Four foreign banks operating in Korea have been fined about 700 million won (US$618,921) for allegedly fixing prices in trading foreign derivative products worth more than 600 billion won (US$530.50 million) with South Korean conglomerates.
The Fair Trade Commission (FTC) announced on Jan. 20 that it has decided to levy a total of 693 million won (US$612.732) fine along with a correction order on the local branches of JP Morgan Chase Bank, Hongkong and Shanghai Bank (HSBC), Deutsche Bank as well as Standard Chartered (SC) Bank Korea for violating the fair trade law. The four banks had nearly 611.20 billion won (540.41 million) worth of foreign exchange derivatives transactions on seven occasions from March 2010 to February 2012. In the process, they allegedly colluded in setting the fees for clients.
Foreign exchange derivatives refer to financial products designed to avoid the risks of exchange rate and interest rate fluctuations in foreign exchange transactions. The four banks were found to have colluded in setting Korean won fixed rate interest rates for currency swaps and swap points, the gap between the forward exchange rate and the spot exchange rate. They made price agreements to prevent competition and to increase transaction prices.
JP Morgan Chase Bank, Deutsche Bank and HSBC sold yen-won cross currency swap products worth 30 billion yen (US$273.56 million or 309.07 billion won) to an unnamed South Korean company at either the same or similar prices. HSBC and Deutsche Bank also sold U.S. dollar-won forwards worth US$124 million (140 billion won) to another South Korean company. The foreign banks agreed on prices so that a specific bank can make successful bids even when a company selects a single bank. HSBC, Deutsche Bank and SC Bank Korea colluded in five auctions for euro-won and U.S. dollar-won forwards and foreign exchange swaps worth 77 million euros (US$87.54 million or 98.92 billion won) and US$59 million (66.67 billion won).
The FTC calculated a fine on each bank based on their total sales of 27 billion won (US$23.90 million) out of the total transactions. By bank, JP Morgan Chase Bank had the largest fine with 251 million won (US$222,163), followed by HSBC with 225 million won (US$199,150), Deutsche Bank with 212 million won (US$187,660) and SC Bank Korea with 5 million won (US$4,426). JP Morgan Chase Bank also had the largest ever fine imposed by the FTC among foreign banks’ price fixing incidents.
However, the amounts of the fines are lower than those in advanced countries. The rate of fines on unfair profits from price fixing in South Korea is 9 percent, which is much lower than 57 percent in the United States and 26 percent in European Union. This is why the government is seeking to double the current upper limit of penalties under the fair trade law.