SAO PAULO (Reuters) - Fifteen of the world's largest banks are under investigation for rigging the Brazilian currency, antitrust watchdog Cade said on Thursday, the first such probe in one of the busiest foreign exchange markets globally.
In a document, Cade said the banks colluded to influence benchmark currency rates in Brazil by aligning positions and pushing transactions in a way that deterred competitors from the market between 2007 and 2013, at least. Foreign exchange trading in Brazil is estimated at about $3 trillion a year, excluding swaps and derivative transactions.
The banks in the Cade probe are Bank of America Merrill Lynch, Bank of Tokyo-Mitsubishi UFJ, Barclays Plc, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co, Morgan Stanley & Co, Nomura Holdings Inc, Royal Bank of Canada, Royal Bank of Scotland Group, Standard Bank Group Ltd, Standard Chartered Plc and UBS AG.
The Brazilian investigation comes weeks after six of the world's largest financial institutions agreed to pay $5.8 billion to the U.S. government to settle charges of currency rigging. The U.S. probe took more than five years and five of those banks, which are being probed by Cade, pleaded guilty.
Globally, currency trading is estimated at around $4.7 trillion a day and has been targeted in recent government probes in Europe, the United States and Japan. Those probes allege that banks prioritized the execution of their own currency trades at the expense of client orders, taking advantage of the fact that those deals often take place away from exchanges.
The Cade probe highlights the growing importance of international cooperation in efforts to root out different forms of market rigging, and sets a milestone for a country long characterized for having too lax law enforcement standards for , white-collar crime.
"The probe will probably follow similar patterns to those that took place in larger financial hubs, with banks seeking a settlement with Cade instead of going to courts," said Luís André de Moura Azevedo, a capital markets law professor with Fundação Getulio Vargas in São Paulo. "It's a milestone."
'THE MAFIA'
UBS, Standard Bank, Royal Bank of Canada, Standard Chartered, and Royal Bank of Scotland declined to comment. JPMorgan, Barclays, Credit Suisse, Citigroup, Tokyo-Mitsubishi and HSBC did not have an immediate comment. Efforts to reach the other lenders were not immediately successful.
The last time Brazil launched an investigation on market practices by international banks was in 2006, when prosecutors looked at the way Merrill Lynch & Co, Credit Suisse and UBS bankers helped wealthy clients move money out of the country in a way that tax authorities failed to track. Almost two dozen people were indicted after four years of investigations.
In the current probe, Cade said traders who described themselves as "The Cartel" or "The Mafia" used online chat rooms to fix their positions ahead of market trades. Another 30 individuals that might have participated in the scheme are also under investigation, the watchdog said.
At least one of the alleged participants is cooperating with the current investigation, Cade said.
The documents made available by Cade did not specify how much money the banks or the individuals cited in the investigation made with the scheme.
One Cade document said traders probably front-ran client orders and pushed through trades that affected the way benchmarks like Brazil's PTax and WM/Reuters rates were set. They might have also colluded to fix spreads on client trades, unveil spot and future trades that should have been kept confidential and even deal flow volume data, the document added.
Benchmarks like the PTax or the WM/Reuters are used by investment firms to value their assets on a day-to-day basis.
The trades were shared and discussed in online chats through Bloomberg terminals, Cade said. Bloomberg LP and Thomson Reuters, the parent company of Reuters News, compete in the financial information market, providing analytical and communication tools for investment professionals.
Both Bloomberg and Thomson Reuters declined to comment on the Cade investigation.
The real gained 1.2 percent to 3.1103 reais to the dollar on Thursday. Traders said the Cade probe had no impact on currency prices.
(Additional reporting by Leonardo Goy in Brasilia, and Luciana Bruno, Cesar Bianconi and Alberto Alerigi Jr in São Paulo; Editing by W Simon)
