WERE TOM HAYES and Carlo Palombo guilty merely of being bankers? In 2015 Mr Hayes, formerly of UBS and Citigroup, was convicted of conspiring to manipulate LIBOR, a benchmark interest rate. He was initially sentenced to 14 years in prison (the same as the maximum for blackmail). In 2019 Mr Palombo, once of Barclays, was given four years for fiddling EURIBOR, another benchmark. Both men were released in 2021.

But on July 23rd Britain’s Supreme Court quashed their convictions, ruling that the judge in Mr Hayes’s trial, Sir Jeremy Cooke, had misdirected the jury. Mr Palombo’s judge then made a similar error.

In the aftermath of the global financial crisis of 2007-09, LIBOR became a symbol of all that was wrong with banks and bankers. In 2012 it was estimated to be used in pricing $300trn-worth of financial contracts, in up to ten currencies (Mr Hayes’s field was the yen) and over periods of up to a year. LIBOR was a trimmed average of banks’ estimates of the rates at which they could supposedly borrow from each other. But much of it was guesswork: actual lending could be thin or non-existent.

That vagueness gave bankers leeway. Did they misuse it? The Serious Fraud Office (SFO) thought so: it prosecuted 20 for rigging rates; nine were convicted. (The Supreme Court’s ruling should give hope to the remaining seven.) Mr Hayes admitted that he tried to influence his colleagues to submit rates that were to his advantage, but not contrary to their honest opinion. But Sir Jeremy told the jury that submitters, if acting honestly, should not take commercial interests into account at all. That, the Supreme Court said, undermined the trial’s fairness. The question of honesty was for the jury, not the judge, to decide.

The financial system still has many flaws—though at least LIBOR is no more, replaced by new benchmarks based on overnight rates. But the legal system isn’t flawless either. The case is a failure for the SFO, which was both investigator and prosecutor. Karen Todner, Mr Hayes’s solicitor, said after the judgment that its dual role created a “substantial conflict of interest”.

The ruling suggests deeper problems. Lord Leggatt, who drew up the court’s decision, wrote that it “raises concerns about the effectiveness of the criminal-appeal system in England and Wales in confronting legal error.” He did not elaborate. But it has taken ten years to correct Sir Jeremy’s misdirection. The Court of Appeal upheld Mr Hayes’s and Mr Palombo’s convictions twice, and in fact did not grant them permission to appeal to the top court.

Their case reached the Supreme Court only because the appeal judges agreed that a general point of law was at issue: chiefly, whether pursuit of a trading advantage in submitting rates was consistent with honesty. Fortunately for Mr Hayes and Mr Palombo, the justices agreed to take it up. ■

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