Banks to face manipulation charges eight years later

Twenty-eight SA and foreign banks have lost another round in the case alleging that they colluded to manipulate the rand/dollar exchange rate in currency trades — with the Competition Tribunal ruling on Thursday it can hear the case eight years after charges were first laid.

The Thursday ruling found that the tribunal had jurisdiction to hear the case even if most of the alleged trades were conducted abroad, often by employees at foreign banks.

Usually authorities are limited to pressing criminal or civil charges against companies or individuals who break the law within their country.

The Competition Commission, which acts like a prosecutor on competition matters, argues that traders, working at 28 banks in Europe, SA, Australia and the US, between 2007 and 2013 conspired to manipulate the rand/dollar rate through information sharing.

It wants a fine of 10% of the banks’ annual turnovers.

It is alleged traders worked together to delay trading to drop prices and created fictitious bids to raise prices.

Absa Bank is believed to have been the whistle-blower and was never charged.

The Competition Commission first charged 18 banks in March 2015, including JPMorgan Chase, Standard New York Securities and Nomura International. It won the right to add nine more banks to the case on Thursday.

These include HSBC Bank USA, National Association, Merrill Lynch Pierce Fenner and Smith, Bank of America, Credit Suisse Securities (USA), Nedbank Group, FirstRand and Standard Americas.

Over the past eight years, the banks have fought back, arguing that the commission does not have jurisdiction to bring the case as much of the alleged trading took place offshore.

In terms of the law, the Competition Commission must show the trades had an “effect in SA”, which is not straightforward as it sounds, as currency trading involves hundreds of thousands of trades a day, with figures going to four decimal points.

The Competition Commission argued that the bankers’ actions affected the SA economy by affecting imports and exports, foreign direct investment, public and private debt, and company balance sheets.

The banks had argued the commission’s initial 2015 case was “vague and embarrassing”, which are legal terms for improperly formed arguments lacking sufficient facts.

In 2019, the Competition Tribunal ruled the commission could not ask for a fine against foreign banks as it had no jurisdiction over them.

However, in 2020 the Competition Appeal Court said that the commission could charge foreign firms for anticompetitive cartel behaviour in this and other cases.

The appeal court ordered the commission to redo its case, file a “legally coherent complaint” and show that the foreign banks acted together, known in law as a single overcharging overarching conspiracy.

The Competition Commission redid its charges.

Then the banks appealed against the new charges at the tribunal, which acts like a court on competition matters.

The banks’ arguments include that the period prescribed to lay a charge had expired, that charges remained vague and again that the Competition Commission did not have jurisdiction.

On Thursday, the tribunal ruled the Competition Commission’s new legal papers met the requirements as set out by the appeal court in 2020 and that the commission had shown the alleged actions did affect SA — giving it jurisdiction.

The tribunal in its order stated: “The respondents are accused of engaging in conduct considered the most egregious in competition law.

“Furthermore, the alleged conduct relates to fixing and manipulating the rand/dollar exchange rate, which has a central and crucial role in the SA economy.”

The case has not yet reached the phase where the merits of the case are argued.

The tribunal ordered the banks to respond to the merits of the commission’s case within 40 working days.

An appeal would delay this, however. It is expected that at least one of the banks will appeal the tribunal’s decision, which will delay the case from starting.