Related Practices and Jurisdictions
Thursday, September 30, 2021
Fraudulent manipulation of foreign financial transactions is no magic trick. At the same time, the US Department of Justice filed and settled a lawsuit against a major bank relating to fraudulent practices that resulted in higher foreign transaction (FX) fees. Under the terms of the settlement, Wells Fargo Bank, NA paid $ 72.6 million. A whistleblower alerted the government to the matter by filing a confidential statement under the Financial Institutions Anti-Fraud Enforcement Act (FIRREA) with the US Department of Justice. About half of the settlement will be paid to affected customers as a refund and the remaining half will be paid to the government as a civil penalty and forfeiture.
The bank’s foreign exchange sales specialists were alleged to have defrauded nearly 800 business customers, including small and medium-sized businesses and state-insured financial institutions, through a number of fraudulent practices. International transaction services include “converting customer US dollars to foreign currency for outbound transfers and converting incoming transfers from foreign currency to US dollars”.
Between 2010-2017, foreign exchange distributors systematically gave incorrect price information and raised currencies to increase their “spread” or “sales margin” as opposed to price agreements. Bank staff tactics used to increase sales margins included incorrectly translating numbers into exchange rates and even providing inaccurate or incorrect information about exchange rates. FX sales specialists targeted some client reps as simple notes who were “less sophisticated or experienced in forex trading” and charged these clients more for their transactions. In a practice known as the “BSwift Piñata,” which Wells Fargo generally did not disclose when customers received incoming wire transfers, sales specialists were able to execute transactions at a time of day and market price that was most convenient for the bank (and for the customer least beneficial).
The bank encouraged these practices through financial incentives for its employees’ performance based solely on sales proceeds. The bank also lacked meaningful guidelines to track or review foreign exchange transactions to determine if sales specialists were deviating from fixed price agreements.
Fraudulent manipulation of foreign exchange rates undermines consumer confidence in banking institutions and discourages business with overseas companies. Whistleblowers are needed to prevent these harmful practices from becoming the norm as this case shows how systematic deception practices have become the standard practice for a company. The whistleblower received $ 1.6 million, the maximum award for a whistleblower in a successful FIRREA case.
© 2021 by Tycko & Zavareei LLPNational Law Review, Volume XI, Number 273