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Forex scandal Jail time demanded for bad bankers

Will more bankers end up doing porridge after the latest trading scandal?

(Ennio Leanza)

The latest scandal to hit the banking world has led to renewed calls for the authorities to finally clamp down on malpractice by jailing traders. But will the foreign exchange fraud, the latest in a long list of malpractices, force banks to change their ways?

“In most businesses, the normal penalties for defrauding a customer include the risk of a jail sentence,” read a recent Financial Times editorial. “If the authorities really want to change the culture of the trading desk, criminal sanctions must become a more vivid possibility.”

Switzerland’s public prosecutor appears to have opened the door to this possibility by starting criminal probes into several people connected with forex fraud at UBS. The allegations of financial mismanagement and breaching banking secrecy laws carry respective penalties of up to five and three years in prison.

The Swiss Financial Market Supervisory Authority (FINMA) is also investigating 11 individuals, including managers, having until now only demanded that UBS hands back CHF134 million ($140 million) in fraudulently obtained profits.

Bank chatrooms The ‘cartel’ at centre of forex rigging probe


There were probably more imaginative names to choose. Of all monikers, the powerful network of senior foreign exchange traders at the centre of a UK and US regulatory probe into alleged collusion called itself “the Cartel”. 

In an electronic messaging conversation on December 20 2011, the group of three senior traders at Citigroup, JPMorgan Chase and UBS debated whether allowing a fourth trader into the chatroom would “add huge value to this cartell [sic]”. 

The transcript, revealed in documents by the US Commodity Futures Trading Commission, gives an insight into the mindset of a mighty chatroom connection at the centre of a regulatory probe into alleged forex manipulation that ended its first chapter this week with a $4.3bn penalty handed out to six banks. The chatroom went on in different guises over several years and was used by various London and Zurich-based traders at four of the top 10 forex dealers - Citigroup, JPMorgan Chase, UBS and Barclays. 

The chat rooms “were the kind of vehicles through which certain [Citibank, JPMorgan and UBS] FX traders and traders at other banks co-ordinated attempts to manipulate certain FX benchmark rates, including the WM/R 4 p.m. fix,” the CFTC said in its settlement documents with Citi, JPMorgan and UBS. “Certain chatroom participants used code words to evade detection by their banks’ compliance monitoring systems.” 


Also known as “the Mafia”, the bantering chat group brought together some of the best-known forex traders at banks whose combined market power at times amounted to more than 40 per cent of global forex trading. Citi, Barclays and UBS are among the top five in currency trading, the largest financial market. JPMorgan ranked sixth in 2013. 


The group was respected in the forex trading community and had an almost mythical reputation among more junior traders who aspired to become part of it, people familiar with the situation said. 

Yet the settlement documents shine a much more sobering light on it. 


In the discussion three years ago, Rohan Ramchandani, Citi’s then European head of spot trading, and Richard Usher, JPMorgan’s chief currency dealer in London at the time, debated with Matt Gardiner from UBS if they could trust a former colleague from the latter’s time at Barclays to come on board. 

“you know him,” Mr Usher said. “will he tell rest of desk stuff . . . or god forbin [sic] his nyk . . .” in a reference to Barclays’ New York desk. 

“yes,” Mr Ramchandani said. “that’s really imp[ortant] q[uestion] . . . dont want other numpty’s in mkt to know . . . but not only that . . . is he gonna protect us like we protect each other against our own branches,” he asked. 

“what concerns me is that i know he’ll never tell us when at risk,” Mr Gardiner replied. 

In the end, the trio agreed to invite the trader in question into the chatroom for a “1 month trial”, though Mr Ramchandani warned him - “presumably facetiously”, as the CFTC’s findings have it - “mess this up and sleep with one eye open at night”. 

The trader, Chris Ashton, eventually joined but ceased to be a member only seven months later in August 2012, not long after Barclays’ £290m fine over alleged Libor interbank lending rate rigging sent shockwaves through London’s trading community. 

None of the traders mentioned has been accused of any wrongdoing or charged by any authorities. 

