You are probably right about the market being not that liquid, but it's not like illiquidity is a requirement, just take a look at the lawsuits for rigging the interest rate and FX benchmarks.
As it happens, the libor rate rigging was due to illiquidity. Specifically, illiquidity in the uncollateralised loan market.
This happened because the broker-dealers stopped believing that their counterparts would still be afloat in 3 months. They required collateral and that gets funded on a daily basis.
As such, the usual flow of longer term loans dried up and so the rate setters effectively had to make up the numbers. The scandal was that swap traders and management influenced their rates, not that they were made up.
I agree with you on the fx rigging though. The allegations are, as i understand it, that there was collusion such that front running became viable.
