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Davis Polk
Jeffrey M. Oakes
Davis Polk & Wardwell London LLP 020 7418 1386 tel
5 Alderman bury Square
020 771 0 4886 fax
London EC2V 7HR
jeffrey.oakes@davispolk.com
May 20, 2015
Re:
The Royal Bank of Scotland Foreign Currency Exchange Settlement- Waiver Request
under Rule 405
Mary Kosterlitz, Esq.
Chief, Office of Enforcement Liaison
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-7553
Dear Ms. Kosterlitz:
This letter is submitted on behalf of our client, The Royal Bank of Scotland Group pic ("RBSG"),
a reporting company registered under section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), to request that the Securities and Exchange Commission (the
"Commission"), determine that RBSG should not be considered an "ineligible issuer" as defined
in amended Rule 405 ("Rule 405") under the Securities Act of 1933, as amended (the
"Securities Act") as a result of a plea agreement (the "Plea Agreement") to be entered into by
The Royal Bank of Scotland pic, the principal direct operating subsidiary undertaking of RBSG
(the "Settling Firm"), as described below. The Settling Firm is expected to enter a guilty plea
(the "Guilty Plea") in the U.S. District Court for the District of Connecticut (the "District Court")
to a one-count information charging a criminal violation of the Shearman Act (the "Information")
on May 20, 2015 (the "Effective Date"). At a later time, the District Court is expected to enter a
final judgment in relation to the conviction of the Settling Firm pursuant to the Plea Agreement
(the "Final Judgment").
Pursuant to Rule 405, we respectfully request, on behalf of RBSG, that the Commission
determine that for good cause shown it is not necessary under the circumstances that RBSG be
considered an "ineligible issuer'' under Rule 405 and that such determination that RBSG should
not be considered an "ineligible issuer" be made effective as of the Effective Date.
BACKGROUND
On May 20, 2015, the Settling Firm and the Antitrust and Criminal Divisions of the United States
Department of Justice (the "Department of Justice") are expected to sign the Plea Agreement
Davis Polk & Wardwell London LLP is a limited liability partnership formed under the laws of the State of New York,
USA, and is authorised and regulated by the Solicitors Regulation Authority with registration number 566321 .
Davis Polk includes Davis Polk & Wardwell LLP and its associated entities.
#87227133v3
2
May 20,2015
and the Settling Firm is expected to enter the Guilty Plea in the District Court to the Information.
The Information charges that between approximately December 2007 and January 2013, the
Settling Firm and its co-conspirators entered into and engaged in a combination and conspiracy
to fix, stabilize, maintain, increase or decrease the price of, and rig bids and offers for, the
euro/U.S. dollar ("EURIUSD") currency pair exchanged in the foreign currency exchange spot
market (the "FX Spot Market") by agreeing to eliminate competition in the purchase and sale of
the EUR/USD currency pair in the United States and elsewhere in violation of the Sherman
Antitrust Act, Title 15, United States Code, Section 1 (the "Charged Conduct"). 1 The Settling
Firm, through one of its EUR/USD currency traders (the "Responsible Trader"), is alleged to
have knowingly joined and participated in the conspiracy from at least as early as December
2007 until at least April 2010.
The Information charges that in furtherance of this conspiracy, the Settling Firm and its coconspirators, engaged in communications in electronic chat rooms. The Information further
charges that the Settling Firm and its co-conspirators, carried out the conspiracy to eliminate
competition in the purchase and sale of the EUR/USD currency pairs by various means and
methods including, in certain instances, by: (i) coordinating the trading of the EUR/USD currency
pairs in connection with European Central Bank and World Markets/Reuters benchmark currency
"fixes" which occurred at 2:15PM (CET) and 4:00PM (GMT) each trading day, respectively; and
(ii) refraining from certain trading behavior, by withholding bids and offers, when one conspirator
held an open risk position, so that the price of the currency traded would not move in a direction
adverse to the conspirator with an open risk position.
2
Pursuant to the Plea Agreement, attached hereto as Annex A , the Settling Firm is expected to
enter the Guilty Plea in the District Court to the Charged Conduct. In the Plea Agreement, the
Settling Firm, among other things, will agree to pay a fine in the amount of $395 million. It is
expected that the District Court will enter a Final Judgment that will require remedies that are
materially the same as set forth in the Plea Agreement. The Settling Firm, and certain of its
majority-owned subsidiaries, also agree to cooperate in the Department of Justice's continuing
investigation into the FX Spot Market and any related litigation, as well as other investigations
designated in the Plea Agreement..
The Settling Firm and RBS Securities, Inc. will also enter into a settlement with the Board of
Governors of the Federal Reserve System ("Federal Reserve") to resolve certain findings by the
Federal Reserve . Such findings include that the activities by the Settling Firm regarding buying
and selling U.S. dollars and foreign currency for its own account and by soliciting and receiving
orders through communications between customers and Settling Firm sales personnel that are
executed by traders in the spot market ("Covered FX Activities") lacked adequate governance,
risk management, compliance and audit policies and procedures to ensure that the Covered FX
Activities complied with safe and sound banking practices, applicable U.S. laws and regulations
and applicable internal policies (the "Federal Reserve Order"). The Federal Reserve Order will
require the Settling Firm to undertake certain further remedial efforts and pay a civil monetary
penalty.
1
In addition, the Information finds that the Settling Firm, through its currency traders and sales staff, also
engaged in other deceptive currency trading and sales practices in conducting FX Spot Market transactions with
customers via telephone, email, and/or electronic chat. For the avoidance of doubt, such conduct is not included
in the term "Charged Conduct" as used herein.
2
Attachment A of the Plea Agreement is sealed and may not be made public. As a result it has been
removed from Annex A.
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The Settling Firm entered into a settlement with the U.S. Commodity Futures Trading
Commission ("CFTC") on November 11, 2014 to resolve certain findings by the CFTC (the
"CFTC Order"). Such findings include that the Settling Firm, by and through certain of its foreign
exchange ("FX") traders, at times sought to benefit its own trading positions or those of certain
FX traders at other banks by attempting to manipulate and aiding and abetting certain traders at
other banks in their attempts to manipulate certain FX benchmark rates, that such misconduct
occurred primarily at the Settling Firm's G1 0 FX trading desk in London, that the Settling Firm
failed to adequately assess the risks associated with its participation in the setting of certain FX
benchmark rates, lacked adequate internal controls or procedures to detect and deter possible
misconduct involving certain FX benchmark rates and failed to adequately supervise its FX
traders by, among other shortcomings, failing to have controls and monitoring over the use of
electronic chat rooms. In the CFTC Order, the Settling Firm, among other things, agreed to
undertake certain remedial efforts with respect to its internal controls and procedures and pay a
fine of $290 million. As required by the CFTC Order, on March 10, 2015, the Settling Firm
submitted to the CFTC a report regarding its remediation efforts prior to and since the entry of
the CFTC Order. The report described the Settling Firm's FX remediation efforts through 2014,
which are summarized below in Section 2 "Remedial Steps," and its plans with respect to the
remedial undertakings required by the CFTC Order.
DISCUSSION: "INELIGIBLE ISSUERS"
As amended by the Securities Offering Reform, Securities Act rules adopted by the Commission
provide certain benefits for "well-known seasoned issuers", or "WKSis", in connection with the
registration process. The Securities Act rules also permit WKSis to use a "free writing
prospectus" in connection with a registered offering of securities. 3 These benefits, however, are
unavailable to issuers defined as "ineligible issuers" pursuant to Rule 405.
Notwithstanding the foregoing, paragraph (2) of the definition provides that an issuer "shall not be
an ineligible issuer if the Commission determines, upon a showing of good cause, that it is not
necessary under the circumstances that the issuer be considered an ineligible issuer."
As a result of the conviction and absent a determination by the Commission to the contrary,
RBSG would be an "ineligible issuer" under paragraph (1 )(v) of the definition of ineligible issuer
under Rule 405 for a period of three years after the Effective Date. As an ineligible issuer, RBSG
would be precluded from qualifying as a WKSI and having the benefit of the automatic shelf
registration and other provisions of the Securities Offering Reform rules for three years.
REASONS FOR GRANTING A WAIVER
As described above, Rule 405 authorizes the Commission to grant waivers of ineligible issuer
status in circumstances where an issuer has become an ineligible issuer pursuant to Rule 405.
RBSG believes that under the facts and circumstances of this matter there is good cause for the
Commission to make such a determination with respect to it notwithstanding the conviction. In
making this request, RBSG has carefully considered the policy statement on the framework for
3
See Securities Act Rules 164 and 433, 17 C.F.R. § 230.164 and 230.433.
3 #87227133v3
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well-known seasoned issuer waivers (the "Framework") 4 and, as discussed in more detail below,
does not believe that according ineligible issuer status on RBSG is necessary for the protection
of investors.
