Although a cartel offence is in the books in terms of section 73A of the Competition Act in relation to the recent currency manipulation scandal, it is unlikely that directors at Standard Chartered Bank will be criminally prosecuted because some of the provisions are yet to enter into force.
This is according to UWC senior lecturer in the mercantile law department, Dr Precious Ndlovu.
Meanwhile, the National Treasury also noted with concern the admission of misconduct relating to the trading of the rand/US dollar currency pair.
This comes after the British bank entered a settlement agreement with the Competition Commission for manipulating the rand/dollar exchange rate.
The bank agreed to pay R42.7 million, while admitting liability to the currency manipulation charges, and further agreeing to provide the commission with transcripts of online communications, implicating 27 other banks allegedly involved in the scheme.
Treasury said it will next year introduce further legislation to ensure South African financial markets are “fair, transparent and operate with integrity”.
“The Conduct of Financial Institutions (CoFI) Bill will propose that over the counter (OTC) derivative providers are carried into the CoFI licensing activities and will be subject to the CoFI Act.
“This implies that requirements for good governance, transparency and managing conflicts of interest will continue to apply.
“The spot OTC market reforms will be considered as part of the review of the Financial Market Act Bill (FMAB).
The OTC market participants will also be subject to core CoFI conduct requirements as part of the FMAB review,” Treasury said.
Legal experts explained that while he settlement may have been seen as a “slap on the wrist” compared to the bank’s $1 billion turnover, there were other remedies available as in 2009, legislators inserted S 73A(1) in the Competition Act. This prescribes that anyone who causes or permits the firm to engage in cartel conduct, while being a director of the firm, is guilty of a criminal offence, exposing directors of Standard Chartered Bank to potential criminal liability.
Ndlovu said: “The criminal offence created by section 73A is directed at the ‘controlling mind’ of a firm, that is, persons serving as directors of firms, or persons in management positions.
For conduct to fall within the purview of section 73A, there must be a causal link between a director or a person in a management position and the cartel conduct as prohibited by section 4(1)(b); or the director or person in a management position must have ‘knowingly acquiesced’ to the firm’s participation in the cartel activity. If the threshold is met, prosecution can only be done under two circumstances: where there have been admissions of liability made in consent orders, which Standard Chartered Bank has done in the consent order; or where the Competition Tribunal, or the Competition Appeal Court, have found that cartel conduct has occurred.”
Both grounds raise concerns because competition law violations are proved on a civil standard – proof on a balance, or preponderance of probabilities – which is less exerting, while criminal law violations are proved beyond a reasonable doubt, Ndlovu said.
“This is especially problematic when the criminal prosecution of cartel conduct is expressly based on the findings of competition regulators, where the burden of proving a competition law violation is much lighter.
“Since this is a criminal offence, it means that the prosecution of the cartel offence, were it to proceed, would rest with the NPA.
“Currently section 73A is only a potential deterrent because only section 73(A)(1)-(4) came into force in 2016.
“The rest of the sections (section 73A(5)-(6)) are yet to be proclaimed to enter into force and thus cannot be implemented. This hampers the implementation of s73A in its entirety. Thus, it is unlikely that a prosecuting will occur under s73A, perhaps under other criminal law provisions pertaining to forex manipulation, but not under the Competition Act.
“Practically it is unlikely that the prosecution will proceed because even though the ‘cartel offence’ is provided for in s73A, some of the provisions have not yet entered into force.
“Although the cartel offence is in the books, and is a potential deterrent, it is quite unlikely that Standard Chartered Bank will be prosecuted.
The effect of section 73A is still to be witnessed, as there is yet to be a prosecution of an individual. Certainly, the introduction of the cartel offence is commendable, however, much remains to be done. For instance, the section 73A brings with it the NPA’s institutional implications pertaining to its capabilities to prosecute competition law matters and how it will synergise its work with that of the Competition Commission. An unfortunate position is that section 73A(6), which provides that a person found guilty of the cartel offence may be fined up to R500 000, or imprisoned for up to 10 years (or both), is still yet to enter into force,” she said.
Asked if the Competition Commission would refer the matter to any law enforcement authority, spokesperson Siyabulela Makunga said: “No.
The other law enforcement agencies are aware about this case and if they wish to initiate their investigation/s, the commission will co-operate with them.”
The commission said it was further waiting for the Competition Appeal Court’s decision on the appeals and reviews filed by the 28 banks being pursued for manipulation of USD/ZAR currency pair.
The commission said that it had not been approached by other banks to settle but “the commission’s door remains open for any bank that wants to settle.
“If they approach us, we will consider their settlement offer.”
Standard Chartered Bank said it had no comment.
Cape Times