The Competition Commission is set to fiercely defend its authority to prosecute international banks accused of manipulating the rand as the next chapter of the long-running battle opens up in the Constitutional Court later this month.
The watchdog has accused several local and offshore banks of colluding to co-ordinate rand-dollar trading in an instant chat room dubbed “ZAR Domination”, a nod to the rand ISO currency code, for a period stretching from 2007 to 2013.
The commission, which issued the findings of its investigations in 2015, recommended fines of up to 10% of each bank’s SA revenue on grounds that the lenders’ conduct upended both local markets and everyday prices for South Africans.
But some of the offshore banks implicated in the near-decade-long saga, including JPMorgan, Citi, Bank of America and European banking group Credit Suisse, have argued that the antitrust body has no jurisdiction to prosecute them.
In its court papers, obtained by Business Day, the commission argued that the banks’ manipulation of the rand echoed across SA’s economy, distorting international trade and financial transactions, skewing imports and exports, deterring foreign direct investment, inflating public and private debt, and warping the pricing of goods, services and financial assets for ordinary South Africans.
“It would be quite extraordinary to preclude South African authorities from prosecuting the price-fixing of the sovereign currency, for example, because some of the conduct occurred outside SA’s borders,” the commission said, highlighting examples in other jurisdictions.
“In EG bonds, the European Commission in 2021 found seven banks (including Bank of America and Nomura) guilty of collusion in respect of the trading of sovereign debt (European government bonds) in multiple jurisdictions facilitated by traders sharing commercially sensitive information, including their trading strategies, in multilateral trading chat rooms,” it said.
“The banks were found guilty of participating in an SOC [single overarching conspiracy] (termed in Europe as a single continuous infringement) to price fix. Attempts by some of the guilty banks to set aside this decision were unsuccessful.”
The commission has also brought to the apex court’s attention a November 2024 judgment by the EU General Court, which dismissed Credit Suisse’s appeal over its participation regarding cartel activity in the supranational, sovereign and agency bond market.
A ruling in favour of the commission would challenge the notion that the rand can be treated as a law-free zone.
The commission says SA authorities have jurisdiction over the foreign companies because they participated, “together with the SA respondents”, “in a conspiracy involving the exchange rate of the SA rand” and their participation and engagement in “conduct to implement the conspiracy”.
The watchdog said the conduct constitutes “economic activity having direct/immediate, substantial and foreseeable consequences upon the economy” of SA.
A ruling in favour of the commission would challenge the notion that the rand can be treated as a law-free zone when traded offshore, pave the way for extraterritorial antitrust reach and slap the banks with multibillion-rand fines and reputational pain.
A defeat on jurisdictional grounds could effectively create a blind spot where powerful actors operate with impunity and cast a long shadow on SA’s ability to protect its currency from external abuse.
The commission’s claim of jurisdiction over the offshore banks might find support in a recent high court ruling, which found that SA authorities are entitled to pursue international companies whose actions affect SA entities and its economy.
The high court last month ruled that the Financial Sector Conduct Authority (FSCA) was within the regulators’ province to pursue and fine US-based short seller Viceroy over “false” statements about Capitec in 2018, which saw the group’s shares plunge on the JSE after the firm accused it of predatory lending.
The judgment handed down by Judge Nicolene Janse van Nieuwenhuizen found the Financial Services Tribunal erred when it found that the FSCA lacked jurisdiction over the person of the Viceroy partners because they are foreign litigants not domiciled within the jurisdiction of SA’s courts.
The tribunal’s decision, which the FSCA has now successfully overturned, had in effect allowed Viceroy not to face the wrath of SA authorities.
The commission will ask the apex court to put an end to the banks’ “delay tactics” so that they answer to the case it says it has made out against them.
“The referral establishes that the conduct had a direct and substantial effect in SA. The respondents’ conduct in question involves the manipulation of the value of the rand and affects customers within SA who use the rand,” the commission said.
“The effects of the conspiracy are set out in detail in the referral and quite clearly are effects felt on the SA economy. SA authorities have the most relevant interest in investigating and prosecuting this conduct in respect of the SA currency.”
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