Johannesburg - The head of the South African authority investigating banks for allegedly fixing the price of the rand said it will seek to prove “widespread” collusion and may probe more financial services companies with “stiff” fines expected.
Competition Commissioner Tembinkosi Bonakele, 39, said in a May 29 interview he was “fascinated” by the “very casual way” in which the alleged collusion between traders took place, mostly through electronic platforms. The investigation may involve more banks than the 11 organisations currently named, he said.
South Africa’s antitrust regulator on May 19 announced the probe into some of the world’s biggest banks including Citigroup and JPMorgan Chase & Company. It was in part triggered by similar currency rigging probes in the UK and US which led to fines worth billions of dollars, Bonakele said.
“It’s very clearly widespread, not an isolated type of incident,” Bonakele said in his office in the capital Pretoria. “The individual firms should expect that the fines will be fairly stiff compared with the past.”
The law allows the Competition Tribunal, which rules on the findings of the investigation by the commission, to impose a penalty of as much as 10 percent of a company’s turnover. The size of the fine is calculated taking into account the revenue generated by the division in which the alleged collusion was taking place and the duration of the behaviour.
Culture problem
Construction companies were collectively fined R1.5 billion ($122 million) by South African Competition Tribunal for colluding on stadium construction projects ahead of the country’s hosting of the 2010 soccer World Cup as well as other projects. Pioneer Foods Ltd agreed to pay a R500-million fine to end a probe into price-fixing in flour and corn processing. Both cases were based on recommendations from the commission.
The rand has weakened 5.4 percent against the dollar this year.
Traders at different banks allegedly used a chatroom called “ZAR Domination” on a financial services platform to share information about incoming quotes from clients wanting to buy or sell rand in bulk, he said. ZAR is the rand’s currency code. The alleged collusion was widely practiced and not the work of a few individuals, Bonakele said.
“Rogue elements in 11 respondents and involving a multiplicity of countries would be a bit of a stretch,” Bonakele said. “The banks have to accept that there’s a big problem of culture here which needs to be stamped out.”
Regulator surprised
BNP Paribas SA, Standard Bank Group Ltd, Barclays Africa Group Ltd, Barclays PLC, Investec Ltd, Standard Chartered PLC and some of their units were also named in the probe. The regulator is only obliged to approach the banks once it submits its findings to the Competition Tribunal for adjudication.
Standard Bank, Standard Chartered, Barclays Africa and Investec spokesmen said their banks will co-operate with the relevant authorities. Barclays and Citigroup didn’t immediately respond to calls and emails seeking comment. BNP Paribas and JPMorgan declined to comment. Citigroup has previously said it will co-operate.
“I am surprised that we’re still uncovering things like this,” Bonakele said. “And it’s a bigger question than just us. It requires regulators and policy makers around the world to solve it.”
Search, seizure
The commission’s 30-person cartels division, whose formation Bonakele drove, has search and seizure powers to access bank data.
“We are in the middle of an investigation, there could be things happening as we speak,” Bonakele said.
The commission has jurisdiction over any rand transactions, even if they happened abroad, as is the case with the ones being looked at by the regulator, Bonakele said. Given the banks are represented in South Africa, they will be obliged to pay any penalties levied, he said.
“The reality is that the bulk of trading in the rand happens offshore,” Bonakele said. “We are looking at trading off-shore in a big way.”
The regulator looked into the allegations for about a year before officially starting the probe about six weeks ago, Bonakele said. Who or what prompted the investigation was “sensitive”, he said. He declined to say how long the practice may have been taking place.
Settlements expected
Deputy South African Reserve Bank Governor Kuben Naidoo last week said it may have been a whistle-blower or “a confession” that sparked the probe. Companies being investigated by the Competition Commission can have their fines reduced by coming forward with information.
“I’m quite confident that at least some banks will settle,” Bonakele said. “They have settled elsewhere in the world, I’d be surprised if they don’t do so here. You’re likely to have some outcomes fairly quickly.”
One factor affecting the size of the fine is whether the banks take steps to end the alleged conduct, Bonakele said.
“Stopping the conduct doesn’t mean firing the trader, it just means taking steps to ensure the conduct doesn’t continue,” he said. “We are expecting fairly large penalties. There’s no point in beating about the bush.”
* With assistance from Antony Sguazzin in Johannesburg
Bloomberg