[ by Larry Goldfarb ]

Federal prosecutors are close to securing a guilty plea from a UBS subsidiary, the first big bank to agree to criminal charges in more than a decade.  Yes, that's right, criminal charges in the Libor bid rigging scandal.  UBS could face about $1 billion in fines and regulatory sanctions. The bank's board had not yet approved the deal and it could still fall apart.  The charges and the resultant plea deal deals another black eye to the face of what was one of the most prestigious banks in the world.  The UBS unit charged was its Japanese subsidiary.

The role of Japanese operations came to the forefront last December when the country's regulator sanctioned both UBS and Citigroup.  Local regulators discovered that traders at the banks had tried to manipulate the Tokyo interbank offered rate, or Tibor, a main benchmark for borrowing in Japan. The efforts to rig the rate were "unjust and malicious, and could undermine the fairness of the markets," the Securities and Exchange Surveillance Commission of Japan said in a statement when recommending the nonfinancial penalties against UBS.

UBS has a big presence in Japan. The bank has more than 1,100 employees in the country, spread across its major business lines. The guilty plea could have collateral consequences for the unit. For one, the guilty plea delivers a painful blow to its reputation, securities experts say. Depending on the details of the case, the group could also be subjected to an independent monitor and face some limitations on its business.

By pushing for a guilty plea, the Justice Department may be signaling a new aggressive stance.  Authorities have been reluctant to indict big banks, fearful of the potential for job losses and the ripple effect through the broader economy. If a bank pleads guilty to a crime, the case can be tantamount to a death sentence because the institution may lose its charter to operate. With UBS, federal prosecutors are trying to strike a balance. By levying a charge against the subsidiary, authorities send a powerful message, but stop far short of putting the company out of business.  But the UBS case offers authorities a long-awaited moment to criminally punish a big bank. While the public is still simmering over the lack of prosecutions stemming from the financial crisis, the actions against UBS could help damp concerns that the world's largest and most interconnected banks are too big to indict. The Justice Department's criminal division, which arranged the guilty plea with the Japanese subsidiary, could also strike a non-prosecution agreement with the parent company, the people briefed on the matter said. The deal will force UBS to continue cooperating with the wider rate manipulation case.

For more information, please read [NYT Dealbook, 12/14/12].