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Four Banks Plead Guilty To Foreign Exchange Collusion, UBS Pleads Guilty To Wire Fraud

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U.S. banking giants Citigroup and JPMorgan Chase and U.K.-base conglomerates Barclays and The Royal  Bank of Scotland have agreed to plead guilty antitrust violations stemming from their collusion to manipulate prices in the foreign exchange market over the course of five years, the Department of Justice said on Wednesday. Those banks and UBS have agreed to pay a total of $5.8 billion in fines to global regulators as part of their FX market collusion.

Five banks will pay the Department of Justice nearly $3 billion in fines and penalties for their manipulation of U.S. dollar and Euro exchange rates, which the DoJ characterized as occurring "almost every day for five years" through private chat rooms, benefiting their trading positions but harming countless consumers and investors around the world. Separately, the Federal Reserve said on Wednesday, six banks would pay a total of $1.8 billion in fines for "unsafe and unsound practices" in the FX market.

In the U.S., Citigroup was fined the most: $925 million by the DoJ for its violation of the Sherman Antitrust Act and $342 million by the Fed. JPMorgan was fined a total of $892 million.

Starting in 2007, traders at banks involved in Wednesday's settlement formed what they called "The Cartel"  to fix daily foreign exchange crosses in currencies as prominent as the dollar and euro so that they'd be able to tilt currency movements in their favor. Using coded language and group instant message chats on their Bloomberg Terminals, the traders and their colleagues worked to influence daily rate settings in the forex market by either bidding up some currencies or withholding markets in others at the close of business.

"For more than five years, traders in “The Cartel” used a private electronic chatroom to manipulate the spot market’s exchange rate between euros and dollars using coded language to conceal their collusion. They acted as partners – rather than competitors – in an effort to push the exchange rate in directions favorable to their banks but detrimental to many others," US Attorney general Loretta Lynch said at a Wednesday press conference.

While Citi, JPMorgan, Barclays and RBS pleaded guilty to violations of the Sherman Antitrust Act, UBS was not charged by the DoJ. Instead, the bank, as a result of its cooperation in the government's probe was granted immunity. However, on Wednesday, UBS pleaded guilty to wire fraud for its part in a 2012 LIBOR manipulation probe, tearing up a previous deferred prosecution agreement the Swiss banking conglomerate reached with the DoJ. Bank of America , the sixth bank named in government probes on Wednesday, was not a target of the DoJ's antitrust probe. It paid the Federal Reserve $205 million unsound banking practices.

About the $1.8 billion fine it levied on six banks, the Fed noted in a statement, "The Federal Reserve is requiring the six organizations to improve their senior management oversight, internal controls, risk management, and internal audit policies and procedures for their FX activities and for similar kinds of trading activities and is requiring four of the organizations to improve controls over their sales practices."

The regulator is requiring that all six banks investigate the employees involved in FX market manipulation and is prohibiting their continued employment.

Citigroup and JPMorgan said on Wednesday they expect to maintain their banking licenses in the U.S. and that criminal guilty pleas to collusion are not expected to have a material impact on their operations. Payments to the DoJ and Fed, both banks said, are covered in their existing provisions for litigation.

"The behavior that resulted in the settlements we announced today is an embarrassment to our firm, and stands in stark contrast to Citi's values," Citigroup CEO Michael Corbat said on Wednesday. He said the bank began to take action quickly after becoming aware of its violations, resulting in nine firings and additional disciplinary action. "We will learn from this experience... Fostering a culture of ethical behavior has been, and continues to be, a top priority for Citi," Corbat added.

JPMorgan CEO Jamie Dimon pinned the banks fault on one trader who has now been fired. "The lesson here is that the conduct of a small group of employees, or of even a single employee, can reflect badly on all of us, and have significant ramifications for the entire firm," Dimon said of the bank's tab of $550 million in fines.

Citigroup and JPMorgan shares were little changed.

About its avoidance of a FX guilty plea, UBS said in a Wednesday statement, "In resolving the FX matter with the DOJ, UBS received conditional immunity from prosecution for Euro/USD collusion from the Antitrust Division, which will also not prosecute UBS for any other FX conduct. This immunity reflects UBS's role as the firm that first reported potential misconduct to the DOJ, and the full cooperation provided to the DOJ and other authorities throughout the world."

UBS will pay $203 million as part of its LIBOR guilty plea and accept a three-year probation. The bank will also pay the Federal Reserve and Connecticut Department of Banking a total of $342 million in fines.

"The conduct of a small number of employees was unacceptable and we have taken appropriate disciplinary actions," UBS chairman Axel Weber and CEO Sergio Ermotti said in a joint statement.

Don Hawthorne, a financial litigator with Axinn, Veltrop & Harkrider said UBS's guilty plea is evidence that its 2012 non-prosecution agreement had strength. "The Department of Justice is communicating a message to the world including to both parties who are operating under DPAs and to the critics of DPAs that they do mean something. Recidivism will be punished,” he said by telephone interview.

UBS shares surged nearly 4%.

British bank Barclays agreed to pay the New York Department of Financial Services a $485 million fine for its breach of New York state banking laws, in addition to fines of $710 million to the DoJ, $441 million to the U.K.'s Financial Conduct Authority, $400 million to the Commodity Futures and Trading Commission, and $342 million to the Fed for its FX market activity.  In total, the bank paid $2.4 billion fines, however, it said the amounts were covered by existing provisions.

“The misconduct at the core of these investigations is wholly incompatible with Barclays’ purpose and values and we deeply regret that it occurred," CEO Antony Jenkins said in a statement.

Barclays shares surged nearly 3.5%.