For most people, pleading guilty to a felony means they will very likely land in prison, lose their job and forfeit their right to vote.
But when five of the world’s biggest banks plead guilty to an array of antitrust and fraud charges as soon as next week, life will go on, probably without much of a hiccup.
The Justice Department is preparing to announce that Barclays, JPMorgan Chase, Citigroup and the Royal Bank of Scotland will collectively pay several billion dollars and plead guilty to criminal antitrust violations for rigging the price of foreign currencies, according to people briefed on the matter who spoke on the condition of anonymity. Most if not all of the pleas are expected to come from the banks’ holding companies, the people said — a first for Wall Street giants that until now have had only subsidiaries or their biggest banking units plead guilty.
The Justice Department is also preparing to resolve accusations of foreign currency misconduct at UBS. As part of that deal, prosecutors are taking the rare step of tearing up a 2012 nonprosecution agreement with the bank over the manipulation of benchmark interest rates, the people said, citing the bank’s foreign currency misconduct as a violation of the earlier agreement. UBS A.G., the banking unit that signed the 2012 nonprosecution agreement, is expected to plead guilty to the earlier charges and pay a fine that could be as high as $500 million rather than go to trial, the people said.
Holding companies, while appearing to be the most important entities at the banks, are in less jeopardy of suffering the consequences of guilty pleas. Some banks worried that a guilty plea by their biggest banking units, which hold licenses that enable them to operate branches and make loans, would be riskier, two of the people briefed on the matter said. The fear, they said, centered on whether state or federal regulators might revoke those licenses in response to the pleas.
Behind the scenes in Washington, the banks’ lawyers are also seeking assurances from federal regulators — including the Securities and Exchange Commission and the Labor Department — that the banks will not be barred from certain business practices after the guilty pleas, the people said. While the S.E.C.’s five commissioners have not yet voted on the requests for waivers, which would allow the banks to conduct business as usual despite being felons, the people briefed on the matter expected a majority of commissioners to grant them.
In reality, those accommodations render the plea deals, at least in part, an exercise in stagecraft. And while banks might prefer a deferred-prosecution agreement that suspends charges in exchange for fines and other concessions — or a nonprosecution deal like the one that UBS is on the verge of losing — the reputational blow of being a felon does not spell disaster.
“For any company there’s a huge reputational difference between a deferred-prosecution agreement and a guilty plea,” said David A. O’Neil, a partner at Debevoise & Plimpton and former senior Justice Department official who helped secure a guilty plea to a financial crime last year from the French bank BNP Paribas. “But the government needs to be careful that it doesn’t turn a guilty plea into a D.P.A. with just another name.”
The foreign exchange investigation, which centers on accusations that traders colluded to fix the price of major currencies, will test the Justice Department’s strategy for securing guilty pleas on Wall Street.
In the case of UBS, the bank will lose its nonprosecution agreement over interest rate manipulation, the people briefed on the matter said, a consequence of its misconduct in the foreign exchange case. It is unclear why that penalty will fall on UBS, but not on other banks suspected of manipulating both interest rates and currency prices.
The action against UBS underscores the threats that Justice Department officials issued in recent months about voiding past deals in the event of new misdeeds, a central tactic in a plan to address the cycle of corporate recidivism. Leslie Caldwell, the head of the Justice Department’s criminal division, recently remarked that she “will not hesitate to tear up a D.P.A. or N.P.A. and file criminal charges where such action is appropriate.”
Still, the bank is expected to avoid pleading guilty in the foreign exchange case, the people said, though it will probably pay a fine. While UBS was unlikely to plead guilty to antitrust violations because it was the first to cooperate in the foreign exchange investigation, the bank was facing the possibility of pleading guilty to fraud charges related to the currency manipulation. The exact punishment is not yet final, the people added.
The Justice Department negotiations coincide with the banks’ separate efforts to persuade the S.E.C. to issue waivers from automatic bans that occur when a company pleads guilty. If the waivers are not granted, a decision that the Justice Department does not control, the banks could face significant consequences.
For example, some banks may be seeking waivers to a ban on overseeing mutual funds, one of the people said. They are also requesting waivers to ensure they do not lose their special status as “well-known seasoned issuers,” which allows them to fast-track securities offerings. For some of the banks, there is also a concern that they will lose their “safe harbor” status for making forward-looking statements in securities documents.
In turn, the S.E.C. asked the Justice Department to hold off on announcing the currency cases until the banks’ requests had been reviewed, one of the people said. As of Wednesday, it seemed probable that a majority of the S.E.C.’s commissioners would approve most of the waivers, which can be granted for a cause like the public good. Still, the agency’s two Democratic commissioners — Kara M. Stein and Luis A. Aguilar, who have denounced the S.E.C.’s use of waivers — might be more likely to balk.