The problems with delayed enforcement

First UK Libor trial highlights the length of fraud investigations

Alexander Campbell

Nearly a decade after the events in question, the first Libor-rigging trial is at last underway. Tom Hayes, a former trader with both UBS and Citi, faces charges of conspiracy to commit fraud in London's Southwark Crown Court. Hayes has pleaded not guilty on all charges; a verdict is not expected before mid-August.

Whatever the verdict in Hayes's case – and in the other trials which are to follow – it is still possible to deplore the length of time between the occasion and the trial. Hayes's charges date back to 2006. Any lessons learned from the outcome of his trial will, at this distance in history, have very little impact.

And this isn't just a case of the delays inherent in putting together a criminal case for trial (though these have been extensive in Hayes's case; he was charged in June 2013, and the trial, originally scheduled for January this year, was postponed). Whether or not Hayes committed any crimes, the time taken for the UK authorities – and UBS itself – to detect that Libor was being rigged was far too long. From 2005 to 2008, UK regulators found, the bank had no oversight mechanisms at all around Libor submissions; manipulation of the rate went completely undetected.

There are very good practical reasons why delays in the area of financial crime should be particularly counterproductive. For one thing, very few of the traders involved in Libor-setting in 2006 are now anywhere near where they were then. It is a recognised finding of criminology that deterrence is at its most effective, not when penalties are high, but when detection is sure and swift – hardly the situation now.

And deterrence is not the only purpose of punishment; there's also vengeance. Unpleasant though it is to contemplate, the human desire to see the guilty punished is very real, and very deep-rooted; and the banking industry, if it is to recover the public trust on which it depends, must convince them that it has suffered enough. Even the unprecedentedly large fines imposed by regulators over the last few years have not achieved this. Successful criminal prosecutions may do better; but it would have been better still if they could have happened years ago.