US Offers Immunity To Junior FX Manipulators In Exchange For Ratting Out Their Seniors

In another indication that the ongoing FX probe is picking up steam, or at least preparing for primetime public PR consumption, the FT reports that US prosecutors are offering immunity deals to junior traders in London. The quo for this particular quid: rat our the senior staff involved in what has previously been reported to be years of currency manipulation (recall "How Wall Street Manipulates Everything: The Infographics"). And continuing the tradition of the DOJ only focusing on European banks, because apparently nobody in the US ever engaged in manipulation of anything, ever, the "US Department of Justice staff have flown to the UK in recent weeks to interview foreign exchange traders, who have been offered partial immunity in exchange for volunteering information about superiors, people familiar with the situation said."

Previously such a blanket immunity agreement was used by UBS to rat out its peers in the Libor manipulation probe to avoid prosecution. And so piggybacking on bankers' eagerness to expose their former best friends, regulators are going bank to bank and focusing on those most with the most to lose, and most liable to spill the goods: the junior-most traders.

From the FT:

Such “proffer agreements” allow individuals to give authorities information about crimes with some assurances they will be protected against prosecution, as long as they do not lie.


The move marks another step in the global investigation into collusion and market-rigging in the $5.3tn a day currency market by at least 15 regulators and prosecutors. They are investigating allegations that bank traders and sales staff used chat rooms and other means of communication to share client information and manipulate daily currency benchmarks.


Most authorities initially gave banks free rein to conduct their own probes, prompting the suspension, placing on leave or firing of so far almost three dozen staff at 10 banks and the Bank of England, where one official has been suspended.


One senior lawyer said the DoJ probe was well-advanced. The DoJ declined to comment. Referring to general criminal activity, Leslie Caldwell, its criminal division chief since May, told the FT last week that the authority would be “appropriately aggressive” and seek to bring “timely” cases against financial institutions.

On the other hand, showing just how little information, and thus leverage, the DOJ actually has, most such offers have so far been rejected: "while the DoJ had offered immunity deals to a number of traders, most had so far declined as they did not have “killer evidence” to trade against leniency."

Senior bankers, in the meantime, are not waiting to see who folds under pressure first, and as we have reported in the past year, have been leaving their former employers in droves, either heading to hedge funds or leaving the industry entirely. However, since participants of such FX manipulation venues as the "bandits" chat room likely had dozens if not hundreds of participants working in the FX desks at all major banks, all it will take is finding the weakest link and going from there all the way to the top. Unless, of course, the DOJ finds that some of its targets also happen to be major sources of lobby funding, in which case expect the probe to quietly disappear.

Complicating any attempts at covering up impropriety would be disclosures by Germany’s financial regulator and Switzerland’s competition commission which both confirmed publicly in recent months that they have found evidence of wrongdoing.

And then there are the pleas from those at the very top, such as Barclays Chairman Sir David Walker, whose peculiar request we described in "Caught Rigging Gold And Dark Pools, Barclays Begs To At Least Keep FX Manipulation." Yes, really.

One thing is certain: no matter how far any probe goes, those most culpable of FX manipulation, central bankers and the countless HFT algos which have taken over day-to-day FX rigging, will be left untouched. After all, this latest theatrical escapade is just yet another attempt to appease the public by throwing a few pieces of junior trader meat in prison for 2 to 4. Remember that in the case of Barclays gold manipulation, the buck apparently stopped with a very junior trader. Clearly nobody else was involved. The same will happen here.