The US Department of Justice (DoJ) has ordered Societe Generale to pay penalties for bribing President Muammar Gaddafi-era Libyan officials and manipulating the London Inter Bank Offered Rate (Libor). The French bank admitted to making over US$90m in corrupt payments and acknowledged the manipulation of global benchmark interest rate, affecting financial products traded worldwide.
SG and its wholly owned subsidiary, SGA Societe Generale Acceptance NV, have agreed to pay a combined total penalty of more than $860m to resolve charges with criminal authorities in the US and France, including $585m relating to a multi-year scheme to pay bribes to officials in Libya and $275m for violations arising from its manipulation of Libor. These payments are fully covered by the provision allocated to the interbank offered rate and Libyan matters and booked in SG's accounts and, as a result, they will have no impact on SG's results, according to the bank.
SGA Societe Generale Acceptance NV will plead guilty in the Eastern District of New York in connection with the resolution of the foreign bribery case. Together with approximately $475m in regulatory penalties and disgorgement that Societe Generale has agreed to pay to the Commodity Futures Trading Commission (CFTC) in connection with the Libor scheme, the total penalties to be paid by the bank exceed $1 billion.
SG has agreed to enter into a three-year deferred prosecution agreement in the interbank offered rate and Libyan matters with the DOJ, according to a release from the bank. The charges against SG will be dismissed if the bank abides by the terms of the agreement, 'to which the bank is fully committed', stated SG in a press release published on 4 June 2018. 'No independent compliance monitor has been imposed in connection with these settlements,' stated the release.
More than 8,266 products linked to Libor with estimated combined assets under management of over $50bn (€37bn) have been sold since 2003, of which 1,747 products are still live in: the US (566); Switzerland (550); Japan (184); South Korea (141); and Taiwan (132). However, the issuance of Libor-linked products has plunged dramatically compared to previous years, according to SRP data. Issuance of Libor-linked products peaked in 2013, when 778 structures were released across 15 jurisdictions, but since then the number of new issues has fallen sharply. In 2017, only 60 products linked to the rate were marketed across 10 markets, whereas, this year, only 14 Libor-linked products have been recorded in China (nine), Belgium and Switzerland (two), and the US (one).
The most dramatic change in issuance behaviour has come in the US, one of the leading structured product markets for interest rate-linked products, which, in 2013, saw a total of 325 Libor products worth $3.1bn. Five years on and the number of Libor products issued has fallen to just one.
In related proceedings, SG reached a settlement with the Parquet National Financier (PNF) in Paris relating to the Libya corruption scheme, with the US court crediting $292.7bn of SG's penalty to the PNF under its agreement, equal to 50% of the total criminal penalty otherwise payable to the US. This is the first coordinated resolution with French authorities in a foreign bribery case.
'The resolution announced today by the Department with Societe Generale and a subsidiary, which includes a guilty plea, admissions of wrongdoing, significant corrective measures and hundreds of millions of dollars in penalties, sends a powerful message to financial institutions that engage in corruption and manipulation in the financial markets that they will be held accountable,' said Richard Donoghue (pictured), US Attorney of the Eastern District of New York.
According to the French bank's admissions, between 2004 and 2009, SG paid bribes through a Libyan broker in connection with 14 investments made by Libyan state-owned financial institutions. For each transaction, SG paid the broker a commission of between 1.5% and 3% of the nominal amount of the investments made by the Libyan state institutions. In total, SG paid the Libyan Intermediary over US$90m, portions of which the Libyan broker paid to high-level Libyan officials in order to secure investments from various Libyan state institutions for SG, according to the US court. As a result of the corrupt scheme, SG obtained 13 investments and one restructuring from the Libyan state institutions worth a total of approximately $3.6bn, and earned profits of approximately $523m.
In relation to the Libor case, between May 2010 and at least October 2011, the bank admitted promulgating 'falsely deflated US Dollar Libor submissions to make it look as though Societe Generale was able to borrow money at more favourable interest rates than it was actually able to do... This downward manipulation allowed Societe Generale to create the appearance that it was stronger and more creditworthy than it was,' stated the DoJ.
According to the DoJ, the US Dollar Libor manipulation scheme was ordered by senior executives of SG, who tasked the managers of the company's Treasury Department with overseeing the execution of the deflation effort. 'Societe Generale's misconduct frequently altered the daily rate at which US Dollar Libor was set, which affected financial products worldwide, including interest rate swaps, futures contracts and other derivative financial products,' it said.
By the terms of the agreement, the DoJ has ordered SG to pay a fine of $275m to resolve the Libor misconduct matter.
In 2011, the Libyan Investment Authority (LIA) reported that the country's sovereign wealth fund lost as much as $300m in failed Lehman Brothers-backed structured products. The LIA also released documents showing that Goldman Sachs and HSBC together held $335m of the Libyan oil fund's assets, while SG held $1 billion in structured products for the fund. JP Morgan managed products worth $171m and Commerzbank $193m, according to the report.
The LIA lost almost 70% of the value of its $1 billion investment in the SG Europe Medium structured product, according to the report. A number of other structured products from the French bank and others including Dresdner and Fortis were in the red. In total, 7% of the LIA's assets were held in alternative investments, of which more than 50% were allocated to structured products. From 2010, the LIA held assets of $53bn as of June 2010, according to the management information report.
In September 2017, Marc El Asmar appeared in the English High Court giving testimony in camera because of the risk of incrimination in a US criminal probe after the LIA took legal action against the French bank, alleging that billion dollar investment deals with SG were tarnished by bribery and intimidation of Libyan officials.
Societe Generale said in a statement that it has reached agreements in principle with the DoJ and the CFTC to resolve their investigations relating to Societe Generale's Ibor submissions, and with the DoJ and the PNF to resolve their investigations relating to certain transactions involving Libyan counterparties.
'The monetary penalties to be paid are fully covered by the provision allocated to the IBOR and Libyan matters and booked in Societe Generale's accounts,' it said. 'As a result, these payments will have no impact on Societe Generale’s results.'
Related stories:
Deutsche Bank to pay $70m for attempted manipulation of swap rates benchmark
Libya lost €1.75bn on Goldman and SocGen products
US regulator hits Citi with US$250m fine for benchmark manipulation