Big Banks Get No Jail Time For Manipulating Global Markets

Published: May 20, 2015 22:46pm EDT
By Lance Rinker, Managing Editor for Konsume Politics

Please Note: This article was updated May 20, 2015 @ 10:46pm EDT


Six major, global banks were hit with more than $2 billion in fines for manipulating the forex foreign exchange market. While the institutions have acknowledged their crimes, the executives in charge of each bank are unlikely to face criminal charges.

U.S. and British regulators took a strong stance against UK-based Barclays Bank and Royal Bank of Scotland, as well as U.S. banks JP Morgan Chase and Citigroup for their role in rigging the lightly regulated foreign exchange market and Libor interest rates. Regulators called the banks’ criminal behavior a “brazen scheme” to harm clients and world markets for their own financial interests.

The continued misuse of consumer funds and trust have led to louder calls by the general public, and some politicians, for serious financial and banking reforms in the United States.

Though the U.S. Justice Department announced on Wednesday that the banks agreed to a settlement, which involves guilty pleas and fines totaling nearly $6 billion for their manipulations of the forex market, perhaps we should start asking whether fines are enough?

The settlement included guilty pleas from Barclays Bank and Royal Bank of Scotland, as well as U.S. banks JP Morgan Chase and Citigroup. Bank of America will be required to pay nearly $2 billion in fines to the U.S. Federal Reserve over “unsafe and unsound practices” in Forex markets.

Switzerland’s UBS also plead guilty for a case involving one count of wire fraud in connection with Libor interest rate manipulation. However, the Justice Department showed leniency to the Swiss bank by offering conditional immunity for cooperating with the investigation.

This set of antitrust fines, totaling $2.5 billion, is the largest ever handed out by the Department of Justice.

JP Morgan, Citigroup, Barclays, and the Royal Bank of Scotland worked together, even though they are competitors, to manipulate the forex market. The scandal peaked in 2008, when the banks colluded and shared information on what rates each would set. They accomplished this through an online chat room dubbed “the Cartel” where they spoke in coded messages and colluded to fix market rates.

"They acted as partners -- rather than competitors -- in an effort to push the exchange rate in directions favorable to their banks but detrimental to many others," said US Attorney General Loretta Lynch. "And their actions inflated the banks' profits while harming countless consumers, investors and institutions around the globe."

Those four, plus UBS and Bank of America, will also pay more than $1.8 billion to the US Federal Reserve over "unsafe and unsound practices" in Forex markets.

The five banks involved in Wednesday's settlement, plus HSBC and Bank of America, have now paid nearly $10 billion in total to authorities in the U.S. and Europe for their part in the foreign exchange scandal.

"These unprecedented figures appropriately reflect this breathtaking conspiracy," said Lynch.

The banks involved represented at least one-fourth of dollar-euro transactions each year, according to the Justice Department, and “were uniquely positioned to manipulate the market,” said Assistant Attorney General Bill Baer.

This is not the only time these institutions have been caught up in a Forex trading scandal.

In November 2014, the CFTC and Britain’s Financial Conduct Authority (FCA) levied more than $3 billion in fines on JP Morgan Chase, Citigroup, HSBC, UBS, and the Royal Banks of Scotland. A separate set of fines were brought by Finma, the Swiss Financial Regulator, by fining Swiss bank UBS $138 million, and the U.S. Office of the Comptroller of the Currency imposed fines of $950 million on JP Morgan, Bank of America and Citi. 

Courtesy of the Commodity Futures Trading Commission (CFTC), below are just some of the conversations of the participants in the scandal regulators found during their investigation.

August 20, 2007: (RBS Order pp. 17-18.):

Yen Trader 4: where’s young [Yen Trader 1] thinking of setting it?

Yen Trader 1: where would you like it[,] libor that is[,] same as yesterday is call

Yen Trader 4: haha, glad you clarified ! mixed feelings but mostly I’d like it all lower so the world starts to make a little more sense.

Senior Yen Trader: the whole HF [hedge fund] world will be kissing you instead of calling me if libor move lower

Yen Trader 1: ok, i will move the curve down[,] 1bp[,] maybe more[,] if I can

Senior Yen Trader: maybe after tomorrow fixing hehehe

August 20, 2007: (Reflecting awareness of UBS conduct.) (RBS Order pp. 14-15.):

Senior Yen Trader: this libor setting is getting nutss

Bank A Trader: im puzzled as to why 3m libor fixing not coming off after the FED action

Bank B Trader: [UBS] is lending dolls through my currencies in 3 month do u see him doing the same in urs

Senior Yen Trader: yes[,] he always led usd in my mkt[,] the jpy libor is a cartel now

Senior Yen Trader: its just amazing how libor fixing can make you that much money

Senior Yen Trader: its a cartel now in london[.] they smack all the 1yr irs ..and fix it very high or low

December 5, 2007: (RBS Order p. 15.):

Yen Trader 2: FYI libors higher again today

Yen Trader 4: fucksake. keep ours low if poss. don’t understand why needs to go up in yen

Yen Trader 2: no reason dude[,] [Bank C] and [Bank D] went high yest

Yen Trader 4: send the boys round

Yen Manager: pure manipulation going on

According to Simon Hart, banking litigation partner at London law firm RPC, told Reuters that guilty pleas from the banks will make it easier for clients, including pension funds and investment managers, to sue them for losses resulting from the manipulations.

A number of traders are already facing charges in various countries for their roles in the scheme.

Aside from the damage done to consumers, what makes market manipulation such as this so dangerous is the impact it could have on global markets. More than $5 trillion is traded in the global currency market each day and foreign exchange rates directly impact the price of imported goods, company earnings, investments held by pension funds, and could also impact interest rates on loans and other services.

Is this, yet, another sign of “Too Big To Fail” or a sign that the United States government and federal regulators are actually taking serious major banking institutions roles in currency and global market manipulation that harms consumers?

Is it time to do away with just fining the guilty parties and begin to demand prison sentences for those guilty of defrauding consumers and manipulating global markets?


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