UBS’s Justice Department prosecution protection for LIBOR ripped up – future in US in jeopardy?

The US Department of Justice has threatened to tear up a 2012 deal in which it agreed not to file criminal charges against Swiss based UBS AG. Back in December 2012, UBS and other banks entered into non-prosecution agreements with the US Department of Justice (DOJ)  which would allow it immunity in LIBOR fraud allegations in exchange for cooperating with the DOJ on information and in UBS’s case, pleading guilty to a similar case over Tokyo inter-bank rates in Japan.

Financial Times article from today opined that scrapping the non-prosecution agreement (NPA) could theoretically put UBS’s ability to operate in the US in question, but that rescinding its US licence is characterized by legal experts as the “nuclear option,” and is not necessarily in play at the moment.

Why is the DOJ threatening to scrap the NPA agreement and now convict UBS? It seems that the case comes down to timing in conjunction with the Forex manipulation scandal in which UBS is a part of and is set to settle on. It is still under investigation whether the FX manipulation occured after the LIBOR misconduct, in that case it would violate the terms of the agreement back in 2012.

Bloomberg, which broke the story got this quote from Andreas Venditti, an analyst at Vontobel Holding AG in Zurich, he stated:  “This is basically a trade off, they (UBS) get leniency on foreign exchange and a lower fine and instead the Justice Department comes back with Libor.”

Leslie Caldwell, the head of the Justice Department’s criminal division, said in March she wouldn’t hesitate to tear up non- or deferred-prosecution agreements in exchange for banks’ cooperation in other probes.

The Justice Department has relied on these deals to resolve investigations into wrongdoing in the financial industry including, FX manipulation, money laundering and other interest rate rigging. The top US legal authority hopes that NPAs act as an olive branch, but carrying with it the threat of renewed prosecution still on the table if institutions commit any further illegal acts for a fixed period of time, in the Libor cases such as this, two years from the signing date.

You can read the original agreement between DoJ and UBS below for more of the legal details:

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