Rumors have been swirling for some time that the LIBOR rate rigging scandal was not the only skeleton in the closet for a number of major investment banks. Those in the know had been saying the British financial authorities would be initiating a formal investigation into rigging of the benchmark rates in the foreign exchange markets soon, and the rumors proved to have substance today.

Foreign Exchange Fraud

When contacted by Bloomberg, spokespersons for Citigroup Inc (NYSE:C), Barclays PLC (ADR) (NYSE:BCS) (LON:BARC), Deutsche Bank AG (NYSE:DB) (ETR:DBK) and UBS AG (NYSE:UBS) — the largest global currency dealers — demurred comment at this time.

It should be noted that no specific individuals or firms related to this alleged foreign exchange fraud have been charged with criminal offenses to date.

Statement from UK Serious Fraud Office

The UK’s Serious Fraud Office released an email statement Monday, July 21st, announcing the formal launch of an FX market investigation. “The Serious Fraud Office has today opened a criminal investigation into allegations of fraudulent conduct in the foreign exchange market,” the statement read.

Background on the foreign exchange fraud investigation

Global financial regulatory authorities have been looking into whether traders had rigged the $5.3 trillion-a-day currency markets for over a year now. The UK Financial Conduct Authority initiated an investigation into possible foreign exchange fraud last year.

Regulators, and now law enforcement and prosecutors, are investigating allegations that FX broker/dealers at many largest global financial institutions traded ahead of their clients and colluded to fix an FX benchmark that pension funds and other institutions use to calculate foreign currency transactions. Bloomberg reports that over 25 foreign exchange traders at several firms have been fired, suspended or put on leave following the allegations of rate rigging last year.

The FCA is leading the probe in the U.K., and Bloomberg’s sources say the U.S. Department of Justice has also been looking into potential criminal violations related to the matter for more than a year. The sources also confirm U.S. prosecutors could bring charges and/or levy fines related to the case within a few months.