12 U.S.C. § 617 - Illegal Commodities Trading and Price Fixing
The federal government has strict laws regulating the actions of United States finance corporations formed to engage in foreign banking or other forms of international finance.
These laws are implemented to ensure transparency, fairness, and accountability within the domain of international trade.
Specifically, Section 617 of the U.S. Code, Title 12, prohibits any corporation engaged in international banking to engage in commerce, trade in commodities, or practice "price fixing" in any way.
Any corporation that does so is subject to forfeiture of its charter—and any individual within that corporation convicted of engaging in these behaviors may face up to 5 years in prison.
This federal law is called “Engaging in commerce or trade in commodities; price fixing; forfeiture of the charter; acts forbidden to directors, officers, agents, or employees.”
12 U.S. Code 617 says, “No corporation organized under this subchapter shall engage in commerce or trade in commodities except as specifically provided in this subchapter, nor shall it, either directly or indirectly, control or fix or attempt to control or fix the price of any such commodities. The charter of any corporation violating this provision shall be subject to forfeiture in the manner provided in this subchapter. It shall be unlawful for any director, officer, agent, or employee of any such corporation to use or to conspire to use the credit, the funds, or the power of the corporation to fix or control the price of any such commodities, and any such person violating this provision shall be liable….”
Let's look below at the law, related crimes, penalties, and the best legal defenses.
12 U.S.C. 617 - Explained
This law's primary purpose is to limit the ability of banks and similar corporations to manipulate international markets unfairly through corrupt trading practices.
The specific text reads in part: "No corporation shall engage in commerce or trade in commodities except as provided, nor shall it control or fix or attempt to control or fix the price of any such commodities."
This constraint is put in place to ensure that corporations remain within their defined scope of operations, promoting healthy competition and maintaining the stability of the global market.
In simpler terms, under this law, it is illegal for any corporation formed for the purpose of international or foreign banking to engage in the following activities:
- Trading commodities, currency, or securities of any kind, except those specifically authorized under Title 12;
- Fixing prices on goods or services that would allow them an unfair advantage over competitors or force price inflation;
- Entering into agreements with other corporations limiting production, sales, or prices of goods and services;
- Engaging in any other activity that would manipulate the market for its gain.
The law makes it illegal for a director, officer, agent, or any employee of these corporations "to use or to conspire to use the credit, the funds, or the power of the corporation to fix or control the price of any such commodities."
What Is Price Fixing?
The Federal Trade Commission defines price fixing as "an agreement, written, verbal, or inferred from conduct, among competitors to raise, lower, maintain, or stabilize prices or price levels."
This can be done by agreeing to sell their products at the same price or by controlling supply and demand to keep them at the agreed-upon price.
Price fixing enables the colluding companies to maintain higher profits while taking advantage of customers who don't have access to competitive pricing.
Price fixing can also manipulate the market by creating a monopoly, distorting competition, and eliminating customer choice. This practice is illegal in the U.S. because it's considered a violation of the Sherman Antitrust Act.
Because price fixing is not universally banned in all countries, 12 U.S.C. 617 prohibits financial corporations from engaging in these practices internationally. These corporations are also not permitted to engage in commodities trading because doing so creates an unfair opportunity for them to manipulate the market.
What Are Some Examples?
EXAMPLE 1: XYZ Finance Corporation invests its clients' holdings in foreign commodities worldwide with a high emphasis on petroleum. The president of XYZ decides to invest corporate funds in the oil market to bump up the oil price and boost dividends for his clients. XYZ Finance Corporation violates 12 U.S.C. 617, and the president may be subject to prosecution for his attempt at price fixing.
EXAMPLE 2: Heavy Metal Bank forms a consortium of four other financial institutions from various countries and proposes to fix the prices of gold, silver, and other precious metals. This behavior is illegal under 12 U.S.C. 617 and may result in criminal prosecution for all involved parties.
What Are the Related Federal Statutes?
12 U.S. Code Subchapter II Organization of Corporations to do Foreign Banking has several federal laws that are related to 12 U.S.C. 617 illegal commodities trading and price fixing, such as the following;
- 12 U.S.C. 611 – Formation authorized; fiscal agents; depositaries;
- 12 U.S.C. 611a – Statement of purposes; rules and regulations;
- 12 U.S.C. 612 – Articles of association;
- 12 U.S.C. 613 – Signing of articles of association;
- 12 U.S.C. 614 – Organization certificate; acknowledgment;
- 12 U.S.C. 615 – Powers of a corporation;
- 12 U.S.C. 616 – Place of carrying on business;
- 12 U.S.C. 618 – Capital stock; amount; when paid in;
- 12 U.S.C. 619 – Capital stock; by whom held;
- 12 U.S.C. 620 – Board of governors of the federal reserve;
- 12 U.S.C. 621 – Liability of shareholders on unpaid subscriptions;
- 12 U.S.C. 622 – Forfeiture of rights and privileges;
- 12 U.S.C. 623 – Voluntary liquidation;
- 12 U.S.C. 624 – Appointment of receiver or conservator;
- 12 U.S.C. 625 – Stockholders' meetings; books and records;
- 12 U.S.C. 626 – Dividends; surplus fund;
- 12 U.S.C. 627 – State taxation;
- 12 U.S.C. 628 – Extension of corporate existence;
- 12 U.S.C. 629 – Conversion of banking corporations;
- 12 U.S.C. 630 – Offenses by officers of the corporation;
- 12 U.S.C. 631 – False representations as to liability;
- 12 U.S.C. 632 – Jurisdiction of United States courts;
- 12 U.S.C. 633 – Potential liability on foreign accounts.
Penalties and Defenses for 12 U.S.C. 617
The federal government is very strict about protecting fair trade in the field of international finance. If a banking corporation is found to have violated the provisions of 12 U.S.C. 617, the penalties under the federal sentencing guidelines are two-fold, as discussed below.
The corporation will forfeit its charter, effectively causing it to shut down. Further, specific individuals in the company who engaged in illegal price fixing or commodities trading will be subject to criminal prosecution under federal law.
If you are a bank officer or employee charged and convicted under 12 U.S.C. 617, you could face between 1 and 5 years in federal prison and a fine between $1000 and $5000.
Perhaps we can argue that there was a lack of intent, a crucial element of the crime in all federal fraud-related offenses. Maybe you didn't specifically intend to violate the provisions within the law.
Perhaps we can argue that there was no attempt to directly or indirectly fix the price of commodities. The federal prosecutor must prove, beyond any reasonable doubt, all the elements of the crime to obtain a conviction.
Suppose guilt is not in doubt. In that case, we might be able to negotiate a favorable plea bargain with the prosecutor. Perhaps we can arrange a reduced charge or a downward departure in sentencing.
You can contact our law firm for a case evaluation by phone or through the contact form. Eisner Gorin LLP is located in Los Angeles, CA.
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