Reuters, which has been generally pretty solid on the Libor story, reports that arrests are imminent in the rate-rigging scandal.

Prosecutors and European regulators are close to arresting individual traders and charging them with colluding to manipulate global benchmark interest rates, according to people familiar with a sweeping investigation into the rigging scandal.

Federal prosecutors in Washington, D.C., have recently contacted lawyers representing some of the suspects to notify them that criminal charges and arrests could be imminent, said two of those sources, who asked not to be identified because the investigation is ongoing.

Defense lawyers, some of whom represent suspects, said prosecutors have indicated they plan to begin making arrests and filing criminal charges in the next few weeks. In long-running financial investigations it is not uncommon for prosecutors to contact defense lawyers before filing charges to offer suspects a chance to cooperate or take a plea, these lawyers said.

Reuters previously reported that more than a dozen current and former employees of several large banks are under investigation, including Barclays Plc, UBS and Citigroup, and have hired defense lawyers over the past year as a federal grand jury in Washington, D.C., continues to gather evidence.

It gives me little pleasure to say that this is turning out close to what I expected. Individual traders will get arrested for their role in rigging Libor, but the most directional and sustained rigging came during the financial crisis, when banks set their Libor rates downward to mask their ill financial health. Individual criminal charges won’t get into that aspect of the scandal, and we’ll see some regulatory slaps on the wrist similar to the Barclays case. Meanwhile, banks will engage in a concerted effort to pin the blame on those “few bad apple” individual traders. Moreover, the US Justice Department will tout the arrests as bringing to justice illegal operators in the banking industry, and the other allegedly ongoing investigations, like into the series of interlocking housing bubble frauds, will fall by the wayside.

And law enforcement officials in the US and abroad will not sanction the regulators, who knew about the riggings and failed to do anything about it:

The British Bankers’ Association (BBA) issued a warning to banks in April 2008 to “submit honest rates” to its Libor setting panel, according to a series of emails which demonstrate that the problems with the crucial interest rate were being discussed at the highest level during the financial crisis.

The warning is revealed in 80 pages of emails from 2008 released by the Bank of England on Friday as part of its attempt to deflect criticism by MPs that it had been warned by regulators in New York about problems with the rate setting process.

The emails show that the BBA, which oversees the setting of Libor, had wanted the Bank of England to take a bigger role in the rate setting process but was rebuffed by the central bank.

Amusingly, the Bank of England released these emails, but they reflect really badly on them. Similarly, I wonder if anything the New York Fed released about Libor will come up when Tim Geithner testifies before Congress this week.

Incidentally, Satyajit Das has a very good primer on Libor, and here’s a look at what Libor did to affect losses in the CDO market. We’re talking about big money.