Following accusations by former Secretary General of the United Nations Kofi Annan of an international currency transfer “super racket” that defrauds African workers out of around £1.8 billion each year, and a probe by the Financial Conduct Authority (the body that regulates the UK’s financial institutions), the Serious Fraud Office announced yesterday is was launching a criminal investigation into fraudulent conduct in the international foreign exchange market.

The foreign exchange market is one of the largest financial markets by transaction volume in the world, seeing roughly £3 trillion traded every day – 40% of which passes through London banks. It is alleged by the SFO that traders from as many as 15 money transfer outfits colluded to fix prices and keep exchange rates favourable in order to extract extra profits from businesses and individuals sending money overseas.

The alleged price rigging is similar in nature to the Libor rigging scandal that has engulfed the City for the last few years. Since the Financial Conduct Authority began looking into the foreign exchange market last year some 30 individuals from 10 banks have been suspended.

Many banks and agencies are employed by large and small businesses to conduct currency exchange and money transfer activities – if the SFO’s allegations are found to be true, it could means UK firms have lost millions in exchange rates and fees.

A former foreign exchange trader, Mark Taylor,  who is now senior economist at the Bank of England, said:

“These allegations have yet to be proved, but if the SFO does find them to be true, it will strike at the heart of business ethics. It would be yet another blow to the integrity of the banks. Our pension funds invest billions of pounds in the financial markets and if they are being cheated in this way it affects every one of us.

“The foreign exchange market is massive and it is by definition global, making it very hard to control and oversee. Also, the incentives to cheat are still massive, even when there is regulation in place. If we really want to make sure the foreign exchange reference rate isn’t rigged, we need to remove the incentives to cheat.”

Photo by Przemek Zawadzki