On 21 July 2014 the director of the Serious Fraud Office formally announced the opening of a criminal investigation into allegations of fraudulent conduct in the foreign exchange market.
This investigation has been anticipated for some time and relates to the alleged rigging of the £3 trillion a day foreign exchange markets at leading City of London banks over a period of several years.
According to the Daily Telegraph:
- This investigation raises the possibility of further multi-million pound fines for Britain’s biggest banks over their behavior during and after the financial crisis.
- SFO investigators are expected to examine whether individual traders personally benefitted by manipulating benchmark Forex prices.
- It is claimed that traders colluded via online chat rooms in groups with names such as the Bandits Club, the Dream Team and the Cartel.
The SFO’s new criminal investigation into alleged currency markets rigging in London, which is home to more than 40% of the world’s foreign currency exchange trading, will join a number of current investigations into Forex market abuse by investigators in other countries across Europe, Asia and the United States. The SFO’s portfolio of very large investigations into corruption cases, LIBOR and other fraud continues to grow.
The British financial regulator, the Financial Conduct Authority, has itself already launched an investigation into global currency markets, in October 2013.
Today’s announcement from the SFO will put further pressure on banks and traders who run the risk of regulatory sanctions as well as criminal prosecutions in one or more countries.
Such is the seriousness of the matter that, in March 2014, the Bank of England appointed Lord Grabiner QC to adjudicate on whether any Bank of England officials themselves were involved in manipulating the Forex market, and specifically whether any Bank official, during the period July 2005 to December 2013:
(a) was either (i) involved in attempted or actual manipulation of the foreign exchange market (including the WMR FX benchmark), or (ii) aware of attempted or actual manipulation of the foreign exchange market , or (iii) aware of the potential for such manipulation or (iv) colluded with market participants in relation to any such manipulation or aware of any such collusion between participants;
(b) was either (i) involved in the sharing of confidential client information or (ii) aware of the sharing of such information between participants for the purposes of transacting business in the foreign exchange market; or
(c) was involved in, or aware of, any other unlawful or improper behaviour or practices in the foreign exchange market.
This could well be the largest investigation in which the SFO has ever been involved. Given the scale and complexity of the market itself, and the SFO’s limited resources, it could take years to conclude. The SFO will undoubtedly have already had to ask Her Majesty’s Treasury for additional “blockbuster funding” to cover the expense of the initial investigation.
In addition to, potentially, multiple prosecutions of banks and individual traders, the SFO’s investigation may also eventually lead to a surge in civil litigation in relation to those parties who feel that they have lost out as a result of market manipulation, so one can expect multiple class action suits and an uptick in related litigation against the banks in the United States and many other countries, particularly the UK.