Banks to Pay Billions to Settle Charges

(CN) - Five of the world's biggest banks have agreed to pay more than $5 billion and plead guilty to multiple charges related to manipulating foreign currencies and interest rates, the Justice Department announced Wednesday.

Citigroup, JPMorgan Chase, Barclays, and the Royal Bank of Scotland were scheduled to plead guilty in the New Haven, Connecticut Federal Court to to conspiring to manipulate the price of U.S. dollars and Euros exchanged in the foreign currency exchange sport market.

UBS AG, meanwhile, will pay $545 million and plead guilty to to manipulating the London Interbank Offered Rate (LIBOR) and other benchmark interest rates, after breaching its December 2012 non-prosecution agreement resolving the LIBOR investigation.

Prosecutors said traders at Citigroup, JPMorgan Chase, Barclays, and the Royal Bank of Scotland brazenly referred to themselves as "the cartel" in the private online chat room in which they met.

In one case, a Barclay's employee is said to have boasted, "If you ain't cheating, you ain't trying."

"For more than five years, traders in "The Cartel" used a private electronic chat room to manipulate the spot market's exchange rate between Euros and dollars using coded language to conceal their collusion," said Attorney General Loretta Lynch in announcing the settlements Wednesday morning.

"They acted as partners - rather than competitors - in an effort to push the exchange rate in directions favorable to their banks but detrimental to many others," Lynch continued. " The prices the market sets for those currencies influence virtually every sector of every economy in the world, and their actions inflated the banks' profits while harming countless consumers, investors and institutions around the globe - from pension funds to major corporations, and including the banks' own customers - who placed their faith in the market and relied on it to produce a competitive exchange rate."

Assistant Attorney General Bill Baer, of the Justice Department's Antitrust Division, said the scheme affected 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,"

"The seriousness of the crime warrants the parent-level guilty pleas by Citicorp, Barclays, JPMorgan and RBS," Baer said.

To carry out the scheme, one trader would typically build a huge position in a currency, then unload it at a crucial moment, hoping to move prices, the Justice Department said.

While this happened, traders at the other banks agreed to stay out of each other's way.

The banks also misled their clients about the price of currencies, prosecutors said, imposing "hard mark-ups," which one Barclays employee described as the "worst price I can put on this where the customers decision to trade with me or give me future business doesn't change."

As for UBS, under the terms of the settlement agreement announced Wednesday, the bank will not be criminally charged for either its alleged misconduct in either the foreign currency market, or participation in rigging the London interbank offered rate.

However, the bank will plead guilty to one count of wire fraud related to the LIBOR manipulation, and pay a $203 million civil fine.

The Justice Department originally signed a nonprosecution agreement with UBS in 2012 over the LIBOR manipulation allegations, but terminated the agreement due to the new charges involving currency manipulation.

UBS will pay a separate penalty of $342 million to the Federal Reserve to settle allegations of manipulation of the foreign currency exchange markets, and has agreed to undertake remedial measures.

The bank says it received conditional immunity from prosecution for collusion in the foreign currency market because it is the firm that first reported possible misconduct to the Justice Department, and fully cooperated with the investigation.

"The conduct of a small number of employees was unacceptable and we have taken appropriate disciplinary actions," UBS Chairman Axel A. Weber and Group Chief Executive Officer Sergio P. Ermotti said in a statement . "We made significant investments to strengthen our control framework and compliance programs. We self-detected this matter and reported it to the US Department of Justice and other authorities. Our actions demonstrate our determination to pursue a policy of zero tolerance for misconduct and a desire to promote the right culture in our industry."

In addition to settling the criminal cases with the Justice Department, Citigroup, JPMorgan Chase, Barclays, and the Royal Bank of Scotland have also entered into settlements with the Commodity Futures Trading Commission and Benjamin M. Lawsky, the New York State financial regulator.

For instance, Barclays agreed to pay a total of $2.4 billion to the CFTC, the Federal Reserve, the financial Conduct Authority of London and New York State; UBS agreed to pay more than $500 million to settle currency manipulations charges.

"There is very little that is more damaging to the public's faith in the integrity of our markets than a cabal of international banks working together to manipulate a widely-used benchmark in furtherance of their own narrow interests," said Aitan Goelman, the CFTC's Director of Enforcement, commenting on the seriousness of the acts being admitted to by the banks.

A number of the banks pleading guilty today had previously agreed to pay $4.25 billion to resolve foreign exchange investigations started by a number of regulators.

Lawsky, however, suggested the punishment of the banks for engaging in a "brazen 'heads I win, tails you lose' scheme to rip off their clients" may just be beginning.

He said his office is looking into whether Barclays and other banks used electronic foreign exchange trading platforms to carry out their schemes.

Wednesday's settlement with Barclays did not release the bank from future penalties.

In a statement, Barclays CEO Antony Jenkins said "the miscondcut at the core of these investigations is wholly incompatible with Barclays' purpose and values and we deeply regret that it occurred."

Jenkins said he shares the frustration of bank shareholders and colleagues "that some individuals have once more brought our company and indsutry into disrepute.

"Dealing with these issues, including taking the appropriate disciplinary action against the individuals involved, is a necessary and important part of our plan to transform Barclays and remains a key priority," he said.

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