In a landmark case highlighting the concerted efforts to combat financial crime, five global banking giants, namely Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland plc, and UBS AG, have admitted to felony charges. This admission comes as Citicorp, JPMorgan Chase & Co., Barclays PLC, and The Royal Bank of Scotland plc confess to conspiring to manipulate the exchange rates between the U.S. dollar and the euro in the foreign currency exchange (FX) spot market. These institutions have collectively agreed to pay over $2.5 billion in criminal fines. Separately, UBS AG has pleaded guilty to manipulating the London Interbank Offered Rate (LIBOR) and other crucial benchmark interest rates, incurring a $203 million criminal penalty, triggered by a breach of its prior non-prosecution agreement from December 2012 related to a LIBOR investigation.
This significant announcement was delivered jointly by Attorney General Loretta E. Lynch, Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office, and Director Aitan Goelman of the Commodity Futures Trading Commission’s Division.
Attorney General Lynch emphasized the gravity of these resolutions, stating, “Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes, and they serve as a stark reminder that this Department of Justice intends to vigorously prosecute all those who tilt the economic system in their favor, who subvert our marketplaces, and who enrich themselves at the expense of American consumers.” She further underscored the severity of the penalties, deeming them “fitting considering the long-running and egregious nature of their anticompetitive conduct” and “commensurate with the pervasive harm done,” while aiming to deter future misconduct in the financial sector.
Assistant Attorney General Baer elaborated on the impact of the conspiracy, noting, “The charged conspiracy fixed the U.S. dollar – euro exchange rate, affecting currencies that are at the heart of international commerce and undermining the integrity and the competitiveness of foreign currency exchange markets which account for hundreds of billions of dollars worth of transactions every day.” He asserted that “the seriousness of the crime warrants the parent-level guilty pleas by Citicorp, Barclays, JPMorgan and RBS.”
Highlighting the accountability aspect, Assistant Attorney General Caldwell stated, “The five parent-level guilty pleas that the department is announcing today communicate loud and clear that we will hold financial institutions accountable for criminal misconduct. And we will enforce the agreements that we enter into with corporations. If appropriate and proportional to the misconduct and the company’s track record, we will tear up an NPA or a DPA and prosecute the offending company.”
Assistant Director in Charge McCabe reinforced the government’s stance against financial market malpractices, saying, “These resolutions make clear that the U.S. Government will not tolerate criminal behavior in any sector of the financial markets. This investigation represents another step in the FBI’s ongoing efforts to find and stop those responsible for complex financial schemes for their own personal benefit.” He commended the dedicated agents, forensic accountants, analysts, and prosecutors involved in the extensive investigation.
Alt text: Attorney General Loretta Lynch announces guilty pleas from major banks for forex market manipulation.
According to the plea agreements to be filed in the District of Connecticut, the manipulation spanned from December 2007 to January 2013. Euro-dollar traders at Citicorp, JPMorgan, Barclays, and RBS, identifying themselves as “The Cartel,” utilized a private electronic chat room and coded language to manipulate benchmark exchange rates. These rates are crucial as they are established through key daily “fixes,” specifically the 1:15 p.m. European Central Bank fix and the 4:00 p.m. World Markets/Reuters fix. These fix rates are calculated and published using trading data from these times, subsequently influencing the pricing for numerous large customer orders. The “Cartel” traders strategically coordinated their trading activities in U.S. dollars and euros to skew these benchmark rates at the 1:15 p.m. and 4:00 p.m. fixes, aiming to inflate their profits.
Elaborating on their tactics, the plea agreements detail how “The Cartel” members manipulated the euro-dollar exchange rate through their private chats. They would agree to suppress bids or offers for euros or dollars to prevent exchange rate movements that could negatively impact their open positions. By colluding to abstain from buying or selling at specific times, these traders protected each other’s trading positions by artificially controlling the supply and demand of currencies, thus stifling competition within the FX market. This kind of manipulation can subtly influence everyday transactions, even making one wonder, for instance, exactly How Much Is Five Euros In Us Dollars at any given moment, a seemingly simple question with complex market underpinnings.
Citicorp, Barclays, JPMorgan, and RBS have each consented to plead guilty to a felony count of conspiring to fix prices and rig bids for U.S. dollars and euros traded in the FX spot market both domestically and internationally. The criminal fines assigned to each bank are proportionate to their level of involvement in the conspiracy:
- Citicorp, implicated from as early as December 2007 until at least January 2013, has agreed to a fine of $925 million.
