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Investec sharpens its knives in forex-rigging case

Competition watchdog says Investec’s request that its conduct be declared ‘vexatious’ will have a ‘chilling effect’ on how it prosecutes future cases.
The commission has described Investec’s order as ‘novel and unprecedented’ and is optimistic of success in opposing it. Picture: Supplied

Knives have been sharpened in the battle between Investec Bank and the Competition Commission, with both throwing scathing words on each other’s conduct in the protracted forex-rigging case against bank currency traders.

Investec fired the first salvo in July when it asked the Competition Tribunal for a declaratory order rendering the commission’s conduct in investigating 23 banks accused of forex-rigging as “vexatious and unreasonable.”

In a new twist, the competition watchdog said if Investec’s order is granted, it would have extreme consequences on its ability to prosecute contraventions of the Competition Act.

“If the commission’s decision-making authority were too tightly checked by fears of sanctions for occasioning delays or frustrating respondents, this would undoubtedly have a chilling effect on how the commission chooses to prosecute this matter and future matters,” it said in an affidavit dated August 24.

The affidavit is in line with an agreement between Investec and the commission on August 3 to submit arguments to the tribunal panel hearing the forex-rigging case, which was first referred to the commission in February 2017. The panel, led by advocate Norman Manoim, is yet to make a decision on Investec’s request.

Advocate Avrom Krengel, acting for Investec, said in its August 17 affidavit that the bank and 22 others – among them Standard Bank of SA, Bank of America, Merrill Lynch International, JP Morgan Chase, HSBC Bank, Standard New York Securities and Credit Suisse Group – have been prejudiced in the past 18 months.

Krengel said Investec incurred “substantial unnecessary costs” since June 2017, as the commission has missed its own deadlines to submit affidavits detailing specific incidents in which Investec allegedly entered into agreements with other traders to manipulate the rand-dollar currency pair.


The commission found that from at least September 2007, banks had entered into an “unlawful overarching agreement” to rig trades involving the currency pair, which is estimated by the commission to have a daily turnover of $51 billion.

About 36 individuals tied to 23 banks allegedly used the Reuters currency trading platform and the Bloomberg instant messaging system (chatroom), as well as telephone conversations and meetings, to coordinate their currency trading activities.

These individuals allegedly posted fake bids for the currency pair and offers by customers wanting to purchase either the dollar or rand – in order to artificially boost prices of bids and offers to book profits.

Investec said the “overarching agreement” the commission is relying on is vague as it doesn’t detail how it came into existence, how it was entered into, or when and how the bank created fake bids. It also said the commission changed its tune on the request for separate hearings of all banks and withdrew its supplementary affidavit into the case at the last minute in November 2017.

“The commission has flip-flopped, broken undertakings, instituted hopeless applications and delayed the resolution of the exceptions [or objections raised by banks] for more than a year. That conduct would warrant a cost order against any ordinary litigant,” said Krengel.

The commission has asked the tribunal for condonation for its delays in submitting affidavits. If the commission is pardoned, Investec said its request for a declaratory order should also be granted.

In an earlier affidavit, Investec said the order will have a disciplining effect on the commission. “Granting a declarator … will send a message to the public that this type of conduct is not appropriate and will act as a reminder to the commission that if it continues to flout its duties, it will be sanctioned for it.”

Commission’s response

The commission is gunning for the banks to settle with it in its case – as Citibank, which paid an administrative penalty of R69.5 million in March 2017, did.

The commission believes that its prospect of success in opposing Investec’s order, which it described as “novel and unprecedented”, is high. It said Investec’s request is also “premature” as the commission hasn’t had a chance to lead evidence and prove its case. “It’s only at the end of the matter that the tribunal will be in a position to decide whether the commission’s conduct was vexatious in the ordinary legal sense.”

The commission said the correct test for vexatious conduct is not whether Investec has incurred wasted costs, but whether it has prosecuted the referral of the bank to the tribunal “without sufficient ground and solely to annoy Investec.”

“[Also] whether the forex [case] referral has no serious purpose or value; whether the forex referral has been prosecuted without probable cause, in bad faith and for the purpose of annoying or embarrassing Investec.”

Essentially, the commission believes that the ‘bad faith’ criterion is central to its conduct being declared as vexatious. This, it said, has not been argued by Investec.

