Footloose currency fixers
The case that the Competition Commission is trying to make over currency manipulation faces two major obstacles – jurisdiction over foreign banks, and establishing who really got hurt
A leading international competition expert has welcomed the Competition Tribunal’s recent decision not to dismiss a currency manipulation case against 23 banks, given the restrictions imposed by international principles of jurisdiction.
The Competition Commission might have thought it was dealing with a reasonably straightforward case back in 2015, when it launched an investigation into the suspected manipulation of the foreign exchange market.
At that stage, much of the heavy lifting appeared to have already been done by the US and UK authorities in a similar case, which ended with four major global banks pleading guilty to conspiring to manipulate foreign exchange rates.
In April 2015 the four banks agreed to pay a combined $6bn in fines.
Traders at Citigroup, JPMorgan Chase & Co, Barclays and Royal Bank of Scotland had used invitation-only chat rooms and coded language to co-ordinate price-setting activity. In SA, authorities were looking at similar chat rooms and coded language used by the 23 banks.
Even the use of prankish code names was similar: the US and UK traders called themselves "the cartel" and "the mafia", while one of the rand chat rooms was called "ZARdomination".
Eleanor Fox, a professor of law at New York University School of Law and an expert in antitrust and competition policy, tells the FM SA’s authorities have done well given the challenges they face.
"The tribunal’s ruling represents an interesting advance in a difficult situation," says Fox. She believes some constraints on jurisdiction are necessary to prevent individual nations from being given unlimited power. "But these are international problems and we do not have the international law needed to deal with them."
Hence, it seems, the reliance on conservative international principles.
Fox, who is a frequent visitor to SA, is particularly concerned about the law’s handling of jurisdiction, which she says may let "footloose ‘peregrini falcons’ strike with impunity".
Sixteen of the banks are claiming "peregrini" status as firms that are neither domiciled nor carry on business in SA. If successful, the commission would not be able to touch them: in terms of centuries-old common law they will not be prosecuted because punishment cannot be enforced. Tribunal chair Norman Manoim ruled that nine were pure peregrini and seven were "local" peregrini, but significantly he allowed the commission to request a declaratory order that all 16 were part of a cartel.
A second major challenge for the commission is quantifying the harm that has been done. This is remarkably difficult i n the murky world of forex.
"There may be questions about whether the harms in forex qualify as anticompetitive harms," says Fox, who explains that competition law usually measures anticompetitive effects in terms of increased prices, which are not always evident in forex markets. "When banks fix exchange rates, sometimes one currency is too dear and sometimes the other currency is; it is not easy to trace effects."
These two rather arcane concepts — jurisdiction and harm — are why the commission has a tougher battle on its hands than the one fought and won by the UK and US authorities.
"The limits to jurisdiction mean that huge international players [pure peregrini for SA] can exploit the world and be virtually immune from accountability.
"This is especially the case if the home countries profit from the strategies and the weak countries suffer," says Fox.
This means that even if there is some legal action in the home countries — as there has been in this case — that action does not take account of the harm caused abroad.
But while the commission faces an uphill battle, the tribunal has not dismissed the case — to the banks’ dismay. They have described the case as "vague and embarrassing", with Investec going so far as to call the commission’s conduct vexatious and unreasonable. It has taken the unprecedented step of asking the tribunal "to grant an order of censure as a mark of disapproval of the commission’s conduct in this litigation", says Manoim.
He has given the commission 40 days to draw up charges that will pass legal muster and withstand the power of indignant bankers. He has also made clear the pure peregrini are not off the hook, and face the reputational damage of a declaratory order if the commission’s case succeeds.
The banks are holding firm. Standard Bank and Investec have said they look forward to the commission’s new referral.
The international banks aren’t responding at this stage. "Bank of America Merrill Lynch International declines to comment on the tribunal’s ruling," a spokesperson tells the FM.
However, not all the banks are putting up a fight. Citibank has settled with the commission, and Absa and Barclays have been granted conditional immunity, depending on the extent of their co-operation with the authorities.