1. Nature of Violation; Responsibility for and Duration of the Misconduct
The violations addressed in the Plea Agreement do not pertain to activities undertaken by RBSG
in connection with RBSG's role as an issuer of securities (or any disclosure relating thereto) or
any of its filings with the Commission or otherwise involve alleged fraud in connection with
RBSG's offerings of its own securities.
The Plea Agreement alleges that FX traders employed by a number of financial services firms
acting as dealers in the FX Spot Market, including the Responsible Trader employed by the
Settling Firm, entered into and engaged in a combination and conspiracy to fix, stabilize,
maintain, increase or decrease the price of, and rig bids and offers for, EUR/USD exchanged in
the FX Spot Market by agreeing to eliminate competition in the purchase and sale of EUR/USD
in the United States and elsewhere, in violation of the Sherman Antitrust Act, 15 U.S.C. § 1. The
Settling Firm, through the Responsible Trader, is alleged to have participated in the conspiracy
from at least as early as December 2007 and continuing until at least April 2010.
As set forth in the Plea Agreement, the Charged Conduct is that of one employee, the
Responsible Trader, who left the Settling Firm in April 2010. The Responsible Trader was a
EUR/USD trader employed by the Settling Firm who engaged in communications in electronic
chat rooms with FX traders employed by other financial institutions, unrelated to RBSG or the
Settling Firm. None of these individuals were officers or directors of RBSG or the Settling Firm,
and none of them were responsible for, or had any influence over, RBSG's disclosure or the
disclosure of RBSG's subsidiaries.
Importantly, the Plea Agreement does not (i) challenge RBSG or its subsidiaries' disclosures in
their filings with the Commission; (ii) allege that RBSG's disclosure controls and procedures were
deficient or facilitated the perpetration of the fraudulent activities by the persons responsible; (iii)
allege fraud in connection with offerings by RBSG or its subsidiaries of their securities; (iv) allege
that members of the Board of Directors, Executive Committee, Management Committee or other
senior officers of RBSG knew about the violations; or (v) allege that members of the Board of
Directors, Executive Committee, Management Committee or other senior officers of RBSG
ignored any warning signs or "red flags" regarding the violations.
As the wrongdoing identified in relation to the Charged Conduct was the product of misconduct
principally committed by one trader employed by the Settling Firm, who had no responsibility for
the disclosure of RBSG or any of its subsidiaries, RBSG believes that such misconduct does not
call into question the reliability of RBSG's current and future disclosure and that designation as
an ineligible issuer is not required for the protection of existing and potential investors in RBSG's
securities.
2. Remedial Steps
4
Division of Corporation Finance "Revised Statement on Well-Known Seasoned Issuer Waivers" , April 24,
2014.
4#87227133v3
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RBSG and its affiliates, including the Settling Firm, have implemented policies and procedures
designed to prevent recurrence of the Charged Conduct that is the subject of the Plea
Agreement and have fully cooperated with investigations relating to the Charged Conduct, which
has been recognized by the Department of Justice, the Federal Reserve and RBSG's regulators
in the United Kingdom. The Responsible Trader, who is the only individual who was associated
with RBSG or its affiliates charged with criminal conduct in the Plea Agreement, left the Settling
Firm in April 2010 for another financial institution. Consistent with the Settling Firm's practice with
respect to employees terminating their employment to join other financial institutions, all
outstanding and unvested share compensation rights were terminated upon the Responsible
Trader's departure. The Responsible Trader's actions were carried out in contravention of
RBSG's and the Settling Firm's policies, practices and procedures. The paragraphs below
describe the steps which RBSG and its affiliates, including the Settling Firm, have taken to
prevent the recurrence of the Charged Conduct.
Since becoming aware of the wrongdoing in the context of the CFTC, Department of Justice and
Federal Reserve's investigations, and even prior thereto, the Settling Firm has taken extensive
steps to remediate the misconduct and strengthen its compliance and internal control standards
and procedures governing its participation in such markets. From 2012, RBSG and its affiliates
began to expand the governance policies and procedures related to its FX activities with the
creation of new multi-tiered committees composed of senior executives. These committees are
responsible for, among other things, the following: reviewing issues such as pricing and
disclosure, trade execution, client management, order management, high-risk scenarios and
conflicts, information management, communications and surveillance, and supervision and
training; undertaking risk assessment and control framework reviews of its FX business globally;
creating forums for reviewing, discussing and escalating risks and governance-related matters
for its FX activities; and setting new minimum standards and best practices to be applied in the
submission of rates, prices or levels to internal or external entities that may be used for the
compilation of official or unofficial reference rates, prices or indices or certain other purposes.
In addition to the governance policies and procedures described above, RBSG has taken a
number of other steps to enhance its internal controls policies and procedures relating to its FX
business. These changes include, but are not limited to the following:
reducing the risk appetite of its Currency Business (as defined below), as well as reducing the
fixes at which it takes client orders and its rate-setting activities;
restricting participation in multi-bank chat rooms so that all front-office employees, including
traders, are prohibited from participating in permanent chats or chat rooms that include banks,
affiliates of banks or other competitors and multi-party chats that include clients, banks, bank
entities, other competitors or brokers. In addition, stringent controls have been placed on
temporary and bilateral chats;
strengthening its surveillance program covering electronic communications, audio
communications and trade activity at FX desks;
adopting a "clean desk" process, a unified set of controls and procedures for accepting client
orders at certain fixes;
prohibiting mobile communication devices (whether issued by RBSG or personal) on dealing
floors;
improving customer disclosures relating to FX fix orders;
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enhancing training programs for all relevant staff, including supervisors in RBSG's Corporate and
Institutional Banking business unit ("CIB"), which encompasses FX activities; and
enhancing policies, procedures and guidance related to market color and client orders.
Further, RBSG has initiated internal programs and culture initiatives designed to set the tone
from the top and to integrate RBSG's values and practices into employees' day-to-day activities
by, among other things, conducting leadership workshops attended by more than 3,000 senior
leaders as well as simplifying and enhancing the tools designed to ensure compliance with
RBSG values. Other firm-wide initiatives included revisions to RBSG's code of conduct and
changes to the performance management approach in order to better reflect and incentivize
desired behavior. A number of initiatives specific to RBSG's CIB business have also been
implemented.
The policies and procedures described above that RBSG has undertaken and continues to
undertake are, and in the future will be, reasonably designed to result in the compliance of its
activities related to FX transactions with all applicable laws and regulations.
RBSG's FX activities are conducted as part of its currencies business which forms part of
RBSG's CIB business (the "Currency Business"). In February 2015, RBS publicly announced a
major shift in its business strategy. As part of this revised strategic plan, RBSG's CIB activities
will be restructured and scaled back significantly with the remainder of the activities designed to
support RBSG's role as a leading British bank serving UK corporate and financial institutions.
Such restructuring, in conjunction with RBSG's internal evaluation of the risks posed by FX
activities, has resulted, and is expected to continue to result through 2018, in a significant
reduction in the geographical scope of CIS's activities as well as the volume and types of
activities undertaken by RBSG's Currency Business. During this period of restructuring, in
addition to the procedures and policies described above which are specific to RBSG's FX
activities, significant resources and internal corporate governance structures will be put in place
to create accountability and responsibility for carrying out the restructuring of the CIB business,
including mitigating actions relating to RBSG's FX activities during the run-down period.
As the Commission staff is aware, RBSG has twice previously requested and received a waiver
regarding its WKSI status from the Office of Enforcement Liaison, Division of Corporation
Finance pursuant to the delegated authority granted by the Commission, in connection with
settlements involving other of its subsidiaries. The first waiver was granted on November 26,
2013 and related to alleged conduct with respect to a single offering of residential mortgage
backed securities by an indirect wholly owned subsidiary of RBSG in the United States, and that
in connection with such offering, the defendant violated section 17(a)(2) and (3) of the Securities
Act. The conduct, which was the subject of the first waiver request, and for which certain
remediation steps were implemented, occurred between April and May 2007 and is unrelated to
the conduct which is the subject of this waiver request. The second waiver was granted on April
25, 2014 and related to the conduct of an indirect wholly owned subsidiary of RBSG in Japan,
which resulted in the subsidiary pleading guilty to one count of wire fraud relating to the
manipulation of Yen LIBOR in violation of Title 18, United States Code, Section 1343. The
conduct which was the subject of the second waiver request, and for which certain remediation
steps were and continue to be implemented, related to a limited number of lower-level
employees of another subsidiary of RBSG and took place concurrently with the Charged Conduct
in the Information between 2006 and 2010. The Charged Conduct in the Information had
terminated at the time the plea agreement and deferred prosecution agreement in relation to the
matter for which this second waiver was requested were finalized. A number of the remediation
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efforts described above have been, and continue to be, implemented on a firm-wide basis as part
of a major compliance and governance initiative to reinforce the controls and procedures relating
to RBSG's markets activities which comprise the units whose employees were responsible for
the wrongdoing relating to the manipulation of the Yen LIBOR and of the FX Spot Market. Such
initiatives are being carried out within the broader context of a significant restructuring of RBSG's
CIB business (described above) which is expected to result in an important reduction in the size
and complexity of this business. As a result, and taking account of the remediation steps which
have been described above, RBSG does not believe that the prior conduct covered by the
previous WKSI waiver requests nor the misconduct that is the subject of this WKSI waiver
request, calls into question the adequacy of RBSG's internal controls or its ability to produce
reliable disclosure.
