• Year after charges said imminent, U.S. says probe remains live
  • Prosecutors said to face hurdles in quest to charge bankers

The word came down in late 2014 from the head of the Justice Department: The U.S. wouldn’t stop at extracting billion-dollar settlements from banks accused of rigging markets. Within months, the nation’s top cop said, individual wrongdoers at big banks could also expect to be brought to justice.

More than a year later, the U.S. hasn’t charged any individuals over rigging exchange rates. Britain this month dropped its own efforts to bring cases against currency traders, saying there wasn’t enough evidence. For U.S. prosecutors in the Obama administration’s waning days, time is running short.

The Justice Department has long stressed the importance of showing the public and bankers that individuals will be held accountable for corporate crimes. Intentions notwithstanding, getting a successful prosecution grows harder with time. Potential witnesses may be harder to pin down. Some traders would have to be extradited, a process that takes many months. Any case would likely fall to a new attorney general, with some new staff.

"There’s tremendous pressure on the Justice Department to go beyond the big fines of the past and charge individuals, given public anger directed toward bankers," said Thomas Horton, a professor at the University of South Dakota School of Law. "They’re likely taking a lot of time because this is a complicated case and they need to get it right -- but the clock is ticking."

Probe Reconstructed

The apparent lag in charging currency traders may be a result of how the U.S. has pursued one of its biggest financial market investigations, according to a reconstruction of the probe gleaned from interviews with about a dozen people on both sides of the Atlantic. The people, who spoke on condition of anonymity about a continuing investigation, were familiar with the perspective of prosecutors, banks and traders.

Rather than make charging individuals the priority, the Justice Department moved rapidly to strike settlements with some of the world’s biggest banks -- among them Citigroup Inc., JPMorgan Chase & Co. and Barclays Plc -- that included guilty pleas and $2.7 billion in fines collectively. The government also narrowed its focus to an antitrust case, effectively limiting the range of charges that could be brought against traders, according to several of the people.

The investigation into traders’ conduct appears to have gone quiet. The government hasn’t reached out for potential evidence it typically would need if prosecutors were close to bringing charges, according to two of the people.

But the U.S. silence shouldn’t be mistaken for inaction, said three people close to the probe. Prosecutors continue to investigate individuals, these people said, and could bring price-fixing conspiracy charges against a group of traders as soon as this summer, according to one of the people.

Trader Jargon

The Justice Department says it’s pursuing individuals.

“From day one of this investigation the department, including both the criminal and the antitrust divisions, was committed to going where the facts took us and holding accountable both the companies and individuals involved in the wrongdoing,” said Mark Abueg, a spokesman, in response to requests for comment from the Justice Department and the officials involved in the investigation. “Any suggestion to the contrary is flat-out inaccurate.”
Persuading a jury to convict may be hard. One issue is whether online chatroom conversations between traders conclusively show clear agreements between them to rig currency prices -- a necessary element to prove any price-fixing case -- one of the people said. Messages in which traders allegedly discussed attempts to move the market don’t always correspond with actual trades or price movements, and prosecutors will have to translate for jurors the complexities of the currency market and trader jargon.

The Justice Department has been criticized for its failure to make cases against individuals while reaching high-dollar settlements with institutions. In an effort to reverse that trend, department leaders issued a new policy last September requiring that all criminal and civil cases begin and end with a focus on individual accountability.

Forex Playbook

That wasn’t the playbook in the currency probe, some of the people said. The Justice Department’s attention was absorbed with settling allegations against a group of the world’s biggest banks. Meanwhile, after internal wrangling between the criminal and antitrust units about the direction of the case, the department decided to take potential fraud charges off the table, effectively reducing the number of people working on the matter, one of the people said.

Some of the issues the U.S. is grappling with mirror those that led the U.K. to close its inquiry earlier this month.

Once they drilled below the bravado of the instant-message chats, U.K. investigators found a dearth of compelling evidence to establish a criminal case, a person familiar with the investigators’ thinking said. Furthermore, any losses could be traced to the banks rather than clients, the person said. One U.S. bank in particular was unable to reconstruct its trading records because of the way the data had been collected, said the person, who didn’t identify the bank.

