UK Supreme Court quashes LIBOR and EURIBOR convictions: implications for financial crime enforcement

Tom Hayes and Carlo Palombo were two among several traders convicted for conspiring between 2006 and 2010 to influence key benchmark interest rates used in financial markets: in Mr Hayes’ case, the London Inter-bank Offered Rate (LIBOR); and in Mr Palombo’s case, the Euro Inter-bank Offered Rate (EURIBOR). The Serious Fraud Office (SFO) prosecuted Hayes and Palombo under the common law offence of conspiracy to defraud, arguing that they had agreed to procure rate submissions that were false or misleading and intended to favour their trading positions (and so prejudice the economic interests of swap counterparties).

Hayes was convicted in 2015 and sentenced to 14 years' imprisonment (later reduced to 11) and Palombo was convicted in 2019 and sentenced to four years' imprisonment. Both convictions were upheld in two separate appeals. However, in 2023, the Criminal Cases Review Commission referred both cases back to the Court of Appeal in light of the US Second Circuit’s decision in United States v Connolly and Black. In that case, the US court rejected the "one true rate" theory of LIBOR submissions, holding that if a rate was within the range the bank could have legitimately submitted, it was not false or fraudulent—even if influenced by trading advantage. The UK Court of Appeal dismissed the renewed appeals but certified a question of law of general public importance as to the proper construction of the LIBOR and EURIBOR definitions, paving the way to the Supreme Court. In a unanimous judgment delivered by Lord Leggatt, the Supreme Court allowed both appeals and quashed the convictions.

The Supreme Court’s decision shows the challenge in bringing criminal prosecutions in cases involving subjective financial assessments under the common law. It noted that, especially for a broad offence like conspiracy to defraud, the content of the alleged agreement and the dishonest means must be specified with “reasonable certainty and clarity” so that both the defendant and the jury understand what must be proved. The judgment also highlights an evidential challenge for criminal prosecutions involving subjective financial assessments, which may make it harder to successfully bring similar prosecutions in future. Finally, the Supreme Court’s obiter comments further raise questions around future prosecutions of the common law conspiracy to defraud offence.  The judgment describes the continued existence of conspiracy to defraud as a common law offence, following developments under the Criminal Law Act 1977 and the Fraud Act 2006, as "controversial" and it will be interesting to see whether the judgment will impact the way in which fraud charges are indicted and prosecuted going forward. 

You can read about this decision in more detail in the blog post prepared by our Corporate Crime and Investigations colleagues.