Tribunal gives forex-rigging case the green light

The Competition Commission’s case against 23 local and foreign banks accused of colluding in chat rooms to coordinate trading in the rand and US dollar is set to continue after the Competition Tribunal dismissed the pre-trial objections raised by the banks.

The commission has been investigating the case for close to five years and referred the matter to the tribunal two years ago. However, litigation was delayed by the banks, which challenged the commission’s case on technical issues.

The banks accused the commission of not providing them with sufficient evidence to prove currency fixing. Meanwhile, other international banks stated that the tribunal does not have jurisdiction over them.

A large majority wanted the case to be thrown out altogether, calling it “vague and embarrassing”. Investec went a step further, calling for the tribunal to declare that the commission’s conduct in bringing the referral was “vexatious and unreasonable”.

The commission investigates anti-competitive behaviour under the Competition Act while the tribunal adjudicates on antitrust matters.

Although the tribunal dismissed calls for the case to be thrown out, it ordered the commission to submit a redrafted referral within 40 days, this time limiting its case against the banks to “one of a single overarching conspiracy”. The commission has also been ordered to give more detail on the alleged conspiracy and to narrow the relief it wants against foreign banks.

Jurisdiction

The tribunal found that it cannot issue an order for administrative penalties on nine international banks that did not have offices in South Africa and were not conducting business in the country. This includes Bank of America Merrill Lynch, JP Morgan Chase & Co, Macquarie Bank and Credit Suisse Securities. It did, however, ask the commission to review the relief it wanted from these banks to that of a declaratory order.

It stated that a declaratory order, which names the firms that were involved in the cartel, would “[strike] a balance between the considerations of effective jurisdiction [and] public interests in fighting cartels”. Further, those who had suffered personal losses from the conduct would be able to pursue claims against those parties the tribunal has jurisdiction over.

Standard Bank South Africa and Investec both have registered offices and conduct business in South Africa and did not challenge the commission’s jurisdiction over them.

Seven other banks – BNP Paribas, JP Morgan Chase, Standard Chartered Bank, HSBC Bank plc, Credit Suisse Group, Commerzbank and Bank of America – if found guilty, could also be issued with an administrative penalty that would be limited to a portion of the turnover of the local or representative branches.

According to the Competition Act, a penalty should not exceed 10% of a firm’s annual turnover in South Africa and its exports from the country during the preceding financial year.

The tribunal found that in both of these instances the commission would still need to allege that the conduct of the respondent banks had an effect in South Africa that met the internationally recognised threshold of being direct or immediate and substantial before it could make any order.

Commission’s case ‘unfocused’

On the issue of the commission’s case being “vague and embarrassing”, where the respondents said they could not make out the reasons for the action, the tribunal said the problem with the commission’s referral documents was not their lack of detail but the “lack of focus and consistency”.

“The second problem is the commission’s reluctance to commit itself unequivocally to a particular formulation of its case,” said the tribunal.

It added that the commission’s case had “undoubtedly changed”.

For instance, the tribunal states that three conspiracies had emerged from the three affidavits filed by the commission since 2017 and the oral hearings that had taken place.

“No reader of the February referral would have understood the case the way it is presented now,” it said.

It is for this reason that the commission has been instructed to file a completely new affidavit that coherently outlines what the conspiracy was and how it was entered into.

The tribunal said this would make it clear for the banks what they are pleading to and whether a bank can be liable for the actions of the other banks, and to what extent.

So far, only Citibank has pleaded guilty and accepted to pay a settlement of R69 million.

Commission conduct ‘unreasonable and vexatious’

Due to the commission’s act of filing varying affidavits on the case, which contributed to prolonging the prosecution, Investec requested that the tribunal issue the commission with a declaratory order to mark its conduct as “unreasonable and vexatious”.

Investec argued that the commission had not approached the proceedings responsibly, taking positions and then backtracking on them.

“It had caused the respondents significant prejudice because of its erratic behaviour,” said Investec, adding that it had incurred “substantial and unnecessary costs” in preparing for hearings that could not proceed because of the commission’s actions.

However, the tribunal dismissed the claim because of the way Investec framed it, stating that “the relief sought and the mischief complained about are not consonant”.

It explained that Investec’s applications could be interpreted as saying that the decision to prosecute should be censured as opposed to rebuking how the commission had acted in the process of prosecuting.

The tribunal added that a declaratory order of this nature would also be premature for a case that was still ongoing and that Investec could still make the application at the end of the proceedings.

The commission welcomed the ruling saying it would comment in full once it had studied the complete document.

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