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By Karen Freifeld
NEW YORK, May 10 (Reuters) - The parent companies or mainbanking units of as many as five major banks, rather than theirsmaller subsidiaries, are expected to plead guilty to U.S.criminal charges over manipulation of foreign exchange rates,people familiar with the matter said.
A handful of banks will likely resolve forex-rigginginvestigations by the U.S. Justice Department as soon as thisweek: JPMorgan Chase & Co Citigroup, British banksRoyal Bank of Scotland and Barclays and Swissbank UBS.
It would be unprecedented for parent companies or mainbanking units, rather than smaller subsidiaries, of so manymajor banks, to plead guilty to criminal charges in acoordinated action, the people said.
Peter Carr, a spokesman for the U.S. Justice Department,declined comment. Spokespeople for Citi, JPMorgan, RBS, UBS, andBarclays all declined to comment.
If parent companies of U.S.-based JPMorgan and Citigroupplead guilty, it would be the first time in decades that a majorAmerican financial institution has done so. Last year, whenSwiss bank Credit Suisse AG pleaded guilty in theUnited States to helping wealthy Americans evade taxes, itbecame largest institution in over 20 years to plead to criminalwrongdoing. It was soon followed by French banking giant BNPParibas.
U.S. authorities, fearing unintended reverberations such asthe layoffs of innocent employees, have rarely sought criminalconvictions against major global financial institutions andinstead have allowed their smaller foreign subsidiaries to takethe bullet.
Guilty pleas trigger a cascade of consequences. Banks mayhave to negotiate regulatory exemptions to avoid seriousdisruptions of business.
It has been called the "Arthur Andersen effect" after thedemise of the big 5 accounting firm after its indictment in 2002over charges related to Enron Corp's accounting scandal. Some28,000 employees at the firm lost their jobs.
The guilty pleas with the U.S. Department of Justice, whichwill likely be to antitrust charges for colluding by traders torig foreign currency rates, could take place as soon asWednesday, people familiar with the matter have said. The banksalso are expected to pay penalties of some $1 billion or more,and the collective settlement is expected to exceed the $4.3billion in fines paid by a half-dozen banks to global regulatorslast November. [ID: nL1N0XS1L7]
"We need to look carefully at the actual terms of the pleadeals to assess just how well these banks are being heldaccountable, but guilty pleas by major banks at the parentcompany level will send a message that even the largest U.S.financial institutions can be convicted of crimes," saidUniversity of Virginia law school professor Brandon Garrett,author of the book, "Too Big to Jail: How Prosecutors Compromisewith Corporations."
It would "help chase away the ghost of Arthur Anderson, andthe fear that criminal prosecutions should be brought only withgreat caution against major corporations," Garrett said.
The Justice Department has been negotiating with the banksfor months over how to resolve allegations that traders colludedto rig rates in the largely unregulated $5.3 trillion-a-daycurrency market. All except Barclays reached agreements inNovember with the UK's Financial Conduct Authority and the U.S.Commodity Futures Trading Commission.
Regulators also made public transcripts of online chat roomsthat show how traders shared confidential information aboutclient orders and otherwise conspired to manipulate rates tobenefit their own transactions.
Authorities now may seek to limit the fallout from guiltypleas with assurances from various regulators that bankinglicenses will not be automatically revoked. Institutions alsomay obtain waivers if the pleas would otherwise prohibit themfrom business activities such as participating in certainprivate offerings, or trading billions of dollars in governmentsecurities.
Granting waivers to big banks that break the law has becomea flash point at the Securities and Exchange Commission andother U.S. regulators. Democrats have questioned whether theagencies were simply rubber-stamping those requests and beingtoo soft on repeat offenders.
BNP Paribas was recently granted an exemption by the U.S.Labor Department that allows it to continue to manage retirementplans despite pleading guilty last year to violating U.S.sanctions against Iran, Sudan and Cuba. Credit Suisse, which wassentenced in November, also received certain waivers, and atemporary exemption from the Labor Department.
On the other hand, fear of collateral consequences may havehelped British bank HSBC avoid a criminal plea in 2012 overallowing the laundering of hundreds of billions of money forMexican drug cartels, among other problems.
In 2014, JPMorgan avoided a conviction for failure to tellauthorities about its suspicions about Bernard Madoff, enablingthe Ponzi schemer to launder billions through accounts at thebank.
Instead, HSBC and JPMorgan entered into deferred prosecutionagreements, which avoid the risk of a bank's automaticallylosing its charter or license to operate in the United States.Over the past decade, deferred prosecution agreements andnonprosecution agreements have become a common way for the U.S.Justice Department to resolve corporate misconduct.
The last major financial institution to enter a comparableguilty plea in the United States is Drexel Burnham Lambert in1989, Garrett said. Bankers Trust pleaded guilty in 1999. (Reporting By Karen Freifeld, Additional reporting by SarahLynch and Soyoung Kim in Washington, Editing by Soyoung Kim,David Gregorio and Christian Plumb)
