14 February 2019

South Africa: Banks That Manipulate the Rand - Are Millions in Fines a Deterrent?

Photo: Pixabay
The South African rand.

British multinational banking and financial services company, Standard Chartered has pleaded guilty to manipulating currencies, including the rand, between 2007 and 2013, South Africa's Competition Commission has said in a statement.

The bank had reached a settlement with the New York State Department of Financial Services (DFS) to pay them U.S.$40 million (about R530 million) and the commission, which conducted its own investigation, said it would consider the impact of the agreement on its own legal action against banks.

The local forex cartel case dates back to February 2017, when the commission referred to the Competition Tribunal a collusion case for prosecution against 17 banks.

Locally, Absa, Standard Bank and Barclays are implicated.

Other banks named include; Bank of America Merrill Lynch International Limited, BNP Paribas, JP Morgan Chase & Co, JP Morgan Chase Bank N.A, Investec Ltd, Standard New York Securities Inc., HSBC Bank Plc, Standard Chartered Bank, Credit Suisse Group, Standard Bank of South Africa Ltd, Commerzbank AG, Australia and New Zealand Banking Group Limited, Nomura International Plc., Macquarie Bank Limited.

The commission found that from 2007 the banks had "at least a general agreement" to collude on prices for bids, offers and bid-offer spreads for the spot trades, in trading involving the U.S. dollar and the rand.

They assisted each other to reach the desired prices by coordinating trading times, reached agreements to refrain from trading, taking turns in transacting by either pulling or holding trading activities on the Reuters currency trading platform. They also created fictitious bids and offers, distorting demand and supply in order to achieve their profit motives.

Citibank was the first of the respondents to plead guilty, and reached a settlement agreement with the commission to pay a fine of R69.5 million for being part of the forex trading cartel, Fin24 previously reported in 2017.

In February 2017, Absa was spared a fine when it apologised for its involvement, applied for corporate leniency as a "whistle-blower", and admitted guilt.

The commission wants the banks to pay 10% of their annual profits as an administration penalty and wants the Competition Tribunal to rule that the banks contravened the Competition Act.

The Banks' motivation to collude and manipulate prices boils down to simple self-enrichment, but has grave repercussions.

The trades can affect the going exchange rate. And if that gets manipulated either way, it means that someone is losing. If the currency is artificially weaker, it could negatively affect companies that need to import goods into South Africa. Similarly, if the currency is artificially stronger, it could negatively affect South African companies that want to export local commodities or goods.

Although the Commission has warned financial institutions that play with the Rand as they pose an attack on the sovereignty of South Africa, the question that remains is whether or not those found guilty will do it again.

"It is a security concern. It is an attack on the sovereignty of the country. We have to work together with all the agencies to make sure that these kinds of things don't happen. We should look at and try and avoid and protect our markets and currencies," the Competition Commission Spokesperson Sipho Ngwema says.

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