR submissions.

The prolonged manipulation of the LIBOR submissions created notable results, which affected the LIBOR, in addition to presenting a false image as to Barclays’ liquidity (paragraph 110 of the FSA’s Notice):

Barclays’ LIBOR submissions were at the higher end of the range of contributing banks during the financial crisis. For example, in the period from 1 September 2007 to 31 December 2008, Barclays’ three month US dollar LIBOR submissions were higher than the submissions of 12 other contributing banks on 66% of occasions. Barclays’ three month US dollar submissions were either within the highest four contributions or tied with another bank in that position on 89% of occasions.

It has not been made apparent just how much Barclays profited from the manipulation of the LIBOR; nevertheless, the communication between traders and Submitters evidently demonstrates that profitability was the motivation behind the requests for LIBOR fixing. Moreover, the US Department of Justice, the FSA, and the Commodity Futures Trading Commission (CFTC) have fined Barclays $160,000,000, £59,500,000, and $200,000,000 respectively. These fines can only be a hint as to the profitability of LIBOR fixing.

The sanctions imposed by the US Department of Justice, the CFTC and the FSA upon Barclays, which are now ensuring that Barclays are vigilant in the monitoring and auditing of how they operate, will progress to prevent a reoccurrence of a blatant disregard for financial regulations. Nonetheless, those that were actively involved in the manipulation of the LIBOR are now facing individual criminal prosecution.

The VHCC Problem

Understandably, being able to find advocates of necessary experience and ability can be challenging for the parties involved in such prosecutions (VHCCs). The task upon the advocates is great given the complexity and duration of the litigation in VHCCs. For example, in the protocol, ‘Control and management of heavy fraud and other complex criminal cases - Criminal Procedure Rules’, at 6(5), there is a provision for the control of ‘prolix cross-examination’. It takes a great amount of ability to be able to present an intelligible and understandable case on complex legal issues in VHCCs to the entire courtroom, including members of the jury. As the FSA Notice, and the Statement of Facts provided by the US Department of Justice demonstrate, there is a vast amount of material that will need to be considered by counsel involved, including a plethora of correspondence and financial data.

Barristers that are able to appear in VHCCs must first receive accreditation by meeting a set of stringent criteria (detailed at Annex B of the 2013 VHCC Arrangements), which, for example, require the applicant to:

[B]e able to demonstrate at least three years experience delivering Specialist Legal Advice to the public in the five-year period preceding the date of the VHCC Accreditation Application.

Barristers that were accredited to carry out VHCC work were sent contract amendment notices by the Legal Aid Agency (LAA), whereby the Government set out plans to pay for work at 30% less than what was previously being paid. Rather than accepting this reduction, those accredited barristers exercised their contractual right to give notice of termination. Since then no barrister has signed a new contract to undertake a VHCC at the reduced rates (see here).

HHJ Anthony Leonard QC’s judgment referred to at the beginning of this article demonstrates recent difficulties that are being experienced in being able to find counsel that are suitable and available for VHCC. The ramifications of that judgment, and the damning message it sent to the Ministry of Justice (MoJ) and their financial policies, are causing concerns over future VHCC. 

Going Forward

The concern that arises from HHJ Anthony Leonard QC’s judgment in R v Crawley and Others last week is that those that need to be held responsible for such fraudulent actions may not be prosecuted because of government policy on legal aid (see David Allen Green’s excellent blog on the decision for the Financial Times).

For those that are yet to read Anthony Leonard’s flawless judgment: the Crown court judge stayed a £4.5m fraud trial because the defendants were left without advocates because of the government’s cuts to legal aid. As stated, barristers have faced cuts of 30% to their fees for VHCC work, and, as a result, are refusing to accept VHCC work. In this case alone, it is understood that some 70 chambers had rejected the fraud trial work.

Furthermore, Anthony Leonard’s judgment analyses the availability of representation from the Public Defender Service, which can provide counsel to act in VHCCs and to instruct in returned briefs (as their website kindly offers). However, this under-resourced service is unable to be able to provide adequate representation.  This factor was a point of Alexander Cameron QC’s submissions (who was acting pro bono for the defendants): the defendants are unrepresented through no fault of their own, and, accordingly, an adjournment of the proceedings should not be granted for the availability of adequate representation at an unknown future date.

