Local, international banks to face currency manipulation allegations

The dollar/rand exchange rate is used by deal makers during the M&A process.

The Competition Commission’s drawn-out case against local and international banks that are accused of currency manipulation has received a major boost that is set to turn up the heat in the banking industry.

On Wednesday, South Africa’s Competition Tribunal rejected the request by banks to drop the nearly the four-year-long case that has been doggedly fought by the Competition Commission – paving the way for banks to face heavy sanctions.

In 2015, the commission began investigating market manipulation in currency pairs involving South Africa’s rand by 23 local and international banks. Bank traders are accused of entering into a general agreement to collude on prices for bids, offers and bid-offer spreads for the spot trades in relation to currency trading since 2007.

This could impact the value of the dollar/rand exchange rate, which is used by local mergers and acquisitions professionals to value cross-boarder deals.

According to Bloomberg, damning findings against bank traders in similar currency manipulation cases overseas have resulted in fines exceeding $10-billion.

The implicated banks include, among others, Bank of America Merrill Lynch, BNP Paribas, JPMorgan Chase, Investec, Standard New York Securities, HSBC, Standard Chartered, Credit Suisse Group, Standard Bank, Commerzbank, Australia and New Zealand Banking Group, Nomura, and Macquarie.

In the latest twist to the protracted saga, the tribunal ordered that the commission can forge ahead with an order that declares the conduct of international banks as anti-competitive. This order applies to the following nine banks: Bank of America Merrill Lynch, JP Morgan Chase, Australia, and New Zealand Bank, Standard New York Securities, Nomura International, Macquarie Bank, HBC Bank USA, National Association, Merrill Lynch Pierce Fenner and Smith, and Credit Suisse Securities.

These international banks, which have no local presence or business activity in South Africa, have escaped financial penalties because they are not bound by local competition laws and the commission doesn’t have jurisdiction over them. And determining whether these banks had any turnover in South Africa, on which a financial penalty could be levied on, would be a herculean task, says the commission.

But the conduct of the international banks can be declared “anticompetitive”, which could sully their reputation.

“Such a declaratory order is important to make in cartel enforcement because whilst the tribunal may lack enforcement jurisdiction it is still a matter of public interest in fighting the scourge of cartels, to pronounce upon the conduct of foreign firms whose conduct has harmed South African consumers,” the Tribunal says in its order.

For local banks, which have offices in South Africa and bound by competition laws, the tribunal’s order is more damning.  It says the commission could seek to extract an administrative penalty from the local banks, including, among others, BNP Paribas, Standard Chartered Bank, Credit Suisse, Commerzebank AG, HSBC Bank PLC, and Bank of America National Association.

The order makes it possible for the commission to push for monetary fines against the banks including a 10% fine on their annual turnover – like Citibank, which paid an administrative penalty of R69.5-million in March 2017. Citibank is the only bank locally to plead guilty to currency rigging charges brought by the commission.

The start of the actual case will likely be protracted as the tribunal asked the commission to clarify charges of currency manipulation against the banks as it found deficiencies in its allegations.  It has 40 days to redraft its accusations.