Here’s one thing about the Competition Commission’s case against 28 banks for running an alleged cartel in the foreign exchange market: the traders are accused of having colluded to “hold” the rand at R7.56 to the dollar.
In a week in which the rand was trading at a buoyant R18.23/$, some might welcome a touch of collusion. That’s assuming it would have any effect in a $15bn-a-day market — which is a big question.
But the case has raised even bigger questions about the commission’s priorities and its competence. They touch on the broader question of how far SA’s competition authorities are focused on pursuing political, even populist, objectives rather than on making SA’s economy more competitive.
And if the banks case raises some disturbing questions about the authorities’ approach to cartels, so too does the commission’s recent public interest guidelines about its approach to mergers.
One has to wonder why the commission suddenly settled with Standard Chartered Bank this week, when it had been trying to shake down the UK-based bank for more money since 2019, when Standard Chartered first approached it.
This week’s settlement looked very much like a tactical move by the commission, which was at the Competition Appeal Court this week trying to demonstrate it had a legitimate case against all 28.
It did not go well for the commission. Indeed, while its officials were crowing in a media briefing about its settlement success, its advocates were facing accusations from the appeal court judges that the commission was “highly irresponsible” in some of its inferences and that it had shoved a whole lot of banks into the case on a “dubious basis”.
The case is being heard in Sandton by three judges, led by former appeal court president Dennis Davis. Lawyers don’t expect the court to chuck out the eight-year-old case completely. But it seems possible it could rule to exclude quite a few of the banks, including large local banks. Indeed, comments from judge V Nkosi strongly suggested: “It may actually be worth your while to pursue a smaller group that you have a good chance of making a case against, as opposed to going after a larger group where there may be challenges,” he told the commission’s senior counsel, Tembeka Ngcukaitobi.
If the case were to go that route it would likely leave just the handful of international banks whose traders were implicated in New York in 2015. Among them are Standard Chartered and Citi, both of which have now settled with the commission, as well as Barclays, which applied for leniency along with Absa, which at the time was part of Barclays. The US department of justice had evidence of a few others whose traders participated in the private online chat rooms where collusion occurred on a bunch of currencies, the rand included.
But the commission seeks to show that all 28 of the banks participated in a “single overarching conspiracy”. That is a demanding test, lawyers for the banks argued this week. It means the commission must show that each and every one of the banks was linked to all the other banks — that their traders participated in those chat rooms and knew there was a conspiracy going on. It has failed to show any such evidence in the case of a good few of the banks, including FirstRand, Standard and Nedbank. The commission argued for a far looser version of “conspiracy”, in which it simply inferred from banks’ trading behaviour that they were part of it.
The legalities matter a lot for the competition authorities’ approach to prosecuting cartels, which hinges on what lawyers call the “characterisation” of a cartel. There have been deep and meaningful debates between the lawyers and the bench this week over what’s required for a “single overarching conspiracy” and what the international precedents say. But there have also been deeply probing questions from the banks and the judges about the quality of the commission’s case.
It appears to have cut and pasted the original US case, adding local and foreign banks as it went along. Whether it ever did the necessary investigations or procured the necessary evidence was the subject of much questioning at court this week. It’s the reason the commission’s case has been subject to multiple legal challenges and still shows no sign of starting. And it’s surely worth recalling that the case was launched at the height of the state capture years, at a time when banks were in the crosshairs of SA’s politicians.
That it has continued regardless has costly consequences. If the Competition Appeal Court dismisses the case against many of the banks now and leaves just the New York core, we are back in 2015. The commission will have wasted years of its own time and that of the banks, as well as millions — if not billions — of rand of taxpayers’ and private money, trying to prove a giant conspiracy that even by its own admission ended in 2013.
If the case continues as is the challenges, and the costs, will only rise. The huge resources the commission is investing are resources that are not going into other cases that could have a real effect on SA’s economy, opening the space for entrepreneurs to survive and thrive, improving choice and price for consumers, and generally making the place more dynamic and more competitive. But then, it’s increasingly unclear whether this is in fact the priority for competition policy in SA.
Harvard professor Ricardo Hausmann argued this week that one reason for the state collapse that has undermined SA’s economic growth is that state organisations are overburdened with goals beyond their core missions and capabilities. The Competition Commission looks very much like one of those organisations. It’s loaded up with trade, industry & competition minister Ebrahim Patel’s localisation and BEE goals, among others.
The public interest guidelines for mergers that it released at the end of September put public interest criteria ahead of competition criteria on the list of boxes companies must tick to get approval for their deals. And they put BEE centre stage on that list, requiring companies to implement 5% or 10% BEE ownership transactions if they want to merge or acquire. It’s a move that simply cements what the commission and Patel have been doing for some time now, which is to use merger control to run a BEE side hustle.
It’s arguably all part of a pattern, which is concerning. The regulators tend to focus on attacking dominance by big players rather than on enabling smaller players. They pursue big, sexy cases that may overreach, and no doubt hope companies will settle just to avoid lengthy litigation, just as they will comply with a menu of public interest demands if they can afford the cost, just to avoid lengthy delays to their merger deals.
The worry is that if the competition authorities aren’t promoting competition in the economy, then who is?
• Joffe is editor at large.
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