Top banks facing US currency probe

Criminal charges vs. individuals said to be coming

By Jessica Silver-Greenberg and Ben Protess
New York Times   October 07, 2014

Stephen Crowley/The New York Times)

President Obama, meeting Monday with US regulators, said progress is being made in implementing a four-year-old overhaul of financial regulation but urged them to do more to prevent the kind of risk-taking that started the 2008 crisis.

NEW YORK — The Justice Department is preparing a fresh round of attacks on the world’s biggest banks, again questioning Wall Street’s role in a broad array of financial markets.

With evidence mounting that a number of foreign and US banks colluded to alter the price of foreign currencies, the largest and least regulated financial market, prosecutors are aiming to file charges against at least one bank by the end of the year, according to interviews with lawyers briefed on the matter. Ultimately, several banks are expected to plead guilty.

Interviews with more than a dozen lawyers who spoke on the condition of anonymity open a window onto previously undisclosed aspects of an investigation that is unnerving Wall Street and the defense bar. While cases stemming from the financial crisis were aimed at institutions, prosecutors are planning to indict individual bank employees over currency manipulation, using their instant messages as evidence.

The charges will most likely focus on traders and their bosses rather than chief executives. As a result, critics of the Justice Department might view the cases as little more than an exercise in public relations, a final push to shape the legacy of Attorney General Eric H. Holder Jr., who was criticized for a lack of criminal cases against Wall Street executives.

Yet the breadth of the alleged wrongdoing in the currency inquiry — Deutsche Bank, Citigroup, JPMorgan Chase, Barclays, and UBS are among the dozen or so banks under investigation — might distinguish it from the piecemeal nature of the crisis-era investigations.

And prosecutors are testing a new negotiating tactic, two lawyers said, using the currency investigation as a cudgel to potentially reopen other cases. Arguing that the misconduct would violate earlier settlements involving interest rate manipulation, prosecutors have threatened to impose new penalties in the interest rate cases.

Those interest rate cases, which have led to settlements with five banks, are experiencing something of a resurgence. For one thing, prosecutors are preparing additional charges against at least one trader suspected of manipulating the London interbank offered rate, or Libor, a benchmark that underpins the cost of trillions of dollars in credit card, mortgage, and other loans.

Prosecutors are discussing plans to force Deutsche Bank or one of its subsidiaries to plead guilty to manipulating Libor, the lawyers said, noting that prosecutors have not made a final decision. The lawyers added that the German bank’s New York branch faces a separate action from Benjamin M. 

Lawsky, New York state’s banking regulator, who until now has sat out the Libor settlements.

A Deutsche Bank spokeswoman said the bank is cooperating in the investigations “and conducting its own ongoing review,” adding that “no current or former member of the management board had any inappropriate involvement.”

The Justice Department’s focus on financial misdeeds comes at a time of transition. Top prosecutors are leaving its criminal division, which is handling the benchmark investigations along with the antitrust division. For Holder, the cases offer a last chance to address public and political complaints that prosecutors have treated Wall Street with kid gloves.

He has sought to swing the tide through a series of recent cases: record fines for JPMorgan Chase and Bank of America and guilty pleas from Credit Suisse and BNP Paribas.

The public lust for charges is at odds with the view on Wall Street, where bankers and lawyers report fatigue with what seems like unrelenting investigations. With each inquiry, the fines have multiplied, stretching to nearly $17 billion for Bank of America.

In the currency investigation, it is unclear which bank will settle first or which will plead guilty. As was the case in the Libor investigation, lawyers said, UBS was accepted into the antitrust division’s leniency program in exchange for its cooperation, though it still faces an action from the criminal division. At least one US bank is expected to plead guilty.

Prosecutors have explained publicly that banks would earn credit for exposing their misbehaving employees and face charges for protecting them. Already, banks have fired or suspended about 30 employees linked to the currency probe, though no one has been accused of wrongdoing.

While prosecutors aim to bring at least one currency case this year, the workload could delay action until early next year. And the pace could stall as prosecutors seek to coordinate with the Commodity Futures Trading Commission, Lawsky, and federal banking regulators.

In Britain, regulators are nearing a settlement with several banks in the currency case. The Financial Conduct Authority met last month with six banks — Citigroup, JPMorgan, Barclays, UBS, Royal Bank of Scotland, and HSBC — to discuss a collective settlement.

The banks are not necessarily the most culpable, but rather the ones most willing to settle. US prosecutors have not ruled out joining a global settlement, lawyers said, but that appears unlikely.

Collectively, the British regulator could collect fines that total up to $3.3 billion, people briefed on the matter said. At Deutsche Bank, facing Libor and currency investigations, there is growing momentum to resolve at least one of them.