The Court of Appeal on Monday 21st December handed down judgment in the appeal of Tom Hayes, the City trader convicted in August 2015 for conspiracy to defraud in relation to the manipulation of LIBOR. The three judges, including Lord Thomas, the Lord Chief Justice, refused to overturn his conviction.
The main ground on which Mr Hayes appealed his conviction, and the only one on which the court was prepared to grant leave to appeal, related to the way the trial judge, Mr Justice Cooke, had approached the question of dishonesty with the jury. Mr Hayes’s defence at trial was that his actions in seeking to influence the LIBOR rate were not dishonest. A key element of this defence was that what he was doing was, in effect, common practice in the banking industry, and his employers were fully aware of his actions. In short, he argued that because others were doing it, in a context where the rules were not particularly clear, he was not dishonest.
At first blush, it seems absurd to argue that the “everyone else was doing it” defence could ever work in an English criminal trial. Dishonesty is a component, not only of fraud offences, but also theft, burglary, and a host of other everyday criminal offences. One can only begin to imagine the difficulties the courts would face if, for example, a shoplifter could mount a defence on the basis that all his acquaintances were also shoplifters, and he was therefore not acting dishonestly in stealing food from his local supermarket.
In fact, however, Mr Hayes’s lawyers argued a more subtle point, which requires an understanding of the law on dishonesty. The test applied by juries in all trials involving dishonesty has for over 30 years been the Ghosh test, from the case of R v Ghosh  1 QB 1053. This defines dishonesty using a two stage test. The first limb is whether the behaviour was dishonest by “the ordinary standards of reasonable and honest people” (the objective limb). The second limb, if it was objectively dishonest, is whether the “defendant himself must have realised that what he was doing was by those standards dishonest” (the subjective limb).
The key issue under appeal was whether evidence of general practice in the banking industry could have any relevance to consideration of the objective limb of the dishonesty test. Mr Hayes’s defence team were attempting to draw what appears to be a very fine line – where the jury were entitled to bear in mind evidence of the standards of the market when considering whether Mr Hayes’s behaviour was objectively dishonest, but where such evidence would not be used to dilute the well-established Ghosh definition of “the standards of honest and reasonable people”. The Court of Appeal have now made clear that no such fine line exists, and that to introduce evidence of banking industry practice would be to allow the market to effectively determine its own standards of honesty. The court was robust, stating that:
“to depart from the view that standards of honesty are determined by the standards of ordinary reasonable and honest people is not only unsupported by authority, but would undermine the maintenance of ordinary standards of honesty and integrity that are essential to the conduct of business and markets.”
It is perhaps unsurprising that, in the present climate, the Court of Appeal was unwilling to countenance such an argument. The public perception that bankers need to be held to account in the same way as ordinary people for financial misconduct would hardly be served by a ruling that the presence of widespread malpractice in the banking industry could afford a defence to criminal charges. For bankers to have such a line of defence, whilst shoplifters and burglars did not, would give the impression of double standards in the criminal justice system.
Interestingly everyone agreed, both at trial and in the Court of Appeal, that the standards of the market could be relevant to the subjective limb of the Ghosh test – to whether Mr Hayes himself realised what he was doing was dishonest. (In the specific circumstances of this case, such considerations were unlikely to make much difference to the verdict, as Mr Hayes had made extensive admissions in interview to his conduct having been dishonest, admissions which he later tried to distance himself from.) This aspect of the judgment means that the door is not completely closed on the “everyone was at it” defence. Future defendants can still argue that they were not subjectively aware that their behaviour was dishonest, and point to general practice in the market as evidence to support them. However, the publicity surrounding this case has surely been such that, looking ahead, for anyone facing trial for similar offences committed in 2016 and beyond, “everyone was at it” is unlikely to be an easy line of defence.
Indeed, the acquittals, on 27th and 28th January 2016, of the six defendants in the second trial arising from LIBOR manipulation, demonstrates that banking practice retains an important evidential function. Although the majority of defendants in this recent case focussed on the very different question of whether or not they actually engaged in the alleged manipulation of LIBOR, dishonesty was the key issue in the case of Mr Farr. His defence, in very brief terms, was that subjectively, when he saw the behaviour that was occurring around him, he simply did not realise what he was doing was dishonest. Although one can never know why a jury decision was reached, his acquittal after a relatively short deliberation, tends to suggest that evidence that “everyone was at it” can be utilised to great effect in support of an argument relating to subjective dishonesty.
Ultimately, although the Court of Appeal was willing to hear Mr Hayes’s argument that banking practice was relevant to the objective standard of dishonesty, it has been roundly rejected. This case now serves as a warning to those working in the financial industry not to be complacent in adopting the actions of their colleagues, or relying on the acknowledgment of their employers.
  EWCA Crim 1944
Need for more transparency at INTERPOL
February 1 2023
Enforcement of financial sanctions and extradition risk
January 23 2023
Claire Cross comments on Jeremy Hunt ignoring lessons from the 2008 financial crisis
December 13 2022