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U.S. and British regulators investigating an alleged fixing of the London Interbank Offer Rate (LIBOR) tasted first blood today when British bank Barclays PLC (NYSE:BCS) (LON:BARC) agreed to pay at least $450 million to settle charges emanating from the probe, according to a report by Alexandra Alper and Kirstin Ridley of Reuters.

The Libor is the basis for settling trillions of dollars worldwide in derivative transactions. Investigators, responding to allegations after the 2008 financial crisis that it was out of sync with banks’ actual borrowing costs, initiated a probe that grew to encompass the biggest names in banking, including Citigroup, HSBC, Royal Bank of Scotland and UBS, apart from Barclays.

The settlement with Barclays enabled the release of damning emails that clearly establish traders, “submitters” and banks colluded for years to set up mutually convenient rates. Here’s one such email exchange that occurred on Nov 13, 2006:

Swaps trader: “Sorry to be a pain but just to remind you the importance of a low fixing for us today.”

Barclays’ senior Euribor submitter: “No problem, I had not forgotten. The brokers are going for 3.372, we will put in 36 for our contribution.”

Swaps trader: “I love you.”

According to the U.S. CFTC, Barclays manipulated Libor submissions over a four year period, commencing 2005, on an almost daily basis. The CFTC demanded Barclays pay a penalty of $200 million, the largest ever imposed by the organization.
Barclays also pays a fine of $160 million to the U.S. Department of Justice and $92.8 million to the UK Financial Services Authority, respectively.

According to the Department of Justice, Barclays was the first bank being probed “to provide extensive and meaningful cooperation to the government,” and acknowledged also that the bank’s assistance had been useful in its criminal investigation. Investigations by the European Commission and Japan’s Financial Services Authority are also under way.

No criminal action has been taken so far, though banks have fired or suspended several traders involved in the rate fixing.