Five of the biggest banks in the world pleaded guilty Wednesday to criminal charges and essentially admitted they defrauded their customers. What’s significant about this settlement — beyond the $5.6 billion in fines the banks must pay — is that it marks the end of the practice of allowing banks to neither admit nor deny wrongdoing.

The Justice Department insisted not only on criminal pleas but also that they come from the parent companies and not obscure overseas units, as some banks previously had been allowed to do. And the fines are substantial: The $2.5 billion criminal antitrust penalty that Citicorp, JPMorgan Chase, Barclays and Royal Bank of Scotland collectively must pay is the largest of its kind in U.S. history.

Justice also ripped up a 2012 nonprosecution agreement with Switzerland’s UBS and forced the bank, a repeat offender, to plead guilty to felony wire fraud stemming from an older violation.

All of this is a shift from the U.S.’s more genteel approach over the last decade to white-collar crime. It typically postponed prosecutions in favor of civil penalties. Admissions of guilt were avoided, because they could result in banks losing the right to manage money and raise capital. The U.S. shied away from pursuing top executives whose banks originated, packaged or sold the flawed mortgages that led to the financial crisis.

These guilty pleas may make it easier for other financial institutions, investors and pension funds to seek redress in civil court. The transcripts from the currency traders’ online chat rooms will undoubtedly prove most helpful. “If you aint cheating, you aint trying,” reads one.

So will Wednesday’s deal change the way banks do business? The case of UBS gives one pause. Despite vowing to root out corrupt actors and beef up compliance as part of its 2012 agreement, the bank was found to be engaging in the very same kind of misconduct it had sworn off. More broadly, over six years, the Justice Department has resolved three criminal cases while regulators have settled many more civil and regulatory ones. All told, banks have paid about $100 billion in fines since the financial crisis.

Another way to discourage fraud without unduly punishing an entire industry is to prosecute individuals. Justice officials made it clear that they intend to pursue members of “The Cartel,” the self-described group of traders who colluded from 2007 to 2013 to manipulate currency rates in their favor. (As part of the settlements, the banks had to sever ties with them.)

To really change behavior, those traders’ superiors — and the executives to whom they report — should have to answer for their inability to stop the criminal misconduct in their midst.

Editorial by Bloomberg View

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