A plea agreement by five major global banks announced Wednesday by the Justice Department for manipulation of currency markets is likely to complicate an already tough path for Republican legislation to lighten the regulatory touch on financial institutions.
Five large global banks – Citicorp, JP Morgan Chase, Barclays PLC, Royal Bank of Scotland PLC and UBS AG – pleaded guilty to felony charges and collectively will pay more than $5.6 billion in record fines and penalties to multiple regulators for conspiring to manipulate the price of currencies traded in foreign-exchange markets.
The crimes occurred between 2007 and 2013, and in at least one case involved continued bad behavior after reaching an agreement in 2012 to halt the actions under investigation. Those dates are important because they occurred well after the 2008 near-collapse of the U.S. financial sector and the deep recession that followed.
The financial penalties amount to the “largest set of antitrust fines ever obtained in the history of the Department of Justice,” noted Attorney General Loretta Lynch at a news conference.
Even so, they were hardly crippling. Citicorp alone reported net income of $15.6 billion in 2013, JP Morgan Chase of $17.9 billion, during a year that preceded last year’s large settlements.
Significantly, complained critics, the announcement included no punishment for traders or executives involved in the wrongdoing.
The Justice Department “has failed to hold any individuals accountable for their crimes and didn’t disclose key details to the public, including how such extensive and lucrative criminal conduct could go undetected for so many years under the nose of management and supervisors,” said Dennis Kelleher, head of the advocacy group Better Markets. “Banks don’t commit crimes, bankers do. Until the feds personally and meaningfully punish actual executives and supervisors for their wrongdoing, big banks will continue their crime spree at the expense of investors, our markets, and families on Main Street.”
The settlements come at a sensitive time for banks, as Republicans who now control both chambers of Congress are offering legislation to ease what they call heavyhanded regulation of the financial sector. The guilty pleas make the argument for less regulation of the largest banks a much tougher sell.
A top lobbyist for an influential industry group pushing Congress for fewer restrictions said Wednesday, on the condition that his name not be disclosed in order to discuss a sensitive matter for the industry, that bank guilty pleas make the argument “without a doubt harder” for less regulation. The silver lining, he added, is that “at the same time, this may be the end of the big bank investigations.”
Wall Street banks and foreign affiliates of big global banks have been penalized tens of billions of dollars in recent years over mortgage lending, the foreclosure process, laundering drug proceeds, violating trading with the enemy prohibitions and most recently the currency-market manipulation.
“The notion that somehow 2008 was an aberration and these folks can be trusted at the scale they are to do business in the way they want . . . is just outrageous,” said Damon Silvers, policy director for the AFL-CIO.
The union opposes legislation to ease banking regulations and favors breaking up the largest banks, whose failure could threaten the broader financial markets. They’re sometimes called the too-big-to-fail banks, and Wednesday’s Justice Department settlement renewed complaints about their size.
“The only effective way of dealing with these enormous financial institutions is to break them up. Today’s news is just another example of why these too-big-to-fail banks are too big to exist,” said Sen. Bernie Sanders, a Vermont independent who recently declared for the Democratic presidential nomination.
Citicorp, JPMorgan Chase, Barclays PLC, and Royal Bank of Scotland PLC pleaded guilty to a single count of conspiring to manipulate the price of U.S. dollars and euros traded in the foreign exchange spot markets; they collectively will pay a corresponding $2.5 billion in fines.
UBS AG acknowledged manipulation of the benchmark lending rate called LIBOR, or the London Interbank Offered Rate, and will pay a $203 million fine. In December 2012, it admitted that it had engaged in a criminal scheme to manipulate LIBOR and other benchmark interest rates, paid a $500 million criminal penalty and entered into the non-prosecution agreement, which required the bank to commit no additional criminal conduct.
“Unfortunately,” Assistant Attorney General Leslie Caldwell said, “UBS did not sufficiently mend its ways.”
The Commodity Futures Trading Commission said Wednesday that it also had hit Barclays with two additional civil penalties, totaling $515 million.
Separately, the Federal Reserve announced $1.8 billion in fines against the five banks and a sixth, Bank of America Corp., for unsafe and unsound practices in foreign-exchange markets.
“Bank of America failed to detect and address conduct by traders who discussed the possibility of entering into similar agreements to manipulate prices,” the Fed said in a statement, suggesting that the Charlotte, N.C.-based bank wanted in on the scam.
When settlements conclude with U.S. state regulators and those in the United Kingdom, the final tally is expect to inch toward $6 billion.
Wednesday’s action against parent companies built on $4.3 billion in fines announced last November against the trading arms of the big banks for the market manipulation.
The Justice Department said that euro-dollar traders at Citicorp, JPMorgan, Barclays and RBS formed what they self-described as “The Cartel.” They used an exclusive electronic chat room and coded language to manipulate benchmark exchange rates.
Those rates are set through two major daily “fixes” in Europe and London. Third parties collect trading data at these times to calculate and publish a daily “fix rate,” which in turn is used to price orders for many large customers.