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EXCLUSIVE

UBS seeks first-mover immunity in U.S. currency probe: sources

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[February 08, 2014]  By Jamie McGeever

LONDON (Reuters)  Swiss bank UBS AG <UBSN.VX> approached U.S. authorities in September with information relating to an industry-wide probe into alleged rigging of currency markets, in the hope of gaining antitrust immunity if charged with wrongdoing, sources familiar with the matter told Reuters.

UBS is seeking to take advantage of a program from the Justice Department's antitrust division under which the first company to report misconduct relating to a cartel can earn immunity from antitrust charges if it cooperates and provides information about other members of the group, three sources said.

Following the Libor interest-rate rigging scandal that has so far cost banks around the world $6 billion in fines and settlements, UBS sought to act quickly to gather and supply information when similar allegations of wrongdoing by leading banks in foreign exchange surfaced in June, the sources said.

No bank or individual has been accused of any wrongdoing but banks, including UBS, have said they are cooperating with regulators in the investigations. It is not known whether they too have sought first-mover advantage under the DoJ program.

UBS declined comment beyond pointing to a passage in its third-quarter results released in October, saying that after the June report of irregularities in forex markets, it had started an internal review.

"UBS and other financial institutions have received requests from various authorities relating to their foreign exchange businesses and UBS is cooperating with the authorities," the bank said in its results statement.


Authorities including the U.S. Department of Justice (DoJ), Britain's Financial Conduct Authority (FCA) and watchdogs in Germany and Switzerland are probing allegations of collusion between senior traders at big banks to manipulate benchmark currency rates.

These exchange rates or "fixes" are used to price trillions of dollars worth of investments and deals and are relied on by companies, investors and central banks globally.

Stung by Libor, banks are looking to cooperate more readily with regulators probing the FX allegations, which FCA chief Martin Wheatley has said are "every bit as bad as Libor".

Banks have put on leave, suspended or fired more than 20 traders in an attempt to show regulators they are cooperating and taking action.

FIRST TO COOPERATE

UBS, which received leniency from some U.S. authorities for its role in rigging Libor benchmark interest rates because of the information it supplied, scrambled to compile information on currency trading and get it to the DoJ early, the people said.

The move was "a huge gamble" according to one source, since it was handing over information with no guarantee that it would benefit from a program that rewards the first firm to cooperate in a cartel probe with immunity from prosecution.

Although UBS paid $1.5 billion in 2012 to U.S. and European authorities over alleged efforts to manipulate Libor and other benchmark interest rates  the largest such penalty to date  it did not face antitrust charges, which could have substantially added to its penalties.


It was unclear whether the strategy will work in the FX case as well. The sources said U.S. authorities have given little sign so far of their intentions.

The DoJ declined comment.

The forex investigation centers on groups of traders at big banks including UBS who are alleged to have shared on Bloomberg chatrooms  with names such as "The Cartel" and "The Bandits' Club"  market-sensitive information surrounding the benchmark rate known as the 4 o'clock London fix.

After media reports of alleged forex market manipulation surfaced in the summer of 2013, UBS went into "high gear", hiring lawyers Gibson Dunn & Crutcher who within 10 days unearthed potentially incriminating chats by traders, the first source said.

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U.S. regulatory officials then visited UBS shortly after to search for evidence, the sources said.

Having already cooperated with the DoJ on Libor, there was a debate within the bank about how much to reveal about what it had discovered on FX, the source said.

Then on September 14 UBS called the DoJ to say something had been discovered, the sources said. UBS could not at that stage disclose what that something was, but would be reporting it 14 days later to the DoJ.

The sources did not give any detail about what had been discovered.

Several sources familiar with the FX investigation have told Reuters banks were rattled by Libor so were inclined to cooperate much more readily with authorities when the FX scandal emerged, to take advantage of "leniency programs".

HIGHER CHARGES

UBS is the world's fourth-biggest currency trader, according to the latest Euromoney poll, seeing just over 10 percent of the $5.3 trillion that flows through the global market on an average day.

In its fourth-quarter results on February 4 it said it expected higher charges for litigation, regulatory and similar matters in 2014. UBS already has a 1.7 billion franc reserve to deal with legal tangles.

It also said several class-action lawsuits relating to the FX probe had been filed against it and other banks.

The DoJ confirmed on October 16 it was proceeding with a criminal investigation into allegations of currency manipulation, having been gathering information for some time, though it did not name any banks.

Even if a company doesn't get in the door first regarding one type of conduct, it can still earn leniency by providing information about another potential antitrust violation, giving banks incentives to provide information about the manipulation of forex rates and other potential misconduct.


The DoJ has in the past used such incentives to investigate multiple cartels within the same industries, including in the auto parts industry.

Banks that have resolved charges over Libor are also obligated to turn over all information the DoJ asks of them for at least two years, providing another motivation to cooperate.

Banks including UBS, Barclays <BARC.L> and Royal Bank of Scotland <RBS.L> have paid billions of dollars to resolve the charges and are under such disclosure obligations, and prosecutors are drawing on that information to investigate do we really need other benchmarks.

Top Justice Department officials have also said the Libor agreements have been a huge asset to the agency's forex probes.

"They don't have much wiggle room other than going all-in on cooperation from the onset," said Robertson Park, a former fraud prosecutor who worked on the Libor investigations including the settlement with Barclays and is now in private practice at Murphy & McGonigle, speaking of the banks that are under Libor settlements.

(Additional reporting by Emily Flitter in New York, Aruna Viswanatha in Washington and Katharina Bart in Zurich; editing by David Holmes and Alexander Smith)

[ 2014 Thomson Reuters. All rights reserved.]

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