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Am on the Investec side on this one.
The CC is merely (one) extortion arm of the ANC oligarchy. It flouts the very Act by which it exists. Its powers are draconian and unconstitutional. It does not even remotely achieve that which the Act intended – in fact, it is now a tool that only serves to protect state and SOE monopsonies and promote the socialistic destruction of markets, the economy and employment.
It routinely destroys businesses by conducting “dawn raids” (translation: “a pogrom against uppity private enterprise”) and trumpeting to the media that it has done so. Business has no recourse and no hope of ever proving its innocence in a rigged system.

Nigeria on a smaller scale.

The truth is probably somewhere in the middle , of the arguments the Commission and Investec are raising . That some form of collusion has occured between individual traders is borne out by the fact that some big banks offered to pay a settlement penalty . This type of illegal activity ,is similar to the collusion of the listed building contractors in SA , in their bids for the soccer world cup stadions . The commission seems to have hoped that all the transgressors would rather settle that force a trial , and thus failed to prepare adequately , as Investec now alleges .To prove these cloak and dagger activities is not easy , and the commission is clearly struggling to provide the requisite details .

“This type of illegal activity ,is similar to the collusion of the listed building contractors in SA , in their bids for the soccer world cup stadions .”

Nope, those two are very different things. You are talking about putting in trades at different FX levels to collude, I am not sure that is even possible because the ZAR/FX market is extremely liquid and trying to change the price point is almost impossible unless these are massive trades and even then it would have corrected shortly after.

The stadiums were a few big capex projects, the increased cost was a direct pass through to the public and the price rigging was a lot easier to do.

I am not convinced the commission has a case here, if it has real evidence then I hope they win because this behavior should not take place anywhere but if not then they should be punished for doing Zumas dirty work when he was against the banks (Gupta accounts closure issue).

Hi langezand. This statement: “That some form of collusion has occurred between individual traders is borne out by the fact that some big banks offered to pay a settlement penalty.” is where you make the mistake.

Let me explain.
First the stick: Some banks – like many, many companies faced with an assault by the Commission – rather “admit guilt” and negotiate a fine, than run the management time, legal cost, risk and reputational damage that inevitably results from the prolonged fight to prove one’s innocence in (did I mention this before?) a rigged system.
And then there is the carrot: the first accused through the door with a “Leniency Application” to the Commission does not get fined at all – as long as he “cooperates” and spills all the beans on the “illegal activities”. Which basically means that he says whatever the f the Commission wants him to say, to incriminate every or whichever competitor the Commission wants to shaft.
An irredeemably flawed, evil system.

I am surprised Investec’s Krengel did not play the ‘’locus standi’’ card this time, but rather asked the Competition Tribunal for a declaratory order rendering the commission’s conduct in investigating 23 banks accused of forex-rigging as “vexatious and unreasonable.” – Oh really Krengel?

Collusion like this carried on unabated for many years as Banks managed to manipulate the market in 2001and the Myburgh Rand Commission failed to investigate the collapse ( the main driver Deutsche Bank – with the Sasol orders etc.) properly, mainly due to the ‘’terms of reference’’.

Some of these Banks just perfected their collusion practises with a plethora of front-running transactions – with inside information that is passed on via various communication channels.
The 16H00 USD/ZAR fix is very important, as it is the peg on which many other financial markets and instruments (derivatives) depend and trades executed.
These bank insider-traders obtain confidential information about something that is about to happen and could change prices. For example, these insider-traders shared internal information about their clients’ orders and trading positions.
They are well aware that it is easier to move prices if several market participants work together.
By agreeing to place orders at a certain time or sharing confidential information, it is possible to move prices more sharply.
That could result in traders making more profits.
Collusion is achieved with traders speaking to each other on the phone or on internet chatrooms. It can also be “implicit”, where traders don’t need to speak to each other but are still aware of what other people in the market are planning to do.

The UK’s financial watchdog, the Financial Conduct Authority (FCA) last November confirmed how various banks (HSBC etc.) attempted to manipulate foreign exchange markets.
The legalised crooks became experts by sharing confidential information about client orders prior to the fix, and then used this information to attempt to manipulate the fix in either direction.
Hence, unnecessary currency volatility are created (for the banks to profit from) while the banks’ clients suffered from the market being skewed. These types of currency movements due to volatility created by these inside-traders the value effects almost everything (pension funds, investments, petrol price etc.)

Which begs the question Krengel – what will you do when Citi (the Bank that admitted the collusion and paid a fine) and Absa (that became the whistle-blower), start testifying against you- as they colluded with Investec – also call them “vexatious and unreasonable’’?

End of comments.





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