Libor scandal: UBS fined $ 1.5 billion

Updated 19 December 2012
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Libor scandal: UBS fined $ 1.5 billion

ZURICH: Swiss bank UBS has admitted fraud and accepted a $ 1.5 billion fine for its role in manipulating global benchmark interest rates.
Dozens of UBS staff rigged the Libor rate, which is used to price trillions of dollars worth of loans, in collusion with brokers and traders at other banks, according to an investigation by authorities in multiple countries.
The controversy is expected to ensnare other big lenders and spark criminal and civil lawsuits against individuals involved. The penalty UBS agreed with US, UK and Swiss authorities far exceeds the $ 450 million levied on Britain’s Barclays in June, also for rigging Libor, and the second largest ever imposed on a bank.
“This is an endemic banking industry problem and shows how far the industry has fallen, failing itself and its customers,” said Neil Dwane, chief investment officer for Allianz Global Investors.
“For the future it shows that without strong regulation and strong and new management throughout most of the biggest banks, there can be no reasonable expectation that they will improve their behavior substantially — at least UBS now has strong new management.”
Shares in the Swiss lender rose 1.6 percent to hit a 17-month high of 15.5 francs ($ 16.97) in early trade as investors judged the worst was over.
“You can see from the stock movement that the fine is already baked in,” said Markus Jordi, principal at Zurich-based investment manager Cosmos Capital.
“The bank has already kicked out some traders, apologized, said it will shut down parts of the investment bank and overhauled management.”
The UBS fine comes a week after Britain’s HSBC agreed to pay a record $ 1.92 billion to settle a probe in the US into laundering money for drug cartels.
UBS’s unit in Japan pleaded guilty to one count of fraud relating to manipulation of benchmark rates, including the yen Libor.
The Libor benchmarks are used for trillions of dollars worth of loans around the world, ranging from home loans to credit cards to complex derivatives.
Tiny shifts in the rate, compiled from daily polls of bankers, could benefit banks by millions of dollars. But every dollar a bank benefited meant an equal loss by a bank, hedge fund or other investor on the other side of the trade — raising the threat of a raft of civil lawsuits.
The Libor settlement caps a torrid 18 months for UBS during which it lost $ 2.3 billion in a rogue trading scandal, underwent a management upheaval and made thousands of job cuts.
“We deeply regret this inappropriate and unethical behavior. No amount of profit is more important than the reputation of this firm,” UBS Chief Executive Sergio Ermotti said in a statement.
The reputational impact of the controversy may only emerge next year.
“The only thing shareholders can do is keep a very close eye on the money flows on the wealth management side,” said Neil Wilkinson, portfolio manager at Royal London Asset Management.
“We may not see until the first quarter of next year whether they have lost any clients as a result of this.”
Ermotti said around 40 people had left UBS or had been asked to leave as a result of the investigation.
The bank will pay $ 1.2 billion to the US Department of Justice (DoJ) and the Commodity Futures Trading Commission (CFTC), 160 million pounds to the UK’s Financial Services Authority (FSA) and 59 million Swiss francs from its estimated profit to Swiss regulator Finma.
The UK penalty is the largest in the history of the FSA and more than double the 59 million pounds paid by Barclays.
UBS said the fines would widen its fourth quarter net loss but it would not need to raise new capital.
Britain’s FSA said attempts to manipulate Libor and Euribor, its European equivalent, were so widespread that every submission UBS made over a six-year period from 2005 to 2010 was suspect.
At least 45 people at UBS were involved in the rigging, which was discussed in internal chat forums and group e-mails but never detected by compliance staff, despite five audits.
The FSA said the manipulation was considered to be “normal business practice” by a wide pool of people within UBS.
In addition to traders trying to move the Libor rate up or down to make money for themselves, senior managers at the Swiss bank directed dealers to keep Libor submissions low during the financial crisis to make the bank look stronger.
The extent of the wrongdoing was highlighted in a series of e-mails released by the FSA which showed how traders and brokers conspired to rig the rate and referred to each other in congratulatory terms such as “superman” and “be a hero today.”
In one e-mail, a trader wrote :“I need you to keep it as low as possible ... if you do that .... I’ll pay you, you know, 50,000 dollars, 100,000 dollars... whatever you want ... I’m a man of my word.”
It is the first time that brokers have been accused of taking payments to aid manipulation. ICAP, the world’s largest inter-dealer broker, and rival RP Martin have suspended employees in connection with the probe.
In a memo to staff, Ermotti said it was too early to determine whether or how clients were affected, pending further regulatory probing of the rate fixing.
Last week, British police arrested three men, including former UBS and Citigroup trader Thomas Hayes, in connection with the Libor probe, the first such arrests. The two others were Terry Farr and James Gilmour, who both worked at interdealer broker RP Martin.
Until the rate-rigging scandal broke, Libor had been ignored by regulators and left to the banks to police. From next year, Britain’s FSA will have oversight of it as part of a major overhaul.
The steep fine for UBS is despite the bank, since 2011, cooperating with law-enforcement agencies in their probes. The bank said it received conditional immunity from some regulators.
A similar admission by Barclays in June touched off a political firestorm that forced its chairman and chief executive to quit.


