Six of the world’s largest banks have been fined a total of $5.8 billion for charges of manipulating foreign exchange rates over a five-year period.
According to the US Department of Justice (DoJ), Citigroup, JP Morgan, Barclays, and the Royal Bank of Scotland pleaded guilty to colluding to “push the exchange rates in directions favorable to their banks but detrimental to others.”
“These unprecedented [fines] appropriately reflect the conspiracy’s breathtaking flagrancy, its systemic reach, and its significant impact.” —Attorney General Loretta LynchIn addition, UBS pleaded guilty to charges of wire fraud and involvement in rigging the LIBOR. The Federal Reserve also separately fined Bank of America $205 million for similar violations.
Attorney General Loretta Lynch called these violations committed by traders at these banks—dubbed “The Cartel”—“brazenly illegal behavior.”
“These unprecedented [fines] appropriately reflect the conspiracy’s breathtaking flagrancy, its systemic reach, and its significant impact,” she said.
The Justice Department said “The Cartel” communicated through a chat room, using coded language, to collude and manipulate the market’s exchange rate between euros and dollars since December 2007.
Their illegal actions inflated the banks’ profits, Lynch said, harming other investors including pension funds, corporations, and even the banks’ clients.
“The banks pleading guilty today are not ordinary market participants,” said Assistant Attorney General Bill Baer. “They are ‘market makers’ representing 25% or more of dollar-euro exchange rate transactions each year. As such, they were uniquely positioned to manipulate the market.”
In the settlement with the DoJ, Citigroup will pay $925 million, Barclays $650 million, JP Morgan $550 million, Royal Bank of Scotland (RBS) $395 million, and UBS $203 million.
The Federal Reserve also issued fines of $342 million each for UBS, Barclays, Citigroup, and JP Morgan, and $274 million for RBS. The regulators also issued the firms cease and desist orders to improve their oversight and controls policies over FX sales to deter any “unsafe and unsound conduct.”
In addition, Barclays also reached settlements with four other regulators in the US and the UK, it said, with total penalties reaching nearly $2.3 billion. This included a £284.4 million ($445.3 million) fine from the Financial Conduct Authority, the largest penalty ever imposed by the UK regulator.
All firms involved stated they have taken “appropriate disciplinary actions” against individuals involved and made efforts to improve compliance and oversight systems.
“The behavior that resulted in the settlements we announced today is an embarrassment to our firm, and stands in stark contrast to Citi’s values,” said Citigroup’s CEO Michael Corbat. “Fostering a culture of ethical behavior has been, and continues to be, a top priority for Citi.”
According to a survey released Tuesday, ethics and integrity has yet to improve on Wall Street since the financial crisis.
One in three of 1,200 financial executives surveyed said they witnessed unethical and illegal behavior first hand. One in five said they believed cheating was part of the recipe for success in the current market environment.
“Despite numerous reform efforts and severe fines levied against industry Goliaths, one-third of those surveyed do not believe the financial services industry has changed for the better,” the report said.
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