THE Competition Tribunal, in its interim ruling between the Sekunjalo Group vs the Banks, stated that the banks failed to prove the veracity of the offences allegedly committed by Sekunjalo which resulted in the closure of their bank accounts based on perceived reputational risk.
The Tribunal granted interim relief to Sekunjalo last week preventing three major banks from closing bank accounts belonging to the Group. It also ordered the banks that had closed the accounts to reopen them.
The banks in question included Nedbank, Absa, First Rand, Sasfin, Access Bank, Standard Bank, Mercantile, Bidvest, and Investec.
Thirty-six applicants linked to Sekunjalo in an urgent application were seeking interim relief to have their banking facilities restored and prevent their other accounts from being closed. Access Bank, Nedbank, Investec Bank, Sasfin Bank, Absa Bank, First National Bank, Mercantile Bank, and Bidvest were the respondents in the matter.
In the ruling, the Tribunal said that the argument advanced by the banks based on “reputational risk”, or their reliance on the John Bredenkamp case or regulatory framework was simply misplaced and mentioned that none of the pieces of legislation they invoked supported their position.
“While in contract law Bredenkamp may entitle the Respondent Banks to terminate a banking relationship without reasons, unilaterally, and on reputational risk (an interpretation disputed by the Applicants), this does not trump compliance by the banks with competition law,” read the ruling.
Major banks in South Africa had used the Bredenkamp case to end banking relationships with clients citing reputational risk.
Bredenkamp was an influential business tycoon suspected of being involved in illicit business activities including tobacco trading, arms trafficking, oil distribution, and diamond extraction.
In 2008, the US Department of Treasury’s Office of Foreign Assets Control (OFAC), listed Bredenkamp and the other applicants (businesses and a Trust owned by him) as “specially designated foreign nationals” (SFNs). The listing resulted from "suspected illicit business".
Following the listing, Standard Bank moved to terminate the relationship between it and Bredenkamp, which he naturally challenged. However, the matter ended with the court ruling in the main application that the banks had a right to terminate the relationship between them and their customers unilaterally. This resulted in Bredenkamp losing the case.
Illustrating the contrast between Sekunjalo and the Bredenkamp case, the Tribunal asserted that where the exercise of a private commercial right did not cause competition harm then Bredenkamp and the Act may well be aligned, and the banks’ closure of the bank accounts would be of no consequence competition-wise.
However, where there is harm to competition, the competition authorities are obligated to intervene.
In their application, Sekunjalo argued that: “Without banking and payment services, the applicants would ultimately cease to trade, effective competition within the markets in which they operate will be eliminated reversing some of the transformational gains made in the media, ICT, healthcare, and fishing sectors.”
The Tribunal said it was persuaded by the Sekunjalo’s evidence on harm to competition in the markets in which they operate and their inability to sustain themselves in those markets, absent the bank accounts.
“As shown in our assessment of the need to prevent irreparable harm and the balance of convenience, we were further persuaded by the prejudice to the Applicants without interim relief, given the extent of irreparable harm if they cannot sustain themselves in their markets. For the above reasons, we conclude that in this case it is reasonable and just to grant interim relief to the Applicants,” read the ruling.
In addition, the Tribunal asserted that refusing to supply a scarce (banking) service to a customer when it is economically feasible was an exclusionary act.
“It is prohibited for a dominant firm to engage in an exclusionary act. The respondent Banks, on a prima facie basis, face a serious conflict of interest. The undisputed evidence before us shows that the Respondent Banks have a selective approach in closing bank accounts of the disfavoured Sekunjalo Group of companies.
“The undisputed evidence before us suggests that other favoured firms accused of conduct (or who have been found to have engaged in conduct) that could be said to cause reputational risk, have not faced a similar approach by the Respondent Banks.
“This suggests, prima facie, that the conduct of the Respondent Banks is not designed to effectively attain the claimed efficiencies and is not reasonably necessary for that purpose,” read the Tribunal ruling.
Furthermore, the Tribunal directed that the banks desist from terminating the bank accounts of the Sekunjalo for any reason not sustainable in law. In addition, they are to desist from unilaterally changing the terms and conditions that attach to the applicants’ bank accounts and/or services.
The interim relief by the tribunal will subsist for a period of six months pending the conclusion of an investigation by the Competition Commission into a complaint regarding restrictive practices filed by the Sekunjalo Group against the banks.