Deutsche Bank AG, the world's biggest foreign-exchange dealer, suspended several currency traders for suspected attempts to rig rates, including some in New York, according to reports today by several news outlets. This comes amid investigations by the Justice Department, the Federal Reserve Board and other government snoops into whether the largest banks manipulated benchmark currency rates.
It's too early to know if the traders did anything wrong, of course. But it's worth considering: What if they committed crimes? If they did, when did they do it? And would prosecutors ever be crazy enough to file criminal charges against the bank itself? The questions should be asked because Deutsche Bank signed a non-prosecution agreement in December 2010 with the U.S. Attorney's Office in Manhattan in which it promised to "commit no crimes whatsoever" for the next two years.
Under that deal, Deutsche Bank paid about $550 million to resolve investigations into its sales of illegal tax shelters to wealthy Americans. The agreement said that if Deutsche Bank committed any crimes during the two-year period, it would be subject to prosecution for tax fraud and any other "federal criminal violation of which this office has knowledge, including perjury and obstruction of justice," even if the statute of limitations expired. (Deutsche Bank waived its defenses based on the statute of limitations.)
As for the Deutsche Bank currency traders, it's possible, if not likely, that some of the conduct in question occurred from December 2010 to December 2012. Bloomberg News reported in June that traders at banks had been manipulating spot foreign-exchange rates to profit off clients for at least a decade. If the Deutsche Bank traders did break any laws as part of their employment, the bank could itself be prosecuted for their actions.
We know why prosecutors settle criminal investigations of too-big-to-fail banks without charging them: To avoid the risk that the banks will blow up (as well as the risk that the feds might lose). So why put these "obey the law" directives in companies' settlements if they are only empty threats? Why have them last only two years? (It isn't as if banks get a free hand to break the law after the two years are up.) And what are prosecutors supposed to do if they learn after the two-year period about a crime that happened in, say, 2011? Pretend the earlier settlement agreement's conditions weren't violated?
It's rare for the government to catch white-collar criminals in the act. Investigations usually take years. The tax schemes that were the subject of Deutsche Bank's 2010 non-prosecution agreement went on from 1996 to 2002.
The government investigations into foreign-exchange trading cover a lot of big banks. And a lot of banks have signed non-prosecution or deferred-prosecution agreements in recent years that say they can be criminally charged for the allegations they settled if they're caught breaking the law again.
Just last week JPMorgan Chase & Co. reached a $1.7 billion deferred-prosecution deal with the government over its role in Bernard Madoff's Ponzi scheme. (JPMorgan entered into a non-prosecution agreement in 2011 over a separate matter, but the conduct in the Madoff case predated that accord.) It, too, agreed under the latest deal to "commit no crimes under the federal laws of the United States subsequent to the execution of this agreement" for two years. What if it gets caught committing crimes anyway? Would the Justice Department really prosecute JPMorgan for failing to file a suspicious-activity report about Madoff? It's hard to imagine it would.
The government shouldn't be making threats it doesn't intend to carry out.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)