U.S. judge refuses to toss Libor criminal complaint vs. Swiss UBS trader

March 23, 2015

There are so many interesting jurisdictional issues in the U.S. government’s prosecution of foreign bankers allegedly involved in the manipulation of benchmark London Interbank Offered Rates, calculated in London under the auspices of the British Bankers’ Association. Last December, Covington & Burling laid out at least three solid arguments for why U.S. courts shouldn’t hear the government’s criminal case against Roger Darin, a Swiss UBS interest-rate trader charged with one count of conspiracy to commit wire fraud by supposedly submitting false reports of UBS’ yen Libor, including the territorial limits of the U.S. wire fraud statute and Darin’s due process right not to be tried in U.S. courts for conduct that took place entirely outside of the United States.

But in an opinion issued Friday, U.S. Magistrate Judge James Francis of Manhattan made clear that Libor defendants aren’t going to be able to slough off U.S. criminal charges with jurisdictional arguments. The magistrate judge took quite a broad view of what constitutes a “nexus” between Darin and the United States. Under his interpretation, as long as an alleged Libor conspiracy participant was aware that the rates were published in the United States and were likely to affect trades with U.S. counterparties, the defendant can be tried in U.S. courts.

Darin’s motion to dismiss the government’s criminal complaint argued that the UBS trader had no connection with the United States. He’s a Swiss citizen who worked in UBS’ Zurich, Singapore and Tokyo offices. He reported a daily hypothetical rate for interbank yen loans via a British regulatory body. And according to his lawyers at Covington, Darin had no idea that submitting a false report could be construed as a crime in the United States. His emails, they said, reflect that his biggest concern was not that he’d face prosecution but that UBS would be kicked off the panel of 16 banks whose reports determined the daily yen Libor average.

Darin contended that prosecutors were violating his due process rights by charging him for conduct wholly outside of the United States without fair notice that he could be subject to a U.S. criminal case. “No aspect of Mr. Darin’s allegedly wrongful conduct … was directed towards the United States, its currency, or any U.S. person or interest,” Covington wrote. “The United States asserts the right to reach into Swiss territory, to prosecute a Swiss national living in Switzerland, for conduct that took place in other non-U.S. countries. The risk of undue interference with these other countries’ right to independently regulate their own citizens and conduct taking place within their own territory is plain.”

The Manhattan U.S. attorney’s office responded that, in the first place, Darin has no due process rights because he has so far refused to appear in federal court. Criminal defendants have rights under the U.S. Constitution, the government said, but foreign nationals at large in their own countries don’t.

And even if Darin were entitled to due process, prosecutors said, the criminal complaint established a sufficient connection between him and the United States: It alleged that Darin participated in a conspiracy, along with another UBS trader, that involved electronic communications transmitted to and from the United States. Darin’s co-conspirator entered two trades with a U.S. counterparty in New York, the government said, and both men participated in electronic chat room discussions routed through New York. Darin also knew the manipulated yen Libor rates would be published in New York, according to the government.

Dismissals under the “sufficient nexus” test are exceedingly rare, prosecutors argued, and no court has ever adopted the theory Darin’s lawyers proposed, that the government be required to show the defendant intended to harm the United States, its interests or its citizens.

Judge Francis agreed with Darin on his due process rights and on the territorial restrictions (at least under precedent from the 2nd U.S. Circuit Court of Appeals, though not from the 1st and 3rd Circuits) of the wire fraud statute. Once he reached the substance of the allegations against the UBS trader, however, the judge sided with the government.

Prosecutors have accused Darin of using interstate wires in the United States, Judge Francis said, so the wire fraud allegations are based on conduct that occurred in the United States. Under due process analysis, he found the prosecution to be “fundamentally fair” because the alleged yen Libor manipulation scheme between Darin and his co-defendant impacted the United States. “Mr. Darin was aware that the yen Libor was published in the United States, and it is a reasonable inference from the complaint that, as a trader in short-term interest rates (like the yen Libor), he was aware that such trades would likely have counterparties in the United States and particularly in a center of international finance like New York,” the judge wrote.

The same, of course, could likely be said of just about any individual banker involved in alleged manipulation of Libor benchmarks, which were calculated for a variety of currencies. If awareness of the use of the benchmark rates in the United States is enough to establish jurisdiction in American courts, it’s hard to imagine how Libor defendants can get out of trials here.

I called Darin’s lead Covington counsel, Bruce Baird, but didn’t hear back.

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