Banks Snitching on FX Competitors

Financial institutions are said to be racing to share evidence of FX price fixing with EU regulators, in exchange for immunity.

Banks are racing to betray their competitors to avoid possible European Union (EU) fines for rigging foreign-exchange markets, according to a person with knowledge of the EU’s preliminary investigation.

Lenders are vying to emulate UBS AG and Barclays Plc, which dodged penalties of about 3.2 billion euros ($4.4 billion) for blowing the whistle on manipulation of interest-rate benchmarks, said the person who asked not to be named because the EU process is private. More banks have volunteered information on currency markets than for the probes into Libor and Euribor rigging, the person said.

With penalties forgiven for the first to snitch and discounts of as much as 50 percent for the next in line, banks have an incentive to win the race to EU Competition Commissioner Joaquin Almunia’s door. This year’s total for EU price-fixing fines is almost 1.88 billion euros—about half the waived penalties for companies that first blew the whistle in cartel cases.

“If you offer a big enough carrot—i.e. full immunity—then you are likely to get someone to come forward,” Stephen Smith, a lawyer at Reynolds Porter Chamberlain LLP in London, said in an interview. “The reality is that if there any skeletons, they are going to come tumbling out of the cupboard” anyway as part of global investigations. Banks may decide that “they might as well be first in the queue at the EU,” he said.



Regulators in the U.K., Switzerland, the U.S., and Asia are probing the $5.3 trillion-a-day foreign-exchange market after Bloomberg reported that dealers said they had been front-running client orders and attempting to rig the benchmark WM/Reuters rates by colluding with counterparts and pushing through trades before and during the 60-second windows when the benchmarks are set.

At least 11 banks including Goldman Sachs Group Inc., Barclays Plc, and HSBC Holdings Plc have disclosed investigations by regulators. Citigroup Inc., JPMorgan Chase & Co., and Barclays have all suspended or put on leave senior currency traders. Deutsche Bank AG, continental Europe’s largest lender, has also said it’s cooperating with requests for information. No one has been accused of wrongdoing.

Four banks account for more than half of all trading in the foreign-exchange market, according to a May survey by Euromoney Institutional Investor Plc. Deutsche Bank is No. 1 with a 15 percent share, followed by Citigroup with almost 15 percent and Barclays and UBS, each of which has 10 percent.

Jeffrey French, a Citigroup spokesman, declined to comment, as did Deutsche Bank’s Sebastian Howell, Barclays’s Aurelie Leonard, HSBC’s Jezz Farr, and JPMorgan’s Jennifer Zuccarelli. Spokesmen for UBS in London and for Goldman Sachs in New York also declined to comment.

While Almunia has said the Brussels-based European Commission is analyzing information on FX, he hasn’t said he’ll open a formal probe, the first step toward possible fines. Antoine Colombani, his spokesman, declined to comment further.122013_Bloomberg story_PQ1

Letting companies off the hook is “not pleasant, politically” Almunia told EU lawmakers last month. Yet “providing such incentives to companies that choose to reveal the existence of a cartel to the commission is simply indispensable.”


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Whistleblowing banks vying for a fine-exemption must bring regulators details on products, meetings, and prices, according to lawyers. They would first conduct an internal fact-finding exercise similar to the one Procter & Gamble Co. went through after being raided as part of a detergent price-fixing probe in 2008.

Once you’ve decided to file for leniency, “you need to make sure you bring in the full story,” said Thomas Gorham, a lawyer for the company. That means digging through thousands of e-mails, doing keyword searches, even digging up faxes that may be 10 years old, he said at a Brussels antitrust conference on Dec. 5. “And then it means talking to employees.”

Races to the EU regulator aren’t unique to financial-market probes. Solvay SA was saddled with the highest fine in a chemicals cartel after a competitor beat the Brussels-based company to the fax machine.

On April 3, 2003, nine days after a raid, a lawyer called the commission and said Solvay intended to turn in evidence of price fixing for two bleaching chemicals, according to a commission ruling in the case. A few hours after the call, lawyers for French chemical maker Atofina sent a fax with 13 documents. It won a 30 percent reduction in its penalty. Solvay only received a 10 percent cut.

While banks may be convinced that confession is good for the soul—and their income statements—they must still resist the temptation to gossip about their immunity bids.

The chairman of Deltafina SpA, an Italian tobacco processor, let slip to rivals that his company was helping the EU in a price-fixing probe. The news spoiled the surprise when EU officials conducted unannounced dawn raids on company premises two weeks later. Deltafina lost its immunity from fines.

“These stupid mistakes can happen,” Sari Suurnakki, deputy head of two commission cartel units, told the Brussels conference.

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