Five of the world's largest banks agreed today to pay $5.6 billion in fines and settlements for manipulation of the foreign exchange market, where roughly $5 trillion is traded daily with few rules and oversight compared to other markets. Four of these banks will plead guilty to antitrust violations for conspiring to manipulate currency rates: JPMorgan Chase, Citi, Barclays, and the Royal Bank of Scotland.
The criminal pleas follow a massive deal last year where four of the banks involved in today's pleas, along with HSBC and Bank of America, paid more than $4 billion in fines and settlements to British and U.S. regulators.
Barclays was not included in the first settlement because it had to work out a deal with the New York financial regulator, the Department of Financial Services. Barclays will pay $2.4 billion combined to the Justice Department, New York's Department of Financial Services, the Commodities Futures Trading Commission, and the Financial Conduct Authority, the U.K. financial regulator. The bank will also remove several employees.
The pleas come at the end of a 19-month investigation by the Justice Department.
"Starting as early as 2007, currency traders at several banks formed a group they dubbed 'The Cartel.' It is fitting they chose that name as it describes the illegal behavior they were engaged in on a five-year basis," Attorney General Loretta Lynch said in a news conference.
"Almost every day for five years, they used a private electronic chat room to manipulate the exchange rate between euros and dollars to conceal their collusions, they acted as partners rather than competitors to push the exchange rate in directions favorable to their banks, but detrimental to many others."
The banks will also face three years of probation supervised by a federal court. "These banks acknowledge their role in this conspiracy and are commiteed to changing their corporate cultures starting at the higest levels," Lynch said.
More than $1.8 billion of the combined payments will come in the form of fines paid to the Federal Reserve, while the criminal fines amount to more than $2.5 billion. Bank of America will pay $205 million to the Federal Reserve.
The guilty pleas mark a new step in the evolution of the Justice Department's approach to wrongdoing among large banks. Following the collapse of the audit and consulting firm Arthur Andersen after it was indicted for its role in Enron's accounting fraud and collapse, the company went bankrupt before it could even go to trial.
Since then, prosecutors have tended to extract huge settlements from corporations along with agreements where corporations commit to changing their behavior and not commit further wrongdoing. That started to change last year, when the Swiss bank Credit Suisse and the French bank BNP Paribas paid billions in settlements and fines and pleaded guilty to tax evasion and conspiracy to evade U.S. sanctions, respectively.
Banks and their lawyers had been concerned that guilty pleas could bring along collateral consequences that would go far beyond what prosecutors intended. In the case of Credit Suisse and BNP Paribas, however, they were able to win waivers from regulators to continue certain businesses and are still very much ongoing concerns.
UBS, the Swiss bank, will pay $545 million and will plead guilty to wire fraud for playing a role in manipulating LIBOR, a benchmark interest rate used for trillions of dollars of financial transactions. UBS had reached a nonprosecution agreement for LIBOR in late 2012 that its manipulation of foreign exchange had violated. "The Department of Justice will not hesitate to file criminal charges for financial institutions that reoffend," Lynch said.
Leslie Caldwell, the head of the Justice Department's criminal division, said that the investigation into currency manipulation will continue.