July 20, 2016
A senior HSBC banker has been arrested by the FBI as he attempted to board a transatlantic flight and charged him with fraudulently rigging a multibillion-dollar currency exchange deal.
Mark Johnson, a British citizen and HSBC's global head of foreign exchange trading, and a colleague are accused of "defrauding clients" and alleged to have "corruptly manipulated the foreign exchange market to benefit themselves and their bank".
He was arrested on Tuesday night shortly before he was due to fly to London from New York's JFK airport, and was due to be formally charged by a judge at Brooklyn federal court later on Wednesday.
Related: HSBC escaped US money-laundering charges after Osborne's intervention
A second Briton, Stuart Scott, HSBC's European head of foreign exchange trading in London, is accused of the same crimes. They are the first people to be charged in connection with the US government's long-running investigation into bankers alleged rigging of the $5.3tn (£4tn) per day forex market.
"The defendants allegedly betrayed their client's confidence, and corruptly manipulated the foreign exchange market to benefit themselves and their bank," said the US assistant attorney general Leslie Caldwell. "This case demonstrates the [US Depart of Justice's] criminal division's commitment to hold corporate executives, including at the world's largest and most sophisticated institutions, responsible for their crimes."
Johnson, 50, who lives in both London and New York, and Scott, 43, who lives in London, are alleged to have "placed personal profits ahead of their duties of trust and confidentiality owed to their client, and in doing so, defrauded their client of millions of dollars".
The men are accused of making $3m profit by fraudulently trading currencies in advance of a client buying $3.4bn of pounds sterling in 2011, according to the complaint. They are accused of buying sterling in advance of the client’s transaction in a manner "designed to spike the price" to the benefit of HSBC "and at the expense of their client". They also billed their client for $5m in fees for their work.
Johnson and Scott are accused of weaving a "web of lies" when the client questioned them about the higher price they were forced to pay to bring back proceeds from an overseas transaction to the UK .
"When questioned by their client about the higher price paid for their significant transaction, the defendants wove a web of lies designed to conceal the truth and divert attention away from their fraudulent trades," said the US attorney Robert Capers. "The charges and arrest announced today reflect our steadfast commitment to hold accountable corporate executives and licensed professionals who use their positions to fraudulently enrich themselves."
Paul Abbate, the FBI's top official in Washington, said: "These individuals are accused of defrauding clients by misusing confidential information to manipulate currency prices for the benefit of the bank and themselves. The FBI will continue to work aggressively with our partners to prevent, investigate and prosecute criminal fraud in the financial markets."
HSBC declined to comment. It is not known whether the US authorities have requested British police to arrest Scott.
The justice department is still conducting a criminal investigation into some global banks' alleged currency manipulation, and more than two dozen traders have been suspended by their employers.
Last year, four banks pleaded guilty to conspiracy to rig the forex market and fines totaling $5.6bn were handed down to six banks. HSBC was not included in the settlement deal.
The banks who agreed the settlement - Barclays, Royal Bank of Scotland, Citigroup and JP Morgan Chase - described themselves as "the Cartel" and used secret chatrooms and coded language to manipulate benchmark exchange rates to make huge profits. The FBI said the scheme was criminal "on a massive scale".
According to transcripts of the chatroom, published by the New York Department of Financial Services (DFS), one Barclays trader in 2010 wrote: "If you aint cheating, you aint trying."
Last year, the UK Financial Conduct Authority (FCA) fined five banks £1.1bn – the biggest penalty in the history of the City of London – for failing to stop their traders manipulating the market.
"Today's record fines mark the gravity of the failings we found, and firms need to take responsibility for putting it right," the FCA CEO, Martin Wheatley, said at the time.
In March, the UK Serious Fraud Office said that after reviewing more than half a million documents, it had concluded there was insufficient evidence for a realistic prospect of conviction. At the time, the fraud-busting agency said it was continuing to liaise with the US Department of Justice over its investigation, which had involved help from a number of regulatory bodies, including the
FCA and the Competition and Markets Authority, as well as the City of London police.
The SFO had not identified the firms or individuals it had investigated.
It was revealed earlier this month that George Osborne, the former chancellor, intervened to persuade the US government not to pursue criminal charges against HSBC for allowing terrorists and drug dealers to launder millions of dollars.
A congressional report published letters and emails from Osborne and Financial Services Authority (FSA) officials to their US counterparts warning that launching criminal action against HSBC in 2012 could have sparked a "financial calamity".
The House financial services committee report said the UK interventions "played a significant role in ultimately persuading the DoJ [ Department of Justice ] not to prosecute HSBC". Instead of pursuing a prosecution, the bank agreed to pay a record $1.92bn (£1.4bn) fine.