Telegram Russia ban spurs privacy debate

Updated 21 April 2018
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Telegram Russia ban spurs privacy debate

  • Telegram has always attracted a mix of criticism and respect for its use of encryption to ensure its messages between users remain confidential.
  • A Moscow court decided last week to block the app in Russia because it refused to hand over encryption keys to authorities.

LONDON: Telegram, the messaging app that re-located from Russia to Dubai, has again fallen foul of the authorities in its mother country. So what is it about the social media platform that simultaneously has governments worldwide so concerned and freedom of speech advocates so agitated?
Telegram has always attracted a mix of criticism and respect for its use of encryption to ensure its messages between users remain confidential.
A Moscow court decided last week to block the app in Russia because it refused to hand over encryption keys to authorities — sparking fresh controversy around the app, which has previously been banned in countries such as Iran, Afghanistan and Indonesia.
Telegram has been under close scrutiny in Russia since legislation was passed in mid-2016 that required communication companies to hand over encryption keys to the Federal Security Service (FSB), if requested.
There was also a move to place companies on a “register of information distributors,” which requires firms to store user online communications for a set period of time and hand over data to the authorities when needed.

 


Some of Russia’s large social networks are reportedly on the register and Telegram was pressurized to register in mid-2017. Other Western social media companies such as WhatsApp are not listed. WhatsApp did not immediately respond to a request for comment.
Weeks after joining the register, Telegram refused to agree to FSB requests for encryption keys, resulting in the Russian media watchdog Roskomnadzor seeking court approval this month to block the app.
On the day of the court decision, Telegram’s founder Pavel Durov tweeted: “Privacy is not for sale, and human rights should not be compromised out of fear or greed.” The company has also said it is technically impossible to transfer encryption keys.
It was not the Russian entrepreneur Durov’s first run-in with Russian authorities. Telegram — which was launched in 2013 — originally had its development team based in St. Petersburg, but had to leave the country due to local IT regulations. It is currently based in Dubai.
The messaging app prides itself in being the most secure and independent form of instant messaging that respects the need for privacy. Its “secret chats” option makes use of end-to-end encryption that ensures only users can read them. Messages cannot be forwarded and you can order messages to “self-destruct” within a set amount of time. It can also alert users if the recipient of the message takes a screenshot of the correspondence. So-called Telegram “Channels” can be used to broadcast public messages to a large audiences.
While WhatsApp — which is owned by Facebook — also provides end-to-end encryption, Telegram differentiates itself with claims it is faster and more secure.
Damir Gainutdinov is a legal analyst at Russian human rights group Agora, which represented Telegram in court. He has headed up its project on the defense of online freedom in Russia since 2010.
He told Arab News that the block placed on Russia was more of a power-play by the authorities.
“I think that Russian authorities believe that Telegram is a threat because they cannot control it.
“But I wouldn’t say that it is really the biggest threat. The attack on Telegram is more about showing that they can block any global service if they want,” he said.
Russia’s government has argued that the app helps to enable terrorist attacks in the country, saying that access to encrypted messages is a national security issue.
The FSB said a suicide bomber who killed 15 people on a St. Petersburg subway in April last year had used Telegram to plan the attack.
Voices from outside Russia have also criticized Telegram for not doing enough to clamp down on terrorists using the app. “Terrorists and extremist groups such as ISIS (Daesh) use encrypted applications like Telegram because it allows them to recruit new members, fundraise, incite to violence, and even coordinate terrorist activity without the threat of being discovered,” said executive director David Ibsen at the US-based non-government organization Counter-Extremism Project.
“ISIS also created public channels on Telegram to broadcast pro-ISIS news updates and disseminate other propaganda materials,” he told Arab News. Durov has been quoted as saying at a conference in 2015 that the right to privacy is more important to the company than “our fear of bad things happening, like terrorism.” Following the Paris attacks in 2015, Telegram did revise its policy on its public channels, but it has refused to take down private Daesh chats, according to Ibsen.
Social media sites are coming under increasing pressure from authorities worldwide to do more to limit the promotion of extremism online.
In a statement to Arab News, Twitter said it had permanently suspended 274,460 sites in the second half of last year — down more than 8 percent on the previous reporting period.
While Telegram is far from the only social media app to be criticized for its counter-terrorism policies, it is seen by some as the more reluctant player in the battle against online extremism. “Social media companies remove content regularly that violates their stated terms of service, and some of this includes extremist and terrorist videos, images and other propaganda,” said Ibsen. “However, despite the availability of technology that can identify and permanently prevent prohibited materials from being re-uploaded, the biggest social media platforms are not taking this vitally important step,” he said.
“Telegram has become a refuge app from the moment the preferred apps (Twitter in particular) started to clamp down on extremist content,” said Rik Coolsaet, a professor of international relations at Ghent University in Belgium who has written extensively on counter-terrorism efforts. “Its encryption offered a secure environment for terrorist recruiters and groomers, but at the same time limited their propaganda outreach, since it is more difficult to access. For that reason, Twitter remains their preferred app,” he added.
Russia is not the only country clamping down on Telegram. Iran restricted certain channels in December last year during the protests and there have been recent threats that restrictions could be reimposed. A estimated 40 million Iranians use Telegram’s channels and messaging services.
“In the case of Russia and Iran, the Telegram crackdown has much more to do with controlling the lives of its citizens than it does with preventing terrorist activity,” said Ibsen.
Telegram did not respond to Arab News’ request for comment.

