Articles > Market Commentary > Banks Fined $5.7 Billion Over Fraud and Abuse

Banks Fined $5.7 Billion Over Fraud and Abuse

Published on May 21, 2015 By Aaron Phillips By Aaron Phillips

News broke after the end of trading on Wednesday that banks from all over the world would be punished with massive fines for their part in manipulating the FOREX foreign currency exchange. In addition to FOREX, some of the banks were also guilty of LIBOR rate fraud. Multiple federal and international regulatory bodies found them guilty and levied fines against the banks.In total, 5 major banks were found to be guilty of manipulating the markets. Barclays, JP Morgan ( JPM ), Citigroup ( C ), UBS , and the Royal Bank of Scotland all settled an array of criminal charges with a big pile of cash.Of the 5 banks, all but UBS has plead guilty to the crimes they've been accused of, and a settlement deal is on the table. UBS plead guilty to a criminal charge over LIBOR manipulation only, and it's unclear if they were involved in the FOREX scheme.Most investors are familiar with the FOREX currency exchange, but LIBOR has only recently made the news. LIBOR rates are the interest rates that banks charge each other for short-term capital loans, and so by artificially manipulating the rates these banks were able to secure a profit from their competitors. The fines will be paid to a variety of sources, including the Federal Reserve and Justice Department.It wasn't just one institution that levied the fines against the banks for breaking the law. At least 4 major regulatory bodies have found evidence of wrongdoing in their jurisdiction, and all were involved in holding the banks accountable. The Fed was key in putting together a case for FOREX manipulation, while banking regulators in New York and London primarily focused on fraud and abuse in artificially setting high LIBOR rates. The Department of Justice played a role in both cases.In total, the fines paid by all 5 banks add up to an astonishing $5.7 billion, with the potential for more on the way. $1.6 billion will go to the Federal Reserve as part of the settlement deal, with the Department of Justice raking in another $1 billion. The balance of the fines will be paid to the banking regulators, including a $2.4 billion chunk by Barclay's alone.As part of a settlement with the Justice Department, Barclays will fire 8 of the employees that have been found responsible for the scheme. The rest of the banks will only have to pay the aforementioned fines for their part in the act. The Barclays employees were singled out as having been the people who originally came up with the FOREX scam, which involved manipulating exchange rates through the movement of capital in both foreign and domestic markets.The Department of Justice, in concert with the other regulatory bodies and the Fed, have been putting this case together for over a year. This is the culmination of a months-long battle between the sides, with the banks initially claiming that they did nothing wrong. The payout is one of the largest in history for this sort of crime.