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3 minute read
1 Aug 2018
5:30 pm

Banks are dodging forex-rigging accountability, Mpofu argues in CompCom case


The competition watchdog's lawyer says alleged currency-rigging practices by bank traders damaged the SA economy.

FILE PICTURE: Advocate Dali Mpofu. (Photo by Gallo Images / Beeld / Herman Verwey)

The Competition Commission said it was “absurd” that major commercial banks had suggested that their alleged involvement in currency-rigging didn’t have an impact on the South African economy and the public at large.

The competition watchdog has also argued on Wednesday, through its lawyer Dali Mpofu SC, that it’s pursuing its case against bank traders in the spirit of accountability – in line with the Constitution, particularly the Competition Act. 

“Our Constitution talks about the value of accountability. What it really says is that corporates must account to the public, more particularly when it comes to allegations of malfeasance and corruption,” Mpofu argued on Wednesday. 

The commission and commercial banks have been duking it out at the Competition Tribunal, where the competition authority’s case against currency traders is being heard for five days ending Friday.  

The case, in which more than 30 individuals linked to 23 banks are accused of rigging trades in the rand-US dollar currency pair to allegedly boost profits, was referred to the tribunal in February.

However, the merits of the case have not been heard as the tribunal is still hearing technical issues, including exceptions or objections by banks to the charges. 

The commission is pushing for a 10% fine on annual turnover against Standard Bank of SA, Investec Bank, Bank of America, Merrill Lynch International, BNP Paribas, JP Morgan Chase, HSBC Bank, Macquarie Bank, Barclays Capital, Standard New York Securities, Nomura International, Credit Suisse Group and others.

The commission found that from at least September 2007, banks had a general agreement to collude on prices for bids, offers and bid-offer spreads for the spot trades in relation to currency trading. The commission’s case was completed in April 2015.

Bank objections

However, banks have argued that the commission is relying on broad accusations that lack hard evidence – as they have not been given clear examples of individual traders participating in alleged currency-rigging. 

Banks have also argued that the commission does not have jurisdiction to bring charges as some banks are foreign entities, and that trading in the rand does not have broad consequences for the economy, as traders use it to purely trade in other currencies. 

Mpofu rejected these objections, saying the banks are “dodging to face the music” by raising various objections. 

“What we are interested in is that the effect of what they did or did not do … what effects did that have on the economic welfare of the people within the republic?

“So from where we stand the rand is used as a surrogate for bread and butter, not for the people playing between the yen and the dollar and the euro.”

Regarding the commission’s jurisdiction, Mpofu said geography limitations did not apply, considering that markets are global and linked in their nature. 

“It’s our belief that an anti-corruption type of legislation has to be interpreted in a particular way, particularly in the day and age we live in of cybercrime, use of the internet and those kinds of things.  Those instruments of necessity can no longer in this day and age be confined to geographic areas.”

According to the commission, traders used platforms such as the Reuters currency trading platform and the Bloomberg instant messaging system (chatroom), as well as telephone conversations and meetings, to coordinate their collusive trading activities. In doing so, the commission said there was a general agreement for bank traders to collude. 

However, banks – particularly Investec Bank, HSBC Bank, Bank of America and Credit Suisse – argued that they had no understanding of what the general agreement referred to, specifically when and where bank traders confirmed an agreement to participate in currency-rigging. 

Mpofu said once the merits of its case started at the tribunal hearing, the issues regarding the agreement would be ventilated by experts and the evidence the commission was relying on would be clear. 

The commission is gunning for banks to settle with it – like Citibank, which paid an administrative penalty of R69.5 million in March 2017. Meanwhile, Absa has applied for leniency, provided that it agrees to continue supplying the commission with information.