Tag: competition appeal court

South African Competition Appeal Court releases its decision in respect of the Forex matter: The hindering of international cartel conduct or the inadequate presentation of a case

Posted on by Editor

By Tyla Lee Coertzen and Sarah van den Barselaar

Introduction

In our previous update on this matter, we reported on the South African Competition Appeal Court (“CAC”)’s second hearing of the Forex case.

On Monday, 8 January 2024, the CAC handed down its judgement of the appeals brought by several national and foreign banks (the “Respondents”) against an earlier decision handed down by the South African Competition Tribunal (the “Tribunal”).

The CAC’s decision comes eight years after the South African Competition Commission (“Commission”) commenced its investigation into various national and foreign banks for alleged collusion and manipulation of the Rand-Dollar exchange rate between the years 2007 to 2013. The appeals heard by the CAC arose from the exceptions proceedings launched by majority of the Respondent banks, which sought to attack the allegations against them.

The CAC has now formally dismissed the cases against 23 of the 28 Respondents, highlighting a significant question on the impact of the judgement, namely whether it has the effect of hindering international cartel conduct or whether it was merely a product of an inadequate case presented by the Commission.

Background to the judgement

The CAC’s judgement follows a decision handed down by the Tribunal in 2019 (which ordered the Commission to comply with several requirements to establish the necessary jurisdiction over a number of Respondent banks who were neither domiciled nor carried on business in South Africa) as well as the 2020 decision of the CAC in the same matter. In this regard, the Commission was ordered by the Tribunal to reconfigure its referral affidavit to include allegations pertaining to, inter alia, (i) the establishment of a direct or immediate and substantial effect in South Africa, (ii) confining the case to a single overall conspiracy (“SOC”), (iii) the facts relied on to prove that the relevant bank had joined the SOC, and (iv) the facts on which the Commission relied to allege that there were adequate connecting factors between the Respondents. In summary, the Commission was ordered to amend its referral affidavit to ensure it met the requirements of both personal and subject matter jurisdiction against the Respondents.

The Commission based its entire case on the alleged SOC in which it alleges all of the Respondents were participants. The Commissions case thus had to: (i) meet the requirements set out in the Tribunal’s 2019 decision and the CAC’s 2020 decision, (ii) set out the core requirements of a SOC, and (iii) show that each firm was aware of actual conduct planned or put into effect by other undertakings in pursuit of same. The Commission’s case against the Respondent banks was based on the establishment of a SOC, namely, a common anti-competition objective (i.e., that each firm intentionally contributed to the common objectives that were pursued by all participants).

Simply put, the Commission had to prove that all the Respondent banks in its referral affidavit had perpetrated the SOC and, where that each bank could have reasonably foreseen their participation in the SOC, were aligned with the risk of such. In determining whether the Commission had alleged this, the following legal issues were placed before the CAC:

  1. whether Respondents who were not traders in foreign currency could be included in the alleged conduct;
  2. whether the referral affidavit complied with the requirements set out by the Tribunal;
  3. whether the Commission adequately demonstrated the existence of personal and subject matter jurisdiction in cases of pure peregrine (i.e., firms neither domiciled nor carrying on business in South Africa);
  4. whether the Commission adequately demonstrated the existence of personal and subject matter jurisdiction in cases of incola and local peregrine (i.e., banks with some presence in South Africa by way of a local branch in South Africa);
  5. whether the allegations contained in the referral affidavit were sufficient to show the Respondents had joined and/or actively participated in the SOC; and
  6. whether certain Respondents were incorrectly joined in the proceedings.

Key findings

The CAC made the following key findings.

Holding company liability

The CAC found that the fact that certain Respondents who were merely holding companies of banks (and who were not themselves registered banks and not authorized to trade in foreign currency) cannot be a sufficient basis on which to establish a case against such company. On this issue, and due to the insufficient evidence presented by the Commission, the CAC found that several Respondents had been incorrectly joined in the proceedings.

Personal and subject matter jurisdiction

The CAC found that that in establishing the requisite jurisdiction over international Respondents, there are separately defined requirements for the establishment of both personal and subject matter jurisdiction. Specifically, in respect of subject matter jurisdiction, it must be established that the alleged conduct has a direct or immediate or substantial effect in South Africa. On personal jurisdiction, the CAC found that one needed evidence of linkages to each South African bank as part of the SOC (thus linking the incola banks and the peregrini banks).

The CAC found that reference to an occasional participation without any evidence and that is not linked to a South African bank is inadequate to meet the requirements set out by the Tribunal, and resultantly found that the Commission had failed to show personal jurisdiction for several of the Respondents.

Non-traders

The CAC emphasized that the individuals who were not traders in foreign currency employed by the banks derived no basis to be joined to the matter. On this basis, the CAC dismissed the case against the sixth Respondent’s (namely, Standard New York Securities Inc.).

Impact of the judgement

Simply put, the CAC upheld the appeals brought by 23 of the Respondent banks and dismissed the appeals brought by the remaining 4 Respondent banks. As such, the remaining 4 Respondent banks will proceed to face charges at a main trial before the Tribunal alongside Investec Bank (who elected not to join the other Respondent banks in the exception proceedings).

The scope of the judgement is significant in that it did not sanction cartel conduct. Rather, the decision concerns the key averments that needed to be put forward by the Commission in order to successfully present a case against all the Respondent banks it joined in the proceedings. While the Commission had several opportunities to amend its pleadings in order to comply with the requirements set out by the Tribunal and the CAC, it could not do so adequately and was unable to provide the necessary evidence nor establish the necessary jurisdiction against several of the Respondent banks. Thus, the CAC’s judgement represents the Commission’s inadequate case for prosecution of the alleged cartel conduct.

