Editorial: Forex manipulators fined

It’s getting hard to keep up with all the price-fixing scandals in the global banking system, even if the names of the guilty and the patterns of abuse and settlement are getting familiar.

In the latest bombshell on May 20, the U.S. Department of Justice announced that J.P. Morgan Chase, Barclays, Royal Bank of Scotland Group and Citigroup will plead guilty to conspiring to manipulate prices for their own benefit in the $500-billion-per-day foreign exchange market for U.S. dollars and euros.

A fifth bank, UBS, received immunity in the above case for being the first to report it to authorities, but will plead guilty to manipulating the London Interbank Offered Rate (Libor).

The five will pay a combined US$5.6 billion in penalties to the U.S. Federal Reserve and other regulators — the largest fines for antitrust violations fines ever levied by the U.S. Justice Department. Citigroup is paying out the most: a US$925-million criminal fine, plus a Fed penalty of US$342 million.

A sixth bank, the Bank of America, will pay a US$205-million fine to the Fed, but will not face a criminal fine.

These payments are on top of the US$4.3 billion that many of the same banks paid in November in relation to similar charges by U.S. and U.K. regulators.

Barclays withdrew at the last minute from the November settlement with regulators, and is now paying US$2.4 billion to the Justice Department, the Federal Reserve, the Commodity Futures Trading Commission, the New York State Department of Financial Services and the U.K. Financial Conduct Authority. Barclays also admitted that its forex trading and sale practices violated its 2012 agreement relating to its manipulation of Libor, and has now agreed to pay another $60-million penalty.

No individuals have yet been charged with any wrongdoing, and the five banks will be monitored under a three-year probation period. Barclays has so far fired eight employees.

The guilty pleas by the banks should make it easier for aggrieved parties — such as pension funds — to sue the banks for damages.

Regarding the latest scandal, U.S. Attorney General Loretta Lynch said “these unprecedented figures appropriately reflect the conspiracy’s breathtaking flagrancy, its systemic reach and its significant impact,” and that their actions harmed “countless consumers, investors and institutions around the world.”

She said “almost every day” for five years from 2007, currency traders who were self-described members of “The Cartel” would communicate in coded language in a private Internet chat room to manipulate exchange rates set at 1:15 p.m. and      4 p.m. in New York.

U.S. officials carried out a 19-month investigation into the antitrust allegations, with the Federal Bureau of Investigations completing 175 interviews and reviewing a terabyte of trading data that showed traders withholding bids or offers to help open positions held by other Cartel members.

• Rio Tinto and its subsidiary Turquoise Hill Resources celebrated progress in restarting a stalled, US$5.4-billion underground development at their vast Oyu Tolgoi copper-gold mining complex in Mongolia — but not without major concessions to their project partner and regulator, the Mongolian government.

Turquoise Hill owns 66% of Oyu Tolgoi while the Mongolian government owns the rest. Rio Tinto owns about 51% of Turquoise Hill Resources.

The three parties at long last settled on the value of work already carried out at Oyu Tolgoi’s open-pit operations.

Rio Tinto also agreed that a 5% sales royalty would be based on Oyu Tolgoi’s gross revenue rather than its net revenue as the miner had proposed, while all parties agreed that their jointly held company Oyu Tolgoi LLC — which oversees the project — would pay US$30 million to settle an ongoing tax dispute, rather than an earlier estimated figure of US$127 million.

In another major concession by the miners, a 2% net smelter return royalty that Turquoise Hill bought for US$37 million from BHP Billiton in 2003 is now worth zero.