All of them declined to comment. 

‘Tight-knit groups’

The CFTC said in the settlement documents that traders at Citi, JPMorgan and UBS at times “exchanged the size and direction of the bank’s net orders with FX traders at other banks and used this information to attempt to co-ordinate trading strategies”. 

“Traders at times then used this information to enable one or more traders to attempt to manipulate the FX benchmark rates prior to and during the relevant fixing period.” 

By buying and selling a currency before the fix, a trader can try to influence the final fix price to profit from the range of client orders he is handling that day. When the fix is set, some clients will end up profiting in line with the trader while others will be worse off. 

In its settlement documents this week, the UK’s Financial Conduct Authority said traders in the spot forex market “formed close, tight-knit groups or one-to-one relationships based on mutual benefit and often with a focus on particular currency pairs. 

“Entry into some of these groups or relationships and the chat rooms used by them was closely controlled by the participants.” 

A key figure in the “Cartel” chatroom was Mr Usher, a former Royal Bank of Scotland trader who joined JPMorgan in 2010. 

He is said to have started the chatroom while at RBS, according to people familiar with the situation. When he moved to JPMorgan, the chatroom was restarted. 

Collusive behaviour

Mr Usher was suspended this year and has recently left the US bank. 

One of his counterparts at Citi was Mr Ramchandani, who was fired in January. The most junior member of the group was Mr Gardiner, a forex trader who joined Standard Chartered from UBS in autumn last year but was placed on leave a few weeks later. He left the bank a few months after that. 

Mr Ashton, head of voice spot trading at Barclays who is currently on leave, was only a member of the group for seven months and was not part of the well-acquainted trio of Mr Usher, Mr Ramchandani and Mr Gardiner. 

Mr Usher and Mr Ramchandani were members of the Bank of England’s foreign exchange joint standing committee’s chief dealer subgroup, the industry body where concerns over the practice of sharing aggregate information about traders’ positions had been discussed. 

Martin Mallett, the BoE former chief forex dealer who chaired the group, was absolved of involvement in improper conduct of traders this week but was criticised for failing to pass on concerns about a practice he thought could involve collusive behaviour. 

He was dismissed from the central bank earlier this week.

Copyright The Financial Times Limited 2014

Swiss prosecutors turn attention to individuals 

Swiss prosecutors have begun criminal investigations against several individuals in connection with alleged manipulation of the foreign exchange market, opening a new front in the latest scandal to hit banking. The Office of the Attorney-general of Switzerland said the investigations had been launched on suspicion of criminal mismanagement and breach of professional secrecy. 

The move comes a day after regulators in Switzerland, Britain and the US reached a $4.3 billion settlement with six banks - Citi, JPMorgan, UBS, Royal Bank of Scotland, HSBC and Bank of America - over alleged attempts to rig the $5.3 trillion-a-day forex market. The prosecutor’s office stressed that its investigations were directed against individuals, rather than banks, but declined to give any information on the number or identities of those involved.  It said that it had been in contact with and exchanged information relating to the case with Weko, the Swiss competition commission, and FINMA, the Swiss financial watchdog. 

As part of the broader settlement, FINMA on Wednesday forced UBS to disgorge CHF134 million ($139 million) in “illegally generated profits and avoided costs”, as well as imposing a string of other remedial measures on the bank.  The prosecutor’s involvement adds to that of US and UK authorities who are probing whether regulatory wrong-doing tipped into criminal conduct. 

By James Shotter and Caroline Binham 

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The introduction of potential criminal sanctions is overdue, according to many observers and large sections of the public.

"More drastic measures are overdue in this industry. Individuals need to be held responsible for their actions (and omissions) and they need to know that there are real consequences for their behaviour,” Florian Wettstein, director of the Institute for Business Ethics at the University of St Gallen, told

“If they know the bank will pay fines, backed by the taxpayer, then there is no incentive to change. If they know they may go to jail as a consequence of their behaviour, things will change."

Break-up banks

Marc Chesney, vice-director at Zurich University’s Department of Banking and Finance, goes one step further by demanding the break-up of banks that are deemed so important to the Swiss economy that they would be bailed out by the state rather than allowed to go bust.

