WILL FOREX CARTEL ESCAPE?
The jurisdiction of South Africa’s competition authorities is being questioned by some of the banks implicated in an alleged foreign exchange cartel.
The Competition Commission this week filed additional papers to the Competition Tribunal, making its argument for why banks with no presence in South Africa can be prosecuted locally.
This issue will most likely be the first thing argued before the tribunal later this year, potentially letting more than half the banks implicated in the alleged currency trading cartel off the hook.
Some of the banks raised the issue at a prehearing at the tribunal on March 10.
The jurisdiction argument splits the banks into two groups – the eight that actually have offices in South Africa and are registered as authorised dealers by the finance minister, and the 10 that are wholly foreign, but trade the rand from New York and London.
In the new affidavit, the commission’s inspector Mfundo Ngobese said that the first group conducted their alleged collusion from within South Africa.
The rest may not have done anything in South Africa, but “their conduct had an effect within the country in that they manipulated the value of the rand”.
Sipho Ngwema, spokesperson for the commission, said: “The commission has made its case for jurisdiction. The ball is now in the banks’ court.”
Even if the collusion did not involve any South African clients, the commission still believes it has jurisdiction.
Ngwema told City Press that there were precedents where foreign companies had been prosecuted by local competition authorities.
“The test is not that a firm is in South Africa, but whether the conduct of the firm has an effect in South Africa. It doesn’t matter whether the effect is positive or negative,” he said.
“As long as it involves the currency of the Republic of South Africa, [we have jurisdiction].
“If they dispute it, they should indicate their basis for such a dispute. If necessary, both the commission and the banks may have to produce evidence to support their respective positions,” Ngwema said.
In February, Competition Commissioner Tembinkosi Bonakele said in Parliament that it would require a “far more detailed study” to establish how the collusion between currency traders affected South Africans.
Legally speaking, the effect does not need to be quantified to find banks guilty of collusion.
This reasoning around jurisdiction will most likely also become key to whatever fines, if any, ultimately get levied.
The Competition Act allows fines of up to 10% of revenue made in South Africa.
The recent settlement fine agreed to by Citibank in the currency case amounted to 4% of its South African revenue in 2015 (about R70 million), but not revenue specifically linked to its currency trading operation.
The wholly foreign banks challenging the jurisdiction of the tribunal could argue that they had no revenue in South Africa.
Asked on which revenue basis the commission would try to get fines imposed, Ngwema said that “this will be on a case-bycase basis”.
“In the main, the revenue generated from trading with the rand will be the starting point,” he said.