- The Washington Times - Wednesday, May 20, 2015

They called themselves “The Cartel” and used secret chat rooms to plot strategy and manipulate prices on the world’s trillion-dollar currency markets.

On Wednesday, the worst of the trading abuses came to light as four of the world’s biggest banks based in the U.S. and Britain agreed to pay record fines totaling over $5 billion after pleading guilty to criminally manipulating global currency market over a period of more than five years beginning in 2007.

Justice Department officials called the settlement “historic,” while the top executive of one of the banks caught up in the scheme, which involved a handful of traders, called it “an embarrassment to our firm.”

Traders at Citicorp, JPMorgan Chase & Co., Barclays PLC, and The Royal Bank of Scotland agreed to plead guilty to felony charges, U.S. Attorney General Loretta Lynch said during a May 20 press conference. It’s the first time in more than two decades that global banks have admitted to wrongdoing on such a scale.

“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,” Ms. Lynch said. “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.”

“The Cartel” traders coordinated their currency trades to manipulate the benchmark rates set at the two major daily snapshots of the eurodollar exchange rates, known as “fixes,” which take place at 1:15 p.m. and 4 p.m., said Assistant Attorney General Bill Baer. Those fixes are supposed to be reported by unbiased third parties, Mr. Baer said.

The group also hatched plans in the chat room to protect themselves at other times during the day by agreeing to hold off buying or selling dollars and euros, he said.

Analysts said the penalties marked a victory for the government and reflect a broader effort by the Justice Department, long criticized as reluctant to prosecute big banks, to tackle financial misconduct.

The banks blamed the currency manipulation scheme on a few bad actors.

“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,” said Jamie Dimon, the chief executive officer of JPMorgan, in a statement.

Citi Chief Executive Michael Corbat said nine employees had been fired and others disciplined in the wake of the settlement.

“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,” he said. ” … We will learn from this experience and continue building upon the changes that we have already made to our systems, controls, and monitoring processes.”

The four banks will pay a combined $2.5 billion in criminal penalties to the Justice Department for illegal manipulation of currency rates between 2007 and 2013. The Federal Reserve is imposing an additional $1.6 billion in fines, as the banks’ chief regulator.

Britain’s Barclays is paying an additional $1.3 billion to British and U.S. regulators for its role in the scheme, and Switzerland’s UBS has agreed to plead guilty to manipulating key interest rates and will pay a separate criminal penalty of $203 million.

Federal prosecutors called out UBS in Wednesday’s press conference as a chronically bad actor.

UBS has a “rap sheet” that cannot be ignored, said Assistant Attorney General Leslie Caldwell.

“Within the past six years, the department has resolved criminal investigations of UBS three times, resulting in non-prosecution or deferred prosecution agreements,” she said. “UBS also has entered into civil and regulatory settlements on multiple occasions within the past few years. Enough is enough.”

Department of Justice officials say the banks have each agreed to a three-year period of corporate probation, which will require regular reporting to authorities and cessation of all criminal activity. All banks are to continue cooperating with the government’s ongoing criminal investigations, and the plea agreements do not prevent the Obama administration from prosecuting culpable individuals for related misconduct.

“The penalty all these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct,” Ms. Lynch said. “It is commensurate with the pervasive harm done.”

Brennan Weiss contributed to this report, which was based in part on wire service reports.

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