These are not the best of times to put one’s trust in a bank or the banking industry. Not with so much manipulation that caught the world’s attention and amazement, as it is the same banking industry in which trust should be second nature that is now in the dock – over foreign exchange irregularities and dipping hands in customers’ accounts without approval or consent.
At a time the world needs more confidence and trust in banks more than at any other time, six global banks, whose names should confer fidelity, will pay more than $5.6bn to settle allegations that they rigged foreign exchange markets — bringing the total sums paid in connection with alleged forex manipulation to about $10bn.
The settlements with the US Department of Justice and other agencies bring to a close the US and UK investigations into some of the biggest players in the $5.3tn a day forex market.
Announcing the settlements, Loretta Lynch, the US attorney-general, said: “The penalty they will pay is fitting; it’s commensurate with the pervasive harm that was done.”
“It should deter competitors from chasing profits without regard to fairness to law or public welfare,” she added.
The revelation that traders colluded to move around currency exchange rates was particularly embarrassing for the banks because it came so soon after they paid billions of dollars to settle claims that their traders had tried to rig interbank lending rates. It has raised questions as to whether the industry learnt any lessons from the previous scandal.
Three banks were also fined an additional total of $400m for manipulating the Libor and Isdafix benchmarks, bringing the tally for the day to $6bn.
Global banks have now paid more than $10bn over the forex scandal, exceeding the $9bn paid by a larger group of institutions to settle the Libor rigging claims. The banks settling forex allegations on Wednesday —Barclays, Citigroup, JPMorgan Chase, Royal Bank of Scotland, Bank of America and UBS — are hoping the deal will let them finally draw a line under both affairs.
In a statement, the DoJ said that between December 2007 and January 2013, euro-dollar traders at Citi, JPMorgan, Barclays and RBS — who described themselves as members of “The Cartel” or “The Mafia” — “used an exclusive electronic chatroom and coded language to manipulate benchmark exchange rates”.
It also said that UBS had engaged in deceptive trading and sales practices, including “undisclosed mark-ups” on certain FX transactions. The DoJ said on some occasions, “UBS traders and sale staff used hand signals to conceal those mark-ups from customers”.
Separately, a statement by New York Department of Financial Services (DFS) quoted one Barclays trader as writing in a November 5, 2010 chat: “if you ain’t cheating, you ain’t trying”.
Four of the banks are pleading guilty to a criminal felony charge of conspiring to fix prices and rig bids in the forex markets. UBS escaped criminal charges on forex but the DoJ found it had violated the terms of its Libor settlement, so the bank will plead guilty to rigging Libor and pay an additional fine on that issue.
Separately from the more than $2.5bn in total forex criminal penalties being paid to the DoJ, six banks will also be fined more than $1.8bn by the US Federal Reserve.
“The criminality occurred on a massive scale,” said Andrew McCabe, FBI assistant director. “Traders at the banks communicated in code in chat rooms to set price-fixing on a daily basis.”
Barclays will pay the largest penalty, at more than $2.3bn. Its larger payment partly reflects the fact that the bank is settling with the most agencies — including the DFS, the US Commodity Futures Trading Commission and the UK’s Financial Conduct Authority. The UK fine is the largest in the regulator’s history.
The CFTC also imposed a separate fine of $115m on Barclays for attempting to manipulate US dollar Isdafix swap rates, marking the first time it has taken action in connection with that benchmark.
Last year, the UK lender pulled out of a $4.3bn multi-bank forex settlement because the DFS was not part of the deal. Both parties agreed to be part of Wednesday’s resolution as long as DFS could exclude a probe into Barclays’ forex electronic trading platform, which will be concluded at a later date.
Barclays will also have to fire eight employees, including four who have left the bank in the last month, as part of its deal with DFS, which has made individual accountability a key factor in its bank settlements. Unlike the DoJ, the DFS does not have to prove a criminal case against individuals.
Of the banks that are settling Wednesday, the DFS only has jurisdiction over Barclays.
In addition to its forex settlement, Barclays will also pay $60m to resolve violations of its 2012 non-prosecution agreement for Libor — under which the bank agreed to not commit any additional wrongdoing for a certain period of time.