3. Impact on RBSG if the Request Is Denied
The Plea Agreement is the result of substantial negotiations among RBSG, the Settling Firm and
the Department of Justice. Its terms have been carefully crafted to meet and balance the
competing concerns of all involved. Determining to maintain ineligible issuer status for RBSG
would, in effect, impose a sanction that would go beyond the agreed-upon settlement terms
negotiated by the Settling Firm in good faith and that would be disproportionately severe, given
the Charged Conduct that is the subject of the action, the lack of any nexus to RBSG's public
disclosures and taking into account the monetary fines in the amount of $395 million imposed on
the Settling Firm pursuant to the Plea Agreement and the remedial measures described above.
Loss of WKSI status would impose a significant burden on RBSG and the Settling Firm. As the
Commission staff is aware, RBSG and the Settling Firm (with an RBSG guarantee) are both
frequent issuers of securities that are registered with the Commission and offered and sold under
the current Form F-3 automatic registration statement (the "WKSI Shelf'). RBSG and the Settling
Firm issue a variety of securities that are registered under the WKSI Shelf, including ordinary
shares and related depositary shares, preference stock, regulatory capital securities and senior
debt securities. For RBSG and the Settling Firm, the WKSI Shelf process available to WKSis and
certain subsidiaries of WKSis 5 provides an important means of rapid and flexible access to the
U.S. capital markets, which are an essential source of funding and regulatory capital for RBSG's
operations. Although access to the public capital markets globally has improved in the past few
years, markets remain volatile and local and global macro-economic and political events are
expected to continue to impact markets and result in significant periods of volatility. As a result,
the procedural and financial flexibility that the WKSI Shelf provides will remain key to RBSG's
funding and capital raising activities. Furthermore, the WKSI Shelf allows access to the widest
possible investor base, and one that is most familiar with the bank holding company structure
which is otherwise uncommon outside of the United States.
In 2014, RBSG raised 76o/o of its regulatory capital for that year using the WKSI Shelf. In 2013
and 2012, RBSG raised 1OOo/o of its regulatory capital for each of those years using the WKSI
Shelf. Since 2012, RBSG and RBS have raised in aggregate 65% of their unsecured senior
funding using the WKSI Shelf. Since 2010, RBSG and the Settling Firm have completed 15 key
benchmark trades using the WKSI Shelf, representing $14.7 billion in funding and $7.5 billion in
regulatory capital. It is expected that material amounts of regulatory capital and other senior and
5
The Settling Firm is not a stand-alone reporting company. It utilizes an exception provided in Rule 3-10 of
Regulation S-X which permits condensed consolidating financial information for the Settling Firm to be presented
in the RBSG 20-F.
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subordinated debt securities will be raised by RBSG in the coming years in light of RBSG's
announced capital plan and increased capital and other regulatory requirements, and the
flexibility offered by the WKSI Shelf will be critical to achieving successful offerings. In particular,
following the publication in December 2014 of the stress test results carried out by the Bank of
England and as part of its revised capital strategy announced in February 2015, RBSG has
publicly announced its intention to raise around £2 billion of Additional Tier 1 capital instruments
during 2015.
RBSG and the Settling Firm are subject to the capital requirements of the Capital Requirements
Directive and Capital Requirements Regulation (together, "CRD IV") which transpose the Basel
Ill framework in Europe and came into effect in the United Kingdom on January 1, 2014. In
addition, RBSG and its subsidiaries are and may in the future be, subject to additional firmspecific capital and liquidity requirements imposed by the Prudential Regulation Authority in the
United Kingdom. Proposals currently under consideration in Europe relating to minimum
requirements for own funds and eligible liabilities under the Bank Recovery and Resolution
Directive, as well as the Financial Stability Board's proposals relating to total loss absorbency
capacity for globally systemically important banks, are likely to result in increased capital and
other requirements for institutions such as RBSG. In addition, under CRD IV qualifying regulatory
capital usually consists of common equity, preferred equity, Additional Tier 1 capital and certain
subordinated debt. As a result of the levels of regulatory capital required to meet the capital
requirements to which RBSG is subject, and the costs of raising common equity capital, it is likely
that capital-raising efforts going forward will involve the issuance of new types of securities, the
characteristics of which are not yet known and therefore are difficult to anticipate in a shelf
registration statement. "File and launch" for the public offering of new securities has developed
as the market standard for large issuers since the advent of the Commission's Securities Offering
Reform in 2005. Without a waiver of ineligible issuer status, by the time RBSG may be able to
enter the market (i.e., after it files an amendment to its non-WKSI shelf registration statement
subject to Commission staff review and approval), the market could be saturated, there may not
be the same level of demand or the pricing terms may have become disadvantageous.
RBSG and its subsidiaries are also regularly subject to stress tests administered by the Bank of
England and the European Banking Authority, the parameters and requirements of which change
annually, and significant capital buffers, above the regulatory minimum levels, are required for
financial institutions to be able to withstand the severe economic downturn hypothesized in the
stress test scenarios elaborated for the purposes of these tests. The results of these stress tests
could dictate additional capital needs.
In February 2015, RBSG announced a vast transformation program which involves a number of
initiatives, including a number of measures designed to achieve RBSG's capital targets and the
implementation of the ring-fence regime of its retail operations in the United Kingdom. RBSG
targets a fully loaded Basel Ill Common Equity Tier 1 ("CET1") ratio of 13% over the restructuring
period. The ring-fenced entity will be subject to specific additional capital buffers which will be
determined by the Bank of England's Financial Policy Committee and may result in increased
capital funding requirements.
In order to satisfy the enhanced capital requirements described above, RBSG expects that a
significant proportion of any new capital will be met through the issuance of qualifying securities
in the public markets, with the United States being a critical market for such issuances.
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In addition, since November 2010, RBSG and the Settling Firm have executed approximately
115 structured products trades using their WKSI Shelf structured products platforms (pursuant to
which more than 17 different products have been offered, including CPI-Iinked notes and other
similar instruments as well as exchange-traded notes). As the Commission staff is aware, free
writing prospectuses are important to marketing structured products. The issuance of structured
products has constituted an important part of RBSG's funding in the past. Although RBSG
currently expects to exit the structured products business as a result of the restructuring of
RBSG's CIB business, RBSG may in the future decide to recommence such activities, including
during the period when it would be considered an "ineligible issuer." If this were the case,
reentering the structured products business may be challenging without the ability to rely on free
writing prospectuses and the benefits of a WKSI Shelf.
As an ineligible issuer, RBSG would lose the flexibility to offer additional securities of the classes
covered by the registration statement without filing a new registration statement and to register
additional classes of securities not covered by the registration statement by filing a post-effective
amendment which becomes immediately effective, and RBSG would lose the ability to omit
certain information from the prospectus and rely on pay-as-you-go fees. In addition, RBSG would
not be able to qualify a new indenture under the Trust Indenture Act of 1939, as amended,
should the need arise, without filing and having the Commission declare effective a new
registration statement. Moreover, as an ineligible issuer, RBSG and the Settling Firm would not
be permitted to use a free writing prospectus other than a free writing prospectus that contains
only a description of the terms of the securities in the offering or the offering itself. This could limit
the ability of RBSG and the Settling Firm to use certain road-show or other materials which,
under certain circumstances, could only be used if they were eligible to be treated as a free
writing prospectus.
