Five global banks have consented to pay $5.6B in penalties to resolve claims related to a U.S. probe into whether traders at these institutions manipulated foreign-currency rates for their benefit. J.P. Morgan Chase & Co. (JPM), Royal Bank of Scotland (RBS), UBS AG (UBS), Citigroup Inc. (C), and Barclays PLC (BARC) will also plead guilty to criminal charges that they conspired to rig prices of U.S. dollars and euros.
According to officials involved with the Department of Justice investigation, which went on for 19 months, traders withheld offers or bids to avoid getting the rates going in directions that would hurt the open positions of other traders, with whom they were colluding. These traders, who were from the different banks, formed what they dubbed as “The Cartel.” They would meet in online chatrooms and communicate via coded language to coordinate efforts to manipulate rates. Hand signals also were reportedly used during calls with clients. Aside from the $5.6B in peanltlies, the firms are paying another $1.6 billion in fines to the U.S. Federal Reserve.
Citibank is paying the biggest criminal fine of $925M plus a $342M penalty to the Fed. The bank was allegedly involved in currency manipulation from the end of 2007 through the beginning of 2013. Meantime, J.P. Morgan will pay the DOJ $550M and the Fed $342M.
Barclays will pay $650M in criminal penalties. Add that figure to what it now also owes the Fed, the New York Department of Financial Services, the Commodity Futures Trading Commission, and the U.K. Financial Conduct Authority and its total balloons to $2.38B. The bank also will pay $60 million after admitting that its forex trading and sales practices violated an earlier agreement it reached over Libor rigging allegations in 2012. Royal Bank of Scotland’s criminal penalty is $395M.
UBS will pay $545M and it has also pleaded guilty to manipulating Libor and violating an earlier agreement. However, the Swiss banking giant was granted immunity in the antitrust case for its cooperation.
No criminal charges were filed against any individuals involved, although New York’s financial regulator did order Barclays to fire several employees. It is interesting to note that even with the huge fines, there are those at the banks that continue to distance themselves from blame. According to J.P. Morgan CEO James Dimon, what the penalties show is how the behavior of just a small group of individuals “can reflect badly on all of us.”
All five banks will be on probation for three years. Under their plea deals, they will have to put into place compliance programs to identify and stop future attempts by employees to manipulate rates. They also must submit yearly progress reports to the government and improve controls and compliance.
These plea deals are expected to lead to more litigation against the banks—especially from institutional investors, such as pension funds and investment managers. They were among those that sustained losses on forex trades because of the market rigging. The banks sold them complex foreign derivatives to regulate foreign currency exposure. Even small shifts in forex rates could have led to huge liabilities.
The SSEK Partners Group is a securities law firm that represents institutions in recouping their forex currency-related losses stemming from fraud. Contact us today.
Banks to Pay $5.6 Billion in Probes, The Wall Street Journal, May 20, 2015
Five Major Banks Agree to Parent-Level Guilty Pleas, US Department of Justice, May 20, 2015