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 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)
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