Foreign banks can be charged again for price-fixing

By KATHARINE CHILD

The Competition Appeal Court has given the Competition Commission a reprieve by ruling on Friday that it can again charge foreign banks over price-fixing of the rand.

The ruling allows the commission the scope to charge the foreign banks or any offshore corporation in future with collusive conduct provided it shows the companies have a “personal connection” to SA and proves that the cartel behaviour had a “substantial, direct and foreseeable” effect on SA.

The Competition Commission charged 18 banks in 2017 with fixing the price of the rand and alleged that foreign traders withheld sales, created fictitious bids for the currency and colluded on spot price bids for the rand-dollar exchange pair from 2007. It is seeking 10% of banks’ annual turnovers.

Three years later, the actual court case has yet to begin due to legal wrangling over the vague charges and the foreign banks arguing that the commission has no jurisdiction over them as they have no presence in SA.

In June 2019, the Competition Tribunal, which acts as a court on antitrust matters, ruled that the commission could not fine foreign banks if found guilty of cartel conduct as it has no jurisdiction over them.

In response, in December the commission argued at the Competition Appeal Court that the global economy means multinational firms have a global effect, thus regulators cannot be subject to strict territorial boundaries. The commission asked for the authority to charge foreign multinational firms when their offshore activities breach local antitrust regulations.

In the ruling, judge Dennis Davis allowed the commission to charge foreign firms for anticompetitive behaviour in this and other cases. An older law requires the foreign firms to have physical attachable property or persons based in SA, but Davis specified in his judgment that the modern economy can be internet-based.

Instead of property, he ruled the commission must show the banks have a “personal connection” to SA, but he did not specify what this could be.

The banks include Bank of America Merrill Lynch International, JPMorgan Chase, Australia and New Zealand Banking Group, Standard New York Securities, Nomura International, Macquarie Bank, HSBC Bank USA, Merrill Lynch Pierce Fenner & Smith, and Credit Suisse.

The commission must refile charges within 40 days and show in detail how it intends to prove the alleged price-fixing that took place abroad had a significant and direct effect on SA’s economy. This may be difficult as the rand is one of the most heavily traded currencies.

Additionally, multiple economic and political factors can influence a currency’s movements. The commission has already been told to refile charges against the local banks and include dates, facts and details after the tribunal last year sided with the SA banks, who called the charges “vague and embarrassing”.

In the local case, the tribunal requires the commission to prove that all the local banks were working together as one, in a “single overarching conspiracy” to fix the rand price, as the commission had initially claimed.

The commission on Friday said it would refile charges, saying it was “delighted” with the Competition Appeal Court ruling.

But an insider said the commission was celebrating a half- victory as a full victory. This is because if the commission fails to make a convincing case showing foreign banks’ alleged price-fixing affected SA in a significant and a foreseeable manner, the banks could return to court to have the charges quashed.

Davis had harsh words for the commission’s legal case in which it frequently added and modified charges. “The Competition Commission case appeared to resemble a movable jurisprudential feast,” he said.

Commission spokesperson Sipho Ngwema said: “The commission will file a new referral as directed by the court and will rectify whatever has to be corrected with regards to the case.”

In a second victory, a court on Friday dismissed Investec’s bid to have the price-fixing charges ruled vexatious.

Since the cartel investigation began in 2015, Absa has co-operated with the investigation and escaped sanction, while Citbank paid an administrative penalty of R69m.

In February, the Constitutional Court set aside a decision by the Competition Appeal Court that had allowed Standard Bank access to its investigation records before the bank responded to the cartel case.

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