*
*
*
As acknowledged by the Department of Justice and the Federal Reserve, RBSG and the Settling
Firm have shown exemplary cooperation with inquiries into this matter by the Department of
Justice, Federal Reserve and other regulatory and supervisory bodies and continue to provide
their full cooperation in ongoing investigations. The Plea Agreement notes that the Settling Firm
and certain of its majority-owned subsidiaries (collectively, the "Related Entities") have agreed
to continue to cooperate with the Department of Justice in any ongoing investigation relating to
the manipulation of the FX Spot Markets, as well as other investigations designated in the Plea
Agreement. The Plea Agreement also includes a term of probation pursuant to which the Settling
Firm agrees that during the term of probation- three years- it (i) will not commit another crime
in violation of the federal laws of the United States, engage in the Charged Conduct, and will post
disclosure on its website and to its spot FX customers relating to the currency trading and sales
practices enumerated in the Plea Agreement, and (ii) will implement and enforce certain
compliance programs designed to prevent and detect the Charged Conduct and the currency
trading and sales practices enumerated in the Plea Agreement throughout its operations and
those of its affiliates and put in place such compliance and internal controls as may be required
by other regulatory or other enforcement agencies that have addressed the Charged Conduct
and the currency trading and sales practices set forth in the Plea Agreement.
RBSG is also engaging with the Federal Reserve and has provided the Federal Reserve with
information describing a number of remediation efforts put in place to address the issues
identified in the Federal Reserve Order. The Settling Firm has also agreed to comply with several
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undertakings pursuant to the CFTC Order, including, among other things, implementing and
improving its internal controls and procedures in a manner reasonably designed to ensure the
integrity of its participation in the fixing of any FX benchmark rate, including measures
reasonably designed to identify and address internal or external conflicts of interest. The Settling
Firm's remediation efforts detailed in the report are concentrated around three areas of activity:
(1) the establishment of a remediation governance and oversight structure, (2) changes in the
risk profile and appetite of the Settlement Firm's FX activities and (3) initiatives to reshape the
culture of the Settling Firm as a firm as well as specific cultural programs within CIB. In addition
to these three key areas of remediation, and as noted in the CFTC Order, the Settling Firm had
already taken a number of other steps intended to make reasonable efforts to ensure the integrity
of the FX markets which are described in section 2 of this letter.
In light of the foregoing, subjecting RBSG to ineligible issuer status is not necessary under the
circumstances, either in the public interest or for the protection of investors, and good cause
exists for grant of the requested relief. Based on the factors set forth in the Framework, the loss
to RBSG of certainty and flexibility if it were to become an ineligible issuer would be a
disproportionate hardship, and the Charged Conduct does not relate to RBSG's ability to produce
reliable disclosures, including in its role as an issuer of securities. Accordingly, we respectfully
request that the Commission, pursuant to Rule 405, determine that under the circumstances
RBSG will not be considered an "ineligible issuer" within the meaning of Rule 405 as a result of
the conviction arising out of the Plea Agreement.
If you have any questions regarding this request, please contact the undersigned at +44 207 418
1386.
Very truly yours,
!tt.~es
1 0#87227133v3
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
-------------------------------------------------------------- x
UNITED STATES OF AMERICA
:
Criminal No.
v.
:
Filed:
:
Violation: 15 U.S.C. § 1
THE ROYAL BANK OF SCOTLAND PLC,
Defendant.
:
-------------------------------------------------------------- x
PLEA AGREEMENT
The United States of America and The Royal Bank of Scotland plc (“defendant”), a
financial services public limited company organized and existing under the laws of the United
Kingdom, hereby enter into the following Plea Agreement pursuant to Rule 11(c)(1)(C) of the
Federal Rules of Criminal Procedure (“Fed. R. Crim. P.”):
RIGHTS OF DEFENDANT
1.
The defendant understands its rights:
(a)
to be represented by an attorney;
(b)
to be charged by Indictment;
(c)
as a public limited company organized and existing under the laws of the
United Kingdom, to decline to accept service of the Summons in this case, and to contest
the jurisdiction of the United States to prosecute this case against it in the United States
District Court for the District of Connecticut, and to contest venue in that District;
(d)
to plead not guilty to any criminal charge brought against it;
1
(e)
to have a trial by jury, at which it would be presumed not guilty of the
charge and the United States would have to prove every essential element of the charged
offense beyond a reasonable doubt for it to be found guilty;
(f)
to confront and cross-examine witnesses against it and to subpoena
witnesses in its defense at trial;
(g)
to appeal its conviction if it is found guilty; and
(h)
to appeal the imposition of sentence against it.
AGREEMENT TO PLEAD GUILTY
AND WAIVE CERTAIN RIGHTS
2.
The defendant knowingly and voluntarily waives the rights set out in Paragraph
1(b)-(g) above. The defendant also knowingly and voluntarily waives the right to file any
appeal, any collateral attack, or any other writ or motion, including but not limited to an appeal
under 18 U.S.C. § 3742, that challenges the sentence imposed by the Court if that sentence is
consistent with or below the Recommended Sentence in Paragraph 9 of this Plea Agreement,
regardless of how the sentence is determined by the Court. The defendant further agrees to
waive and not raise any defense or rights defendant may otherwise have under the statute of
limitations with respect to the criminal information referred to in this paragraph. The defendant
further states that this waiver is knowingly and voluntarily made after fully conferring with, and
on the advice of, defendant’s counsel, and is made for defendant’s own benefit. This agreement
does not affect the rights or obligations of the United States as set forth in 18 U.S.C. § 3742(b)(c). Nothing in this paragraph, however, will act as a bar to the defendant perfecting any legal
remedies it may otherwise have on appeal or collateral attack respecting claims of ineffective
assistance of counsel or prosecutorial misconduct. The defendant agrees that there is currently
2
no known evidence of ineffective assistance of counsel or prosecutorial misconduct. Pursuant to
Fed. R. Crim. P. 7(b), the defendant will waive indictment and plead guilty to a one-count
Information to be filed in the United States District Court for the District of Connecticut. The
Information will charge that the defendant and its co-conspirators entered into and engaged in a
combination and conspiracy to fix, stabilize, maintain, increase or decrease the price of, and rig
bids and offers for, the euro/U.S. dollar (“EUR/USD”) currency pair exchanged in the foreign
currency exchange spot market (“FX Spot Market”), which began at least as early as December
2007 and continued until at least January 2013, by agreeing to eliminate competition in the
purchase and sale of the EUR/USD currency pair in the United States and elsewhere, in violation
of the Sherman Antitrust Act, 15 U.S.C. § 1. The Information will further charge that the
defendant knowingly joined and participated in the conspiracy from at least as early as December
2007 until at least April 2010.
3.
The defendant will plead guilty to the criminal charge described in Paragraph 2
above pursuant to the terms of this Plea Agreement and will make a factual admission of guilt to
the Court in accordance with Fed. R. Crim. P. 11, as set forth in Paragraph 4 below.
FACTUAL BASIS FOR OFFENSE CHARGED
4.
Had this case gone to trial, the United States would have presented evidence
sufficient to prove the following facts:
(a)
For purposes of this Plea Agreement, the “Relevant Period” is that period
from at least as early as December 2007 and continuing until at least January 2013.
(b)
The FX Spot Market is a global market in which participants buy and sell
currencies. In the FX Spot Market, currencies are traded against one another in pairs.
3
The EUR/USD currency pair is the most traded currency pair by volume, with a
worldwide trading volume that can exceed $500 billion per day, in a market involving the
exchange of currencies valued at approximately $2 trillion a day during the Relevant
Period.
(c)
The FX Spot Market is an over-the-counter market and, as such, is
decentralized and requires financial institutions to act as dealers willing to buy or sell a
currency. Dealers, also known throughout the FX Spot Market as market makers,
therefore play a critical role in ensuring the continued functioning of the market.
(d)
During the Relevant Period, the defendant and certain of its Related
Entities, as defined in Paragraph 14 of this Plea Agreement, employing more than 5,000
individuals worldwide, acted as a dealer, in the United States and elsewhere, for currency
traded in the FX Spot Market.
(e)
A dealer in the FX Spot Market quotes prices at which the dealer stands
ready to buy or sell the currency. These price quotes are expressed as units of a given
currency, known as the “counter” currency, which would be required to purchase one unit
of a “base” currency, which is often the U.S. dollar and so reflects an “exchange rate”
between the currencies. Dealers generally provide price quotes to four decimal points,
with the final digit known as a “percentage in point” or “pip.” A dealer may provide
price quotes to potential customers in the form of a “bid/ask spread,” which represents
the difference between the price at which the dealer is willing to buy the currency from
the customer (the “bid”) and the price at which the dealer is willing to sell the currency to
the customer (the “ask”). A dealer may quote a spread, or may provide just the bid to a
4
potential customer inquiring about selling currency or just the ask to a potential customer
inquiring about buying currency.