The lack of representation that will be available in such complex fraud cases demonstrates a standoff between the MoJ and the Bar, as Merry Neal recently highlighted in her commentary. Anthony Leonard’s impartial judgment demonstrates the damage the current state of affairs is causing (paragraph 25):

[M]y decision on how to proceed in this case is taken without regard to the continuing dispute between the Bar and the MoJ. I am only concerned with the merits of the arguments put before me and to ensure that a trial is only held if it can be conducted fairly in accordance with the principles long established in this country and which are, additionally, enshrined in Article 6 of the European Convention on Human Rights.  

Moreover, the judgment demonstrates an unfortunate setback for the Financial Conduct Authority (formerly the FSA), who is now caught in the crossfire of the disagreement over legal aid cuts. The result is that the FCA will become limited in their ability to enforce and prosecute individuals in complex criminal cases, as shadow justice secretary Sadiq Khan has recognised. The SFO’s issuing of criminal proceedings against Jay Vijay Merchant, Alex Julian Pabon and Ryan Michael Reichfor conspiracy to defraud in connection with its investigation into the manipulation of LIBOR could possibly receive the same unfortunate fate.

The decision in Crawley is not binding. Each case is to be determined on its particular merits when deciding whether the case can be i) adjourned to allow for the finding of adequate representation, or ii) stayed for the unrealistic prospect of locating adequate representation (paragraphs 76-77):

I accept the principle that a stay will never be an appropriate remedy where a lesser remedy would adequately vindicate the defendant’s Convention rights. In the context of this case they argue that, if an adjournment to January 2015 or even September 2015 would allow for appropriate representation of the accused, then that should be the course adopted rather than to stay the proceedings now.

However in circumstances where it is accepted that the defendants cannot have a fair trial now, in deciding whether an adjournment would adequately vindicate the defendant’s Convention rights, I have to consider whether there is a realistic prospect of a fair trial… If there is not, then an adjournment cannot cure the problem that has arisen.

In order for our courts to justly deal with VHCCs, steps need to be taken to remedy the current relationship between the MoJ and the Bar. As has been demonstrated from the discussion of the LIBOR scandal above, and the financial instruments involved, such proceedings require a particular standard of legal representation to allow for an intelligibly and effectively presented case. If steps are not taken to address this situation whereby adequate representation is simply not available as a direct result of unjust government policy, then the risk of other major trials collapsing, such as those involving former employees of Barclays, will remain.

For the latest articles straight to your inbox, you can subscribe for free. Alternatively, follow @KeepCalmTalkLaw on Twitter or Like us on Facebook.

Tagged: Banking & Finance, Commercial Law, Criminal Law, Legal Aid

Comment / Show Comments (0)

You May Also Be Interested In...

Saving the Unsaveable? Reforming the Cartel Offence

3rd Oct 2017 by Keir Baker

Commercial Awareness: The Fortnightly Round-Up (w/b 31st July)

6th Aug 2017 by Jack Turner

On Filters and Votes: Examining Snap's IPO

9th May 2017 by Claire Wallace (Guest Author)

Commercial Awareness: The Fortnightly Round-Up (w/b 24th April)

30th Apr 2017 by Jack Turner

HSBC: Shielded from the Criminal Law?

19th Mar 2015 by Jade Rigby

Tackling Fraud and Corruption in the European Union

14th Jun 2014 by R T

Section Pick October

Prosecuting Rape: Is the CPS Raising the Bar Too High?

Editors' Pick Image

View More


Keep Calm Talk Law: Moving Forward

3rd Sep 2019

Changing of the Guard: Moving Keep Calm Talk Law Forward

12th Aug 2018

An Anniversary or Two: Four Years of Keep Calm Talk Law

11th Nov 2017

Rising from the Ashes: The Return of Keep Calm Talk Law

18th Nov 2016

Two Years On, Keep Calm Talk Law’s Legacy is Expanding

11th Nov 2015


Javascript must be enabled for the Twitter plugin to function. Click below to visit us on Twitter.

Free Email Subscription

Subscribe to Keep Calm Talk Law for email updates, and/or weekly roundups. You can tailor your subscription on activation. Both fields are required.

Your occupation / Career stage is used to tailor your subscription and for readership monitoring.

Uncheck this box if you do not want to receive our monthly newsletter.

By clicking the Subscribe button, you agree to our privacy policy and terms of service. Please ensure you read these in full.

Free Subscription