By Aruna Viswanatha and Karen Freifeld
WASHINGTON/NEW YORK, Nov 12 (Reuters) - The $4.3 billion incivil settlements struck Wednesday between six global banks andU.S. and U.K. authorities over foreign exchange marketmanipulation sets the stage for negotiations over relatedongoing probes that could bear much more severe consequences.
Citigroup, UBS, HSBC, Royal Bank ofScotland, JPMorgan Chase & Co and Bank ofAmerica agreed to make the payment to settle civilclaims they failed to stop traders from trying to rig theforeign exchange market.
But the deal did not resolve an advanced criminal probe fromthe U.S. Justice Department nor an investigation from New York'spowerful banking regulator, Benjamin Lawsky, who has areputation of helping extract record monetary settlements fromglobal banks.
Sources familiar with the matter say the Justice Departmentcould bring its first criminal charges early next year, and thatLawsky could take action against banks under his jurisdictionahead of his expected departure, which may come in early 2015.
Wednesday's deal appears to be the tip of the iceberg whenit comes to further legal action, said Josh Rosner, managingdirector of Graham Fisher & Co, a New York research consultancy."Did they let anyone off of criminal liability? What wassettled?" he said.
Former prosecutors also said criminal authorities haveextensive evidence, based upon transcripts released by UK'sFinancial Conduct Authority and U.S. civil authorities oftraders brazenly discussing attempts to manipulate foreignexchange rates.
"Recordings are typically the strongest evidence you canhave," one former prosecutor said. Another former prosecutorfamiliar with the probes said he expected that the publicityaround the first round of settlements would add momentum to theoutstanding investigations.
It is unclear how much higher the settlement amounts will gobeyond the $4.3 billion, and which banks will move first insettling, especially with the U.S. Justice Department.
Earlier this month JPMorgan said it was "currently engagedin discussions with DOJ" to resolve its investigation, one ofthe strongest such disclosures, suggesting it could be one ofthe first to settle criminal charges.
Justice Department spokesman Peter Carr said the agency'sinvestigation is ongoing. Caitlin Ferrell, a spokeswoman forLawsky, declined to comment on the investigation.
The banks also face a criminal probe from Britain's SeriousFraud Office (SFO), and interest from the European Commission,which has not yet opened a formal investigation.
NEW YORK PROBE
Lawsky, the head of New York's Department of FinancialServices, has in recent months helped land record settlementsfrom banks on sanctions and tax-related violations, and couldsignificantly drive up the ultimate price tag on the forexprobes.
Not only can he threaten some of the banks' licenses, but healso has been known to demand firings of employees and clawbacksof their bonuses.
In Lawsky's probe, more than a dozen banks have been askedfor documents, including Barclays, Credit Suisse, Deutsche Bank,Goldman, Lloyds Banking Group Plc, Societe Generale and StandardChartered.
In a sign of Lawsky's clout, Barclays pulled out ofWednesday's coordinated deal because it did not want to settlewith other regulators without having come to an agreement withLawsky, two sources said.
Lawsky has already installed a monitor from advisory firmDevon Capital at Barclays and is close to installing one atDeutsche Bank - a move that will allow him to collect greaterevidence of alleged manipulation and could strengthen his handin settlement talks, sources said.
One source said Lawsky sought to install the monitors afterreceiving preliminary information that suggested the two bankswere among the worst offenders.
DAMNING EVIDENCE
Sources familiar with the Justice Department's criminalprobe said banks could face a level of penalties more severethan those levied against them in a separate investigation intothe rigging of the London interbank offer rate, a benchmarkknown as Libor.
For example, if a bank entered into a deferred prosecutionagreement to settle Libor manipulation charges, it could beforced to plead guilty to criminal charges in the forex probe.
The Justice Department is also expected to pursue criminalcharges against individuals. Sources have said prosecutors arelikely to bring charges against traders and their supervisors,but are not likely to reach senior executives at any of thebanks.
They note that transcripts provide damning evidence againsttraders, but do not explicitly implicate top-level employees.
In private chatroom transcripts released on Wednesday,traders are seen working together to move rates at whichcurrency pairs like the U.S. dollar and the British pound trade,and to cover their tracks.
One Citigroup trader, for example, asks a trader at UBSabout another trader who may join the chatroom: "Is he gonnaprotect us...like we protect each other against our ownbranches."
In another chat, an HSBC trader and others celebrate movingthe rate: "Well done gents," one said. "Hooray nice team work,"another responds. (Reporting by Aruna Viswanatha in Washington and Karen Freifeldin New York, with additional reporting by Kirstin Ridley inLondon and Foo Yun Chee in Brussels; Editing by Karey Van Halland John Pickering)
HSBC Holdings (HSBA)
