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FIRREA Declaration Nets $72.6 Million Settlement for Foreign Transaction Prestidigitation

Fraudulent manipulation of foreign financial transactions is not a magic trick.  The United States Department of Justice simultaneously filed and settled a case against a major bank regarding deceptive practices resulting in higher fees for foreign transactions (FX).  Under the terms of the settlement, Wells Fargo Bank, N.A. paid $72.6 million.  A whistleblower brought this matter to the Government’s attention by filing a confidential declaration with the U.S. Department of Justice pursuant to the Financial Institutions Anti-Fraud Enforcement Act (FIRREA).  About half of the settlement will be paid to affected customers as restitution and the remaining half will be paid to the government as civil penalties and asset forfeiture.

According to the allegations, the bank’s FX sales specialists defrauded almost 800 commercial customers, including small and medium-sized businesses and federally insured financial institutions, through several deceptive practices. Foreign transaction services entail “converting the customers US dollars into foreign currency for outgoing wire transfers and converting incoming wire transfers of foreign currency into U.S. dollars.”

Between 2010-2017, FX sales specialists systematically gave incorrect pricing information contrary to pricing agreements and marked up currency in order to increase their “spread” or “sales margin.” Tactics bank employees utilized to increase sales margins included incorrectly transposing numbers in exchange rates and even providing inaccurate or false information about exchange rates. FX Sales Specialists targeted some customer representatives as easy marks, “thought to be less sophisticated or experienced in FX trading,” and charged those customers more for their transactions. In a practice referred to as the “BSwift Piñata,” as Wells Fargo did not generally disclose when customers received incoming wires, sales specialists could pick and choose to conduct transactions at a time of day and market rate which was most favorable to the bank (and least advantageous to the customer).

The bank encouraged these practices through financially incentivizing its employees’ performance based solely on sales revenue. The bank also lacked meaningful policies to track or audit FX transactions to determine if sales specialists were deviating from fixed-price agreements.

Fraudulent manipulation of foreign currency exchange rates erodes consumer trust in banking institutions and is a disincentive to do business with foreign entities. Whistleblowers are needed to prevent these harmful practices from becoming a norm, as this case shows how systematic deceptive practices became standard operating procedure 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
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About this Author

Jonathan K. Tycko leads the Whistleblower Practice Group of Tycko & Zavareei LLP

In recent years, the laws of the United States have undergone a whistleblower revolution. Federal and state governments now offer substantial monetary awards to individuals who come forward with information about fraud on government programs, tax fraud, securities fraud, and fraud involving the banking industry. Whistleblowers also now have important legal protections, designed to prevent retaliation and blacklisting.

The law firm of Tycko & Zavareei LLP works on the cutting edge of this whistleblower revolution, taking on even the most complex and confidential whistleblower...

202-973-0900
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