(f)
A customer wishing to trade currency may transact with a dealer by
placing an order through the dealer’s internal, proprietary electronic trading platform or
by contacting the dealer’s salesperson to obtain a quote. When a customer accepts a
dealer’s quote, that dealer now bears the risk for any change in the currency’s price that
may occur before the dealer is able to trade with other dealers in the “interdealer market”
to fill the order by buying the currency the dealer has agreed to sell to the customer, or by
selling the currency the dealer has agreed to buy from the customer. A dealer may also
take and execute orders from customers such as “fix orders,” which are orders to trade at
a subsequently determined “fix rate.” When a dealer accepts a fix order from a customer,
the dealer agrees to fill the order at a rate to be determined at a subsequent fix time based
on trading in the interdealer market. Two such “fixes” used to determine a fix rate are the
European Central Bank fix, which occurs each trading day at 2:15 PM (CET) and the
World Markets/Reuters fix, which occurs each trading day at 4:00 PM (GMT).
(g)
During the Relevant Period, the defendant and its corporate co-
conspirators, which were also financial services firms acting as dealers in the FX Spot
Market, entered into and engaged in a conspiracy to fix, stabilize, maintain, increase or
decrease the price of, and rig bids and offers for, the EUR/USD currency pair exchanged
in the FX Spot Market by agreeing to eliminate competition in the purchase and sale of
the EUR/USD currency pair in the United States and elsewhere. The defendant, through
5
one of its EUR/USD traders, participated in the conspiracy from at least as early as
December 2007 and continuing until at least April 2010.
(h)
In furtherance of the conspiracy, the defendant and its co-conspirators
engaged in communications, including near daily conversations, some of which were in
code, in an exclusive electronic chat room, which chat room participants, as well as
others in the FX Spot Market, referred to as “The Cartel” or “The Mafia.” Participation
in this electronic chat room was limited to specific EUR/USD traders, each of whom was
employed, at certain times, by a co-conspirator dealer in the FX Spot Market. The
defendant participated in this electronic chat room through one of its EUR/USD traders
from December 2007 until April 2010.
(i)
The defendant and its co-conspirators carried out the conspiracy to
eliminate competition in the purchase and sale of the EUR/USD currency pair by various
means and methods including, in certain instances, by: (i) coordinating the trading of the
EUR/USD currency pair in connection with European Central Bank and World
Markets/Reuters benchmark currency “fixes” which occurred at 2:15 PM (CET) and 4:00
PM (GMT) each trading day; and (ii) refraining from certain trading behavior, by
withholding bids and offers, when one conspirator held an open risk position, so that the
price of the currency traded would not move in a direction adverse to the conspirator with
an open risk position.
(j)
During the Relevant Period, the defendant and its co-conspirators
purchased and sold substantial quantities of the EUR/USD currency pair in a continuous
and uninterrupted flow of interstate and U.S. import trade and commerce to customers
6
and counterparties located in U.S. states other than the U.S. states or foreign countries in
which the defendant agreed to purchase or sell these currencies. The business activities
of the defendant and its co-conspirators in connection with the purchase and sale of the
EUR/USD currency pair, were the subject of this conspiracy and were within the flow of,
and substantially affected, interstate and U.S. import trade and commerce. The
conspiracy had a direct effect on trade and commerce within the United States, as well as
on U.S. import trade and commerce, and was carried out, in part, within the United
States.
(k)
Acts in furtherance of the charged offense were carried out within the
District of Connecticut and elsewhere.
ELEMENTS OF THE OFFENSE
5.
The elements of the charged offense are that:
(a)
the conspiracy described in the Information existed at or about the time
alleged;
(b)
the defendant knowingly became a member of the conspiracy; and
(c)
the conspiracy described in the Information either substantially affected
interstate and U.S. import commerce in goods or services or occurred within the flow of
interstate and U.S. import commerce in goods and services.
POSSIBLE MAXIMUM SENTENCE
6.
The defendant understands that the statutory maximum penalty which may be
imposed against it upon conviction for a violation of Section One of the Sherman Antitrust Act is
a fine in an amount equal to the greatest of:
7
(a)
$100 million (15 U.S.C. § 1);
(b)
twice the gross pecuniary gain the conspirators derived from the crime
(18 U.S.C. § 3571(c) and (d)); or
(c)
twice the gross pecuniary loss caused to the victims of the crime by the
conspirators (18 U.S.C. § 3571(c) and (d)).
7.
In addition, the defendant understands that:
(a)
pursuant to 18 U.S.C. § 3561(c)(1), the Court may impose a term of
probation of at least one year, but not more than five years;
(b)
pursuant to § 8B1.1 of the United States Sentencing Guidelines
(“U.S.S.G.,” “Sentencing Guidelines,” or “Guidelines”) or 18 U.S.C. § 3563(b)(2) or
3663(a)(3), the Court may order it to pay restitution to the victims of the offense charged;
and
(c)
pursuant to 18 U.S.C. § 3013(a)(2)(B), the Court is required to order the
defendant to pay a $400 special assessment upon conviction for the charged crime.
SENTENCING GUIDELINES
8.
The defendant understands that the Sentencing Guidelines are advisory, not
mandatory, but that the Court must consider, in determining and imposing sentence, the
Guidelines Manual in effect on the date of sentencing unless that Manual provides for greater
punishment than the Manual in effect on the last date that the offense of conviction was
committed, in which case the Court must consider the Guidelines Manual in effect on the last
date that the offense of conviction was committed. The parties agree there is no ex post facto
issue under the November 1, 2014 Guidelines Manual. The Court must also consider the other
8
factors set forth in 18 U.S.C. §§ 3553(a), 3572(a), in determining and imposing sentence. The
defendant understands that the Guidelines determinations will be made by the Court by a
preponderance of the evidence standard. The defendant understands that although the Court is
not ultimately bound to impose a sentence within the applicable Guidelines range, its sentence
must be reasonable based upon consideration of all relevant sentencing factors set forth in 18
U.S.C. §§ 3553(a), 3572(a).
SENTENCING AGREEMENT
9.
Pursuant to Fed. R. Crim. P. 11(c)(1)(C) and subject to the full, truthful, and
continuing cooperation of the defendant and its Related Entities, as defined in Paragraphs 14 and
15 of this Plea Agreement, the United States and the defendant agree that the appropriate
disposition of this case is, and agree to recommend jointly that the Court impose, a sentence
requiring the defendant to pay to the United States a criminal fine of $395 million, pursuant to 18
U.S.C. § 3571(d), payable in full before the fifteenth (15th) day after the date of judgment, no
order of restitution, and a term of probation of 3 years (the “Recommended Sentence”). The
parties agree not to seek at the sentencing hearing any sentence outside of the Guidelines range
nor any Guidelines adjustment for any reason that is not set forth in this Plea Agreement. The
parties further agree that the Recommended Sentence set forth in this Plea Agreement is
reasonable.
(a)
The defendant understands that the Court will order it to pay a $400
special assessment, pursuant to 18 U.S.C. § 3013(a)(2)(B), in addition to any fine
imposed.
9
(b)
In light of the availability of civil causes of action, which potentially
provide for a recovery of a multiple of actual damages, the Recommended Sentence does
not include a restitution order for the offense charged in the Information.
(c)
The United States and the defendant agree that the Court shall order a
term of probation, which should include at least the following conditions, the violation of
which is subject to 18 U.S.C. § 3565:
(i)
The defendant shall not commit another crime in violation
of the federal laws of the United States or engage in the conduct set forth in Paragraph
4(g)-(i) above during the term of probation. On a date not later than that on which the
defendant pleads guilty (currently scheduled for Wednesday, May 20, 2015), the
defendant shall prominently post on its website a retrospective disclosure (“Disclosure
Notice”) of its conduct set forth in Paragraph 13 in the form agreed to by the Department
(a copy of the Disclosure Notice is attached as Attachment B hereto), and shall maintain
the Disclosure Notice on its website during the term of probation. The defendant shall
make best efforts to send the Disclosure Notice not later than thirty (30) days after the
defendant pleads guilty to its spot FX customers and counterparties, other than customers
and counterparties who the defendant can establish solely engaged in buying or selling
foreign currency through the defendant’s consumer bank units and not the defendant’s
spot FX sales or trading staff.
(ii)
The defendant shall notify the probation officer upon learning of
the commencement of any federal criminal investigation in which the defendant is a
target, or federal criminal prosecution against it.
10
(iii)
The defendant shall implement and shall continue to implement a
compliance program designed to prevent and detect the conduct set forth in Paragraph 4
(g)-(i) above and, absent appropriate disclosure, the conduct in Paragraph 13 below
throughout its operations including those of its affiliates and subsidiaries and provide an
annual report to the probation officer and the United States on its progress in
implementing the program, commencing on a schedule agreed to by the parties.
