In what is being referred to as the "?Arthur Anderson effect," five major banks are expected to admit their accountability to charges of Forex rigging by the U.S. Justice Department. Back in 2002, five foremost accounting firms in the U.S. were indicted over charges related to the Enron Corp's accounting scandal, causing close to 28,000 employees to lose their jobs.
The five banks currently under investigation, JPMorgan Chase & Co, Citigroup, British banks Royal Bank of Scotland, Barclays Bank and Swiss bank UBS, are accused of manipulating exchange rates to benefit their own positions, often at the expense of their clients.
Should the banks plead guilty collectively, which is not at all certain, it would be to antitrust charges for colluding with traders to fix foreign currency prices. If found accountable, the banks will have to pay penalties of close to $1 billion with the total settlement amount, including fines paid to global regulators by several other banks in November 2013, amounting to more than $4.3 billion.
"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."
Over the last few months, the Justice Department has been conferring with the banks over how to settle claims that traders colluded to manipulate rates in the largely unregulated $5.3 trillion-a-day currency market. In the November agreements, four out the five banks came to arrangements with the UK's Financial Conduct Authority and the U.S. Commodity Futures Trading Commission so there should be little or no impact on these banks' future earnings.
Pay Back Amounts
It is projected that Switzerland's UBS will pay less than $800m with the highest fines being borne by the UK's Barclays, which is expected to agree to pay about £2bn, or $3.1bn. JPMorgan Chase, Royal Bank of Scotland and Citigroup are each expected to pay as much as $1bn. Subsidiaries of the banks are also expected to plead guilty to US criminal charges.
The ramifications of this fallout reach beyond the banking sector and to in an effort to limit the repercussions, financial authorities are considering accepting reassurances from various regulators that they will not automatically revoke banking licenses and that these institutions will be eligible to receive certain waivers should the appeals prevent them from continuing with their usual business activities such as trading in government securities or participation in private offerings.
These waivers have been granted in the past but some question their use as a means of limiting the consequences of repeated criminal wrongdoing.
In addition, non-prosecution and deferred prosecution agreements can be introduced as another method of avoiding the limitation of a bank's ability to operate in the U.S and these have become a popular way for the U.S. Justice Department to resolve corporate misconduct. During the Madoff scandal in 2012, HSBC and JPMorgan were able to enter a deferred prosecution agreement with the U.S. Labor Department which prevented these institutions from automatically losing their charters.
According to Brandon Garrett, the last major financial institution to enter a comparable guilty plea in the United States was Drexel Burnham Lambert in 1989. Bankers Trust pleaded guilty in 1999.