The bankers at the heart of the Barclays interest rate-rigging scandal could be prosecuted for fraud, an offence that usually carries a prison sentence, it was disclosed yesterday.
The Serious Fraud Office (SFO) said it was investigating whether it was possible to bring criminal charges against executives who manipulated the London Interbank Offered Rate (Libor) and would decide within weeks whether to proceed.
Shortly after the SFO's announcement, a political row broke out over David Cameron's decision to reject calls for a Leveson-style inquiry into the episode in favour of a more rapid parliamentary investigation into the banking system.
With growing demands for the Barclays chief executive, Bob Diamond, to resign, the Business Secretary, Vince Cable, protested that senior figures in the banking industry "still don't get it". He said the revelations about the manipulation of the Libor system struck many as "bordering on the criminal".
The SFO said it was "considering whether it is both appropriate and possible to bring criminal prosecutions" over the case. It added that the issues were complex and it hoped to reach a conclusion within a month.
The Chancellor, George Osborne, welcomed the SFO's move, telling MPs: "Fraud is a crime in ordinary business – why shouldn't it be so in banking?" He said the SFO was studying whether false accounting charges could be brought under the Fraud Act.
The Government is committed to reform of Libor and similar markets to ensure that bankers who exploit them in future can be prosecuted. But it could not legislate to allow retrospective prosecutions and the SFO's move represents the final chance of bringing criminal charges in the Libor scandal.
Senior figures from Barclays will be cross-examined by the Commons Treasury Committee this week.
Mr Osborne said a joint committee of MPs and peers would investigate the "transparency, conflicts of interest, culture and the professional standards" in the banking industry. It would have the power to question politicians – potentially including former Chancellors Kenneth Clarke, Gordon Brown and Alistair Darling – as well as senior civil servants.
The FSA does not have the power to take action under criminal law for manipulating the market. The gap is set to be plugged by the Government.
The Serious Fraud Office is examining whether an offence has been committed in this case under the Fraud Act 2006. One possibility is that criminal charges could be brought for conspiracy to defraud. Another possibility is an offence of false accounting under the Theft Act 1968. It carries a maximum sentence of seven years.