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Forex 'cartel' lays into commission

May 14 2017 06:26
Dewald van Rensburg

The banks accused of colluding in trading of the rand have launched a comprehensive attack on the Competition Commission’s case against them.

Virtually all of them argue that the commission has no jurisdiction over their currency traders in other parts of the world.

Many attack what they call nonsensical allegations, sweeping generalisations and factual errors in the referral to the Competition Tribunal.

The golden thread running through 12 affidavits submitted last week is, however, that – even if their traders colluded – there is no proof that this had any economic effect on South Africa.

Most of the banks are content to say there is no proof of an effect, but Standard Bank explicitly makes the argument that the effect would have been minuscule even if collusion had occurred on currency trades.

“Their effects would have been – at worst – short term. Indeed, each allegedly unlawful agreement would have ended when the trades settled and any conceivable effects from such trades would, due to the liquidity of the rand-dollar market, have ended almost immediately,” reads a letter from Standard Bank SA to the commission.

Standard New York Securities, a separate subsidiary of the Standard Bank Group, made the same point.

The commission’s spokesperson, Sipho Ngwema, told City Press that, “if necessary, both the commission and the banks may have to produce evidence to support their respective positions” around the economic-effect argument.

A related problem would be the calculation of fines if it came to that.

The tribunal can only levy fines on South African revenue and some of the banks have no local revenue as they trade currencies abroad.

Ngwema told City Press that fines would be motivated on a “case-by-case basis”.

“In the main, the revenue generated from trading with the rand will be the starting point,” he said.

Wrong guys

While there are 18 respondents, the Barclays Group, which is cooperating, accounts for three of these while Citibank, which settled, is another.

That leaves 14 banks actively fighting the case.

You’ve got the wrong guys

The various banks accuse the commission of getting its facts wrong. This includes citing the wrong companies inside banking groups.

Standard New York Securities says it is not a trader in forex and never employed any of the three traders the commission mentions in relation to it.

Standard Americas, a sister company, did employ two of them, but not the third, it said.

Bank of America Merrill Lynch International says its inclusion in the case was “plainly misconceived”.

Bank of America is implicated on the basis of a trader called Gavin Cook in the US.

According to the bank, the commission cited the wrong “Merrill Lynch”, possibly due to “sloppy drafting”.

Gavin Cook never worked for Bank of America – he worked for Merrill Lynch, Pierce Fenner and Smith, which is not a subsidiary of Bank of America, it said in its affidavit.

US trader

HSBC also claims that the commission has the wrong company.

The HSBC being accused is HSBC Bank plc. It never employed the trader Chris Hatton, who supposedly represented it in the collusion.

Hatton used to work for another HSBC sister company, HSBC Bank USA, it said. Even then, Hatton left HSBC in 2010 and the claim against it has prescribed and is “time-barred”.

BNP Paribas is one of several banks implicated solely owing to US trader Jason Katz, who moved from one to the other bank over time and has pleaded guilty in US proceedings against him.

It argues that the commission’s referral is self-contradictory owing to several banks being drawn in on the basis of Katz apparently working for them at the same time.

Not competitors to begin with

Standard Bank SA argues that the commission does not understand the legal structure of the forex market and the role division between authorised dealers and other banks.

The trader who allegedly represented Standard Bank in the collusion is Bryan Brownrigg, who “had never been a trader in foreign exchange”, said Standard Bank.

Brownrigg only dealt with other banks and Standard Bank claims to have scoured its record without finding anything untoward about its behaviour.

The commission claimed to have a degree of extraterritorial power if anticompetitive behaviour abroad had an economic impact in South Africa.

Mere assertion

“The commission assumes that the tribunal has jurisdiction over any firm anywhere in the world if that firm was involved in economic activity anywhere in the world that had an effect within South Africa ... This assumption is incorrect,” says Bank of America.

The vagueness of the claim about the “economic impact” is the fundamental objection of most accused banks.

“The referral is so vague and embarrassing that Investec does not know the material facts upon which the commission relies,” reads Investec’s affidavit.

The Australia and New Zealand Banking Group calls it a “mere assertion of a conclusion”.

Credit Suisse says that the law requires “direct, foreseeable and substantial consequences in South Africa”.

Nomura says all the grounds for jurisdiction are “inherently unclear, vague and incapable of clear ascertainment”.

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