Fines & Penalties Monitor: First Quarter 2018

Total fines, penalties and settlements (f/p/s) paid out by the 18 largest financial institutions headquartered in the U.S. and Europe in the first quarter of 2018 was $3.4B.  Comparatively, total f/p/s for the first three months of 2017 was $1.6B.  Most fines for the first quarter of 2017 were related to rate rigging, RMBS and AML concerns.  The nine f/p/s for the first quarter of 2018 included a financial crisis era settlement, several rate rigging probes, two anti-money laundering program shortcomings, an improper credit card rate adjustment and a whistleblower suit.

The highest f/p/s for the first quarter was $2B, paid by Barclays Plc. to settle a civil action over alleged conduct related to the issuing and underwriting of residential mortgage-backed securities (RMBS) in the run-up to the financial crisis.  The civil action alleged that Barclays engaged in a fraudulent scheme to sell RMBS deals and misled investors about the quality of the mortgage loans backing those securities.  Over half of the loans defaulted, the U.S. Department of Justice (DOJ) noted.  Barclays paid the penalty in exchange for the complaint to be dismissed.

Four of the f/p/s were related to rate rigging.  Deutsche Bank AG and HSBC Holdings Plc. settled for $240MM and $100MM, respectively, over LIBOR rigging claims.  Both banks settled private U.S. antitrust lawsuit over these allegations. Separately, HSBC also settled a different probe into currency rigging.  The investigation centered on HSBC’s foreign exchange (FX) traders who misused confidential client information in 2010 and 2011 during FX transactions.  HSBC agreed to pay a $63.1MM fine and $38.4MM in restitution.  Finally, BNP Paribas plead guilty to participating in a price-fixing conspiracy in the foreign-exchange market and agreed to pay a $90MM fine to the DOJ.  The unit admitted to having conspired to “suppress and eliminate competition” by fixing prices for central and eastern European, Middle Eastern and African currencies between September 2011 and July 2013.

Two f/p/s were related to bank secrecy act/anti-money laundering (BSA/AML) programs. Rabobank NA plead guilty to conspiracy to defraud the U.S. by actively concealing deficiencies in its AML program.  Those deficiencies “allowed hundreds of millions of dollars in untraceable cash” to be deposited and moved without the requisite notifications to federal authorities, despite previous sanctions “for nearly identical failures,” according to the DOJ.  Rabobank will forfeit $369MM to resolve the matter, as well as pay the Office of the Comptroller of the Currency (OCC) a $50MM civil money penalty (which will be credited to the DOJ’s fine). In regards to the second f/p/s, Citibank was fined $70MM by the OCC for failing to address shortcomings in its AML policies.

The final two f/p/s were resolving an improper credit card rate adjustment issue and a whistleblower suit.  Citigroup paid $335MM in remediation to customers after discovering “methodical issues” in how the bank adjusted rates for almost 1.75 million credit-card customers from 2011 to 2017. The bank, which found the issues through an internal review, self-reported the issues to the Consumer Financial Protection Bureau (CFPB).  Over at Bank of America, the Securities and Exchange Commission (SEC) awarded three whistleblowers more than $83MM for exposing “long-running misconduct” at Merrill Lynch.  The whistleblowers had tipped the agency that Merrill Lynch executed complex options trades that lacked economic substance and artificially lowered the required deposit of customer cash in the reserve account for many years.

Stay tuned for next quarter’s blog post to find out which banks have paid a f/p/s and for what!

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