Financial giants Citicorp, JPMorgan Chase, Barclays, The Royal Bank of Scotland and UBS AG have pleaded guilty to felony charges and have been ordered to pay $2.5 billion in fines to the Justice Department and $1.6 billion to the Federal Reserve.
The banks have been were facing charges related to influencing the foreign-exchange market for the sake of profit by manipulating the value of currency and rigging interest rates.
Barclays will pay U.S. and British agencies an additional $1.3 billion. UBS, a Swiss bank, will plead guilty to to manipulating several interest rates, including the London Interbank Offered Rate (LIBOR), after breaking a non-prosecution agreement, which was established in December 2012 after they were the first to report earlier misconduct to the Department of Justice.
U.S. Attorney General Loretta Lynch called the case "brazen display of collusion.”
"Starting as early as Dec 2007, currency traders at several multinational banks formed a group dubbed 'The Cartel,'" Lynch said. "It is perhaps fitting that those traders chose that name, as it aptly describes the brazenly illegal behavior they were engaging in on a near-daily basis.”
Currency traders at Citicorp, JPMorgan, Barclays and RBS dubbed themselves “The Cartel” and used a chat room to manipulate exchange rates to benefit themselves, according to prosecutors.
The New York Times explained how the scheme was perpetrated. “…One trader would typically build a huge position in a currency and then unload it at a crucial moment, hoping to move prices. Traders at the other banks agreed to, as New York State's financial regulator put it, 'stay out of each other's way.’”
The banks would also lie about the price of currency and inflate the figures. The New York Times quoted a Barclays employee as saying the “hard mark-ups” were the “'worst price I can put on this where the customers decision to trade with me or give me future business doesn't change.' Or, to put their mission in the starkest of terms, the employee said: 'If you ain't cheating, you ain't trying.'"
"By agreeing not to buy or sell at certain times the traders protected each other's trading positions by withholding supply of or demand for currency and suppressing competition in the [foreign exchange] market," the Department of Justice said.
In total, the banks have paid nearly $9 billion in fines and penalties for rigging the market.
Citigroup CEO Michael Corbat said, "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.”
JP Morgan CEO Jamie Dimon echoed the statement. "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," he said.
Though no individuals have been charged, UBS Chairman Axel Weber and CEO Sergio Ermotti said "appropriate disciplinary actions” have been taken against the employees involved.
Eight Barclays employees will be fired for their actions, said Benjamin Lawsky, the superintendent of New York's Department of Financial Services, the regulator that oversees the bank's U.S. operations.
Barclays CEO Antony Jenkins said, "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.”
Jimmy Gurulé a former assistant attorney general and Treasury official who now teaches law at University of Notre Dame, voiced his doubts that the heavy fines would change people’s behavior. "Once again the actual perpetrators and criminal architects of the fraud scheme will avoid criminal liability,” he told USA Today. "While the payment of these large fines may help to reduce the federal deficit, such penalties will do little to change the pervasive culture of corruption that currently exists in the banking sector. Real change will only occur when corrupt bank officials are indicted, convicted and sent to prison for their crimes.”
Lynch said the punishment goes to show the Department of Justice’s willingness "to vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and who enrich themselves at the expense of American consumers.”
She added that the penalties were fitting, “considering the long-running and egregious nature of their anticompetitive conduct. It is commensurate with the pervasive harm done. And it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare."