By Aruna Viswanatha
WASHINGTON--Five global banks agreed to pay more than $5 billion
in combined penalties and will plead guilty to criminal charges to
resolve a long running U.S. investigation into whether traders at
the banks colluded to move foreign currency rates for their own
financial benefit.
Four of the banks, J.P. Morgan Chase & Co., Barclays PLC,
Royal Bank of Scotland Group PLC, and Citigroup Inc., will plead
guilty to conspiring to manipulate prices in the $500
billion-dollar-per-day market for U.S. dollars and euros,
authorities said.
The fifth bank, UBS AG, received immunity in the antitrust case,
but will pay a fine and plead guilty to manipulating the Libor
benchmark for violating an earlier accord meant to resolve those
allegations of misconduct.
The size and scope of the resolutions reflect authorities'
attempts to crack down on what they called "breathtaking"
misconduct, with some of the largest fines levied to date by the
Justice Department for antitrust violations. Prosecutors also took
the unusual step of ripping up a prior agreement over subsequent
violations and extracted the first criminal guilty pleas from big
U.S. banks in decades.
"These unprecedented figures appropriately reflect the
conspiracy's breathtaking flagrancy, its systemic reach and its
significant impact," Attorney General Loretta Lynch said.
Yet the Justice Department didn't announce charges against
individuals at any of the banks, with Ms. Lynch saying only "that
investigation is ongoing." New York's financial regulator said it
required Barclays to fire eight employees in connection with its
resolution.
And in a sign of how prosecutors have tamped down the impact of
criminal guilty pleas, the banks said they expected little business
disruption from pleading guilty.
Some banks blamed the conduct on a small group of traders and
suggested the problems weren't systemic throughout the firm.
"The lesson here is that the conduct of a small group of
employees, or of even a single employee, can reflect badly on all
of us, and have significant ramifications for the entire firm,"
said J.P. Morgan Chief Executive James Dimon, who added the bank is
working to fortify its controls.
Authorities said euro dollar traders at the banks, who were
self-described members of "The Cartel" communicated through coded
language in an online chat room to coordinate attempts to move
rates set at 1:15 and 4 p.m.
Officials said a 19-month investigation in which FBI agents
conducted 175 interviews and reviewed a terabyte of trading data
showed traders withholding bids or offers to avoid moving the rate
in directions that would hurt open positions held by other members
of the group, in violation of antitrust laws.
Members of the group discussed whether to allow one Barclays
trader to join the chat room and ultimately decided to let him in
for a "1 month trial," but advised him: "mess this up and sleep
with one eye open at night," according to the New York Department
of Financial Services.
The fines, which include penalties from the Federal Reserve and
other regulators, come on top of a combined $4.3 billion many of
the same banks paid in November to resolve similar charges from
U.S. and U.K. regulators.
Bank of America Corp. will also pay a $205 million penalty to
the Fed to resolve the regulator's foreign exchange probe. Bank of
America didn't face similar action from the Justice Department.
Citigroup, which was accused of being involved in the misconduct
from December 2007 through January 2013, is paying the largest
criminal fine of $925 million, in addition to a Fed penalty of $342
million. The other banks were accused of engaging in the conduct
for various periods within that time frame.
"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, " Chief Executive Michael Corbat said in a news
release, adding its internal investigation has so far resulted in
nine terminations.
Under its settlement with the Justice Department, J.P. Morgan
will pay a fine of $550 million, while the Fed penalty is $342
million. The bank has previously reserved for the settlements.
One bank, Barclays, pulled out at the last minute of the
November settlement with regulators, and is now paying $2.38
billion to the Justice Department, the Federal Reserve, the
Commodity Futures Trading Commission, the New York State Department
of Financial Services, and the U.K. Financial Conduct
Authority.
It also agreed that its foreign exchange trading and sales
practices violated its 2012 Libor agreement, and agreed to pay an
additional $60 million penalty.
Prosecutors said UBS would plead guilty in connection with
similar violations. They said UBS engaged in deceptive foreign
exchange trading and sales practices after its 2012 agreement,
including by adding undisclosed markups to certain customers'
transactions in which traders and sales staff told customers there
were no markups added.
One UBS trader also engaged in the same collusive behavior in
the euro and dollar market, but the bank wasn't charged over that
conduct because it had obtained immunity by being the first bank to
report the possible antitrust violations.
The five banks will be under a three-year period of probation,
overseen by the court. The plea agreements will require the banks
to implement compliance programs to prevent and detect attempts to
manipulate rates and provide an annual report on that progress to
the government. Under agreements with regulators, the banks are
already obligated to more broadly improve compliance and
controls.
Prosecutors said the fines are tied to evidence they have to
prove a profit to the bank or loss to others from the manipulation.
Ms. Lynch said the Justice Department's fines would go to the U.S.
Treasury.
--Emily Glazer contributed to this article.
Write to Aruna Viswanatha at aruna.viswanatha@wsj.com
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