Business and Technology

How 28 Banks In South Africa Sabotaged The Rand Making Trillions Daily

A number of the nation’s economic sectors were severely impacted when it was suspected that 28 South African and foreign banks conspired to manipulate the rand/dollar currency valuation. These sectors included imports and exports, foreign direct investment, public and private debt, and firm balance sheets.

The Competition Commission has set its sights on holding companies like Credit Suisse Securities (US), JP Morgan Chase, Standard Bank, Nedbank, FirstRand, Investec, Standard Americas, Australia and New Zealand Banking Group, Commerz Bank (Germany), Macquarie Bank Limited (Australia), Barclays, Bank of America, HSBC Bank, Merrill Lynch Pierce Fenner and Smith, and others accountable for the alleged collusion that took place between 2007 and 2013.

This legal battle is before the Competition Appeal Court (CAC) and is set to continue on Wednesday. According to the commission, which referred the matter to the Competition Tribunal, the banks are accused of engaging in “conduct considered the most egregious in competition law.
“The alleged conduct relates to fixing and manipulating the rand/dollar exchange rate, which has a central and crucial role in the South African economy.”

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In March, the Competition Tribunal ruled that it had jurisdiction to hear the so-called “Forex Cartel case” and dismissed a second round of exception, objection, and struck out applications brought by various banks, in response to the Competition Commission’s updated complaint referral, or charge sheet.

The commission alleges that between 2007 and at least 2013, 28 banks from multiple jurisdictions in Europe, South Africa, Australia and the US conspired to manipulate the Rand through information sharing on electronic and other platforms and through various coordination strategies when trading in the USD/ZAR currency pair.

It is alleged that the common objective of the participants was the manipulation and distortion of normal competitive conditions in the trading of the USD/ZAR currency pair through communication of competitively sensitive information relating to various steps of the value chain of setting foreign exchange.
They also observed patterns of behaviour by certain banks, which is said to be correlated to later observations of trends up and down in the FX rate IOL reported.

The commission also set out in detail examples of how the employees of the banks, the traders, engaged with each other in chat rooms on digital platforms, the Old Gits chatroom and the ZAR chatroom and personally, over drinks. Before the CAC , several banks argued that they were not involved in the chatrooms and, therefore, were not part of the alleged currency manipulation.

The Competition Commission says implicated banks in the alleged rand manipulation have generated about a trillion rand a day between 2007 and 2013, the Divisional Manager for Cartels at the Competition Commission Makgale Mohlala told the Competition Tribunal this week.

Five of the 28 banks have admitted to taking part in the alleged foreign exchange manipulation 16 years ago. The other banks have gone to the courts to appeal whether South Africa’s competition authorities have the jurisdiction to prosecute or have the material facts to prosecute, SABC reported.

“Either way it has an effect because at any given time in the trading market, there are buyers and sellers. South African firms that want to buy internationally, they’ll need to acquire the dollars in order for them to buy in the international market. If they buy in dollars that are expensive because of the manipulation, they are losing money. South Africans that want to sell in the international market, have to sell using dollars, so if they have to sell using a dollar that has been weakened by manipulations.

They are losing money. So, we have tried to quantify ultimately the card because the trading itself and the rules and it’s here can give some additional figures the trading itself it talks about trillions a day,” says Divisional Manager for Cartels for Competition Commission Makgale Mohlala.

It is believed that the 2013 cartel made a trillion rand a day due to price-fixing and market allocation by the 28 local and international banks. This week, the Competition Commission signed a settlement agreement with one of the banks implicated in the foreign exchange case.

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