4 major banks plead guilty
For the world’s biggest banks, what seemed like the perfect business turned out to be the perfect breeding ground for crime.
The trading of foreign currencies promised substantial revenues and relatively low risk. It was the kind of activity that banks were supposed to expand after the 2008 financial crisis.
But like so many other seemingly good ideas on Wall Street, the foreign exchange business was vulnerable to manipulation. No single government agency is responsible for
policing the currency market, leaving it up to committees — some run by the banks themselves — to set guidelines. And even when federal authorities adopted new rules to rein in Wall Street a few years ago, they exempted certain foreignexchange transactions, a little-noticed concession to the banks.
Now, the regulatory void has spawned another round of criminal accusations and multibilliondollar penalties — enough to wipe out nearly all the revenue that major investment banks generated from their foreign exchange businesses last year.
On Wednesday, four large global banks — Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland — pleaded guilty to a series of federal crimes over a scheme to manipulate the value of the world’s currencies. The Justice Department accused the banks of collusion in one of the largest and yet least regulated markets, noting that one group of traders called themselves “the cartel.”
That lack of oversight, coupled with the pressure to squeeze profits from a relatively middling business, set the stage for this latest financial scandal, one that unfolded nearly every day for five years. The crimes described Wednesday also painted the portrait of something more systemic: a Wall Street culture that enabled many big banks to break the law even after years of regulatory black marks after the crisis. ‘If you ain’t cheating’
“If you ain’t cheating, you ain’t trying,” one trader at Barclays wrote in an online chat room where prosecutors say the price-fixing scheme was hatched.
In announcing the cases, the Justice Department emphasized that the banks’ parent companies entered the guilty pleas rather than a subsidiary, representing a new frontier in efforts to punish Wall Street misdeeds.
“Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes,” attorney general Loretta Lynch said Wednesday. Symbolic shame?
For the banks, though, life as a felon is likely to carry more symbolic shame than practical problems. Although they could be barred by U.S. regulators from certain activities, the banks scrambled behind the scenes to persuade those regulators to grant exemptions. That process, which delayed the Justice Department’s announcement by a week, already led to the Securities and Exchange Commission providing a number of waivers that allow the banks to conduct business as usual.
And at least for now, the Justice Department did not indict any employees whose errant instant messages underpin the cases against the banks. The banks long ago dismissed most of the employees suspected of wrongdoing, though New York state’s financial regulator, Benjamin Lawsky, forced Barclays to dismiss eight additional employees. A fifth bank
A fifth bank, UBS, was also accused of foreign currency manipulation.
Although it was not criminally charged for that misconduct, the accusations cost the bank an earlier nonprosecution agreement related to the manipulation of another financial benchmark, the London interbank offered rate, or LIBOR, which underpins the cost of trillions of dollars in credit cards and other loans. The Justice Department voided that nonprosecution agreement, prompting UBS to plead guilty to LIBOR manipulation, a rare stand against corporate recidivism.
The five banks — which also struck civil settlements with the Federal Reserve, the Commodity Futures Trading Commission, a British regulator and Lawsky — agreed to pay collectively about $5.6 billion in penalties. That sum comes in addition to the $4.25 billion that some of these banks agreed pay in November to many regulators.