 

Q&A
We talk to leading world cyber terrorism expert Chris Sampson, co-author of “Hacking ISIS: How to Destroy the Cyber Jihad” and an analyst with the Terror Asymmetrics Project

Why are governments so worried about Telegram?
Telegram was launched as an encrypted messaging app. This meant that government agencies were less likely to be able to intercept messages passing across the Internet and read private conversations. However, in September 2015, Telegram also created an option for channels, which act like chat groups. This allowed like-minded individuals to essentially host a chat room. Unless the channel was set to public you couldn’t read what was discussed without being given an invitation link. Groups like ISIS began using these channels to share propaganda and information. Other groups use Telegram in much the same manner. Non-violent resistance groups around the world would also use the messaging app and channels to communicate so authorities in the countries they fear would be less likely to intercept their discussions.

Will clamping down on social media apps be effective?
As governments crack down and ban apps, others will rise and replace them with new features and focus on security from outside eyes. They will operate either within the legal construct or outside of it depending on the countries they seek to circumvent. Since laws around the world differ dramatically, what is legal in one country could be illegal in another. We’ve seen this already happen as countries sought to ban use of Telegram, WhatsApp or even Twitter. Inevitably the access to the technology remains the same and users find a way to use both encrypted messaging and social media platforms.

Does Russia’s action set a precedent?
Countries such as Indonesia, Iran, Afghanistan and others have banned Telegram. Brazil banned WhatsApp around the timing of the World Cup only to lift the ban. Such bans are largely ineffective because the majority of users are engaged in lawful communications yet want their privacy, those engaged in illegal and potentially violent activities make up a fraction of the userbase. The better solution is to know where nefarious users are lurking on the web and keep track of them in observable spaces. Banning the public’s access to messaging apps will always fail. Telegram and similar companies should deny government agencies the keys to encryption unless there is a reason given that would justify unlocking communications. If the governments are able to seize a phone and unlock it, they’ll already have access to a suspect’s communication if they haven’t erased the data.

Decoder

Telegram

Telegram, founded by Russian entrepreneur Pavel Durov in 2013, is an app that enables encrypted messaging, together with “self-destruct” messages. It is used by 200 million people worldwide. Authorities in a number of countries criticized it for providing secure communications channels for terrorists and criminals.