FX Cartel’s trading in London cannot be viewed in vacuum, US Govt argues

FX Cartel’s trading on their respective FX desks in London cannot be viewed in a geographic vacuum, sealed off from the rest of the machinery of the FX spot market, the Antitrust Division of the United States Department of Justice argued in a Memorandum filed on Friday with the New York Southern District Court.

The US authorities replied to a motion by the defendants in the case – former FX traders Christopher Ashton, Rohan Ramchandani, and Richard Usher, who had earlier sought to dismiss the Indictment. Christopher Ashton was a EUR/USD trader for the UK affiliate of Barclays PLC from 2011 to 2015. Rohan Ramchandani was a EUR/USD trader for the UK affiliate of Citicorp. from 2004 to 2014. Richard Usher was a EUR/USD trader for the UK affiliate of The Royal Bank of Scotland PLC from 2004 to 2010, and for the UK affiliate of JPMorgan Chase & Co. from 2010 to 2013.

The Indictment alleges that the defendants used a chat room to discuss customer trades and risk positions. According to the Indictment, they agreed in these discussions that they would “suppress and eliminate competition” in the global FX market through coordinating their bidding, offering, and trading.

In their Motion filed on December 8, 2017, the US authorities had to argue about the scope of US legislation and to support their claims that certain US laws, such as the Sherman Act, may apply to foreign residents in certain cases.

The US authorities note that Section 1 of the Sherman Act outlaws agreements “in restraint of trade or commerce among the several States.” and that in passing the Sherman Act, Congress sought to use the full extent of its constitutional power to preserve competition in or affecting US commerce.

In 1982, Congress enacted the Foreign Trade Antitrust Improvements Act (FTAIA) to clarify the ability of the Sherman Act to reach conduct abroad. The FTAIA added to the Sherman Act Section 6a, which provides that Section 1 to 7 of the Sherman Act shall not apply to “conduct involving trade or commerce. . . with foreign nations” unless the conduct has a “direct, substantial, and reasonably foreseeable effect” on commerce within the United States, import commerce, or certain export commerce.

According to the DOJ, given that the Indictment charges a conspiracy that involved US interstate and import commerce, it is therefore not subject to the FTAIA’s requirements. But even if the FTAIA did apply, the Indictment also alleges that Defendants’ conspiracy had a direct, substantial, and reasonably foreseeable effect on US interstate and import commerce. That is because the charged conspiracy purchased, sold, and caused the transfer of substantial quantities of EUR and USD in a continuous and uninterrupted flow of interstate commerce.

The US Government notes that the FX traders’ conspiracy depended on and encompassed the settlement process for their trades, a substantial number of which were settled through a Settlement Bank in New York. The conspirators received orders from customers in the United States and fulfilled those orders through money traded at manipulated prices, often through trades with US counterparties.

The US authorities address the actions (or their lack) of the UK authorities. They note that the fraudulent conduct of the defendants can be a violation of UK Law. The March 2016 decision by the UK Serious Fraud Office (SFO) not to prosecute the defendants does not change this fact, says the DOJ. “If anything, it merely demonstrates that foreign enforcement cannot be expected to achieve compliance”, the US authorities note.

The DOJ emphasizes that the SFO’ s letter from March 2016 does not state or imply that Defendants did not commit a crime or the investigated charge was baseless. The US Government does not object to the Court taking judicial notice of the SFO’ s letter, but only for the purpose of the instant motion. The SFO’ s decision not to prosecute the defendants has no bearing on the merits of this case, and would be inappropriate for use at trial before the jury, according to the US authorities.

The defendants’ argument about the difference between vertical and horizontal restraints also faced the US Government’s criticism. The fact that FX traders, including the defendants, engage in some transactions in which one buys EUR (sells USD) and the other sells EUR (buys USD) does not convert their horizontal relationship into a vertical one, the US authorities say. Whether a price-fixing conspiracy is horizontal or vertical in nature is not determined by the buy/sell orientation of a particular entity at a particular moment; it is determined by the location or role of that entity within the market structure. The Indictment alleges, and the US Government intends to prove at trial, that the FX Cartel’s conspiracy involves the same type of horizontal price fixing and bid rigging that is well-established to be per se illegal.

Regarding the defendants’ argument that US Courts lack considerable experience regarding the FX industry, the US Government notes that the FX traders misconstrue a standard when they caution that the FX industry is somehow different from those with which courts have experience because it is “enormous,” “sophisticated,” “decentralized,” and “hectic.”

The case is captioned USA v. Usher et al (1:17-cr-00019).