Collusion clampdown continues

The competition commission plans to go ahead with its prosecution of 14 banks, despite technical issues causing delays

The competition commission is not backing down on plans to prosecute 14 banks for currency collusion and will not be dropping charges against any of them.

The commission, which first announced the investigation in 2015, referred a case to the competition tribunal in February that centred on alleged collusion among bank traders to fix prices on rand/dollar trades.

Spokesman Sipho Ngwema says the commission is ready to have the case heard, but “exception applications” filed by the 14 banks that stand to be prosecuted have caused delays. The exception applications raise technical issues with the commission’s case, rather than responding to the complaint itself. For instance, international banks such as Bank of America Merrill Lynch and Jpmorgan Chase argue that the commission has no jurisdiction over them. BNP Paribas has taken exception to the fact that Jason Katz — a former Barclays Plc trader who pleaded guilty in a New York court in January to conspiring to fix prices — is said to have represented two banks at the same time.

Other banks, such as Standard Bank and Investec, say the commission has provided no factual evidence to support the allegations in its “vague and embarrassing” referral, and the banks therefore do not know how to respond. These exception applications will have to be heard before the case can proceed.

They were supposed to be heard on July 20 and 21, but a prehearing on June 23 indicated this would not be viable. To prevent further delays, the commission will approach the competition tribunal for separate hearing dates for each of the 14 exception applications, says Ngwema, who believes the matter “is of enormous public interest”.

This will no doubt prevent the banks from hiding behind each others’ technical defences and so stalling individual prosecutions.

Companies will inevitably claim the commission has no hard evidence to prove wrongdoing. But as a recent case demonstrates, this does not necessarily mean the commission will lose outright, provided it makes a sufficiently convincing argument.

In May, the tribunal fined Giuricich Coastal Projects R900,000 for cover pricing in a 2008 tender for the Mondi Reel Handling Project.

Giuricich did this, the tribunal found, by colluding with Grinaker, a subsidiary of Aveng, to submit a price 5% above that of Grinaker’s so that that company would be awarded the contract. The details of the case are complicated and involve a number of witnesses who provided somewhat vague oral testimony on events that had occurred eight years earlier. Some documentary evidence was provided, too. Grinaker applied for corporate leniency.

Though collusion could not be proved outright, the tribunal ruled in favour of the commission because “on a balance of probabilities” it could be concluded that collusion had taken place and Giuricich had engaged in cover pricing. Naturally, in the current matter, the onus is on the commission to provide some evidence of collusion among bank traders. That it has not yet done so does not mean it has none, as the banks’ exception applications would suggest.

For one, the commission has the evidence submitted by Barclays Capital, Barclays Plc and Absa, which are co-operating with the commission in exchange for leniency.

Such co-operation may stem from the 2013 Libor scandal, in which financial institutions were accused of fixing the interbank lending rate. Following that scandal, a number of global banks conducted internal investigations to determine whether they were falling foul of financial sector regulation. This resulted in some of them blowing the whistle on themselves.

In the current matter, alongside evidence provided by Barclays, Citibank has admitted guilt and settled with the commission, paying a R69.5m fine. That is some way below the maximum penalty — 10% of revenue — that the commission is seeking from other banks. In the case of Standard Bank SA, this would amount to a R6.6bn fine. Citibank’s settlement also entails that it provide any evidence it may have against the other banks facing prosecution, including witness testimony in support of the commission. Global regulators’ prosecutions of currency traders, such as that of Katz, will further bolster the commission’s case.

Still, says Lesley Morphet, a partner in Hogan Lovells SA’S competition law practice, the case “is not a slam-dunk for the commission”.