CompCom wants authority over non SA banks

The Competition Appeal Court has given the Competition Commission 40 days to panel beat allegations of currency manipulation by 16 non-South African domiciled banks into a case that will pass legal muster.

The CAC’s ruling, which was largely supportive of the commission but did slam it for its haphazard approach, was given in response to an appeal by the 16 banks of a Competition Tribunal decision issued last June.

The ruling is the latest indication that courts across the globe are looking to strengthen the ability of regulators to deal with powerful multinational corporations. Late last year, the New York Southern District Court ruled that the US Department of Justice could refer to the guilty pleas of some of the world’s biggest banks during the trial of a former foreign exchange trader. And in November a federal jury in New York found, Akshay Aiyer a former JP Morgan Chase & Co forex trader, guilty of currency manipulation. Aiyer, who has launched a bit to have the conviction overturned, is the first person to have been found guilty of manipulating currencies. The manipulated currencies included the rand.

Merits of the case not yet dealt with 

The latest CAC development, in a case that has dragged on for five years without coming close to dealing with the substance of the allegations, deals with crucial challenges to the local competition authorities’ jurisdiction.

“This appeal concerns the vital question as to the scope of the respondent (the Competition Commission) in enforcing the vision of the Competition Act as formulated and passed by the democratically elected parliament of this country,” said Dennis Davis, president of the CAC.

One competition lawyer described the CAC ruling as “a brave attempt to bring the law into line with reality” but said it might not survive an expected appeal to the Constitutional Court. Assuming it is not overturned by the Constitutional Court, the CAC decision could help to develop the law to reflect the realities of economic globalization in the 21st century.

Attempts to address ‘peregrini status’

As things stand, the 16 banks are relying on centuries-old common law, applied across the globe, to shelter them from any action by the South African regulators. In terms of this common law practice parties, cannot be prosecuted if punishment cannot be enforced and, punishment cannot be enforced if the party is not resident in the state.

In law it’s referred to as peregrini status and the 16 banks are claiming they enjoy this status, which means the SA competition authorities have no jurisdiction over them.

This centuries-old legal practice had limited impact on the sovereignty of nation-states until the 20th century when companies became powerful entities with tentacles spread across the globe. “The rapid globalization of markets has challenged the ability of the nation-state to pursue policies borne of indigenous democratic choice,” said Davis, adding “Multinational corporations are often more powerful than nation-states and can strategically comport their economic behaviour to avoid national regulation.”

Eleanor Fox, a professor of law at New York University School of Law, an expert in antitrust and competition policy and, a frequent visitor to SA, says some constraints on jurisdiction are necessary to prevent individual nations from exercising unlimited power but warns about “footloose ‘peregrini falcons’ striking with impunity”.

In its 2019 ruling Tribunal did not challenge the ‘peregrini’ status but said the commission could request a reputationally damaging declaratory order against the 16 banks for being part of a cartel.

The commission wasn’t satisfied with that, it appealed to the CAC because it wanted the tribunal to change the common law as it impacted the Competition Act. It also wanted the Act’s jurisdiction to extend to parties that may not be physically resident in SA but who “carry on economic activities that have an effect in SA”. The CAC ruling opens the way for that to now happen.

Rand manipulation. Who was harmed?

However, in addition to the challenge around jurisdictional issues, if it is to have any hope of success, the competition authorities will also have to quantify the harm that has been done by the alleged currency manipulation. And prove that harm is anti-competitive. Competition law usually measures anticompetitive effects in terms of increased prices, which are not always evident in forex markets

In the successful New York case against Aiyer the DoJ called representatives of asset management companies who testified that they were harmed by the traders’ collusion.

In his bid to overturn his conviction, Aiyer claims his alleged co-conspirators were not competitors and therefore his conduct was not anti-competitive. He also claims the DOJ’s witnesses – Jason Katz who worked at Barclays and BNP Paribas and Christopher Cummins who worked at Citigroup – were not credible. Katz and Cummins, who pleaded guilty and agreed to cooperate with prosecutors, testified that Aiyer was an active and knowing participant in the conspiracy to fix prices and rig bids.

All-in-all it’s likely to be many more years before the commission gets close to finalising a currency manipulation case that has any hope of success.

Source: moneyweb.co.za