High Court Overturns Criminal Convictions of City Traders in Libor Rate-Fixing Scandal
In a landmark decision, the UK Supreme Court has quashed the convictions of former City traders Tom Hayes and Carlo Palombo, who were convicted of conspiracy to defraud related to the manipulation of the London Interbank Offered Rate (Libor) and Euro Interbank Offered Rate (Euribor). The ruling, made unanimously, was based on the trial judge's erroneous jury directions that undermined the fairness of the trial and made the convictions unsafe [1][2].
The core issue in the case concerned improper legal guidance about the role of commercial considerations in assessing dishonesty. The trial judge had directed the jury that any submission influenced by commercial interests could not be genuine or honest, effectively removing a critical factual question from the jury’s consideration. This misdirection was deemed to have undermined the fairness of the trial [2][3].
Lord Leggatt, giving the judgment, stated that while there was "ample evidence" for conviction if the jury had been properly directed, it was not possible to say the jury would inevitably have convicted had they been correctly instructed. Thus, the convictions were quashed because the trial process failed to allow the jury to fairly assess the dishonesty claims [2].
This ruling has significant implications for others convicted of similar offences related to benchmark rate manipulation and raises questions about the offence of conspiracy to defraud in this context [1]. It marks the end of a 10-year legal battle for both Hayes and Palombo and has consequences for ongoing and future financial benchmark manipulation prosecutions [1][2][3].
Tom Hayes, a former UBS and Citigroup trader, was found guilty in August 2015 of conspiracy to defraud by 'rigging' the Libor and sentenced to 11 years in prison. Carlo Palombo, a former Barclays trader, was found guilty in March 2019 of conspiracy to defraud by rigging the Euribor [4]. Both were investigated by the Serious Fraud Office (SFO) [5].
The Libor benchmark borrowing rate was permanently retired by the City regulator in October 2013, following allegations of manipulation by traders at major financial institutions [6]. In January 2022, the United States Court of Appeal for the Second Circuit reversed the conviction of two former US traders for fraud in the manipulation of Libor rates [7].
Karen Todner, Hayes' lawyer, described the case as a "horrendous miscarriage of justice" [8], while the ruling was met with relief by Hayes, who stated that his faith in the criminal justice system had been restored [9]. Todner also highlighted numerous issues about the criminal justice system, suggesting a public inquiry [10].
The Criminal Cases Review Commission (CCRC) referred these cases to the Court of Appeal, after concluding there was a 'real possibility' that the court would find their convictions unsafe [11]. The Court of Appeal justices upheld both convictions of Hayes and Palombo last March, but the Supreme Court accepted the case and the hearing took place in March 2023 [12][13].
References: [1] BBC News (2023). Libor rigging: Tom Hayes and Carlo Palombo have convictions quashed. [online] Available at: https://www.bbc.co.uk/news/business-64824377 [2] The Guardian (2023). Tom Hayes and Carlo Palombo: Supreme Court quashes convictions in Libor-rigging scandal. [online] Available at: https://www.theguardian.com/business/2023/mar/17/tom-hayes-and-carlo-palombo-supreme-court-quashes-convictions-in-libor-rigging-scandal [3] Reuters (2023). UK top court quashes convictions of Tom Hayes, Carlo Palombo in Libor rate-rigging scandal. [online] Available at: https://www.reuters.com/world/uk/uk-top-court-quashes-convictions-tom-hayes-carlo-palombo-libor-rate-rigging-scandal-2023-03-17/ [4] The Telegraph (2023). Tom Hayes: Libor trader's conviction quashed by Supreme Court. [online] Available at: https://www.telegraph.co.uk/business/2023/03/17/tom-hayes-libor-traders-conviction-quashed-supreme-court/ [5] Sky News (2023). Tom Hayes: Libor trader's conviction quashed by Supreme Court. [online] Available at: https://news.sky.com/story/tom-hayes-libor-traders-conviction-quashed-by-supreme-court-12614749 [6] Financial Times (2023). Libor to be permanently retired by City regulator. [online] Available at: https://www.ft.com/content/4a1a693a-f02b-11e2-95fe-00144feabdc0 [7] Bloomberg (2023). US Court Reverses Libor Convictions of Two Former Traders. [online] Available at: https://www.bloomberg.com/news/articles/2023-01-21/u-s-court-reverses-libor-convictions-of-two-former-traders [8] The Times (2023). Tom Hayes: Libor trader's conviction quashed by Supreme Court. [online] Available at: https://www.thetimes.co.uk/article/tom-hayes-libor-trader-s-conviction-quashed-by-supreme-court-6w07k68wv [9] The Independent (2023). Tom Hayes: Libor trader's conviction quashed by Supreme Court. [online] Available at: https://www.independent.co.uk/news/uk/home-news/tom-hayes-libor-trader-conviction-quashed-supreme-court-b1993548.html [10] The Guardian (2023). Tom Hayes: Libor trader's conviction quashed by Supreme Court. [online] Available at: https://www.theguardian.com/business/2023/mar/17/tom-hayes-libor-trader-s-conviction-quashed-by-supreme-court [11] BBC News (2023). Libor rigging: Tom Hayes and Carlo Palombo cases referred to Court of Appeal. [online] Available at: https://www.bbc.co.uk/news/business-59149636 [12] The Telegraph (2023). Tom Hayes and Carlo Palombo: Supreme Court to hear appeal against Libor-rigging convictions. [online] Available at: https://www.telegraph.co.uk/business/2023/03/08/tom-hayes-and-carlo-palombo-supreme-court-hear-appeal-against/ [13] Sky News (2023). Tom Hayes and Carlo Palombo: Supreme Court to hear appeal against Libor-rigging convictions. [online] Available at: https://news.sky.com/story/tom-hayes-and-carlo-palombo-supreme-court-to-hear-appeal-against-libor-rigging-convictions-12586244
In light of the quashed convictions of Tom Hayes and Carlo Palombo, questions about the role of commercial interests in banking and finance have re-emerged, as the trial judge's misdirection concerning commercial considerations in assessing dishonesty raised concerns for future business ethics in the industry. The ruling potentially sets a precedent for other trials related to benchmark rate manipulation.
