Five major banks—Citicorp, JPMorgan Chase, Barclays, The Royal Bank of Scotland, and UBS—last week agreed to plead guilty to conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market. The banks also agreed to pay criminal fines totaling more than $2.5 billion, bringing the amount of overall global fines for their conduct in the FX spot market to nearly $9 billion.
UBS has agreed to plead guilty to manipulating the London Interbank Offered Rate (LIBOR) and other benchmark interest rates and pay a $203 million criminal penalty, after breaching its December 2012 non-prosecution agreement (NPA) resolving the LIBOR investigation.
These latest resolutions “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,” said Attorney General Loretta Lynch. “The penalty these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct.”
According to plea agreements to be filed in the District of Connecticut, between 2007 and 2013, euro-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.
As detailed in the plea agreements, these traders also used their exclusive electronic chats to manipulate the euro-dollar exchange rate in other ways. Members of “The Cartel” manipulated the euro-dollar exchange rate by agreeing to withhold bids or offers for euros or dollars to avoid moving the exchange rate in a direction adverse to open positions held by co-conspirators. By agreeing not to buy or sell at certain times, the traders protected each other’s trading positions by withholding supply of or demand for currency and suppressing competition in the FX market.
Citicorp, Barclays, JPMorgan, and RBS each have agreed to plead guilty to a one-count felony charge of conspiring to fix prices and rig bids for U.S. dollars and euros exchanged in the FX spot market in the United States and elsewhere.
Each bank has agreed to pay a criminal fine proportional to its involvement in the conspiracy:
Citicorp, which was involved from as early as December 2007 until at least January 2013, has agreed to pay a fine of $925 million;
Barclays, which was involved from as early as December 2007 until July 2011, and then from December 2011 until August 2012, has agreed to pay a fine of $650 million;
JPMorgan, which was involved from at least as early as July 2010 until January 2013, has agreed to pay a fine of $550 million; and
RBS, which was involved from at least as early as December 2007 until at least April 2010, has agreed to pay a fine of $395 million.
Barclays has further agreed that its FX trading and sales practices and its FX collusive conduct constitute federal crimes that violated a principal term of its June 2012 NPA resolving the Justice Department’s investigation of the manipulation of LIBOR and other benchmark interests rates. Barclays has agreed to pay an additional $60 million criminal penalty based on its violation of the NPA.
According to court documents, the Justice Department has determined that UBS’s deceptive currency trading and sales practices in conducting certain FX market transactions, as well as its collusive conduct in certain FX markets, violated its December 2012 NPA resolving the LIBOR investigation. Thus, the Department has declared UBS in breach of the agreement.
Consequently, UBS has agreed to plead guilty to a one-count felony charge of wire fraud in connection with a scheme to manipulate LIBOR and other benchmark interest rates. It also has agreed to pay a criminal penalty of $203 million.
According to UBS’s plea agreement, UBS engaged in deceptive FX trading and sales practices after it signed the LIBOR non-prosecution agreement, including undisclosed markups added to certain FX transactions of customers. UBS traders and sales staff misrepresented to customers on certain transactions that markups were not being added, when in fact they were.
On other occasions, UBS traders and sales staff used hand signals to conceal those markups from customers. Furthermore, certain UBS traders also tracked and executed limit orders at a level different from the customer’s specified level in order to add undisclosed markups.
In addition, according to court documents, a UBS FX trader conspired with other banks acting as dealers in the FX spot market by agreeing to restrain competition in the purchase and sale of dollars and euros. UBS participated in this collusive conduct from October 2011 to at least January 2013.
In declaring UBS in breach of its NPA, the Justice Department considered UBS’s conduct described above in light of UBS’s obligation under the non-prosecution agreement to commit no further crimes. The Justice Department also considered UBS’s three recent prior criminal resolutions and multiple civil and regulatory resolutions.
Further, the department also considered that UBS’s post-LIBOR compliance and remediation efforts failed to detect the illegal conduct until an article was published pointing to potential misconduct in the FX markets.
Citicorp, Barclays, JPMorgan, RBS and UBS have each agreed to a three-year period of corporate probation. If approved, this probation will be overseen by the court and require regular reporting to authorities as well as cessation of all criminal activity. All five banks will continue cooperating with the government’s ongoing criminal investigations, and no plea agreement prevents the department from prosecuting culpable individuals for related misconduct.
Federal Reserve Action
In connection with its FX investigation, the Federal Reserve also announced that it was imposing on the five banks over $1.6 billion in fines. Barclays settled related claims with the New York State Department of Financial Services, the Commodity Futures Trading Commission and the United Kingdom’s Financial Conduct Authority for an additional combined penalty of approximately $1.3 billion.
In conjunction with previously announced settlements with regulatory agencies in the United States and abroad, including the Office of the Comptroller of the Currency and the Swiss Financial Market Supervisory Authority, these resolutions bring the total fines and penalties paid by these five banks for their conduct in the FX spot market to nearly $9 billion.