Chequebook justice in US financial markets

Early this week Citicorp, JP Morgan Chase, Barclays, and RBS pleaded guilty to conspiring to manipulated the benchmark price of US dollars and euros exchanged in the forex sport market and agreed to pay fines of more than $2.5 billion. Separately, UBS pleaded guilty of manipulating the LIBOR and other benchmark interest rates and agreed to pay $203 million criminal penalty. This would be the first time that the bank holding companies, and not their subsidiaries or business units, themselves have pleaded guilty.

They used electronic chat room and coded language to manipulate price information, and colluded to manage liquidity (by withholding bids or offers) in these markets at certain critical times so as influence prices. The US Department of Justice Attorney General said,

Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes, and they serve as a stark reminder that this Department of Justice intends to vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and who enrich themselves at the expense of American consumers. The penalty these banks will now pay is fitting considering the long-running and egregious nature of their anti-competitive conduct.  It is commensurate with the pervasive harm done.  And it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare... The five parent-level guilty pleas that the department is announcing today communicate loud and clear that we will hold financial institutions accountable for criminal misconduct

Really! All the five firms colluded to manipulate information that affects large financial contracts thereby boosting their profits at the expense of their clients. And instead of being charged with criminal liability and those responsible convicted and sentenced to imprisonment, they are allowed to get away with a small (relative to the size of these banks and their earnings over a long period from such manipulation) penalty.

The Times has described such plea bargaining as "prosecutorial indulgence" and had this to say about the action taken so far on all banks on investigations of forex market rigging,

In all, the banks will pay fines totaling about $9 billion, assessed by the Justice Department as well as state, federal, and foreign regulators. That seems like a sweet deal for a scam that lasted for atleast five years, from the end of 2007 to thee beginning of 2013, during which the banks' revenues from foreign exchange was some $85 bn. 

For a long-time prosecutors have let off financial institutions with deferred prosecution agreements (DPA) or non-prosecution agreements (NPA) which suspends criminal charges in exchange for fines and other concessions. Though in all such cases, it would be axiomatic that some employees be charged, only in a third of such cases were any employees charged and always they were lower-level staff.

Plea bargains, while supposed to come with revocation of certain privileges by the SEC as well as further investigations to fix employee level criminal charges, have increasingly become indistinguishable from DPA or NPA. In this case too, the plea bargains came only after the SEC agreed that there would be no restrictions on their business practices and market activities. Employee level investigations are unlikely to be followed up vigorously by prosecutors. Minus the shame and the small change, it would be business as usual.

This also explains the conundrum about how in the investigations in the aftermath of the financial crisis on interest-rate rigging, ratings manipulation, money laundering, securities fraud, dubious business practices, and excessive speculation, no major banker has yet gone to jail. It clearly appears that they have become "too big to jail".

Update 1 (03.06.2015)

Zero Hedge has a long list of manipulations and rigging penalties paid by JP Morgan in settlements with regulators across the world.