Gaping holes in exchange-rate banks collusion case dilute white monopoly capital narrative
When the Competition Commission launched a probe more than two years ago into allegations that foreignexchange dealers at global and local banks had colluded to fix the rand-dollar exchange rate, it offered a gift to the spinners of what became the “white monopoly capital” narrative.
By the time the commission referred a collusion case against 18 banks to the Competition Tribunal earlier in 2017, the narrative was in full swing and Zumacamp activists were quick to jump on the case as clear evidence that private-sector corruption by the monopoly capitalists was just as bad as anything the public sector was being accused of.
That the forex collusion case was a political football at a volatile time should not have been a reason for the commission to hold back, if indeed there were a case. Under the circumstances, the commission might have been expected to be even more careful than usual to put together a thoroughly researched, robust case.
The exception applications that 14 of the banks filed earlier in May suggest the commission’s work was anything but thorough. And indeed, it has since issued two more supplementary affidavits to try to plug the holes in its original founding affidavit. And though competition lawyers credit the commission with doing good work, some are struck by just how shoddy it has been this time — raising questions for its reasons to rush into print.
Not that it has not had material and time with which to work. Barclays/Absa provided the basis for the case. Barclays had launched a global probe of its own foreign-exchange dealing rooms in the wake of forex scandals in the US and UK and it found some misconduct among its own traders in the rand — hence its decision to apply to SA’s competition authorities for leniency, which it did in 2014.
A leniency application is like turning state witness: a company comes clean to the commission in return for immunity from prosecution, and because cartels and collusion tend to be secretive, that is usually the basis for these cases. How much more research the commission has done is not clear, but the Barclays/Absa submission is the core of it.
It is unknown what information Absa and Barclays provided, but no doubt, there are huge volumes, implicating banks and traders on the other side of the forex deals. But which deals, involving which traders, at which banks? Those are some of the questions arising from the 14 exception applications, in which banks, from Bank of America and the Australia and New Zealand Banking Group to Standard Bank and Investec, have applied to the tribunal to be excluded from the case, with several calling the case “vague and embarrassing”.
That is standard lawyers’ language, but the problem does seem to be that the commission’s referral document was so lacking in specifics that, as Investec put it, it was hard to work out what case they were supposed to answer.
The tribunal is to hear the exception applications on July 20 and 21. Citi has already settled, suggesting either there is a solid case against it, or that it does not relish a fight. The commission has said others are in settlement talks too. Given the tone of some of the applications, though, it is hard to imagine that all will settle. The banks will surely demand that the commission discloses much more detail on what their traders supposedly have done, when, where, and with whom.
Some have already picked factual holes in the commission’s case, which has not necessarily identified the right traders or the right banks and does not necessarily get the complex technicalities involved in quoting bid-offer spreads. The rows of lawyers will be making the most of any error.
A big first question will be whether the tribunal has any jurisdiction over those banks that do not have branches or authorised forex dealer licences in SA. The legislation covers “all economic activity within or having an effect within SA”.
With turnover in the rand averaging $51bn a day, it would be hard for a handful of traders to change the exchange rate much, but the commission argues clients were affected.
It should make for interesting legal argument on the reach of SA’s competition authorities.
As it happens, the case comes just as the Bank for International Settlements’s foreign exchange working group goes public with a global code of conduct for the forex market. Banks, and regulators everywhere are putting their own rules in place to clean up the market.