Every morning, from his desk by the bathroom at the far end of Royal Bank of Scotland Group's trading floor overlooking London's Liverpool Street station, Paul White punched a series of numbers into his computer. White, who joined RBS in 1984, was one of the employees responsible for the firm's submissions to the London interbank offered rate, or Libor, the global benchmark for more than US$300 trillion of contracts, from mortgages and student loans to interest-rate swaps. Behind him sat Neil Danziger, a derivatives trader at the bank since 2002. On March 27, 2008, Tan Chi Min - Danziger's boss in Tokyo - told him to make sure the next day's submission in yen would increase. "We need to bump it way up high, highest among all if possible," Tan, known by colleagues as "Jimmy", wrote in an instant message to Danziger, according to a transcript made public by a Singapore court and reviewed by Bloomberg before being sealed by a judge at RBS's request. The trader typically would have swivelled in his chair, tapped White on the shoulder and relayed the request, people who worked at the bank said. But, as White was away that day, Danziger input the rate himself. The next morning RBS said it paid 0.97 per cent to borrow in yen for three months, up from 0.94 per cent the previous day. The Edinburgh-based bank was the only one of 16 surveyed to raise its rate. If it had lowered its submission in line with others, the cost of borrowing in yen would have fallen one-fifth of a basis point, or 0.002 per cent, according to data compiled by Bloomberg. Even that small a move could mean a gain of US$250,000 on a position of US$50 billion. Events like those that took place on RBS's trading floor, across the road from Bishopsgate police station and Dirty Dicks, a 267-year-old public house, are at the heart of the biggest and longest-running scandal in banking history. For years, traders at RBS, Barclays, UBS, Deutsche Bank, Rabobank Group and other firms that stood to profit worked with employees responsible for setting the benchmark to rig the price of money, according to documents obtained by Bloomberg and interviews with two dozen current and former traders, lawyers and regulators. Those interviews reveal how the manipulation flourished for years, even after bank supervisors were made aware of the system's flaws. The conspiracy wasn't confined to low-level employees. Senior managers at RBS, Britain's largest publicly owned lender, knew banks were systematically rigging Libor as early as August 2007, show transcripts of phone conversations obtained by Bloomberg. Some traders colluded with counterparts at other banks to boost profits from interest-rate futures by aligning their submissions. Members of the close-knit group knew each other from working at the same firms or going on trips organised by interdealer brokers, such as ICAP, to French ski resort Chamonix or the Monaco Grand Prix. "We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time," said Adrian Blundell-Wignall, a special adviser to the secretary general of the Organisation for Economic Co-operation and Development in Paris. "Libor is the basis for calculating practically every derivative known to man." Now, more than five years after alarms first sounded, regulators and prosecutors are closing in. Three people, including a former trader at UBS and Citigroup, were arrested in London this week in connection with the probe into rate manipulation, the first apprehensions in an investigation involving more than half a dozen agencies on three continents. Barclays paid a record £290 million (HK$3,625 million) fine in June to settle with regulators, and the lender's three top executives, including chief executive Bob Diamond, left after criticism by bank supervisors and politicians. Other firms, including RBS and Zurich-based UBS, are negotiating settlements, according to well-placed sources. UBS may face a fine of more than US$1 billion from US and British regulators within days, a person with knowledge of the investigation said. Barclays, RBS and UBS declined to comment. The industry faces regulatory penalties of at least US$8.7 billion, according to Morgan Stanley. The European Union is leading a probe that could see banks fined as much as 10 per cent of their annual revenue. Dozens of lawsuits have been filed in the US and Britian claiming losses on products pegged to Libor. The scandal demonstrates the failure of London's two-decade experiment with light-touch supervision, which helped make the British capital the biggest trading hub in the world. In his 10 years as Chancellor of the Exchequer, Gordon Brown championed this approach. In June 2007, he hailed it a "golden age" for the City of London.