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Banks are dodging accountability in forex-rigging case, CompCom argues

The competition watchdog said the alleged currency-rigging practice by bank traders had an impact on the economy.
Competition Commission said banks are “dodging to face the music” by raising various objections. Picture: Supplied.

The Competition Commission said it’s “absurd” that major commercial banks have suggested that their alleged involvement in currency-rigging didn’t have an impact on the South African economy and the public at large.

The competition watchdog has also argued on Wednesday, through its lawyer Dali Mpofu SC, that it’s pursuing its case against bank traders in the spirit of accountability – in line with the Constitution, particularly the Competition Act. 

“Our Constitution talks about the value of accountability. What it really says is that corporates must account to the public more particularly when it comes to allegations of malfeasance and corruption,” Mpofu argued on Wednesday. 

The commission and commercial banks have been duking it out at the Competition Tribunal, where the competition authority’s case against currency traders is being heard for five days ending Friday.  

The case, in which more than 30 individuals linked to 23 banks are accused of rigging trades in the rand-US dollar currency pair to allegedly boost profits, was referred to the tribunal in February.

However, the merits of the case have not been heard as the tribunal is still hearing technical issues including exceptions or objections by banks to the charges. 

The commission is pushing for a 10% fine on annual turnover against Standard Bank of SA, Investec Bank, Bank of America, Merrill Lynch International, BNP Paribas, JP Morgan Chase, HSBC Bank, Macquarie Bank, Barclays Capital, Standard New York Securities, Nomura International, Credit Suisse Group and others.  

The commission found that from at least September 2007, banks had a general agreement to collude on prices for bids, offers and bid-offer spreads for the spot trades in relation to currency trading. The commission’s case was completed in April 2015. 

Bank objections

However, banks have argued that the commission is relying on broad accusations that lack hard evidence — as they have not been given clear examples of individual traders participating in alleged currency-rigging. 

Banks have also argued that the commission does not have jurisdiction to bring charges as some banks are foreign entities, and that trading in the rand does not have broad consequences for the economy as traders use it to purely trade in other currencies. 

Mpofu rejected these objections, saying the banks are “dodging to face the music” by raising various objections. 

“What we are interested in is that the effect of what they did or did not do, what effects did that have on the economic welfare of the people within the Republic. 

So from where we stand the rand is used as a surrogate for bread and butter, not for the people playing between the yen and the dollar and the euro.”

Regarding the commission’s jurisdiction, Mpofu said geography limitations don’t apply, considering that markets that are global and linked in their nature. 

“It’s our belief that an anti-corruption type of legislation has to be interpreted in a particular way, particularly in the day and age we live in of cybercrime, use of the internet and those kinds of things.  Those instruments of necessity can no longer in this day and age be confined to geographic areas.”

According to the commission, traders used platforms such as the Reuters currency trading platform and the Bloomberg instant messaging system (chatroom), as well as telephone conversations and meetings, to coordinate their collusive trading activities. In doing so, the commission said there was a general agreement for bank traders to collude. 

However, banks — particularly Investec Bank, HSBC Bank, Bank of America and Credit Suisse —  argued that they have no understanding of what the general agreement refers to, specifically when and where bank traders confirmed an agreement to participate in currency-rigging. 

Mpofu said once the merits of its case starts at the tribunal hearing, the issues regarding the agreement will be ventilated experts and the evidence the commission is relying on will be clear. 

The commission is gunning for banks to settle with it – like Citibank, which paid an administrative penalty of R69.5 million in March 2017. Meanwhile, Absa has applied for leniency, provided that it agrees to continue supplying the commission with information.

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‘’Life is a beach – and then you fry’’
Anonymous.

‘’’’The Competition Commission said it’s “absurd” that major commercial banks have suggested that their alleged involvement in currency-rigging didn’t have an impact on the South African economy and the public at large’’
The Competition Commission should now be bold and start pushing for a 10% fine on annual turnover against Standard Bank of SA, Investec Bank, Bank of America, Merrill Lynch International, BNP Paribas, JP Morgan Chase, HSBC Bank, Macquarie Bank, Barclays Capital, Standard New York Securities, Nomura International, Credit Suisse Group and others.
They should also prosecute the FX Dealers involved – together with their Mid-Offices (they have a direct function of reporting to the top management structures on all ‘’discrepancies’’ that they are tasked to perform as ‘’internal auditors’’. In my more than 40 years of TX Treasury dealing in all the banks that I worked with locally and overseas – a chines wall was established between ‘’front office, middle office and back office’’
I am absolutely shocked by these banks claims that their rigging (fraud!) didn’t have an impact on the South African economy and the public at large. – That statement is criminal – that’s why I think Absa and Citi at least had their ‘’morals in place’’ and admitted their mistakes. I saw a plethora of suffering (mainly importers) during ‘The Assault on The Rand ‘ 9very nicely dissected by Barry Sergeant’s book) during my career of importers going into bankruptcy due to adverse exchange rate movements.
My view still is that only ‘’a dumb scull bonehead, horse-teeth rabbit’’ can claim that any currency-rigging didn’t have an impact on the South African economy and the public at large’’. The rigging mainly happened in USD/ZAR – which is ‘’an order market’’ – that is why it was so profitable and easy to pass on ‘’inside information’’ before rigging it!

Thanks for this…very insightful. Incredible in fact!

Back in my student days (25+ yrs ago, 1990’s), I worked in Nedbank’s Forex-processing side (not as trader though), and I can tell you a lot of anxiety with bank’s corporate clients when the currency turn against their “forward exchange contracts”. Were in constant contact with Nedbank’s “forex dealing room” to obtain best possible rates for importers….hectic times.

You’ve been there, had the exposure as Forex trader & being through it all. You can start writing a book perhaps similar to “The President’s Keepers” 😉

I started my trading in 1970 in the Gold and Foreign Exchange Dept of the SARB. Some 10 years before the De Kock commission awarded FX Banking dealing licenses to banks. Retired now but I must be the one dealer/treasure ”survived” the market the longest!.

I traded all over the world, and enjoyed every single day (even if one went from ”hero to zero” overnight on good/bad positions!
I have got extremely strong views on ”corruption” – and I believe i can/will one day start writing a book. I specialized (London- Paris training – employment), in derivative trading sales for the last 20 years of my career – and on that alone I can write a book about ”criminal banking propositions/hedges ‘that banks sells to corporate s etc.
I attended a seminar by John Belfort – The Wolf of Wall Street a couple of years ago – the man who taught the Mafia how to cheat – similarly the FX market is also starting to read the same with the dark side of the financial market underbelly.
I recently also started reading a old ”crime classic” Nick Leeson’s – Rouge Trader – a dealer who collapsed Barings BANK- under the eyes of The Bank of England!

I believe you and just getting forex from what is essentially the closed shop of licenced chums that is SA banking industry is to get ripped off at every turn. Banks will put up a bit of bluster about being fined – like all the other industries but at the end of the day the execs will get their bonuses and share options and the costs will be passed on to the consumer – crooked business as usual.

Until this happens; “They should also prosecute the FX Dealers involved – together with their Mid-Offices”, which is most unlikely in my view and sadly.

@Ask me. Thanks, have enjoyed reading your additional insight. I can remember the Baring Bank debacle…was an egg in the face of very high-placed British folks 😉 The guy who broke the Queen’s bank, was toted(?)

While I read your comment, I ponder today what really(?) happened in your view with the SA Reverse Bank’s BANCORP R2bn bailout in the 90’s…

(you can PM me at michaelstorm@telkomsa.net if you prefer)

I will do that…Ciaooo

They probably are but you must prove it damit.

End of comments.

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