The case has been mired in technical arguments for five years, but the tribunal ruled last week that it has jurisdiction to hear the case. From Moneyweb.
Seven years after the Competition Commission first raised its complaint of rand manipulation by more than two dozen local and foreign banks, and 16 years after the events are alleged to have commenced, the Competition Tribunal has waved off a wall of technical arguments raised by the banks and said the case can proceed.
Read: 14 years after the fact, CompCom’s rand manipulation case is nowhere near conclusion
It’s been an agonising journey to get this far. It was always going to be a knock-down, drag-out war as the banks named as respondents hired the best legal guns money can buy to ward off the reputational disgrace that a guilty verdict would bring. The commission originally filed its complaint against 19 banks, but later expanded that to 28.
Last week the Competition Tribunal ruled that it has jurisdiction to hear the so-called “Forex Cartel case” in which the 28 banks are accused of manipulating the rand/US dollar exchange rate between 2007 and 2013. The effect of that was to remove volatility in the forex market, with traders quoting a consistent spread of between R0.05 and R0.1 for the purchase of US dollars.
Listen: CompCom rand manipulation case gets pushback from banks
The manipulation of the exchange rate had a knock-on effect across the economy, says the commission: it impacted the prices of imports and exports; foreign direct investment; public and private debt; company balance sheets; with the attendant implications for the price of goods and services; and financial assets.
The commission claims that traders from competing banks were invited to join private Bloomberg chatrooms to coordinate their trading activities, provide each other with information and reach understandings on trading strategies.
The key evidence is contained in 158 chats involving 28 banks over a period of seven years, commencing in 2007, which the banks have characterised as flimsy proof of a “single overarching conspiracy” as the commission alleged. Several of the banks argued that traders from competing banks sharing a chatroom was no evidence of a conspiracy, since they were more likely to be counter-parties in a transaction, one buying and one selling, rather than competitors. Others argued there was no evidence of harm caused by the alleged behaviour.
Read: 28 banks now in the crosshairs over rand manipulation case
The banks raised a number of technical objections to the complaint, such as lack of jurisdiction of the South African competition authorities, time bar (because the prohibited practice had ceased years before the complaint was raised), that the commission had not properly initiated its complaint and had insufficient facts to support its case.
With the latest Tribunal order, the banks now have 40 business days to file replying affidavits. The commission has a further 20 business days to file answering affidavits to the banks, should it choose to do so.
Among the respondents are Bank of America Merrill Lynch International, BNP Paribas, JP Morgan Chase, Standard Chartered Bank, Commerz Bank AGHSBC, Australia and New Zealand Banking Group, Macquarie Bank, Citibank, Absa, Investec, Standard Bank of SA, Standard New York Securities, Nedbank, FirstRand and Barclays Bank.
Read: SA banks to face rand manipulation charges
There have been several rounds of arguments, appeals and filing amendments to get to this stage.
The tribunal argued that encryption makes it easier for cartel participants to communicate and conspire in an anti-competitive manner. “Thus, an SOC (single overarching conspiracy) does not necessarily require that all members of the conspiracy meet at the same time in the same room or for that matter that each member must have met with every other member of that conspiracy,” reads the tribunal’s ruling. “What it does require is contact between firms, either directly or through an intermediary, and a common objective to which the participants consider themselves to be bound.”
As part of the evidence submitted by the commission, Duncan Howes, then a trader with Absa, and Clint Fenton, then with Investec, “shared information on bid-offer spreads quoted to customers which include the South African Reserve Bank, AngloGold and Sasol.
Howes told Fenton that he had a new boss and so it would be difficult to chat about trades. He said that he may not be able to respond to a message from Fenton but that they would make a plan.”
Howes is also claimed to have posted low fake offers on the ZAR/USD exchange rate to drive down prices on the Reuters trading platform. He and Fenton are claimed to have cooperated in several other ways to benefit each other.
Read: SA regulator revives 5-year-old rand-rigging case
The tribunal says it accepts that these remain allegations that have yet to be tested at trial, “the picture that emerges is one in which the traders were comfortable approaching each other to manipulate the USD/ZAR rate.”
Some banks sought to evade the tribunal’s dragnet by claiming the commission had not initiated a complaint against them specifically, in which case they could not be joined to the proceedings after the initiation of the complaint.
The tribunal found otherwise, saying this could lead to the absurd outcome where the commission would be precluded from joining a potential or self-confessed member of a cartel “after it has referred a complaint, an outcome that is not available even to accused in criminal proceedings”.
The tribunal blocked another potential escape hatch, being Section 67(1) of the Competition Act which many have argued prohibits the commission from initiating a complaint more than three years after the offending practice has ceased. The Constitutional Court deliberated on this and ruled the time bar was largely procedural, allowing the tribunal’s discretion in disallowing such arguments on the grounds that cartels could escape justice by remaining silent for a period of several years.
The Tribunal dismissed the objections and application for dismissal of claims against the banks, and demand they file their answering affidavits within the next 40 days.
The case is by no means decided, but it has been pushed decisively in that direction. Tweet
