Swiss banking giant UBS agreed last month to pay $545 million to settle an investigation by U.S. authorities into its role in manipulating interest and currency rates. UBS agreed to plead guilty to one count of wire fraud. So far five major banks have agreed to plead guilty to criminal charges and pay more than $5.5 billion in collective penalties to settle charges their traders routinely manipulated the world’s foreign-exchange market for their own profit. The Department of Justice, the Federal Reserve and other U.S. and European authorities and regulators said corporate units of Citicorp, JPMorgan Chase, London-based Barclays and Royal Bank of Scotland acknowledged their traders rigged foreign exchange prices of U.S. dollars and euros from Dec. 2007 to Jan. 2013. In “normal times,” such a revelation would be shocking. But today, it’s just a blip on the nightly news. The $2.5 billion in criminal fines levied as part of the resolutions represent the largest federal anti-trust penalties ever obtained by U.S. authorities.
Prices the market sets for currencies “influence virtually every sector of every economy in the world.” The traders actions, according to reports from the DOJ, “inflated the banks’ profits while harming countless consumers, investors and institutions around the globe — from pension funds to major corporations, and including the banks’ own customers.” Euro-U.S dollar traders at Citicorp, JPMorgan, Barclays and RBS — self-described members of the cartel — used an exclusive electronic chat room and coded language to manipulate benchmark exchange rates of the two currencies in ways that benefited their own trading positions, prosecutors said.
The bank violated terms of the 2012 non-prosecution agreement that had settled UBS’ involvement in rigging the London Interbank Offered Rate (Libor). As we have previously explained, the financial benchmark is used to set rates on trillions of dollars in mortgages, loans and credit cards. As a result, UBS agreed to plead guilty to one count of wire fraud, pay a $203 million fine and accept a three-year term of probation for Libor rate manipulation by its traders. UBS also agreed to pay $342 million to the Federal Reserve and make remedial changes to its foreign-exchange business practices. No individual bank employees were hit with criminal charges as part of the settlements, but it was reported that investigations into foreign-exchange issues are continuing.
The criminal settlements mark the latest result from a global crackdown on systematic manipulation of financial benchmarks by bank traders. In all, the five banks have now paid nearly $9 billion in total criminal and civil fines and penalties for rigging the foreign-exchange spot market. Bank officials took responsibility for the illegal activity, terminating dozens of traders as investigators around the world probed foreign exchange practices. Citi also announced that it has agreed to a separate $394 million settlement of a private class-action lawsuit related to the foreign-exchange activity. The settlement is subject to court approval.
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