UPDATE 2-U.S. confirms criminal probe of forex manipulation

Tue Oct 29, 2013 2:06pm EDT

By Aruna Viswanatha

WASHINGTON Oct 29 (Reuters) - The U.S. Justice Department is investigating the manipulation of foreign exchange rates, a top federal prosecutor said on Tuesday, in the first public acknowledgement of such a probe in the United States.

Criminal and antitrust authorities have an "active, ongoing investigation" into the possible manipulation, Mythili Raman, the acting head of the department's criminal division, said.

The confirmation comes on the same day Dutch bank Rabobank agreed to pay more than $1 billion to resolve allegations that it manipulated Libor and other benchmark rates. And other European banks that face related probes disclosed they set aside major sums to cover legal costs.

Over the past two years, regulators and prosecutors have extracted billions in fines from global banks after finding that they rigged Libor, the average rate at which a panel of banks expects to borrow money.

The Libor rates have been susceptible to manipulation because they are based not on specific transactions, but on a survey of where banks think they can borrow.

As a result, authorities have turned to other benchmarks, including those that undergird the $5.3 trillion-a-day currency market, to investigate whether they are open to similar kinds of skewing.

Regulators in Switzerland, the United Kingdom, and Hong Kong said earlier this month they were investigating the conduct in currency markets.

COOPERATION FROM BANKS

U.S. prosecutors will use information provided by the banks that have already resolved Libor charges to investigate the other benchmarks, Raman said in an interview.

Banks including Barclays, UBS AG, Royal Bank of Scotland, and now Rabobank have paid more than $4 billion to date and have agreed to turn over all information that the Justice Department asks of them for at least two years as part of their settlements.

"That's one of the most significant benefits that law enforcement has been able to secure as part of this investigation," Raman said.

Raman said she could not comment on any details of the investigation, but Reuters previously reported that authorities were examining allegations centered on the Swiss franc.

Switzerland's UBS also disclosed on Tuesday that it had received requests from "various authorities" relating to its foreign exchange business.

The bank, which paid $1.5 billon last year to resolve Libor charges, said it had taken "swift action" to review how it trades foreign exchange.

The chairman of rival Credit Suisse said earlier this month his bank had not found any evidence of misconduct in the forex market following inquiries from regulators.

Also earlier this month, RBS handed Britain's financial regulator instant messages sent by a former currency trader to counterparts at other banks.

The Libor settlements "basically bind all of these institutions to a kind of long-term cooperation with all involved enforcement authorities," said Robertson Park, who prosecuted the Libor case against Barclays and is now in private practice at the law firm Murphy & McGonigle.

This gives law enforcement "a huge leg up," he said.