GUILTY! Five Monster Banks Admit to Currency Fraud
By Mike Andrew, Editor Retiree Advocate
Some of the world’s biggest – and greediest – banks are at it again. On May 20, US Attorney General Loretta Lynch announced that five huge banks would plead guilty to felony fraud charges arising from their manipulation of currency exchange rates.
The five banks “for years participated in a brazen display of collusion,” Lynch said at a press conference.
“The penalty all these banks will now pay is fitting considering the longrunning and egregious nature of their anti-competitive conduct,” she added. “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.”
The banks will pay a whopping $5.7 billion in fines for fraud, plus an additional $1.6 billion imposed by the Federal Reserve for currency violations.
The banks also agreed to three years of “corporate probation” that would include federal court supervision and regular reporting to authorities to ensure that they had ended “all criminal activity.”
The guilty banks include some of the world’s largest:
- JP Morgan Chase is the world’s fifth largest bank, with $2.57 trillion in assets.
- Barclay’s Bank is the world’s tenth largest, with assets of $2.1 trillion.
- Citicorp is the thirteenth largest bank, with $1.84 trillion in assets.
- The Royal Bank of Scotland owns $1.63 trillion in assets, making it the seventeenth largest in the world.
- UBS is the baby of the group with only $1 trillion in assets, but it is the biggest bank in Switzerland and the world’s largest manager of private wealth.
The $925 million fine assessed for Citicorp is the largest criminal fine in history, Lynch said, and the combined total is the largest set of antitrust fines the Justice Department has ever levied. Barclays and UBS are repeat offenders, having been fined for a similar currency manipulation scheme in 2012. They will have to pay millions of dollars in extra fines for violating the terms of the 2012 settlement.
What the banks did was to manipulate LIBOR (London Interbank Offered Rate), a measure of currency exchange rates which is calculated from information submitted by individual banks.
Because the guilty banks are so big, if they submit false data they can alter LIBOR substantially.
“The banks pleading guilty today are not ordinary market participants. They are ‘market makers,’ representing 25% or more of dollar–euro exchange rate transactions each year,” Assistant Attorney General Bill Baer said at the Justice Department press conference.
“As such, they were uniquely positioned to manipulate the market. And that is what they did.”
Again, because the banks are so big and handle so much money every day, even a small adjustment of LIBOR could net them millions of dollars in extra income.
If these monster banks were only stealing from each other, it would still be illegal, but it might not upset ordinary people. But LIBOR is used as a reference rate for many everyday financial products including home mortgages and student loans, and the collateral damage from manipulation of LIBOR hurts hundreds of thousands of regular people.
A thousand dollars more or less may be incidental if you’re handling assets of $2 trillion, but for a working family struggling to pay the mortgage and send the kids to college, it can be the difference between success and failure.
In the 2012 LIBOR scandal, more than 100,000 homeowners filed a class action suit against 12 large US banks, charging them with using fraudulent interest rates that cost the homeowners thousands of extra dollars in mortgage payments.
One of the lead plaintiffs in the suit was Annie Bell Adams, a retiree living on a pension, whose subprime mortgage was converted to a LIBOR-based loan, sold to derivatives investors and then foreclosed, leaving her homeless.
Another round of lawsuits was filed by the City of Baltimore and other municipalities who charged that LIBOR manipulations caused them to lose $6 billion in the hedge fund investments they used to back up city bonds.
In a 2012 Financial Times article, former trader Douglas Keenan charged that LIBOR manipulation has been common since at least 1991. BBC News and Reuters subsequently confirmed his claims.
What that means is that the guilty pleas announced by the Attorney General May 20 are only the tip of the iceberg. The world’s biggest banks are so greedy that even ordinary marketdriven greed will not satisfy them. They have to resort to extraordinary – even illegal – measures to rake in millions in extra profits.
A banking system where fraud is standard operating procedure can’t last. And it shouldn’t last.
Fines are a step in the right direction, but they’re not enough.
Ordinary people go to jail for petty theft. Who goes to jail for theft on a global scale?