[ by Melanie Gretchen ]

The Royal Bank of Scotland agreed to pay $612 million to settle with charges by American and British authorities that the bank manipulated Libor interest rates.  On Wednesday, the bank's affiliate, RBS Securities Japan Limited, pled guilty to criminal wrongdoing in its settlement with the Justice Department, admitting to a single count of felony wire fraud.

The Power of an E-mail.  Apparently, prosecutors are able to get "a bang for their buck" from emails retrieved from suspected personnel at banks under investigation.  At RBS, prosecutors discovered a series of incriminating, yet colorful, e-mails that highlighted bankers' efforts to influence the rate-setting process, across multiple currencies and countries from 2006 to 2010.  CFTC examiners found sufficient details to accuse RBS employees of having "aided and abetted" UBS and other firms in the rate-rigging scheme.

"The public is deprived of an honest benchmark interest rate when a group of traders sits around a desk for years falsely spinning their bank's Libor submissions, trying to manufacture winning trades.  That's what happened at R.B.S." -- David Meister, CFTC Enforcement Director.

Pandora's Box. Today's fine marks the latest defeat by the financial services industry.  This past December, a Japanese subsidiary of UBS pled guilty to felony wire fraud as part of a larger settlement.  Even before RBS knew the numbers in the Libor case, it had already set aside $2.7 billion to compensate customers who had been sold inappropriate loan insurance. 

Barclays, of course, was the first bank out of the box to settle its Libor manipulation charges, agreeing to pay $453 million.  And the DOJ, which secured the guilty plea from the UBS Japanese unit, filed criminal charges against two former UBS traders.  For its part, Deutsche Bank has an undisclosed amount in reserves to cover potential penalties.

Second Largest Rate Manipulation Fine.   However, the $612 million settlement reached with RBS is the 2nd-largest fine in this long-running investigation into rate manipulation.  These earlier numbers indicate that no banks are catching any breaks or discounts and it's likely that today's record fines will be exceeded in the near future.  Citigroup and JPMorgan Chase are both currently under investigation, and their settlements are inevitable

The RBS $612 million settlement will be split, as follows:  $325 million goes to the CFTC;  the U.K.'s FSA gets $137 million;  $150 million pertains to a deferred-prosecution arrangement. 

"Like with Barclays and UBS, the settlement with R.B.S. is much more than a slap on the wrist." -- Bart Chilton, a member of the trading commission who is critical of soft fines on big banks.

For further details, go to [Dealbook, 2/6/13].