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LIEBOR cheats donations stuffed away in Tory ‘Treasure Island’

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By Joel Benjamin
On the eve of the Tory Party conference David Cameron is clinging onto £4.6million of ill gotten donations from former Tory Treasurer and ICAP CEO Michael Spencer. On Wednesday 25 September, ICAP headed by former Tory Treasurer Michael Spencer were fined £56 million by US and UK regulators for involvement in the rigging of LIBOR.
A broker at ICAP known as “Mr Libor” or “Lord Libor” to insiders was responsible for submitting requested rates to the banks each morning, two hours before the BBA and Reuters reported the LIBOR rate to market at 11am. Labour MP John Mann has written to David Cameron demanding he return the money Michael Spencer has donated to the Conservative party, and give it to Armed Forces charity Help for Heroes, as the money is effectively the proceeds of crime.[1]
Over the period LIBOR was being manipulated between 2006 and 2011 former Tory Treasurer Michael Spencer managed an ICAP subsidiary – Butlers, who advised 144 councils at the time of Icelandic Banking crisis in 2008/09  [2]
In response to news ICAP were involved in LIBOR rigging, John Mann MP has requested an FSA inquiry into the operation of Treasury Management Advisors who claim to provide ‘independent’ investment advice to local authorities, NHS trusts, universities and housing associations on where to invest taxpayer money.
As well as being responsible for losing the most amount of council deposits in Icelandic banks, it turns out parent company ICAP were paying kickbacks to subsidiary Butlers, for advice resulting in local council deposits. The competition commission which reviewed Butlers merger with Capita offshoot Sector in 2011 found: “another main source of Butlers’ revenues, arising from Butlers referring its clients to [ICAP] and receiving a share of the brokerage fees from any resulting transactions involving certain money market instruments (eg LOBOs).” [3]
Effectively, ICAP companies were advising public sector clients on both sides of the trades, encouraging local authorities to invest in LIBOR rigging banks, via broker ICAP, working in unison with the banks to rig LIBOR, and then receiving kickbacks for advice resulting in council taxpayer deposits. The relationship between Butlers and ICAP represented a clear conflict of interest.
ICAP and by extension Butlers, were providing financial advice and services to public authorities about where to invest in banks and financial products pegged to LIBOR which they represented as an honest benchmark, whilst simultaneously both rigging the rate, and communicating this information with LIBOR rigging banks which happened to be major local authority clients.
A 2009 Parliamentary Select Committee into the Icelandic banking crisis called for an urgent investigation into local authority treasure advisors, yet the FSA review never materialised. Michael Spencer was Tory Treasurer and a leading party donor at the time. [4]
Michael Spencer also the individual at the centre of the “cash for Cameron” lobbying scandal also boasted of having killed off the Robin Hood Tax following a dinner with David Cameron in 2012 [5]
ICAP are also involved in the setting of ISDAfix an interest rate swaps and derivatives benchmark co-managed by the International Swaps and Derivatives Association, Thomson Reuters, and ICAP in NYC since 1998.
As is the case with LIBOR, this benchmark is also under continuing investigation by financial regulators who suspect market manipulation.
The swaps market hedges against floating LIBOR interest rate volatility, and it would be absurd to think that ICAP having inside advance knowledge of LIBOR, would not be looking to further profits across the swaps and derivaties arm, or through collusion with bank traders.
In 2008 Michael Spencer boasted “that unstable financial markets were making him a packet,” adding: “Volatility is good for business.” [6]
The ICAP trading desk in New Jersey is affectionately known by industry insiders as “Treasure Island” because it makes so much money for the firm. Could this be why?[7]
There is a further implication ICAP’s LIBOR charge which may be of more direct relevance to UK public institutions including local authorities, NHS Trusts, and Housing Associations.
As well as seeking compensation for any losses derived from the systematic downward manipulation of LIBOR, reducing the interest rate payable on pensions and investments – clients who signed contracts pegged to LIBOR with ICAP and Butlers have further grounds for appeal.
The 2009 Parliamentary Commission into the Icelandic banking crisis in which Butlers emerged as the Treasury Advisor that lost the most council money found that Butlers were advising councils to invest in Iceland, while the Broker ICAP was receiving kickbacks for council deposits. Despite calls for a full FSA inquiry in 2009, an investigation into the industry never transpired. Was Michael Spencer’s role as Tory Treasurer and leading donor a factor here?
Given the clear profit motive to rig the system, how do we know such activity was not occurring in the UK, involving LIBOR rigging banks?
Several commentators from Matt Taibbi business editor Rolling Stone magazine, to David Green of Room 151 Treasury Advice have noted there is a case for local authorities to recover losses from LIBOR rigging banks. [8]
So why is this not happening in the UK, despite more than 16 local authorities in the USA taking legal action?
It turns out that councils are also dependent upon the same Treasury Advisors that direct them where to invest, to determine if they have lost money due to rigging of LIBOR. According to Move Your Money FOI requests, Sector and Arlingclose are currently advising councils that they have not lost any money because it is “too difficult to calculate.” [9]
Councils have not even taken the step of exercising due diligence to determine the extent of ‘assets at risk’ i.e the proportion of assets pegged to LIBOR or using it as a benchmark to calculate fund management fees.
Given the 2009 Icelandic inquiry found the Treasury Advisory industry unregulated and riven with conflicts of interest – this would appear to be fertile grounds for campaigners and public authorities to make a case for review, to determine if taxpayer losses stemming from ICAP and possibly by extension Butlers involvement in the rigging of LIBOR have occurred, and if so to investigate ways to recoup losses.
Footnotes
[1]  Financial Times
 [2] Mirror
 [3] Competition Commission
 
[4] Parliamentary Report
[5] Corporate Europe
[6] Mirror
[7] Bloomberg
[8] Room151
[9] Move Your Money FOI requests
Further reading
a) Lobos explained
b) Michael Spencer boasts of killing off Robin Hood Tax

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