Last Wednesday, five banks, JPMorgan Chase and Citigroup from the US, Barclay’s and Royal Bank of Scotland from the United Kingdom, and UBS from Switzerland, agreed to pay fines totaling more than $5 billion to settle charges over rigging prices of US dollar/Euro foreign exchange transactions from 2007 to 2013.
The American and British banks pled guilty to criminal charges, but nobody at any of the banks is going to prison for these actions. Criminal convictions violate a number of regulations imposed on banks, which would lead to restrictions on continuing operations. The Justice Department announced that it is working with the banks to obtain regulatory waivers on such additional sanctions that might apply.
All five banks told the financial press that the fines, while large in absolute terms, were not significant in terms of any of their financial statements.
In sum, these four banks that committed criminal actions are pretty much able to buy their way out of trouble.
The treatment of UBS was different. Because it blew the whistle on the manipulation of foreign exchange markets, this bank was granted immunity from criminal charges. However, this wrongdoing violated terms of a previous settlement that required UBS to comply with laws and regulations. As a result, this bank did pay some fines, totaling more than $500 million, to be exempted from violating their previous agreement.
Last week’s agreement follows the 2012 settlement with a number of major banks paying fines for manipulating the London Interbank Offered Rate (LIBOR) contracts. Now that the foreign exchange manipulation investigation is pretty much finished, the Justice Department can get started with its previously announced investigation of 10 banks for manipulating precious metals prices in the London market.
As a condition of UBS’s new agreement, bank officials promised to assist the Justice Department in their investigation into the rigging of the gold and silver markets.
If you think that this cooperation from UBS will make it even easier for the Justice Department to blow the lid off the manipulation of gold and silver prices, think again!
The US government is the entity that has the strongest incentive to suppress gold and silver prices as one means of propping up the value of the US dollar. The banks named for the investigation are either primary trading partners with the US government, being paid to execute instructions received from DC, or engage in major trading activity with the US government’s primary trading partners. The Gold Anti-Trust Action Committee (GATA) has compiled substantial documentation that the US government has for decades up to recent years been involved in suppressing gold and silver prices, with the assistance of its primary trading partners, other central banks, and official agencies such as the Bank for International Settlements and the International Monetary Fund. Go to http://www.gata.org/taxonomy/term/21 to review details.
Because of these relationships with major banks, I predict that the US government will make certain any thorough investigation of precious metals price manipulation will never be done. At the most, years down the road, expect to see another round of agreements where the banks pay fines only. Don’t expect the public to be informed all of what has been going on. It is also highly unlikely, once again, that anyone will go to prison.
By the way, we are going through two of the kinds of events where gold and silver prices tend to be clobbered. One is during holiday weekends when thinly traded markets make it easier to manipulate prices. The other is the expiration of COMEX gold and silver option contracts. This month, both COMEX gold and silver option contracts expire—on Tuesday, May 26—the day after Memorial Day. It should not surprise anyone that gold and silver prices now are lower than they were on May 15. However, once we get past May 27, prices could rebound to some degree.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). He also writes a bi-monthly column on collectibles for The Greater Lansing Business Monthly (http://www.lansingbusinessmonthly.com/articles/department-columns). His Numismatic Literary Guild award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).