(iv)
The defendant shall further strengthen its compliance and internal
controls as required by the U.S. Commodity Futures Trading Commission, the United
Kingdom Financial Conduct Authority, and any other regulatory or enforcement agencies
that have addressed the conduct set forth in Paragraph 4 (g)-(i) above and Paragraph 13
below, and report to the probation officer and the United States, upon request, regarding
its remediation and implementation of any compliance program and internal controls,
policies, and procedures that relate to the conduct described in Paragraph 4 (g)-(i) above
and Paragraph 13 below. Moreover, the defendant agrees that it has no objection to any
regulatory agencies providing to the United States any information or reports generated
by such agencies or by the defendant relating to conduct described in Paragraph 4 (g)-(i)
above or Paragraph 13 below. Such information and reports will likely include
proprietary, financial, confidential, and competitive business information, and public
disclosure of the information and reports could discourage cooperation, impede pending
or potential government investigations, and thus undermine the objective of the United
States in obtaining such reports. For these reasons, among others, the information and
reports and the contents thereof are intended to remain and shall remain nonpublic,
11
except as otherwise agreed to by the parties in writing, or except to the extent that the
United States determines in its sole discretion that disclosure would be in furtherance of
the United States’ discharge of its duties and responsibilities or is otherwise required by
law.
(v)
The defendant understands that during the term of probation it
shall: (1) report to the Antitrust Division all credible information regarding criminal
violations of U.S. antitrust laws by the defendant or any of its employees as to which the
defendant’s Board of Directors, management (that is, all supervisors within the bank), or
legal and compliance personnel are aware; and (2) report to the Criminal Division, Fraud
Section all credible information regarding criminal violations of U.S. law concerning
fraud, including securities or commodities fraud, by the defendant or any of its
employees as to which the defendant’s Board of Directors, management (that is, all
supervisors within the bank), or legal and compliance personnel are aware.
(vi)
The defendant shall bring to the Antitrust Division’s attention all
federal criminal investigations in which the defendant is identified as a subject or a target,
and all administrative or regulatory proceedings or civil actions brought by any federal or
state governmental authority in the United States against the defendant or its employees,
to the extent that such investigations, proceedings or actions allege facts that could form
the basis of a criminal violation of U.S. antitrust laws, and the defendant shall also bring
to the Criminal Division, Fraud Section’s attention all federal criminal or regulatory
investigations in which the defendant is identified as a subject or a target, and all
administrative or regulatory proceedings or civil actions brought by any federal
12
governmental authority in the United States against the defendant or its employees, to the
extent such investigations, proceedings or actions allege violations of U.S. law
concerning fraud, including securities or commodities fraud.
(d)
The parties agree that the term and conditions of probation imposed by the
Court will not void this Plea Agreement.
(e)
The defendant intends to file an application for a prohibited transaction
exemption with the United States Department of Labor (“Department of Labor”)
requesting that the defendant, its subsidiaries, and affiliates be allowed to continue to be
qualified as a Qualified Professional Asset Manager pursuant to Prohibited Transactions
Exemption 84-14. The defendant will seek such exemption in an expeditious manner and
will provide all information requested of it by the Department of Labor in a timely
manner. The decision regarding whether or not to grant an exemption, temporary or
otherwise, is committed to the Department of Labor, and the United States takes no
position on whether or not an exemption should be granted; however, if requested, the
United States will advise the Department of Labor of the fact, manner, and extent of the
cooperation of the defendant and its Related Entities, as defined in Paragraphs 14 and 15
of this Plea Agreement, and the relevant facts regarding the charged conduct. If the
Department of Labor denies the exemption, or takes any other action adverse to the
defendant, the defendant may not withdraw its plea or otherwise be released from any of
its obligations under this Plea Agreement. The United States agrees that it will support a
motion or request by the defendant that sentencing in this matter be adjourned until the
Department of Labor has issued a ruling on the defendant’s request for an exemption,
13
temporary or otherwise, so long as the defendant is proceeding with the Department of
Labor in an expeditious manner. To the extent that this Plea Agreement triggers other
regulatory exclusions, disqualifications or penalties, the United States likewise agrees
that, if requested, it will advise the appropriate officials of any governmental agency
considering such action, or any waiver or exemption therefrom, of the fact, manner, and
extent of the cooperation of the defendant and its Related Entities and the relevant facts
regarding the charged conduct as a matter for that agency to consider before determining
what action, if any, to take.
(f)
The United States contends that had this case gone to trial, the United
States would have presented evidence to prove that the gain derived from or the loss
resulting from the charged offense is sufficient to justify the Recommended Sentence set
forth in Paragraph 9 of this Plea Agreement, pursuant to 18 U.S.C. § 3571(d). For
purposes of this plea and sentencing only, the defendant waives its right to contest this
calculation.
(g)
The defendant agrees to waive its right to the issuance of a Presentence
Investigation Report pursuant to Fed. R. Crim. P. 32 and the defendant and the United
States agree that the information contained in this Plea Agreement and the Information
may be sufficient to enable the Court to meaningfully exercise its sentencing authority
under 18 U.S.C. § 3553, pursuant to Fed. R. Crim. P. 32(c)(1)(A)(ii). Except as set forth
in this Plea Agreement, the parties reserve all other rights to make sentencing
recommendations and to respond to motions and arguments by the opposition.
14
10.
The United States and the defendant agree that the applicable Guidelines fine
range exceeds the fine contained in the Recommended Sentence set forth in Paragraph 9 of this
Plea Agreement. The parties agree that they will request the Court to impose the Recommended
Sentence set forth in Paragraph 9 of this Plea Agreement in consideration of the Guidelines fine
range and other factors set forth in 18 U.S.C. §§ 3553(a), 3572(a). Subject to the full, truthful,
and continuing cooperation of the defendant and its Related Entities, as defined in Paragraphs 14
and 15 of this Plea Agreement, and prior to sentencing in this case, the United States agrees that
it will make a motion, pursuant to U.S.S.G. § 8C4.1 for a downward departure from the
Guidelines fine range because of the defendant’s and its Related Entities’ substantial assistance
in the United States’ investigation and prosecution of violations of federal criminal law in the FX
Spot Market. The parties further agree that the Recommended Sentence is sufficient, but not
greater than necessary to comply with the purposes set forth in 18 U.S.C. §§ 3553(a), 3572(a).
11.
Subject to the full, truthful, and continuing cooperation of the defendant and its
Related Entities, as defined in Paragraphs 14 and 15 of this Plea Agreement, and prior to
sentencing in the case, the United States will fully advise the Court of the fact, manner, and
extent of the defendant’s and its Related Entities’ cooperation, and their commitment to
prospective cooperation with the United States’ investigation and prosecutions of violations of
federal criminal law in the FX Spot Market, all material facts relating to the defendant’s
involvement in the charged offense and all other relevant conduct.
12.
The United States and the defendant understand that the Court retains complete
discretion to accept or reject the Recommended Sentence provided for in Paragraph 9 of this Plea
Agreement.
15
(a)
If the Court does not accept the Recommended Sentence, the United States
and the defendant agree that this Plea Agreement, except for Paragraph 12(b) below, will
be rendered void.
(b)
If the Court does not accept the Recommended Sentence, the defendant
will be free to withdraw its guilty plea (Fed. R. Crim. P. 11(c)(5) and (d)). If the
defendant withdraws its plea of guilty, this Plea Agreement, the guilty plea, and any
statement made in the course of any proceedings under Fed. R. Crim. P. 11 regarding the
guilty plea or this Plea Agreement, or made in the course of plea discussions with an
attorney for the United States, will not be admissible against the defendant in any
criminal or civil proceeding, except as otherwise provided in Federal Rule of Evidence
410. In addition, the defendant agrees that, if it withdraws its guilty plea pursuant to this
subparagraph of the Plea Agreement, the statute of limitations period for any offense
referred to in Paragraph 16 of this Plea Agreement will be tolled for the period between
the date of signature of this Plea Agreement and the date the defendant withdrew its
guilty plea or for a period of sixty (60) days after the date of signature of this Plea
Agreement, whichever period is greater.
OTHER RELEVANT CONDUCT
13.
In addition to its participation in a conspiracy to fix, stabilize, maintain, increase
or decrease the price of, and rig bids and offers for, the EUR/USD currency pair exchanged in
the FX Spot Market, the defendant, through its currency traders and sales staff, also engaged in
other currency trading and sales practices in conducting FX Spot Market transactions with
customers via telephone, email, and/or electronic chat, to wit: (i) intentionally working
16
customers’ limit orders one or more levels, or “pips,” away from the price confirmed with the
customer; and (ii) disclosing non-public information regarding the identity and trading activity of
the defendant’s customers to other banks or other market participants, in order to generate
revenue for the defendant at the expense of its customers. The defendant also engaged in the
following conduct: (iii) intentionally altering the rates provided to certain of its customers
transacting FX over a trading platform disclosed to the United States in order to generate rates
that were systematically more favorable to the defendant and less favorable to customers; and
(iv) in connection with the FX component of a single corporate transaction, trading ahead of a
client transaction so as to artificially affect the price of a currency pair and generate revenue for
the defendant, and to affect or attempt to affect FX rates, and in addition misrepresenting market
conditions and trading to the client.
