Forex Scandal –Strengthening the Weak

London – 26 November 2003
After US federal prosecutors filed charges against 47 traders in the foreign exchange market, resulting from an FBI undercover operation that exposed a murky world of fraud and corruption, Chase Cooper, a global risk and corporate governance firm, announces a proactive business solution to identify and strengthen weaknesses in controls over Foreign Exchange activities.
On 19th November US Attorney James Comey said the 18-month investigation - code-named "operation wooden nickel" -- had exposed "a staggering array of criminal conduct" by people working in and around the foreign exchange business. "[The] charges run the gamut of fraud," said Comey. "With more than 1,000 victims, from small investors to large banks, the losses are in the millions." The charges included perjury, money-laundering, extortion, bankruptcy fraud, narcotics trafficking and even firearms offences.
“In Foreign Exchange operations that include everything from trading (Front Office) to the settlement of deals (Back Office), there are numerous opportunities for rogue activities that have lead to the situation that has happened in the Forex market”, said Zag Asghar, director of Chase Cooper. “The understanding of inherent risk and the quality of controls and their management is one of the prime issues that will have resulted in transactions being made that would normally have breached business practices and this is exactly what our FX Risk & Control solution is intended to mitigate” he added.
According to the criminal complaint, some of the world's biggest banks were scammed by corrupt players inhabiting every level of the largely unregulated forex inter-bank market, where financial institutions and other large entities arrange their own swaps in foreign currencies. The FBI operation discovered
123 rigged trades totalling in excess of 650,000 dollars as a result of their investigations.
Asghar expressed no surprise to the FBI findings. He said “These types of rogue transaction have undoubtedly been executed for years. If there are no proper proactive processes that monitor and review the quality of controls on an ongoing basis, there will always be opportunities for rogues to undermine the system. It is crucial for firms to restore and maintain client confidence in this market and action needs to be taken now. Our solution introduces practical, near real-time checks and balances enabling a detailed evaluation of existing risks and controls to be achieved together with an ongoing mechanism to detect any changes in the integrity of the controls. This means is that firms will be able to identify breaches in risk indicators far quicker than currently possible and take preventative action by tightening controls that could potentially impact their reputational integrity, as has happened to the banks involved in the current scandal”.
This the latest development to rock the financial sector since the accounting scandals that began with Enron Corp. and WorldCom, followed by crackdowns on corporate malpractice and the more recent probe into shady dealings in the mutual fund industry

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