The Strong Penalty for Banks That Wasn’t

The Strong Penalty for Banks That Wasn’t May 23, 2015

You have have read that some of the biggest Wall Street firms, including JP Morgan and Citigroup, got hit with a seemingly massive fine in the billions of dollars for manipulating currency markets. But as ThinkProgress points out, those fines are little more than a drop in the bucket.

Despite a slate of criminal fines with eye-popping dollar figures announced on Wednesday, five banks that conspired to rig foreign currency exchange rates in recent years face only minor real-world consequences that are more a cost of doing business than a significant punishment for breaking the law.

The banks admit they engaged in a years-long conspiracy to manipulate currency exchange rates on a daily basis in ways that would boost profits and limit losses. Currency traders from JP Morgan, Royal Bank of Scotland (RBS), Citigroup, and Barclays met in a secret chatroom they dubbed “The Cartel” to collude on the size, timing, and nature of their buy and sell orders for U.S. dollars and euros. Those four banks pleaded guilty to criminal charges Wednesday. The Department of Justice (DOJ) announced the guilty pleas and fines totaling $2.5 billion, as well as its decision to tear up a prior non-prosecution agreement with british bank UBS and force the company to plead guilty to separate, related charges. The Federal Reserve announced its own set of corresponding fines on Wednesday for those same five banks and Bank of America.

Combined with a prior slate of penalties, the total charges to the banks over “The Cartel” approach $9 billion. But even that large figure is piddling relative to the overall size of these banks. The real-world impact of all that showy enforcement activity is likely to be almost nil thanks to related decisions by other executive branch agencies in the case. And the stock market response to Wednesday’s announcement almost immediately pushed the banks back into the black.

Fines are supposed to be just one of the consequences of this kind of criminal confession by a major financial company. Pleading guilty is also supposed to put a sort of scarlet letter on the banks to protect everyone else in the financial system from doing business with people who broke the law. But the Securities and Exchange Commission (SEC) is reportedly set to waive these additional systemic consequences and allow the banks to continue operating normally. The DOJ’s authority to bring fines will not be reinforced with financial regulators’ authority to apply longer-lasting reputational and functional punishment, if the Bloomberg report that the SEC will grant the banks waivers is correct…

Waivers may defang the DOJ’s work to hold banks accountable to the law, but at least the fines themselves still give these deals some teeth, right? Wrong. The fines will get paid by shareholders, not by individual executives or traders who benefited personally and professionally from the crimes their firms are admitting to.

In other words: Business as usual. Not a single executive who actually carried out these criminal acts has been held accountable. Not a single one of them will be fined personally or spend a single day in jail. A much smaller fish who embezzled $100,000 from his company would be punished severely, but manipulation of currency markets that may have cost others literally hundreds of billions of dollars, perhaps even trillions? Not even a slap on the wrist. Just another reminder that we have two entirely different criminal justice systems, one for the rich and one for everyone else.


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