- Barclays, involved from December 2007 to July 2011 and again from December 2011 to August 2012, will pay a fine of $650 million.
- JPMorgan, participating from at least July 2010 until January 2013, has agreed to a fine of $550 million.
- RBS, involved from at least December 2007 until at least April 2010, will pay a fine of $395 million.
Alt text: J. Edgar Hoover FBI Building, headquarters of the Washington Field Office involved in the Forex investigation.
Barclays also acknowledged that its FX trading and sales practices, along with its collusive conduct, constituted federal crimes, breaching a key condition of its June 2012 non-prosecution agreement related to the manipulation of LIBOR and other benchmark interest rates. Consequently, Barclays has agreed to an additional $60 million criminal penalty for violating this agreement.
Furthermore, Justice Department findings indicate that UBS’s deceptive currency trading and sales practices in certain FX market transactions, and its collusive behavior in specific FX markets, violated its December 2012 non-prosecution agreement concerning the LIBOR investigation. The department declared UBS in breach of this agreement, leading UBS to plead guilty to one felony count of wire fraud related to a scheme to manipulate LIBOR and other benchmark interest rates. UBS has also agreed to a criminal penalty of $203 million.
The factual statement of breach attached to UBS’s plea agreement reveals that UBS continued deceptive FX trading and sales practices even after signing the LIBOR non-prosecution agreement. These practices included undisclosed markups on certain customer FX transactions. UBS traders and sales staff falsely represented to customers that markups were not being applied, when they were. In some instances, hand signals were used to conceal these markups from clients. Additionally, certain UBS traders manipulated limit orders, executing them at levels different from those specified by customers to incorporate hidden markups. Court documents also show a UBS FX trader colluded with other banks in the FX spot market to restrict competition in dollar and euro trading, participating in this from October 2011 to at least January 2013.
In determining UBS’s breach of its non-prosecution agreement, the Justice Department considered these actions in light of UBS’s commitment to abstain from further criminal activities under the agreement. The department also took into account UBS’s three prior criminal resolutions and numerous civil and regulatory resolutions. Moreover, UBS’s post-LIBOR compliance and remediation efforts failed to detect the illegal FX conduct until external reports highlighted potential misconduct.
Citicorp, Barclays, JPMorgan, RBS, and UBS will each undergo a three-year period of corporate probation, subject to court approval. This probation will involve court oversight, regular reporting to authorities, and a commitment to cease all criminal activity. All five banks are obligated to continue cooperating with ongoing government criminal investigations. Importantly, none of the plea agreements prevent the department from prosecuting culpable individuals for related misconduct. Citicorp, Barclays, JPMorgan, and RBS are required to send disclosure notices to all customers and counterparties potentially affected by the described sales and trading practices.
Concurrent with this FX investigation, the Federal Reserve announced fines exceeding $1.6 billion on these five banks. Barclays also settled related claims with the New York State Department of Financial Services (DFS), the Commodity Futures Trading Commission (CFTC), and the UK’s Financial Conduct Authority (FCA) for an additional combined penalty of approximately $1.3 billion. Including previously announced settlements with U.S. and international regulatory agencies such as the Office of the Comptroller of the Currency (OCC) and the Swiss Financial Market Supervisory Authority (FINMA), the total fines and penalties imposed on these five banks for their FX spot market conduct approach $9 billion.
This investigation was conducted by the FBI’s Washington Field Office, with prosecution led by the Antitrust Division’s New York Office, other criminal enforcement sections, and the Criminal Division’s Fraud Section. The Justice Department acknowledged significant assistance from the CFTC, OCC, FINMA, FCA, DFS, Securities and Exchange Commission, Federal Reserve Board, and the U.K. Serious Fraud Office, along with contributions from the Criminal Division’s Office of International Affairs and the U.S. Attorney’s Office in the District of Connecticut.
This case underscores the rigorous efforts by global regulatory bodies to maintain fairness and transparency in the financial markets, ensuring that institutions operate within legal frameworks and that the integrity of international commerce is upheld. The substantial penalties levied serve as a potent deterrent against future market manipulation and reinforce the commitment to protecting consumers and the global financial system.