UBS had its non-prosecution agreement (NPA) scrapped entirely, marking the first time the DoJ has taken such a step. It will now plead guilty to one count of wire fraud for rigging Libor and pay an additional $203m fine. UBS will also pay $342m to the Federal Reserve over forex.
UBS was the first bank to bring a forex case to US authorities — a move that earned it immunity from antitrust charges. But the bank was still vulnerable to fraud allegations as part of an expanded probe into forex sales practices.
Axel Weber, chairman, and Sergio Ermotti, chief executive, said: “The conduct of a small number of employees was unacceptable and we have taken appropriate disciplinary actions.”
RBS’s deferred prosecution agreement for Libor expired this year so its settlement in that case is not affected. In the forex probe, RBS has to pay about $395m to the DoJ, and $274m to the Federal Reserve.
JPMorgan Chase will pay $550m to the DoJ and $342m to the Federal Reserve, while Citigroup was fined $925m and $342m respectively by the same agencies. This month Citigroup reported that the DoJ had dropped its investigation into the bank for potential Libor rigging while a similar probe against JPMorgan is continuing. Bank of America was not sanctioned by the DoJ, but will pay $205m to the Federal Reserve.
The DoJ, the DFS and other agencies are continuing to investigate other banks, including HSBC and Deutsche Bank, for alleged forex rigging and settlements in those cases could come later this year.
Ms Lynch would not comment on whether the DoJ would charge individuals, saying only: “The investigation is ongoing.”
Shares rose among the European banks fined, with UBS up 3.4 per cent, Barclays up 2.5 per cent and RBS up 1.6 per cent in afternoon trading in London. The affected US banks fell marginally, with Citi down 0.42 per cent, JPMorgan down 0.36 per cent and Bank of America down 0.24 per cent.
Nigeria Court Orders GTB to Refund N5.3billion to Customer
It would sound like some fairy tale; but it as true as daylight. In Nigeria, an Abuja High Court has ordered Guaranteed Trust Bank (GTB) to pay a customer, Dr. Ted Iseghohi Edwards of Edwards and Partners Law firm, a sum of N5.3 billion being amount withdrawn from the client’s account, with the knowledge of the bank but without the client’s knowledge, consent or approval.
The order followed a declaration by the court, which fround GTB guilty of illegally withdrawing the N5.3 billion from the claimant’s account.
In the judgment delivered by Justice Valentine Ashi, the court held that GTB had no defence to its action and ordered the bank to pay the money – N5, 240,516,186.21k – back to the owner through his account with Zenith Bank plc.
Justice Ashi also ordered that the N5.3b should attract ten per cent (10%) post judgment interest, and another 21 per cent interest from December 12, 2015 when GTB illegally withdrew the money, until the fund is eventually paid to Dr. Edwards.
The judge struck out the Central Bank (CBN), the Accountant General of the Federation (AGF), Jonah Otunla, Minister of State for Finance Ambassador Yuguda, Anaocha Local Government Area and the Incorporated Trustees of Association of Local Governments of Nigeria (ALGON) from the suit as defendants on the ground that they were not necessary parties.
Dr. Edward initiated the suit marked FCT/HC/CV/939/2015 in January this year after GTB carried out the illegal withdrawal of the money on December 12, 2014.
The money was paid into Dr. Edwards’ law firm’s account with GTB on January 2, 2014 by the AGF as a settlement of a judgment got by his clients, Impecca Services Limited and His Royal Highness, Eze Samuel Ezekwo against ALGON for the consultancy services they rendered to the 774 local government.
In the originating processes, the plaintiff claim that shortly after the money was paid into his account on behalf of his clients, GTB made some disbursements from the account as directed, but that he was only informed on December 12 by an official of the bank that the Central Bank has withdrawn the N5.3b.
Dr. Edwards said when he enquired form the bank why it made deduction from his account without his consent; he said GTB only insisted that the withdrawal was made in obedience to CBN directive, which it could not disobey.
Justice Ashi, in his judgment yesterday, faulted GTB for betraying the banker/customer relationship between it and Dr. Edwards. He noted that it was wrong for GTB to have made withdrawal from the customer’s account without his knowledge and consent.
The judge held that GTB’s claim that it was helpless and that the withdrawal was at the instance of CBN was of no moment.