The inadequacies are seen in the findings of the CAC, including, inter alia, the Commission failing to comply with the requirements of the CAC’s 2020 decision, and the failure of the Commission to lead a sufficient case with adequate evidence against the Respondent banks. This is despite the Tribunal’s previous decision indicating the need to establish personal jurisdiction and allowing the Commission the ability to reconfigure its referral affidavit in an attempt to ensure a fair and just handling of the matter. Despite several years of investigations and preparation, the CAC’s recent judgement represents a mere product of the Commission’s case being flawed and lacking necessary evidence.

South African Competition Appeal Court Still Grappling with Complex Forex Case

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By Gina Lodolo and Nicola Taljaard

Eight years after the South African Competition Commission (“Commission”) commenced its investigation into various national and foreign banks (“the Respondents”) in the Rand rigging case commonly referred to as the “Forex case”, the competition authorities continue to grapple with this complex case. While the Commission has continued to encourage the respondent banks to enter into settlement agreements with it, and several banks have done so, the case continues in respect of several Respondents. 

Briefly, the Forex case pertains to an allegation of collusion between South African and foreign banks which would have led to the manipulation of the Rand-Dollar exchange rate amongst said banks. The complained of conduct is alleged to have occurred between 2007 – 2013 (at least) amongst 28 banks in Europe, South Africa, Australia, and the United States of America. The banks allegedly conspired to manipulate the South African Rand by, inter alia, electronically sharing information on USD/ZAR currency pair trades. The harm alleged to the Commission extended to the Rand exchange rate, which had spillover effects on South African trade, foreign direct investment, corporate balance sheets, public and private debt, financial assets, and concomitant prices of goods and services. Accordingly, the Commission’s case is premised on section 4(1)(b)(i) and (ii) of the Competition Act 89 of 1998 (“Act”) – being market allocation and price fixing.

Earlier this month, the Competition Appeal Court (“CAC”) again heard the Forex case, as new arguments have come to the fore. This time, the remaining Respondents have alleged that the Commission bears the onus to prove that all the Respondents partook in a single overarching conspiracy to manipulate the Rand. In this regard, despite the Tribunal having noted that the Commission’s referral “contains adequate details that have enabled us to conclude that the Referral, as a whole, prima facie, shows that there was a [single overall conspiracy] between the foreign and local banks to manipulate trading in the USD/ZAR currency pair”, the Respondents maintain that the case cannot proceed until this onus has been fully discharged.

Despite various developments over the past years, including a number of unsuccessful exception, objection, dismissal and strike out applications brought by the Respondents relating to jurisdiction, prescription and lack of particularity as well as successful joinder applications (in respect of the primary case) by the Commission, the case has not substantively progressed, and it currently stands to become one of the longest running matters before the competition authorities.

One of the Respondent’s Standard Chartered Bank (“SCB”), a multinational British Bank, has also recently entered into a settlement agreement with the Commission, in terms of which it admitted liability to the manipulation of the USD/ZAR currency pair and agreed to pay an administrative penalty of c.ZAR 42 million. SCB’s settlement follows a similar settlement between the Commission and Citibank in 2017. The Commission did not seek penalties against ABSA Bank, Barclays Capital and Barclays Bank as these Respondents had applied and were granted leniency in terms of the Commission’ Corporate Leniency Policy.  

 The Tribunal and CAC did, however, in March this year, require that the Commission file a new referral affidavit in order to substantiate the case that it had previously pleaded insufficiently. As to the Respondent’s argument that the Commission could not initiate complaint referrals absent the initiation of an investigation, the Tribunal noted that while the Commission needs to commence an investigation against a Respondent specifically to be able to initiate a complain referral against them, it clarified that whether such initiation is express or tacit, is immaterial. The Tribunal further noted that to oblige the Commission to specifically mention each respondent in its complaint to the Tribunal would lead to an absurd outcome, namely that the Commission would be precluded from joining potential or even self-confessed member(s) of a cartel subsequent to its complaint referral.

As it stands, the CAC continues to hear arguments on behalf of 13 banks, predominantly regarding evidence as to their involvement in the alleged “single overarching conspiracy”, and while the Respondents have spared no expense in defending their case, the competition authorities have in no way backed down.

This is an important case, but has also served as an important precedent setting case in relation to whether the Tribunal has jurisdiction to adjudicate a matter involving foreign entities (i.e., whether the Commission has jurisdiction to hear a complaint where firms are neither domiciled nor carry business in the Republic of South Africa). In this regard, the CAC held that the Competition Tribunal could enjoy personal and subject matter jurisdiction over pure peregrini, provided that there were adequate connecting factors between the foreign firms’ conduct and the complaint from the Commission and upheld that Tribunal’s decision in relation to local peregrini that the Tribunal had jurisdiction where the qualified effects test was met and that a penalty sought should be confined to turnover within and exports from South Africa.

Primerio Director, Michael-James Currie provides the following insights: “the Forex case has, throughout the several bouts before the adjudicative bodies, confirmed that the thresholds for establishing jurisdiction over foreign entities and foreign conduct have been lowered. The Commission does however still have the onus on demonstrating that the conduct had a “substantial, direct and reasonably foreseeable effect in South Africa”. This will likely remain a contentious issue at trial as even South Africa’s National Treasury has confirmed that the conduct unlikely had any impact on the ZAR exchange rate. To the extent that individuals were prejudiced by the alleged conduct, it would be particularly interesting to see whether such victims would consider civil follow-on damages actions.”

[Gina Lodolo and Nicola Taljaard are lawyers in the competition law department at Primerio. The views expressed in this article are their own and not attributable to Primerio]