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July 20, 2014 1:28 pm
The UK’s main anti-fraud agency is gearing up to launch a full-blown criminal investigation into alleged rigging of the $5.3tn-a-day foreign-exchange market, adding to the web of regulatory and criminal investigations around the world.
The Serious Fraud Office, which has been gathering intelligence over alleged forex manipulation during the past few months, could announce a formal investigation before the end of the month, according to people familiar with the situation.
The US Department of Justice’s antitrust and fraud teams have already launched a criminal probe, while the UK’s Financial Conduct Authority is one of several regulators around the world that have demanded banks undertake internal investigations into whether currency traders rigged markets to boost their own positions.
These investigations could lead to fines for the banks on a par with those already meted out over the analogous Libor scandal, for which banks and interdealer brokers have paid out more than $6.5bn so far. Criminal investigations target both individuals – who risk imprisonment – and the banks.
The DoJ is examining whether traders from different banks colluded to share information over the spread they were charging large investors, and whether they used knowledge over looming client orders to “front run” trades, among other allegations. The SFO has the power to investigate both cartel and fraud offences.
Any announcement by the SFO follows increasingly frequent information-sharing meetings with the FCA, according to people familiar with the situation.
The SFO would not confirm or deny that a formal investigation would be announced. It said: “We are receiving and examining complex data on this topic. If and when we open a criminal investigation, that decision will be announced in the usual way.”
So far almost three dozen traders from 10 banks have been placed on leave or sacked, and the Bank of England has suspended one official.
After the manipulation of Libor is rigging foreign currency markets the next big scandal to hit some of the world’s biggest banks?
Many of those traders are based in London, which accounts for about 40 per cent of the forex market.
An official SFO probe could protect some of those traders from any potential extradition to the US if they were charged in parallel proceedings by the DoJ, according to legal experts.
The timing of any SFO announcement will probably be linked to any approval from the UK Treasury for extra resources, which it would almost certainly need to undertake another mammoth investigation, according to insiders.
The existing probe into alleged manipulation of the London Interbank Offered Rate, or Libor – which sparked the initial inquiries into whether other key benchmarks such as forex were also susceptible to manipulation – has already sapped SFO resources and has required so-called blockbuster funding from the Treasury to top up the agency’s depleted coffers.
Its annual budget stands at £36m, compared with £52m in 2008. David Green, the SFO’s director, successfully negotiated with the Treasury that the SFO could apply for ringfenced funding for any probe that was forecast to use more than 10 per cent of the agency’s annual budget.
The SFO has 50 staff working on its Libor investigations, which are being run using at least three different teams and have resulted in charges against 12 former traders and brokers so far.
Additional reporting by Daniel Schäfer in London
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