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A woman walks past a line of Barclays cash dispensers in central London, June 27 2012.ANDREW WINNING/Reuters

Canada's Competition Bureau is pushing ahead with its own probe of a mushrooming international scandal that has already ensnared a venerable British bank and forced the resignation of its chief executive.

Documents filed in an Ontario court suggest the bureau is investigating a possible Canadian link to the scandal that's rocking the world of global banking — financial skullduggery involving the manipulation of a key international interest rate known as the Libor rate.

One of the named parties — the Canadian branch of the Royal Bank of Scotland — has filed a court challenge on the grounds the bureau's actions are unconstitutional and well beyond the scope of its mandate. But the investigation hasn't stopped, said Gabrielle Tasse, a spokesperson for the bureau.

"I cannot speak to the investigation because we have to conduct our work privately, but our investigation is ongoing," Tasse said.

Libor is the London inter-bank offered rate — a benchmark setting that influences borrowing costs for businesses, financial institutions, governments and consumers. So far, the scandal has cost British bank Barclays about US$455 million in fines and forced the resignation of its chief executive, Bob Diamond.

While most of the impact of manipulating rates would be felt in international financial circles, TD Bank chief economist Craig Alexander said Canadians have some skin in the game, both directly and indirectly.

"Libor is not the primary determinant of the cost of funds for Canadian banks ... but it might impact Canadian financial institutions, governments and Canadian large corporations that have dealings in the international capital markets," Mr. Alexander said.

That in turn could filter down to consumer and business lending costs, although the impact would be minimal, he added.

"I think the Competition Bureau is trying to assess just to what extent Canadian investors could have been affected by the manipulation of Libor."

The Canadian court documents offer an expansive picture about how and when the six international banks allegedly colluded to fix the yen-denominated rates. And they are based on an asset that investigators in any complex investigation would crave: a whistleblower who has traded immunity from prosecution in exchange for turning on his or her fellow conspirators.

Based on the whistleblower's testimony, the Competition Bureau received a court order last year to force five Canadian affiliates of international banks, and one cash broker, to turn over documents relating to the alleged collusion between 2007 and 2010.

The alleged participants are the Canadian branches of Royal Bank of Scotland, HSBC, Deutsche Bank, JP Morgan Bank, and Citibank, as well as ICAP (Intercapital), an interdealer broker active in the wholesale markets in interest rates, credit, commodities, foreign exchange and equity derivatives.

The allegations have not resulted in any charges, and the documents do not indicate any alleged wrongdoing took place in Canada.

The bureau has named eight traders, all in London, it alleges were involved in fixing the yen-denominated Libor between 2007 and June 25, 2010.

"The IRD (interest-rate derivatives) traders at the participant banks communicated with each other their desire to see a higher or lower yen Libor to aid their trading positions," federal prosecutor Robert Morin, acting on behalf of the Competition Bureau, says in the documents.

The documents suggest the Canadian bureau has been pursuing the matter since at least January, 2011, long before allegations of LIBOR rate-fixing began dominating headlines earlier this month.

"The bureau became aware of this matter after one of the participant banks in the alleged offences approached the bureau pursuant to the immunity program," the document states. The immunity is only granted under the conditions applicant provides "full, complete, frank and truthful disclosure throughout the process," the document notes.

A sealed document at the court reveals the identity of the "co-operating party," as the bureau refers to the whistleblower, who is believed to be an official representing the Canadian branch of a foreign bank.

The co-operating party provided the names of traders at the five banks that allegedly took part in the scheme, and also turned over "electronic records" to back up the allegations, the documents say.

"The alleged offences were carried out through emails and Bloomberg instant messages between IRD traders at the participant banks and employees of cash brokers, who had influence in setting the yen Libor rates," the documents state.

"These requests for changes in the yen Libor were often initiated by one trader and subsequently acknowledged by the trader to whom the communication was sent."

The documents also suggest that the investigation has not gone smoothly, with a series of requests for delays and RBS's court challenge that questions the legal validity of the probe in the first place.

The bank did not return calls this week, but court papers show it is arguing that the Competition Bureau lacks the jurisdiction to demand internal documents which are held in the United Kingdom. The bank's lawyers are also challenging the constitutionality of the section of the Canadian law under which the order was made.

RBS lawyers asked for assurance that the bureau would not go after its Canadian branch, but the prosecutor refused. Penalties in Canada, depending on when the offences were committed, can reach as high as $25-million in fines or 14 years in prison.

The challenge was initially slated to be heard no later than June 30, but the court says that, too, has been delayed and no date has yet been set for arguments on the side issue.

An industry watchdog, the Investment Industry Regulatory Organization of Canada, launched its own investigation last week into whether the Canadian version of Libor — CDOR, the Canadian dealer offered rate — could have been subject to insider price-fixing.

IIROC said there was no smoking gun that set off the review, but decided "increased scrutiny" would be appropriate given the expanding nature of the Libor scandal.

The case is not related to a lawsuit in the United States that names the Royal Bank of Canada in a group of 16 involved in setting the main U.S. dollar-denominated Libor. RBC has denied any wrongdoing in that case.

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