DEFENDANT’S COOPERATION
14.
The defendant and its Related Entities as defined below shall cooperate fully and
truthfully with the United States in the investigation and prosecution of this matter, involving: (a)
the purchase and sale of the EUR/USD currency pair, or any other currency pair, in the FX Spot
Market, or any foreign exchange forward, foreign exchange option or other foreign exchange
derivative, or other financial product (to the extent disclosed to the United States); (b) the
conduct set forth in Paragraphs 13 of this Plea Agreement; and (c) any investigation, litigation or
other proceedings arising or resulting from such investigation to which the United States is a
party. Such investigation and prosecution includes, but is not limited to, an investigation,
prosecution, litigation, or other proceeding regarding obstruction of, the making of a false
statement or declaration in, the commission of perjury or subornation of perjury in, the
17
commission of contempt in, or conspiracy to commit such conduct or offenses in, an
investigation and prosecution. The defendant’s Related Entities for purposes of this Plea
Agreement are entities in which the defendant had, indirectly or directly, a greater than 50%
ownership interest as of the date of signature of this Plea Agreement, including but not limited to
RBS Securities, Inc. The full, truthful, and continuing cooperation of the defendant and its
Related Entities shall include, but not be limited to:
(a)
producing to the United States all documents, factual information, and
other materials, wherever located, not protected under the attorney-client privilege or
work product doctrine, in the possession, custody, or control of the defendant or any of its
Related Entities, that are requested by the United States; and
(b)
using its best efforts to secure the full, truthful, and continuing cooperation
of the current or former directors, officers and employees of the defendant and its Related
Entities as may be requested by the United States, including making these persons
available in the United States and at other mutually agreed-upon locations, at the
defendant’s expense, for interviews and the provision of testimony in grand jury, trial,
and other judicial proceedings. This obligation includes, but is not limited to, sworn
testimony before grand juries or in trials, as well as interviews with law enforcement and
regulatory authorities. Cooperation under this paragraph shall include identification of
witnesses who, to the knowledge of the defendant, may have material information
regarding the matters under investigation.
15.
For the duration of any term of probation ordered by the Court, the defendant also
shall cooperate fully with the United States and any other law enforcement authority or
18
government agency designated by the United States, in a manner consistent with applicable law
and regulations, with regard to all investigations identified in Attachment A (filed under seal) to
this Plea Agreement. The defendant shall, to the extent consistent with the foregoing, truthfully
disclose to the United States all factual information not protected by a valid claim of attorneyclient privilege or work product doctrine protection with respect to the activities, that are the
subject of the investigations identified in Attachment A, of the defendant and its Related Entities.
This obligation of truthful disclosure includes the obligation of the defendant to provide to the
United States, upon request, any non-privileged or non-protected document, record, or other
tangible evidence about which the aforementioned authorities and agencies shall inquire of the
defendant, subject to the direction of the United States. These obligations of full cooperation and
truthful disclosure with regard to matters set forth in Attachment A do not preclude the defendant
from merely putting the United States to its burden of proof in any action brought as a result of
the investigations identified in Attachment A.
GOVERNMENT’S AGREEMENT
16.
Subject to the full, truthful, and continuing cooperation of the defendant and its
Related Entities, as defined in Paragraphs 14 and 15 of this Plea Agreement, and upon the
Court’s acceptance of the guilty plea called for by this Plea Agreement and the imposition of the
Recommended Sentence, the United States agrees that it will not bring further criminal charges,
whether under Title 15 or Title 18, or other federal criminal statutes, against the defendant or any
of its Related Entities:
(a)
for any combination and conspiracy occurring before the date of signature
of this Plea Agreement to fix, stabilize, maintain, increase or decrease the price of, and
19
rig bids and offers for, the EUR/USD currency pair, or any other currency pair exchanged
in the FX Spot Market, or any foreign exchange forward, foreign exchange option or
other foreign exchange derivative, or other financial product (to the extent such financial
product was disclosed to the United States), and
(b)
for the conduct specifically identified in Paragraph 13 (i)-(iii) of this Plea
Agreement that the defendant disclosed to the United States and that occurred between
January 1, 2009 and the date of signature of this Plea Agreement, and for the conduct
specifically identified in Paragraph 13 (iv) of this Plea Agreement that the defendant
disclosed to the United States and that occurred between January 1, 2008 and the date of
signature of this Plea Agreement.
(c)
The nonprosecution terms of Paragraph 16 of this Plea Agreement do not
extend to any other product, activity, service or market of the defendant, and do not apply
to (i) any acts of subornation of perjury (18 U.S.C. § 1622), making a false statement (18
U.S.C. § 1001), obstruction of justice (18 U.S.C. § 1503, et seq), contempt (18 U.S.C. §§
401-402), or conspiracy to commit such offenses; (ii) civil matters of any kind; (iii) any
violation of the federal tax or securities laws or conspiracy to commit such offenses; or
(iv) any crime of violence.
REPRESENTATION BY COUNSEL
17.
The defendant has been represented by counsel and is fully satisfied that its
attorneys have provided competent legal representation. The defendant has thoroughly reviewed
this Plea Agreement and acknowledges that counsel has advised it of the nature of the charge,
any possible defenses to the charge, and the nature and range of possible sentences.
20
VOLUNTARY PLEA
18.
The defendant’s decision to enter into this Plea Agreement and to tender a plea of
guilty is freely and voluntarily made and is not the result of force, threats, assurances, promises,
or representations other than the representations contained in this Plea Agreement. The United
States has made no promises or representations to the defendant as to whether the Court will
accept or reject the recommendations contained within this Plea Agreement.
VIOLATION OF PLEA AGREEMENT
19.
The defendant agrees that, should the United States determine in good faith,
during the period that any investigation or prosecution covered by Paragraph 14 is pending, or
during the period covered by Paragraph 15, that the defendant or any of its Related Entities has
failed to provide full, truthful, and continuing cooperation, as defined in Paragraphs 14 and 15 of
this Plea Agreement respectively, or has otherwise violated any provision of this Plea
Agreement, except for the conditions of probation set forth in Paragraphs 9(c)(i)-(vi), the
violations of which are subject to 18 U.S.C. § 3565, the United States will notify counsel for the
defendant in writing by personal or overnight delivery, email, or facsimile transmission and may
also notify counsel by telephone of its intention to void any of its obligations under this Plea
Agreement (except its obligations under this paragraph), and the defendant and its Related
Entities will be subject to prosecution for any federal crime of which the United States has
knowledge including, but not limited to, the substantive offenses relating to the investigation
resulting in this Plea Agreement. The defendant agrees that, in the event that the United States is
released from its obligations under this Plea Agreement and brings criminal charges against the
defendant or its Related Entities for any offense referred to in Paragraph 16 of this Plea
21
Agreement, the statute of limitations period for such offense will be tolled for the period between
the date of signature of this Plea Agreement and six (6) months after the date the United States
gave notice of its intent to void its obligations under this Plea Agreement.
20.
The defendant understands and agrees that in any further prosecution of it or its
Related Entities resulting from the release of the United States from its obligations under this
Plea Agreement, because of the defendant’s or its Related Entities’ violation of this Plea
Agreement, any documents, statements, information, testimony, or evidence provided by it, its
Related Entities, or current or former directors, officers, or employees of it or its Related Entities
to attorneys or agents of the United States, federal grand juries or courts, and any leads derived
therefrom, may be used against it or its Related Entities. In addition, the defendant
unconditionally waives its right to challenge the use of such evidence in any such further
prosecution, notwithstanding the protections of Federal Rule of Evidence 410.
ENTIRETY OF AGREEMENT
21.
This Plea Agreement, Attachment A, and Attachment B constitute the entire
agreement between the United States and the defendant concerning the disposition of the
criminal charge in this case. This Plea Agreement cannot be modified except in writing, signed
by the United States, the defendant and the defendant’s counsel.
22.
The undersigned is authorized to enter this Plea Agreement on behalf of the
defendant as evidenced by the Resolution of the Board of Directors of the defendant attached to,
and incorporated by reference in, this Plea Agreement.
22
23.
The undersigned attorneys for the United States have been authorized by the
Attorney General of the United States to enter this Plea Agreement on behalf of the
United States.
24.
A facsimile or PDF signature will be deemed an original signature for the purpose
of executing this Plea Agreement. Multiple signature pages are authorized for the purpose of
executing this Plea Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
23
AGREED:
FOR THE ROYAL BANK OF SCOTLAND PLC:
By:
Date:
By:
Greg D. Andres, Esq.
