It seemed to be a thumb in the eye of the Justice Department. Britain last week criminally charged a former Barclays employee suspected of trying to manipulate global interest rates, even though the authorities in London were aware that the employee had been assisting American prosecutors in a related investigation for more than a year.
Some prosecutors in the United States were annoyed by the move, but it did not ignite another trans-Atlantic dispute over how to crack down on bad behavior by global banks with large operations in New York and London. Instead, the charges against the Barclays employee, Jonathan Mathew, reflected a tentative truce that has emerged between British and American authorities, according to people briefed on the matter.
The Justice Department in Washington and the Serious Fraud Office in London, these people said, have agreed to divide up cases against employees at the center of an investigation into the manipulation of the global interest rate benchmark used for mortgages, credit cards and corporate loans known as the London interbank offered rate, or Libor. The agencies are splitting the caseload, which involves traders in both New York and London, depending on which jurisdiction will have an easier burden of proof or possesses stronger evidence against a particular bank employee.
The cooperation should enable prosecutors on both sides of the Atlantic â€" whose political mandates and personalities have at times clashed, stalling the investigation â€" to file several new criminal cases stemming from the more than five-year-old inquiry. The Justice Department, the people briefed on the matter said, is expected to charge a handful of other Wall Street employees over the next year as it continues to investigate banks, including Citigroup and Deutsche Bank.
The agreement over Libor could also provide a template for the Justice Department and Serious Fraud Office as they pursue other investigations into global banking giants. In one prominent case focused on the manipulation of foreign currencies, authorities have privately described the misconduct as far worse than in the Libor case. Citigroup and UBS, among other banks, already have fired or suspended more than 20 currency traders as the international investigations gain steam.
Still, in ceding some ground to the Serious Fraud Office, the Justice Department has loosened its grip on the Barclays case, a signature effort that sought to demonstrate that American prosecutors were getting tough with banks’ misdeeds. After charging Mr. Mathew, the Serious Fraud Office is expected to seek his cooperation against former New York colleagues, including at least four New York-based traders who are suspected of manipulating Libor to bolster their profits.
For the Justice Department, any new Libor cases would come on top of charges it has already filed against eight foreign individuals and five financial institutions. For the cases against individual bank employees, four of whom are based in Britain, the recent cooperation with the Serious Fraud Office is expected to help pave the way for extraditions to the United States, where the former employees might stand trial.
The developments illustrate the fragile and ever-evolving relationship between Washington and London enforcement officials. Given the interconnected nature of the global financial markets, legal observers say, the agencies must maintain a level of cooperation.
Tensions peaked in late 2012, when Justice Department prosecutors notified the Serious Fraud Office that they were filing charges under seal against Tom Hayes, a former UBS and Citigroup employee seen as an architect of Libor manipulation. In turn, British authorities promptly arrested Mr. Hayes, setting off a series of fuming phone calls and angry letters on both sides of the Atlantic.
In recent months, the agencies sought to repair the relationship, and ultimately reached a rapprochement of sorts. Denis J. McInerney, deputy assistant attorney general for the Justice Department’s criminal division, made several trips to London last year and his counterparts visited Washington.
Mr. McInerney, however, is expected to leave the Justice Department next month, the people briefed on the matter said. And the Serious Fraud Office’s decision to charge Mr. Mathew stirred some bad blood, given that he began cooperating with the Justice Department in exchange for a promise that he not be criminally charged in the United States. The decision to bring criminal charges against a cooperating witness â€" while not unheard-of for the Serious Fraud Office, which in 2012 charged a cooperating witness in the Justice Department’s bribery investigation of Alcoa, the people said â€" is considered poor form.
This time, the damage was contained. Before charging Mr. Mathew, the Serious Fraud Office alerted Mr. McInerney and Mythili Raman, the acting head of the Justice Department’s criminal division. And after the charges, the alliance between the two agencies appears intact.
Peter Carr, a Justice Department spokesman, said, “Without commenting on any specific case, the U.S. Justice Department and the U.K. Serious Fraud Office have a good, productive relationship that has proved beneficial in the ongoing probes of benchmark interest rate and market manipulation by global financial institutions.†He added, “We remain two separate law enforcement organizations, however, and each has the responsibility to determine how best to proceed in any given case.â€
Nilima Fox, a spokeswoman for the Serious Fraud Office, declined to comment.
After the financial crisis, with the public criticizing the dearth of prosecutions, the Justice Department and Serious Fraud Office were scrambling to flex some regulatory muscle. Libor seemed to provide that opportunity.
The cases began with Barclays, which paid a $450 million penalty in June 2012 to settle accusations that its employees in New York and London conspired to manipulate the process for setting Libor and other benchmark interest rates. On the heels of that deal, UBS, the Royal Bank of Scotland, Icap and Rabobank struck their own settlements. In some of the cases, the Justice Department also took the rare step of extracting criminal guilty pleas from subsidiaries of the banks.
In its deals with Barclays, the Justice Department contends that traders in New York would make requests to a Libor “submitter†in London seeking to have Libor priced at a rate that would benefit the trading positions in their portfolios. Mr. Mathew was seen as an important witness for United States prosecutors because he reported to Peter Johnson, the banker in London responsible for submitting weekly pricing requests for Libor, said people briefed on the matter. Like Mr. Mathew, Mr. Johnson was also charged by the Serious Fraud Office last week.
Barry Berke, a lawyer for Mr. Johnson, declined to comment. A spokesman for Herbert Smith Freehills in London, which represents Mr. Mathew, did not return a request for comment.
One reason American prosecutors might resist criminal charges in the Barclays case is that it would be hard to show that traders were successful in moving Libor prices in the direction they wanted, even if they tried to influence the rate. Lawyers for some of the traders also have argued that the practice of manipulating Libor had been going on for so long â€" and so blatantly â€" that it was unfair to single out traders who were following instructions at the bank.
The Serious Fraud Office, however, has a somewhat lower burden to prove that the employees intended to break the law. So, as the Justice Department pursues charges against other bank employees, the Barclays case is an important opportunity for the British agency to show its mettle.
Kathleen Hamann, a partner with White & Case, who recently joined the firm’s Washington office after handling foreign bribery cases for the Justice Department, said the Serious Fraud Office recently had a prominent corporate bribery case fall apart. As such, she said, the British agency is eager to show its aggressive streak.
“The S.F.O. desperately needs a win,†Ms. Hamann said.
Chad Bray contributed reporting.
