The international investigations into manipulation of the foreign-exchange market provide one of the clearest modern examples of serious criminal misconduct being attributed directly to major banking institutions without regulators concluding that the institutions themselves should cease to exist.
The foreign-exchange market is one of the largest and most important financial markets in the world. Benchmark exchange rates are used by businesses, investors, governments and financial institutions in transactions worth enormous sums each day.
Investigations in the United States and elsewhere found that traders at some of the world’s largest banks had coordinated their activities in order to manipulate foreign-exchange benchmark rates and protect trading positions.
Parent-Level Guilty Pleas
On 20 May 2015, the United States Department of Justice announced that Citicorp, JPMorgan Chase & Co., Barclays PLC and The Royal Bank of Scotland plc had agreed to plead guilty to felony antitrust charges relating to manipulation of the US dollar/euro foreign-exchange spot market.
Together, the four banks agreed to pay more than US$2.5 billion in criminal fines.
The Department of Justice stated that traders used exclusive electronic chatrooms and coordinated trading strategies in order to manipulate benchmark exchange rates. Members of the group referred to as “The Cartel” agreed at times to withhold bids or offers in order to protect each other’s trading positions and suppress competition.
The guilty pleas were significant because they were entered at the parent-bank level, not merely by individual employees or subsidiaries.
Citicorp agreed to pay a criminal fine of US$925 million, Barclays US$650 million, JPMorgan US$550 million and RBS US$395 million.
The Department of Justice described the conduct as long-running and serious and emphasised the systemic importance of the foreign-exchange market.
Individuals were also investigated and prosecuted in connection with foreign-exchange manipulation.
Guilty - But Still Operating
The significance of these cases for the Double Standards discussion lies not simply in the size of the fines.
The banks themselves accepted criminal liability at parent-company level.
Yet none was ordered to cease banking operations.
Instead, the response involved:
- criminal guilty pleas;
- very substantial financial penalties;
- prosecution of individuals;
- compliance and governance reforms;
- continuing regulatory supervision; and
- preservation of the institutions’ legitimate banking businesses.
This represents an important regulatory distinction.
Criminal wrongdoing by employees and institutional failures serious enough to justify corporate guilty pleas did not automatically lead regulators to conclude that the banks themselves were incapable of reform or that every legitimate business activity should be extinguished.
The Comparison with BCCI
The underlying allegations against BCCI were not identical to foreign-exchange benchmark manipulation.
BCCI later faced allegations involving false accounting, concealment of losses, money laundering and other serious irregularities. It is important, however, to distinguish those later allegations from the earlier Central Treasury losses revealed in 1985-86.
The Bingham Report records that Price Waterhouse initially quantified the Treasury losses at approximately US$285 million and attributed them at the time to incompetence, trading errors and lack of expertise in sophisticated financial markets, rather than to fraud. Bingham also noted that earlier reports received by the Bank of England concerning BCCI’s market activity contained no suspicion of fraud, malpractice or default.
The Treasury episode was nevertheless serious. The Bank of England was concerned both by the scale of the losses and by BCCI’s failure to inform it promptly, and the episode later formed part of the wider regulatory concerns surrounding the Bank.
The comparison with the later foreign-exchange cases is therefore not that the underlying misconduct was identical. The more important issue is the regulatory principle applied when serious problems or wrongdoing were identified.
In the foreign-exchange cases, authorities were able to distinguish between:
criminal conduct and the continuing existence of the banking institution.
Wrongdoing was investigated and punished. Banks accepted criminal liability, individual traders were pursued and substantial financial penalties were imposed.
Yet the legitimate operations of those institutions continued.
In BCCI’s case, by contrast, problems that had originally included Treasury losses attributed by Price Waterhouse to incompetence and trading errors later became part of a much broader narrative of concealment, fraud and an institution-wide “criminal culture.”
Subsequent evidence of wrongdoing should not be disregarded. But the historical record should distinguish carefully between trading losses, management failures, accounting treatment and established or alleged criminal conduct, rather than treating them as interchangeable.
By 1990–91, BCCI's losses, impaired assets and other problem areas had also been identified and were being addressed within a restructuring programme backed by BCCI’s Abu Dhabi majority shareholders. The programme envisaged separating problematic assets from viable banking operations, providing substantial additional financial support and reorganising the international business into separately regulated institutions.
The later foreign-exchange cases demonstrate that even proven institutional criminal liability did not prevent regulators from distinguishing wrongdoing from the legitimate business of a bank. The relevant question is therefore why a similarly discriminating and proportionate approach was not pursued more fully in BCCI’s case, particularly when restructuring, shareholder support and the separation of impaired assets from viable operations were already being developed.
Against that background, the issue is not simply why BCCI was subjected to severe regulatory action, but why those alternatives were not given a fuller opportunity to proceed before the decision was taken to close the Bank.
Institutional Accountability Without Institutional Destruction
The foreign-exchange cases demonstrate that even formal criminal liability at the level of a major banking institution need not result in its closure.
That does not mean closure can never be justified, nor does it mean that the circumstances of BCCI and the later FX cases were identical.
It does, however, demonstrate that regulators possess a range of alternatives:
- prosecute individuals and, where appropriate, the institution;
- impose substantial financial penalties;
- remove responsible employees and management;
- strengthen compliance and governance;
- restrict particular activities;
- appoint independent monitors; and
- allow legitimate banking operations to continue under enhanced supervision.
This distinction lies at the heart of the Double Standards perspective.
The question is not whether wrongdoing at BCCI should have escaped punishment. It should not.
The question is whether wrongdoing within parts of an international banking organisation necessarily required the closure and liquidation of the entire institution, including viable businesses and thousands of employees and customers with no involvement in that wrongdoing.
The later foreign-exchange prosecutions demonstrate that institutional accountability and institutional survival were not regarded as mutually exclusive.
The contrast with BCCI is therefore difficult to dismiss merely as a difference of regulatory technique. Major Western banks were later permitted to accept criminal liability, pay substantial penalties, remove responsible individuals, reform their systems and continue their legitimate operations. BCCI, by contrast, was subjected to coordinated closure and liquidation.
That disparity warrants closer examination of whether the decision reflected consistent regulatory principles or whether political, institutional or other considerations influenced an outcome that proved uniquely destructive for BCCI.
With restructuring proposals already before the Bank of England, backed by substantial financial support from BCCI’s wealthy and majority Abu Dhabi shareholders, and with impaired assets intended to be separated from viable banking operations, the issue goes beyond regulatory severity. It raises the more serious question of why BCCI was not afforded the opportunity to pursue those measures before closure - measures that later became accepted features of banking crisis management, restructuring and regulatory resolution.
It also raises the question of whether the decision-making process was conducted with the degree of objectivity, proportionality and good faith that such an irreversible action required.
The issue, therefore, is no longer simply why BCCI was treated differently, but whether that different treatment can be justified by the evidence - or whether considerations outside normal banking supervision materially influenced the decision to bring the Bank to an abrupt end.