Davis Polk & Wardwell LLP
FOR THE DEPARTMENT OF JUSTICE, ANTITRUST DIVISION:
JEFFREY D. MARTINO
Chief, New Yark Office
Antitrust Division
United States Department of Justice
Date:
By:
Joseph Muoio, Trial Attorney
Eric L. Schleef, Trial Attorney
Bryan C. Bughman, Trial Attorney
Carrie A. Syme, Trial Attorney
GeorgeS. Baranko, Trial Attorney
Stephanie Raney, Trial Attorney
Bryan Serino, Trial Attorney
FOR THE DEPARTMENT OF JUSTICE, CRIMINAL DIVISION, FRAUD SECTION:
ANDREW WEISSMANN
Chief, Fraud Section
Criminal Division
United States Department of Justice
Date:
By:
Daniel A. Braun, Deputy Chief
Benjamin D. Singer, Deputy Chief
Gary A. Winters, Trial Attorney
Anna G. Kaminska, Trial Attorney
24
AGREED:
FOR THE ROYAL BANK OF SCOTLAND PLC:
Date:
By:
Date:
By:
FOR THE DEPARTMENT OF JUSTICE, ANTITRUST DIVISION:
JEFF REY D. MART INO
Chief, New York Offi ce
Antitrust Divi sion
United States Department of Justice
Date:
By:
Joseph Muoio, Tri al Attorney
Eri c L. Schl eef, Tri al Attorney
Brya n C. Bughman, Tri al Attorney
Carri e A. Sy me, Tri al Attorney
GeorgeS. Baranko, Trial Attorney
Stephani e Raney , Tri al Attorney
Brya n Serino, Tri al Attorney
FOR THE DEPARTMENT OF JUSTICE, CRIMINAL DIVISION, FRAUD SECTION:
AN DR EW WEISS MANN
Chi ef, Fraud Secti on
Criminal Divi sion
Uni ted States Department of Justice
Date:
By:
Dani el A. Braun , Deputy Chi ef
Benj amin D. Singer, Deputy Chi ef
Ga ry A. Winters, Trial Attorn ey
Anna G. Kaminska, Trial Attorn ey
24
AGREED:
FOR THE ROYAL BANK OF SCOTLAND PLC:
Date:
By:
James M. Esposito, Esq.
General Counsel, RBS Americas
Date:
By:
Greg D. Andres, Esq.
Davis Polk & Wardwell LLP
FOR THE DEPARTMENT OF JUSTICE, ANTITRUST DIVISION:
JEFFREY D. MARTINO
Chief, New York Office
Antitrust Division
United States
Date:
By:
Joseph Muoio, Trial Attorney
Eric L. Schleef, Trial Attorney
Bryan C. Bughman, Trial Attorney
Carrie A. Syme, Trial Attorney
GeorgeS . Baranko, Trial Attorney
Stephanie Raney, Trial Attorney
Bryan Serino, Trial Attorney
FOR THE DEPARTMENT OF JUSTICE, CRIMINAL DIVISION, FRAUD SECTION:
ANDREW WEISSMANN
Chief, Fraud Section
Criminal Division
United States Department of Justice
Date:
By:
24
ATTACHMENT B
DISCLOSURE NOTICE
The purpose of this notice is to disclose certain practices of The Royal Bank of Scotland plc and
its affiliates (together, “RBS” or the “Firm”) when it acted as a dealer, on a principal basis, in the
spot foreign exchange (“FX”) markets. We want to ensure that there are no ambiguities or
misunderstandings regarding those practices.
To begin, conduct by certain individuals has fallen short of the Firm’s expectations. The conduct
underlying the criminal antitrust charge by the Department of Justice is unacceptable. Moreover,
as described in our November 2014 settlement with the U.K. Financial Conduct Authority
relating to our spot FX business, in certain instances during the period 2008 to 2013, certain
employees intentionally disclosed information relating to the identity of clients or the nature of
clients’ activities to third parties in order to generate revenue for the Firm. This also was contrary
to the Firm’s policies, unacceptable, and wrong. The Firm does not tolerate such conduct and
already has committed significant resources in strengthening its controls surrounding our FX
business.
The Firm has engaged in other practices on occasion, including:
•
We have, without informing clients, worked limit orders at levels (i.e., prices) better than
the limit order price so that we would earn a spread or markup in connection with our
execution of such orders. This practice could have impacted clients in the following
ways: (1) clients’ limit orders would be filled at a time later than when the Firm could
have obtained currency in the market at the limit orders’ prices, and (2) clients’ limit
orders would not be filled at all, even though the Firm had or could have obtained
currency in the market at the limit orders’ prices. For example, if we accepted an order to
purchase €100 at a limit of 1.1200 EURUSD, we might choose to try to purchase the
currency at a EURUSD rate of 1.1199 or better so that, when we sought in turn to fill the
client’s order at the order price (i.e., 1.1200), we would make a spread or markup of 1 pip
or better on the transaction. If the Firm were unable to obtain the currency at the 1.1199
price, the clients’ order may not be filled as a result of our choice to make this spread or
markup.
EXTRACT DRAFT MINUTES of Meeting of the Board of Directors of THE ROYAL
BANK OF SCOTLAND GROUP pic (the "Group") held at 280 Bishopsgate, London
on Tuesday, 12 May 2015
Project Fox I FX Update
It was agreed that for the purpose of this item, the Directors would also be acting in
their capacity as the Board of Directors of THE ROYAL BANK OF SCOTLAND pic
(the "Bank") and that the Minutes would be construed accordingly.
After due discussion the Directors:
(a) on the basis of the advice received from RBS Legal and Davis Polk,
APPROVED, in principle, the Bank entering into the DOJ Plea Agreement and
the Federal Reserve Cease and Desist Order subject to resolving the
outstanding negotiations discussed at the meeting;
(b) NOTED the recommendation that the Plea Agreement be entered by the Bank
rather than the Group; and
(c) RESOLVED THAT a committee of the Board be appointed comprising at least
two Directors, two of whom shall be the Chairman, the Chief Executive or the
Chief Financial Officer as a Committee of the Board (the "FX Committee") to
finalise the negotiation of, and approve the final forms of, the Plea Agreement
and the Cease and Desist Order.
I confirm that the above resolutions were passed at the Group and Bank Board
meetings on 12 May 2015
~~~~ ________________ _
----------------------l~----~--:
Aileen Taylor
Chief Governance Officer and Board Counsel
1
The Royal Bank of Scotland pic
Meeting of the FX Committee of the
Board of Directors
Taken as of 19 May 2015
EXTRACT DRAFT MINUTES of Meeting of the FX Committee of the Board of
Directors of THE ROYAL BANK OF SCOTLAND PLC ("the Bank") held by
telephone on Tuesday, 19 May 2015.
Project Fox
The Directors having considered:
1. the discussions between the Bank, through its legal counsel, and the
U.S. Department of Justice ("DOJ") regarding the issues that remain
subject to negotiation in the investigations into the Bank's foreign
exchange ("FX") practices;
2. the terms of the proposed Plea Agreement between the Bank and the
DOJ, a draft of which was circulated to the Board before its 12 May
2015 meeting, and the revised version of which was circulated to the
FX Committee before its 19 May 2015 meeting; and
3. the advice to the Board and the FX Committee by legal counsel
regarding the current terms of the Plea Agreement, as well as advice
regarding the waiver of rights and other consequences of entering into
such agreement with the DOJ.
Resolved that:
1. The terms of the Plea Agreement with the DOJ that was circulated to
the FX Committee on 19 May 2015 (the "Plea Agreement") are
accepted on behalf of the Bank, subject to the conditions identified to
its legal counsel;
2. Each of the Chairman, the Chief Executive, the Chief Financial Officer,
the General Counsel and Mr. Esposito (Authorised Signatory of the
Bank and the General Counsel, Americas) is hereby authorised,
empowered and directed, on behalf of the Bank, to execute the Plea
Agreement, together with such changes as any of them may approve;
3. Each of the Chairman, the Chief Executive, the Chief Financial Officer,
the General Counsel and Mr. Esposito, are hereby authorised,
empowered and directed, in ·the name and on behalf of the Bank, to
take any actions as may be necessary or appropriate and to approve
the forms, terms, provisions of any agreement or other documents as
may be necessary or appropriate, to carry out and effectuate the
purpose and intent of the foregoing resolutions; and
4. The terms of the draft RNS announcement circulated in advance of the
meeting be and are hereby approved subject to any non-material
changes to be approved by the General Counsel or Mr Esposito.
I confirm the above resolutions were passed by the FX Committee of the
Board of Directors of The Royal Bank of Scotland pic on 19 May 2015.
- ~.
~
---------------------- ---------------------
Aileen Taylor
Chief Governance Officer and Board Counsel
2
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.