By Jeffrey T. Lewis and Rogerio Jelmayer
SAO PAULO--Brazil's antitrust agency is investigating banking
giants Citigroup Inc., HSBC Holdings PLC, Deutsche Bank AG and a
long list of their peers on suspicion of forming a cartel to
manipulate the exchange rate of the Brazilian currency, the
real.
There are "strong indications" of the use of anticompetitive
practices in the foreign-exchange market by the three big banks and
12 other U.S. and overseas lenders, the agency, known as CADE, said
Thursday. The agency also named 30 individuals in the
investigation.
CADE said there was evidence the banks and the individuals
worked together to fix the exchange rate, coordinate the buying and
selling of currencies, manipulate the Brazilian central bank's PTAX
reference exchange rate and impede the operations of other banks
operating in Brazil's foreign-exchange market, among other
things.
HSBC in Brazil, Citigroup and Deutsche Bank declined to comment
on the allegations. Among the other institutions named by CADE,
J.P. Morgan Chase & Co., Morgan Stanley and Credit Suisse Group
AG had no immediate comment, and Barclay's PLC, Royal Bank of
Scotland Group PLC and UBS AG declined to comment.
About $240 billion was traded on Brazil's spot market in May and
about $311 billion was traded on its futures market in the same
month. That includes purchases of dollars by Brazilians heading to
Florida for vacation and U.S. companies buying reais to invest in
Brazil.
The size and scope of the investigation are unprecedented,
according to Reginaldo Galhardo, foreign-exchange manager at the
Treviso currency brokerage in Sao Paulo.
"This is the first time I've seen an operation involving so many
banks," he said. "It was almost certainly motivated by
investigations in other countries."
Earlier this year, five of the banks under investigation in
Brazil pleaded guilty to similar offenses in the U.S., and agreed
to pay more than $5 billion in combined penalties. Four of the
banks--Barclays, Citigroup, J.P. Morgan and Royal Bank of
Scotland--pleaded guilty to conspiring to manipulate prices in the
$500-billion-a-day market for U.S. dollars and euros.
The fifth bank, UBS, received immunity in the antitrust case but
pleaded guilty to manipulating the London interbank offered rate,
or Libor.
CADE didn't say if its investigation is related in any way to
the U.S. investigation.
The Brazilian antitrust agency has close relations with
authorities in other countries and is probably getting help from
them because the banks involved are all international companies,
according to Gesner Oliveira, a former head of CADE. If charged,
tried and found guilty of the offenses CADE says they have
committed, the banks could be fined as much as 20% of their annual
revenue, an amount that could be doubled if any of the banks were
found to be repeat offenders, he said.
"Now CADE will carry out a detailed investigation of the case
and any resolution won't be fast," Mr. Oliveira said. "At best it
could take several months, and at worst it could last years."
The alleged crimes in Brazil took place from at least 2007 to
2013, CADE said. The banks coordinated their actions using chat
services provided by Bloomberg LP, and some of the participants
referred to the group as "the cartel" or "the mafia," according to
CADE. At least one of the participants in the alleged cartel is
cooperating with authorities, CADE said.
Bloomberg declined to comment. Bloomberg is a competitor of The
Wall Street Journal in the provision of financial news.
The banks under investigation collaborated to influence certain
reference indexes that affect the exchange market such as the
Central Bank of Brazil's PTAX rate, CADE said. The PTAX is used by
big companies, banks and investors to set exchange rates in
contracts and for other transactions.
The banks also shared information on clients' orders, futures
contract prices and the size of operations already carried out,
among other things, according to CADE.
Aruna Viswanatha in Washington contributed to this article.
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com and Rogerio
Jelmayer at rogerio.jelmayer@wsj.com
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