NEW YORK (Reuters) - The parent companies or main banking units of as many as five major banks, rather than their smaller subsidiaries, are expected to plead guilty to U.S. criminal charges over manipulation of foreign exchange rates, people familiar with the matter said.
A handful of banks will likely resolve forex-rigging investigations by the U.S. Justice Department as soon as this week: JPMorgan Chase & Co (JPM.N) Citigroup (C.N), British banks Royal Bank of Scotland (RBS.L) and Barclays (BARC.L) and Swiss bank UBS UBSG.VX.
It would be unprecedented for parent companies or main banking units, rather than smaller subsidiaries, of so many major banks, to plead guilty to criminal charges in a coordinated action, the people said.
Peter Carr, a spokesman for the U.S. Justice Department, declined comment. Spokespeople for Citi, JPMorgan, RBS, UBS, and Barclays all declined to comment.
If parent companies of U.S.-based JPMorgan and Citigroup plead guilty, it would be the first time in decades that a major American financial institution has done so. Last year, when Swiss bank Credit Suisse AG CSGN.VX pleaded guilty in the United States to helping wealthy Americans evade taxes, it became largest institution in over 20 years to plead to criminal wrongdoing. It was soon followed by French banking giant BNP Paribas (BNPP.PA).
U.S. authorities, fearing unintended reverberations such as the layoffs of innocent employees, have rarely sought criminal convictions against major global financial institutions and instead have allowed their smaller foreign subsidiaries to take the bullet.
Guilty pleas trigger a cascade of consequences. Banks may have to negotiate regulatory exemptions to avoid serious disruptions of business.
It has been called the “Arthur Andersen effect” after the demise of the big 5 accounting firm after its indictment in 2002 over charges related to Enron Corp’s accounting scandal. Some 28,000 employees at the firm lost their jobs.
The guilty pleas with the U.S. Department of Justice, which will likely be to antitrust charges for colluding by traders to rig foreign currency rates, could take place as soon as Wednesday, people familiar with the matter have said. The banks also are expected to pay penalties of some $1 billion or more, and the collective settlement is expected to exceed the $4.3 billion in fines paid by a half-dozen banks to global regulators last November. [ID: nL1N0XS1L7]
“We need to look carefully at the actual terms of the plea deals to assess just how well these banks are being held accountable, but guilty pleas by major banks at the parent company level will send a message that even the largest U.S. financial institutions can be convicted of crimes,” said University of Virginia law school professor Brandon Garrett, author of the book, “Too Big to Jail: How Prosecutors Compromise with Corporations.”
It would “help chase away the ghost of Arthur Anderson, and the fear that criminal prosecutions should be brought only with great caution against major corporations,” Garrett said.
The Justice Department has been negotiating with the banks for months over how to resolve allegations that traders colluded to rig rates in the largely unregulated $5.3 trillion-a-day currency market. All except Barclays reached agreements in November with the UK’s Financial Conduct Authority and the U.S. Commodity Futures Trading Commission.
Regulators also made public transcripts of online chat rooms that show how traders shared confidential information about client orders and otherwise conspired to manipulate rates to benefit their own transactions.
Authorities now may seek to limit the fallout from guilty pleas with assurances from various regulators that banking licenses will not be automatically revoked. Institutions also may obtain waivers if the pleas would otherwise prohibit them from business activities such as participating in certain private offerings, or trading billions of dollars in government securities.
Granting waivers to big banks that break the law has become a flash point at the Securities and Exchange Commission and other U.S. regulators. Democrats have questioned whether the agencies were simply rubber-stamping those requests and being too soft on repeat offenders.
BNP Paribas was recently granted an exemption by the U.S. Labor Department that allows it to continue to manage retirement plans despite pleading guilty last year to violating U.S. sanctions against Iran, Sudan and Cuba. Credit Suisse, which was sentenced in November, also received certain waivers, and a temporary exemption from the Labor Department.
On the other hand, fear of collateral consequences may have helped British bank HSBC avoid a criminal plea in 2012 over allowing the laundering of hundreds of billions of money for Mexican drug cartels, among other problems.
In 2014, JPMorgan avoided a conviction for failure to tell authorities about its suspicions about Bernard Madoff, enabling the Ponzi schemer to launder billions through accounts at the bank.
Instead, HSBC and JPMorgan entered into deferred prosecution agreements, which avoid the risk of a bank’s automatically losing its charter or license to operate in the United States. Over the past decade, deferred prosecution agreements and nonprosecution agreements have become a common way for the U.S. Justice Department to resolve corporate misconduct.
The last major financial institution to enter a comparable guilty plea in the United States is Drexel Burnham Lambert in 1989, Garrett said. Bankers Trust pleaded guilty in 1999.
(This story has been refiled to correct typo in book title in paragraph 10)
Reporting By Karen Freifeld, Additional reporting by Sarah Lynch and Soyoung Kim in Washington, Editing by Soyoung Kim, David Gregorio and Christian Plumb