The SFO’s investigation cost millions of pounds and Director David Green announced its closure on March 15.

U.S.-Led Effort

The U.S. has spearheaded the global investigation into currency-rigging since at least the fall of 2013. In September 2014, in his final speech about financial crimes before announcing plans to step down, then-Attorney General Eric Holder referenced two major bank investigations. The U.S. had already brought charges against traders for rigging the London interbank offered rate, or Libor, he said, adding that in the currency probe, the department was being aided by undercover cooperators. 

“Make no mistake: The Justice Department will continue to be relentless in our pursuit of anyone, anywhere, who violates the law. We have investigations open right now that are focused on the conduct of individuals at specific financial institutions,” he said. The U.S. is “making good progress” he said, adding that “we expect to bring charges in the coming months.”

People close to the investigation said at the time currency-rigging charges could be brought against traders within months. Spokespeople for Covington & Burling LLP, where Holder works, didn’t respond to emails and phone messages seeking comment from Holder.

Strategy Meeting

As banks pushed for resolutions, top Justice Department officials met near the end of Holder’s tenure to discuss strategy in the case. They reviewed issues faced by the two divisions investigating the conduct -- criminal and antitrust -- and whether the case against the banks should be settled even if individuals weren’t charged at the same time, one of the people said.

Bill Baer, head of the antitrust division, was confident and ready to bring a collusion case against four of the banks, said one of the people, who was familiar with the antitrust division’s argument. Those banks wanted to put the matter behind them and discussed a resolution with U.S. officials. Baer argued that an antitrust case could be made against the banks in short order on the basis of chat transcripts alone, said the person.

The criminal division, run by Leslie Caldwell, was expressing less optimism about its case. Despite many promising leads, two of the people said, prosecutors hadn’t found the same evidence of fraud that had led to charges against individuals in the earlier Libor investigation. The Libor case, which was also a joint investigation by the criminal and antitrust divisions, had resulted in $2 billion in criminal penalties for the banks.

The criminal division thought there were gaps in the evidence, one of the people said. Despite the challenges, prosecutors were pushing supervisors for more time to investigate and secure cooperators, which they argued could potentially lead to both fraud and antitrust charges against the banks and individuals, that person said.

Fork in Road

In early 2015, the decision was put before Holder and Sally Quillian Yates, a veteran prosecutor and a former U.S. attorney in Atlanta, who in January became the department’s No. 2 official. The two greenlighted the pursuit of antitrust settlements with JPMorgan, Citigroup, Barclays and Royal Bank of Scotland Group Plc. The criminal division would proceed against a fifth bank, UBS Group AG: While UBS received immunity from prosecution in the currency case, the matter exposed the bank to charges for breaching an earlier non-prosecution agreement stemming from the Libor case.

By that point, the pursuit of traders had lost a large chunk of its resources. The criminal division had bowed out of its look into a group of traders whose discussions in online chatrooms were dubbed “The Cartel” and “The Mafia.” That left the antitrust division to decide whether to bring charges against those traders, two of the people said. The criminal division continued to look for fraud in other areas of the currency probe, they said.

In May 2015, the government announced the settlements with the five banks, the first round in what people familiar with the probe have said could also lead to charges against other global banks. At a press conference, neither Baer nor Loretta Lynch, who had recently become attorney general, would comment on whether charges against individuals were coming.

Focus on Individuals

While such charges still haven’t materialized, the Justice Department has made no secret of its broader desire to hold individuals to account for corporate crime.

In September, Yates herself laid out the department’s approach to corporate cases at the New York University School of Law -- where, a year earlier, Holder had said bankers could be charged soon. Setting out what would come to be known as the Yates memo, she said that to win reduced penalties, companies facing criminal investigations would have to turn over information about any responsible individuals.

Yates referenced Holder’s earlier speech, highlighting the challenges of getting enough evidence to prove criminal intent and added that the department shouldn’t settle with companies without a clear plan to resolve related individual cases.

"He made clear that, as a matter of basic fairness, we cannot allow the flesh-and-blood people responsible for misconduct to walk away," she said. "And, as he pointed out, nothing discourages corporate criminal activity like the prospect of people going to prison."

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