Competition Commission is left with a ‘shoplifting’ case

If the Competition Commission has any sense it will move swiftly ahead with what little is left of its case against the banks for alleged rand manipulation. It has been left with just five banks to prosecute after the competition appeal court threw out most of its case. The only way the commission can demonstrate it ever had a case at all is to take it to trial at the Competition Tribunal and show it can put a proper, if smaller case, together.

No doubt some in the commission will want to dig up grounds to appeal against the court’s decision at the Constitutional Court. But newish competition commissioner Doris Tshepe should be asking searching questions of her cartel division in light of the ruling, which took the commission’s case to pieces — on the law, the evidence and jurisdiction.

The commission had set itself an ambitious test: it chose to argue that 28 banks had participated in a “single overarching conspiracy” in online chatrooms to fix the rand-dollar exchange rate in the New York market between 2007 and 2013.

It based this on European precedent, particularly the “Team Relocation” case. Lawyers for the banks argued, and the appeal court agreed, that this required the commission to prove that each and every one of the banks intentionally signed up to a common anticompetitive objective, and participated in full knowledge of what was going on.

In the Team Relocation case there were documents showing collusion on prices and market division that went on for years. In the commission’s banks case there are mainly chats in chatrooms and telephone conversations, as well as publicly available trading data from Reuters screens from which — as the court put it — the commission seemed to infer nefarious cartel activity.

The test was ambitious. The commission largely failed it. That was despite the many advantages it had in putting the case together. It was given access to evidence gathered by the US department of justice, which in 2015 fined six global banks for colluding to fix exchange rates and laid criminal charges against a group of traders employed by the banks, who pleaded guilty.

The US case, with all the chatroom evidence, was the basis on which the commission launched its investigation back in 2015.

How much of its own investigating it did is unclear. Nor is it clear how much use it made of the information it would have been given by Barclays/Absa, which applied for immunity in return for handing over evidence, as well as by Citibank, which settled in 2017 — as did Standard Chartered more recently.

Not only did it have access to all that information but it had multiple opportunities to improve on its case as the banks repeatedly challenged its validity. After all that the commission should have been able to put a cogent case together against the 28 banks.

The appeal court found it didn ’ t. Some of those charged were simply holding companies that do no trading so they were dismissed. Some were foreign banks with nothing to do with SA (and mostly no clear link to the chatrooms) so they were dismissed. Some were randomly added only after the court told the commission in 2020 to “reconfigure” its case. They were dismissed too. In some cases not only was the evidence wanting but the facts were plain wrong — and the commission knew that.

That leaves only four foreign banks against which the appeal court found the commission has a case. Not coincidentally, the four were among those implicated by the US justice department, as were the four banks that settled with the commission or applied for leniency. In other words, after all these years of tortuous litigation and expense by the banks and the commission, we are back with the core the commission borrowed in 2015.

With one’exception

— Investec, which unaccountably chose not to join the other banks to challenge the commission s case. There surely will have been some searching questions in the Investec boardroom this week.

The case has raised concern about the commission’s priorities as well as the competence of its cartel division.

All the more concerning is how politically poisonous it has proved, not just how contentious in competition terms. Minister in the presidency Khumbudzo Ntshavheni was not alone in the hostility she publicly showed to the private sector when she said in 2023 that the banks’ case showed the private sector was trying to collapse the currency and damage the economy.

Her view, and her ignorance of how foreign exchange markets work, appeared to have been shared by several ministers behind the cabinet ’ s closed doors.

The notion that shadowy bankers are conspiring to crash our currency and damage our economy has a bit of a history in SA. In 2002 a presidential commission spent many months probing allegations that “asset swaps” arranged by foreign banks had caused the rand to plummet to R13.84 in 2001, and the banks spent many millions defending themselves and explaining how markets and the economy worked. The commission essentially found that market sentiment and economic fundamentals drove the rand.

Now the rand is at R18.65 and we wish it was at R13.84 — or the R7.50 at which it was trading at the time those New York chatroom bankers allegedly colluded. It seems our politicians still don’t know how impossible it really is for anyone to collapse the currency.

The latest Bank for International Settlements survey shows global trading in the rand averaged about $73bn every day in 2022. That’s about 1% of total global forex trade.

And though we’ve slid a bit, the rand is still the world’s 18th-most traded currency.

So the one thing we do know is that when those New York traders shared information in chatrooms their chances of influencing the value of the rand for more than a few milliseconds would have been zero. Even then, the market traded $60bn a day globally.

The biggest transaction cited in the Competition Commission’s case was R25m. That’s not to say the traders couldn’t get up to no good, colluding on rates for the milliseconds it took to make a few extra bucks at the expense of their clients, as they allegedly did. But it was shoplifting, not macroeconomics, in the words of one economist.

That their conduct had no effect on SA’s economy doesn’t necessarily mean it wasn’t illegal. Colluding to rip off clients would still be a cartel, and cartels are illegal. Let’s see if the commission can prove there was (a small) one.

ALL THE MORE CONCERNING IS HOW POLITICALLY POISONOUS IT HAS PROVED