Five global banks to pay $5.7 billion in fines over rate rigging

A group of global banks will pay more than $5 billion in penalties and plead guilty to rigging the world's currency market — the first time in over two decades that major players in the financial industry have admitted to criminal wrongdoing.

JPMorgan Chase, Citigroup, Barclays and The Royal Bank of Scotland conspired with one another to fix rates on U.S. dollars and euros traded in the global market for currencies, according to a resolution announced Wednesday between the banks and the Department of Justice. A group of currency traders, who called themselves “The Cartel,” allegedly shared customer orders through chat rooms and used that information to profit at the expense of their clients.

The resolution is complex and involves multiple regulators in the U.S. and overseas.

The four banks will pay a combined $2.5 billion in criminal penalties to the DOJ for criminal manipulation of currency rates between December 2007 and January 2013, according to the agreement. The Federal Reserve is slapping them with an additional $1.6 billion in fines, as the banks' chief regulator. Finally, British bank Barclays is paying an additional $1.3 billion to British and U.S. regulators for its role in the scheme.

Another bank, Switzerland's UBS, will pay a separate criminal penalty of $203 million for breaching a 2012 non-prosecution agreement with the Justice Department.

The fines announced on Wednesday follow agreements in November with many of the same banks over currency trading.

It is rare to see a bank plead guilty to wrongdoing. Even in the aftermath of the financial crisis, most financial companies reached “non-prosecution agreements” or “deferred prosecution agreements” with regulators, agreeing to pay billions in fines but not admitting any guilt.

Cornell University law professor Robert C. Hockett told Al Jazeera that the banks likely agreed to plead guilty because they didn't want to further aggravate government investigators and wanted to avoid even more negative media attention.

“They had already entered into an agreement with DOJ to avoid criminal charges in connection with one scandal, then were found by DOJ, in the course of its investigation of yet another scandal, to have violated that agreement,” he said. “They must have decided that the last thing to do now would be to outrage DOJ further — and attract much more adverse publicity — by fighting the charges in court.”

Unlike the stock and bond markets, currencies trade nearly 24 hours a day, seven days a week. The market pauses two times a day, a moment known as “the fix.” Traders in the cartel allegedly shared client orders with rivals ahead of the “fix,” pumping up currency rates to make profits.

Global companies, which do business in multiple currencies, rely on their banks to give them the closest thing to an official exchange rate each day. The banks are supposed to be looking out for their customers instead of conspiring to get even bigger profits by using their orders against them. Travelers who regularly exchange currencies also need to get a fair price for their euros or dollars.

The number of traders who participated in the criminal activity was small. JPMorgan, in a statement, said the one trader involved has been fired. Citi said it fired nine employees involved.

The agreement between the banks and the DOJ is subject to court approval. If approved, all five banks have agreed to three years of corporate probation overseen by a court. The banks will also help prosecutors with their investigations into individual criminal activity related to the currency market rigging.

Al Jazeera and wire services