Last updated on May 25, 2015
Four of the world’s most lucrative banks have agreed to plead guilty and pay a combination sum of $5 billion in penalties in relation to rigging currency markets.
This marks a rare occurrence for federal prosecutors who managed an admission of guilt from such major financial institutions.
Traders at JPMorgan Chase, Citigroup’s banking unit Citicorp, Barclays and the Royal Bank of Scotland have been accused of collaborating to manipulate currency rates on the foreign exchange market, where hundreds of billions of varying currencies changes hands.
The admission of guilt, as well as the massive penalty, is seen as a victory for the government and a broader reflection by the Justice Department who have long been criticized for their reluctance to prosecute large banks, tackling financial misconducts.
Over the past 18 months, prosecutors have sought criminal cases against numerous banks accused of sanctions violations and tax evasions. Numerous other financial intuitions have been part of large, multi-billion dollar settlements for their roles in the 2008 financial meltdown.
The most recent crackdown will still allow the four major banks to conduct business in the current markets. The penalty, although large, is still only a fraction of what the banks made through currency trading over the past decade. To date, no executives have been charged, however, that part of the investigation continues.
Prosecutors have said that the traders, who referred to themselves as “The Cartel”, shared customer orders through chat rooms and that they used the information to profit at their client’s expense.
Criminal penalties for the banks are a combined $2.5 billion for the manipulation of currency rates between 2007 and 2013. They have been given an additional fine of $1.6 billion by the Federal Reserve. Britain’s Barclays has agreed to pay an additional fine of $1.3 billion to U.S. and British regulators.
“Having to enter into a guilty plea, at the parent level by a major financial institution, is not something that they enter into lightly, nor is it something they enter into with any great joy in their hearts,” Attorney General Loretta Lynch said.
A separate penalty of $203 million has been issued to Switzerland’s UBS, which was caught years earlier in a similar scheme. UBS has agreed to plead guilty to manipulating key interest rates.
“Unlike the other banks, UBS has a ‘rap sheet’ that simply cannot be ignored,” said Leslie Caldwell, head of the Justice Department’s criminal division. “Enough simply is enough.”
The group of banks will pay nearly $9 billion in fines for manipulating the $5.3 trillion currency market. Yet, JPMorgan Chase announced a $4.1 billion revenue from its fixed income and currencies business during the first quarter of this year alone, while Citi announced a $3.48 billion revenue.
The banks have agreed to help prosecutors investigate individuals who took part in the rigging. JPMorgan said it has fired one trader. Citi said it dismissed nine employees. Barclays has fired eight employees tied to “The Cartel,” according to New York regulators.