“As long as big banks are too big to fail and some individuals are too big to jail these scandals will keep occurring. We need to separate commercial banks from investment banks to force them to be more responsible,” he told

“If they know that they might suffer or possibly go bankrupt by engaging in dubious and risky operations then it would force them to be more cautious.”

Global banks have repeatedly been caught with their trousers down in the last few years in variety of scandals that includes market rigging, tax evasion, embargo busting, rogue trading and mis-selling a variety of products to unwitting customers.

After each scandal banks apologise, at times blaming the unhappy episode on a few rogue employees acting under the radar and promise to clean up their acts. Employees are disciplined or sacked while huge bonus systems are tinkered with - while the profits keep rolling in.

Authorities scared

Daniel Fischer, a Zurich lawyer who has represented clients in various civil claims against banks since the financial crisis, believes that the authorities may have been overawed in the past by the power of big banks and their importance to the economy.

“The lack of credible action gives the impression that big banks have enjoyed a certain protection from the authorities,” he said. “This has to change.”

UBS chief executive Sergio Ermotti came into office in the wake of a rogue trading scandal in 2011 that claimed the head of his processor Oswald Grübel. "As I have said previously, no amount of profit is more important than safeguarding the good name of our firm," Ermotti wrote in an internal memo sent to staff upon his appointment.

Three years later, FINMA director Mark Branson (himself a former UBS executive) was left scratching his head as to how scandals continued to hit the bank.

"What is troubling here is not only the poor behaviour of the traders but also that UBS did not identify these risks and did not have the appropriate controls for this business," Branson told journalists in the wake of the forex fraud.

"And this is after the repeated scandals of the last few years. A clear failure of compliance."

Embedded culture

This shows that the culture of the bank, at least in some divisions, has not changed since Ermotti took over, according to Wettstein. "The whole culture at the bank has to move away from the 'bad apples' mentality. It is not sufficient to look away from the real problem by blaming a few individuals and saying that everything else at the bank is fine."

Wettstein believes that a large part of the problem remains with the bonus system, which FINMA found amounted to up to seven times the base salary of some traders.

"It is easy to say what the right values should be, but you also have to incentivise them correctly,” Wettstein said. “You can talk about integrity all you want, but If the incentive system is based purely on money then people will still be driven by bonuses.”

“It makes Ermotti's statements about cultural change seem like empty words. If UBS was really serious about changing the culture they should have started with the bonus model."

The bad behaviour of banks is causing far more serious problems than damaging the reputation of individual institutions and the Swiss financial centre, according to Chesney. The implications spread right down to the person on the street.

“Banks continue to make profits at the expense of clients and the economy,” he said. “This is simply not a stable economic model. As a result, we can observe that the financial crisis is still not over six years after it first began.”

Banking scandals

On November 12, UBS was among five global banks to be hit with fines in relation to a forex rigging scam. UBS was ordered to pay around $800 million by Swiss, British and US regulators. Analysts expect further penalties to arrive in relation to the malpractice, most notably from the US Department of Justice. The bank is also bracing itself against potential civil lawsuits from disgruntled clients, including hedge funds and pension funds.

FINMA listed a catalogue of abuses conducted by certain staff at the banks forex and precious metals trading desks. These included ripping off clients and passing on their details to third parties. UBS traders colluded with employees at other banks to rig benchmark rates, often through social media chat rooms. In addition to investigating 11 UBS staff, FINMA has ordered the bank to curb some bonuses and conduct 95% of similar trades by automated means in future.

In 2012 UBS was fined $1.5 billion after traders were found guilty of manipulating LIBOR benchmark interest rates. A year earlier, the bank was hit by a $2 billion rogue trading scandal. UBS has also been fined in the US for tax evasion offences (2009) and faces similar charges in France.

Several other Swiss banks have also been fined for US tax evasion (Credit Suisse & Wegelin) or are either under current criminal investigation or part of a non-prosecution programme if they reveal details of their US activities.

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