Scandal roiled the banking industry Wednesday as four of the world’s largest banks — Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland — pleaded guilty to federal antitrust violations for conspiring to manipulate foreign-currency markets over the course of several years. The scheme involved collusion by traders at the various banks to fix the U.S. dollar – euro exchange rate by coordinating trades and agreeing not to buy or sell at certain times to protect one another’s trading positions.

The guilty pleas place the banks on probation and require them to pay criminal fines totaling more than $2.5 billion, in addition to billions more that they have agreed to pay to state and federal regulators. One of these penalties — a $925 million fine levied against Citigroup — is the largest single fine ever imposed for a violation of the Sherman Act (the federal statute that criminalizes price-fixing and other horizontal conspiracies among competing businesses). The guilty pleas were also historic in that they were entered by the banks’ parent companies rather than by subsidiaries — marking the first time since the Drexel Burnham Lambert scandal of the late 1980s that the primary banking unit of an American financial institution has pleaded guilty to criminal charges. 

The guilty pleas were not surprising given the damning evidence assembled by prosecutors. Messages posted by the banks’ traders in Internet chat-rooms — the vehicle through which the conspiracy was coordinated — were anything but veiled. One trader remarked “the less competition the better,” and another noted that “if you aint cheating, you aint trying.” Even the names of the chat-rooms —  “the cartel” and “the mafia” — were a dead giveaway. The Justice Department has yet to bring criminal charges against any individual traders or bank officers, but none of Wednesday’s plea agreements would prevent it from doing so.

The foreign-currency trading desks at big banks were perhaps the only area left untouched by the regulatory crack-down in the wake of the 2008 financial crisis. They have generally operated under loose sets of guidelines, many of which are created by the banks themselves. But all of that will change in the wake of Wednesday’s guilty pleas. Though it does not appear that any of the banks will be barred from further trading as a result of their guilty pleas — in fact, the Securities and Exchange Commission already has granted waivers from some of the operating prohibitions that could be triggered by the pleas, thereby allowing the banks to continue their normal securities operations — the regulatory void in which the banks have until recently conducted their foreign-exchange transactions will undoubtedly soon be filled with onerous new rules and intensive government oversight. And that is to say nothing of the wave of civil litigation that will inevitably come crashing in as a result of the pleas.

A fifth bank, UBS, also was implicated, but not criminally charged, in the U.S. dollar – euro manipulation scheme. Nevertheless, the Justice Department used the evidence against UBS as an excuse to void an earlier nonprosecution agreement relating to UBS’s alleged manipulation of the London Interbank Offered Rate (“Libor”) index, which is used to determine interest rates on trillions of dollars in credit-card and loan transactions. UBS, in turn, pleaded guilty to the Libor manipulation charges and has agreed to pay $203 million in penalties.