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Treasury slams banks snared in global forex collusion

Publish date: 17 February 2017
Issue Number: 4170
Diary: Legalbrief Today
Category: Competition

The Competition Commission’s decision to prosecute major local and international banks for manipulating the foreign exchange market has been followed by outrage from the government, with the Treasury saying it pointed to poor market conduct practices at the offending institutions, notes a Business Day report. The 17 banks investigated included Absa, Barclays, Standard Bank and Investec and a host of international institutions. The Treasury said that if proven to be true, ‘it would confirm the pervasiveness of unbridled greed within ... banks even after evidence that such behaviour has potential to collapse national and global financial systems. This has to be punished and brought to an end!’ At the time that the collusion allegedly took place – from 2007-15 – no market conduct supervision was in place, said the Treasury. While the Reserve Bank was a prudential banking supervisor, it did not monitor market conduct. Twin peaks legislation, being processed by Parliament, had been proposed to fill this gap, it said. Absa, Citigroup and Barclays will not be targeted for fines, the commission said, which bank sources confirmed was because they have co-operated with the regulators. The two local banks probed by the commission and facing a penalty once the case heads to the Competition Tribunal – Investec and Standard Bank – face a cumulative R69.7bn in fines, representing 10% of their turnover for each of the years they have breached the Competition Act. The commission’s investigation is the latest move in a number of high-profile legal actions executed across the world in the wake of a continuing probe by the US Justice Department. The commission confirmed yesterday that it had worked ‘very closely’ with its counterparts in other jurisdictions. One leading competition lawyer said the local authorities would have had to work closely with the US Justice Department and others in preparing their case.

Full Business Day report

The National Union of Metalworkers (Numsa) said the banks had betrayed the people of SA, according to a TimesLIVE report. ‘In other words‚ these institutions have been making money by betting against our rand. They have rigged the system in such a way that no matter how the currency fluctuates they always make money‚’ said Numsa general secretary Irvin Jim in a statement yesterday. ‘Numsa condemns the corrupt activities of these banks. To describe it as collusion is to sanitise their reckless‚ immoral‚ corrupt and illegal activities.’ The trade union once again called for radical economic transformation through nationalisation.

Full TimesLIVE report

The commission’s decision to prosecute is badly timed for SA’s top four banks, who are trying keep the moral high ground after blacklisting the Guptas due to allegations of state capture. That is the message from Adrian Saville, chief strategist at Citadel Investment Services & Cannon Asset Managers, notes a Fin24 report. ‘The timing for banks couldn’t be worse,’ he said yesterday. ‘They’ve been trying to capture the moral high ground on the Gupta issue. It comes at a time when they’re trying to demonstrate impeccable behaviour. It makes a case for intervention.’ Although only Standard Bank and Absa were cited in the decision, the move will likely impact the entire banking industry. The outcome of the probe comes as President Jacob Zuma and the ANC step up pressure to break the dominance of SA’s four largest lenders. Zuma and the banks have been locked in a stand-off ever since the lenders closed the accounts of companies tied to his friends, the Guptas.

Full Fin24 report

The revelation that SA may have been a party in the global forex corruption saga 'is profoundly disturbing', according to a Business Day editorial. It points out SA’s banks are large and powerful corporate citizens that constantly proclaim themselves to be upstanding and committed to acting in the best interests of the country. The editorial notes the Competition Commission’s announcement comes just as the big four banks are facing unprecedented political heat. ‘President Jacob Zuma has previously suggested that the banks colluded in closing the accounts of his friends, the Guptas. More recently and more legitimately, he has bemoaned the high level of concentration in the sector in which the top four banks hold 90% of market share.’ The editorial notes that Parliament’s Finance Committee is due to start public hearings next month to look at, among other things, market concentration. ‘With collusion among the banks now firmly in the spotlight, legislators will focus on regulation as well as market structure and empowerment issues with new vigour. This is not a bad thing and if done in accordance with international best practice – as has typically been the case with regulation introduced in the post-1994 era – it should be good for the economy.’

Full Business Day editorial (subscription needed)