“If you ain’t cheating, you ain’t trying,”’ says a Barclay Bank trader!
This last week a consortium of the six biggest national and international banks were fined $5.6 billion for manipulating global currency and interest rates, going back to 2007. The six banks were Bank of America, Barclays, Citigroup, JP Morgan Chase, Royal Bank of Scotland and UBS. All but UBS admitted to criminal guilt, as well.
The guilty verdicts were the result of a long investigation into the actions of about twenty employees, who refer to themselves as “the cartel” or “the Mafia.” Using coded communication in an online chat room, they rigged the exchange rate between the dollar and the euro, violating the rules on market manipulation and collusion.
Typically, one trader would build a huge position in a particular currency, unload it at just the critical moment hoping to move prices. Traders at the various other banks would play along using the online chat rooms to coordinate their activities. One of them, a trader at Barclays said, “If you ain’t cheating, you ain’t trying.”
The banks also misled their clients about the price of the currencies, imposing hard markups. Trading foreign currencies generally involves low risk and high revenues. In fact, after the 2008 financial crisis, this was the kind of activity banks were supposed to expand. But the foreign exchange business, like so much else on Wall Street, is vulnerable to manipulation and what may have started out as the perfect business model turned into yet another breeding ground for bank crime.
Citigroup’s chief executive, Michael L. Corbat, said in a memo to his employees, “The behavior that resulted in the settlements was an embarrassment to our firm.” Citigroup will pay a record $925 million antitrust penalty, making it the largest single fine ever imposed for a violation of the Sherman Act.
The irony is twofold. Federal authorities adopted rules to rein in Wall Street after the last debacle, but exempted foreign exchange transactions. As there is not any one government agency which is specifically responsible for policing this market, some of the banks themselves actually set the guidelines for how this business is to be conducted. This void has created more criminal activities and multi-billion dollar penalties. These penalties have all but wiped out the revenue that major investment banks generated from their foreign exchange business last year.
Still, the fines are a drop in the bucket compared to the trillions the big banks received during the last financial crisis. The other irony is that a government bought and paid for by big banks applauds the success of this latest round of fines as a “win-win” for the American people!
Attorney General Loretta Lynch proudly announces this as a success: “Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes, and they serve as a stark reminder that this Department of Justice intends 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 the American consumer.”
Irony or outrage? The penalties normally applying for corporate criminal guilt have been waived by the SEC and others. And, these meager fines are not addressing the banks stranglehold on our economy and on our government. They are not stopping criminal behavior and it appears we are not even imposing the right kinds of regulations, leaving it up to the same banks to impose their own rules.
Then we slap wrists for doing so? Banks still continue to commit crimes and then pay for their transgressions with meager fines. Of course, they repeat the cycle. They still enjoy some of their biggest profits and pay nothing as compared to them. And, they still get to write their own regulations and play by their own rules.
As Sam Antar, former Crazy Eddie CFO, convicted felon and now consultant on frauds, recently tweeted: “Imagine that in the fight against organized crime, the best that the government could do is levy fines. Then, think of Wall St and banks.”
[tweetthis twitter_handles=”@RichardMBowen”]“If you ain’t cheating, you ain’t trying.” Is that so?![/tweetthis]