Picture: REUTERS
Picture: REUTERS

Banks implicated in fixing the rand price are unlikely to be hit with heavy penalties, say analysts.

The Competition Commission on Wednesday recommended that the Competition Tribunal punish 15 local and foreign-owned banks operating in South Africa for price-fixing.

If the tribunal agrees, the banks face a fine of up to 10% of their annual turnover.

The commission's investigation started in April 2015 and goes back to 2007.

Standard Bank could be fined tens of billions of rands if it were found that its traders colluded in fixing the prices at which they bought and sold rands.

The Times has calculated that, with about R515bn in income from banking operations between 2007 and 2014, the bank would have to pay R51bn in fines.

But the implicated banks would have to pay much less if the fine were calculated on the turnover of their currency units, said Intellidex analyst Stuart Theobald.

The commission investigated Standard, Investec and Absa but has exempted Absa from penalties because it co-operated in the investigation.

In parliament yesterday, President Jacob Zuma said the banks had a case to answer at the tribunal.

The government is stepping up its assault on the country's four biggest lenders. The ANC is determined to break their dominance of the sector and force them to lend more to blacks on less stringent terms.

The banks incurred Zuma's ire when they closed the accounts of companies tied to the Gupta family, which is accused of using its close relationship with Zuma to influence government appointments and the awarding of state contracts.

"The timing [of the price-fixing allegations] couldn't be worse for the banks," said Adrian Saville, chief strategist at Citadel Investment Services and Cannon Asset Managers.

"It comes at a time when they're trying to demonstrate their impeccable behaviour. It makes a case for intervention."

Legal and financial experts believe it is unlikely that the implicated banks - which include Bank of America Merrill Lynch, HSBC Holdings, BNP Paribas, Credit Suisse Group, JPMorgan Chase & Co and Nomura Holdings - would have to pay huge fines if the Competition Tribunal found against them.

Theobald said that, if there were a possibility of a massive fine, the banks' share prices would be plummeting.

They dipped slightly on the announcement of the allegations but improved almost immediately.

Prosecution of the banks would be difficult because many of the traders were offshore.

Lawyers said that the Competition Act gave the authorities jurisdiction over activities that took place, or had an economic effect, in South Africa.

Mitch Morrison, a director of Fullard Meyer Morrison, said this meant some banks might be able to "blow off" regulators because they are not physically present in South Africa.

"South African banks might be able to use the fact that trades took place offshore as a defence," he said.

Wits University associate professor of competition law Kasturi Moodaliyar said that, if the banks' conduct had an economic effect in South Africa, the competition authorities would have jurisdiction. But that would be hard to prove.

Just One Lap trader Simon Brown said that, if traders had colluded to raise or lower the price at which the rand was sold, it would not have had a long-term effect on the rand's value.

"It looks like it was only the gap between what banks buy and sell currency for that was manipulated. This is how banks make their money in forex. You buy for less than you sell for, and that spread is your profit. This doesn't affect what the actual exchange rate is."

The local banks cited in the allegations might negotiate a fine to avoid a drawn out prosecution.

Director for competition law at Clifford Dekker Hofmeyr, Lara Granville, said in recent cartel cases the accused usually settled with a fine.

"There have been relatively few cartel cases actually litigated before the Competition Tribunal when the targets of these investigations have been found to have contravened the cartel provisions after fully contested litigation.

"On the other hand, there are many instances of parties admitting to engaging in cartel activity in a settlement agreement."

- The Times

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