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“If you aint cheating, you aint trying”: Six Banks Pay $5.8 Billion, Five Guilty of Market Rigging, in FOREX Probe

In just the latest revelation of wrongdoing in the banking system, five global banks have agreed to pay a combined $5.8 billion in penalties and to plead guilty to criminal charges to resolve an ongoing Justice Department investigation into whether foreign currency traders colluded to manipulate foreign currency exchange rates for their own financial gain.
Barclays PLC, Citigroup Inc., J.P. Morgan Chase & Co. and Royal Bank of Scotland Group PLC, pleaded guilty on May 20, 2015 to antitrust violations in the $5.3 trillion-a-day foreign exchange market that spanned the period from 2007 to 2013. UBS AG received immunity in the antitrust case but pleaded guilty to manipulating the London interbank offered rate, or LIBOR, and will pay a fine for violating an earlier deal intended to settle those allegations
Announcement of the accords concludes the most recent probe into allegations of bank wrongdoing that has seen the biggest global banks pay out over $60 billion in penalties over the past two years to resolve charges of unlawful mortgage lending and servicing, manipulative trading behavior and tax evasion, among other things.
In imposing some of the largest fines levied to date by the Justice Department for antitrust violations, Attorney General Loretta Lynch said, “These unprecedented figures appropriately reflect the conspiracy’s breathtaking flagrancy, its systemic reach and its significant impact.” The Attorney General also said that investigations of individual traders and others remain ongoing, though no charges have yet been filed.
The first four banks operated what they described as “The Cartel”, using online chat rooms and coded language to influence the twice-daily setting of benchmarks in an effort to increase their profits in what Attorney General Lynch characterized as “a brazen display of collusion and foreign exchange rate market manipulation.” What began as an inquiry into rate-rigging was broadened into an examination of unlawful practices generally in the currency trading industry, including banks charging excessive commissions, sales staff passing on tips to favored clients and traders using inside information to place private bets on currency moves.
The 19-month investigation showed traders withholding bids or offers to avoid moving the rate in directions that would hurt positions held by other members of the group, all in violation of antitrust laws. Barclays’ sales staff, for example, typically offered clients a different price to the one offered by the bank’s traders in order to boost profits. Transcripts of chat room communications give some of the flavor, such as a Barclays employee who said “if you aint cheating, you aint trying,” as well as a Barclays foreign-exchange trader who reportedly said, “[Y]es, the less competition the better.”
The fines, which include penalties from the Federal Reserve and other regulators, come on top of a combined $4.3 billion many of the same banks paid in November 2014 to resolve similar charges from U.K. regulators and other U.S. agencies.
Citigroup, which is among the largest currency-trading banks, will pay the largest criminal fine, $925 million, in addition to a federal penalty of $342 million. J.P. Morgan will pay a fine of $550 million and a federal penalty of $342 million. Barclays was also fined $115 million in a separate matter also announced on May 20 by the Commodity Futures Trading Commission for the bank’s alleged manipulation of the International Swaps and Derivatives Association Fix, a benchmark interest rate typically used to set payout rates on pension funds and to determine the cost of real-estate loans.
Despite the “unprecedented” size and scope of the settlements, the banks continue to be exposed to private lawsuits, with Citigroup announcing on May 20 that it would settle a suit from investors based on similar accusations. For one thing, guilty pleas will make it easier for pension funds and investment managers who have regular currency dealings with banks to sue them for losses on those trades, and other customers to charge that had they known that their banks were manipulating FOREX rates, they would never have entered into those contracts in the first place.
Nevertheless, some commentators do not believe the criminal pleas and massive fines will cause the banks to change their behavior in any meaningful way. Jimmy Gurulé, a former assistant attorney general and Treasury official, now a University of Notre Dame law professor, noted that as long as those individuals responsible for designing and executing the scheme continue to escape prosecution, corporate penalties “will do little to change the pervasive culture of corruption that currently exists in the banking sector. Real change will only occur when corrupt bank officials are indicted, convicted and sent to prison for their crimes.”
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