Chapter 10 - Cartel Detection and Collusion Screening: an Empirical Analysis of the London Metal Exchange

Summary

In Francia abbiamo seguito le vostre elezioni.

Il capo del governo ha tre reti televisive?’

‘Si’.

‘Perche in Francia non si potrebbe, c'e una legge.

Voi non avete la legge antitrust?’

‘Si. Si e no. Piu no che si’.

Nanni Moretti

LIBOR SCANDAL

In 2013, the European Commission imposed an administrative fine of 1.7 billion euro to some of the world's largest banking companies involved in what has been described by the mass media as “Libor Scandal”. The record sanction, being the highest ever levied by the officials of Brussels for a cartel infringement, was issued to 8 international financial institutions for participating in illegal agreements relating to interest rate derivatives. As it is common knowledge, interest rate derivatives are financial products, such as futures, options, swaps, which are both employed as insurance tools for managing the risk of interest rate fluctuations and traded worldwide as investment assets by financial intermediaries. The value of these financial derivatives comes from the level of a benchmark interest rate, such as the Euro Interbank Offered Rate (Euribor), which is used for the euro area, or the London Interbank Offered Rate (Libor), which is used for several currencies including the Japanese Yen. In turn, the value of these benchmarks reflects the averaged interest rate at which, respectively, a selected panel of Eurozone and London banks offer to lend funds in a given currency to other banks on the daily interbank market.

In a nutshell, the cartel aimed at manipulating the pricing process of the Euribor and the Libor, distorting the competition in the underlying trading of interest rate derivatives. Since at least $800 trillion in derivatives, loans, securities and other financial products are tied to the Euribor and the Libor, such was the dimension of the scandal, which inter alia has highlighted the urgency of a regulatory reform of the banking sector, the largest one to have been rigged so far.

BENFORD's LAW

A crucial expedient for revealing the “Libor Scandal” has been the leniency program, joined by a member of the cartel at issue providing an active cooperation in the investigation of the Commission in exchange of full immunity.