U.S. confirms criminal probe of forex manipulation

Reuters

By Aruna Viswanatha

WASHINGTON, Oct 29 (Reuters) - The U.S. Justice Departmentis investigating the manipulation of foreign exchange rates, atop federal prosecutor said on Tuesday, in the first publicacknowledgement of such a probe in the United States.

Criminal and antitrust authorities have an "active, ongoinginvestigation" into the possible manipulation, Mythili Raman,the acting head of the department's criminal division, said.

The confirmation comes on the same day Dutch bank Rabobankagreed to pay more than $1 billion to resolve allegations thatit manipulated Libor and other benchmark rates. And otherEuropean banks that face related probes disclosed they set asidemajor sums to cover legal costs.

Over the past two years, regulators and prosecutors haveextracted billions in fines from global banks after finding thatthey rigged Libor, the average rate at which a panel of banksexpects to borrow money.

The Libor rates have been susceptible to manipulationbecause they are based not on specific transactions, but on asurvey of where banks think they can borrow.

As a result, authorities have turned to other benchmarks,including those that undergird the $5.3 trillion-a-day currencymarket, to investigate whether they are open to similar kinds ofskewing.

Regulators in Switzerland, the United Kingdom, and Hong Kongsaid earlier this month they were investigating the conduct incurrency markets.

COOPERATION FROM BANKS

U.S. prosecutors will use information provided by the banksthat have already resolved Libor charges to investigate theother benchmarks, Raman said in an interview.

Banks including Barclays, UBS AG, RoyalBank of Scotland, and now Rabobank have paidmore than $4 billion to date and have agreed to turn over allinformation that the Justice Department asks of them for atleast two years as part of their settlements.

"That's one of the most significant benefits that lawenforcement has been able to secure as part of thisinvestigation," Raman said.

Raman said she could not comment on any details of theinvestigation, but Reuters previously reported that authoritieswere examining allegations centered on the Swissfranc.

Switzerland's UBS also disclosed on Tuesday that it hadreceived requests from "various authorities" relating to itsforeign exchange business.

The bank, which paid $1.5 billon last year to resolve Liborcharges, said it had taken "swift action" to review how ittrades foreign exchange.

The chairman of rival Credit Suisse said earlier this monthhis bank had not found any evidence of misconduct in the forexmarket following inquiries from regulators.

Also earlier this month, RBS handed Britain's financialregulator instant messages sent by a former currency trader tocounterparts at other banks.

The Libor settlements "basically bind all of theseinstitutions to a kind of long-term cooperation with allinvolved enforcement authorities," said Robertson Park, whoprosecuted the Libor case against Barclays and is now in privatepractice at the law firm Murphy & McGonigle.

This gives law enforcement "a huge leg up," he said.

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