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.”
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.