From a financial standpoint, the settlement agreement, which stipulates that British bank Standard Chartered will pay R42.7million for manipulating the rand exchange rate, is just a slap on the wrist.
This is according to two academics following the bank’s admission of liability for manipulating the rand exchange rate.
Standard Chartered Bank is one of the 28 banks being pursued by the Competition Commission for manipulation of USD/ZAR currency pair by fixing bids, offers, bid-offer spreads, the spot exchange rate, and the exchange rate at the Financial Information Exchange (FIX). The settlement ended an eight-year-long litigation between the commission and the bank over the currency manipulation allegations.
Citibank settled the same conduct with the commission in 2017.
Standard Chartered, while admitting liability to the currency manipulation charges, also agreed to provide the commission with transcripts of online communications, implicating 27 other banks allegedly involved in the scheme.
Other banks implicated in the case include Absa, 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 JP Morgan Chase.
UWC senior lecturer in competition law in the department of mercantile and labour law, Dr Tinashe Kondo, and senior lecturer in the mercantile law department, Dr Precious N Ndlovu, said while there were several remedies within the framework of the Competition Act available to the courts and Tribunal, such as cost orders, orders of the Tribunal and divesture, the competition authorities had favoured the issuing of an administrative penalty as in this case.
“Essentially, this is a financial penalty for non-compliance with the act that is meted out as a deterrent to would-be future offenders. This is capped at 10% of the annual turnover, for first time offenders and 25% for repeat offenders.
“Financially, this is not much of a setback for a multi-national bank such as Standard Chartered Bank. In the first quarter of 2023, the bank’s first quarter pre-tax profit rose 21% owing to rising interest rates and retail product sales in emerging markets.
Further, according to its 2022 Annual Report, its income had grown by 15% to $16.3billion, the highest since 2014. In the same vein, profit before tax soared by 15% to $4.8bn. Arguably then, one can come to an easy conclusion that this settlement agreement merely amounts to a slap on the wrist from a financial perspective.
“However, from a public image perspective, this admission does significant harm to the brand of Standard Chartered Bank. The bank situates itself as one that is a sustainable and responsible company, which works with local partners to promote social and economic development.”
They said since the bank’s consent order contains an admission of liability, this is equivalent to a finding that a prohibited practice has occurred.
“This means that if Standard Chartered Bank engages in other cartel conduct in the future, this consent order will be regarded as a ‘prior conviction’, to use a criminal term, which would be considered as an aggravating factor when calculating the administrative penalty.
“Standard Chartered Bank can now potentially face claims for damages in a civil court, initiated by individuals or persons who have suffered financial losses, such as loss of profits because of (the bank’s) cartel conduct. Such civil claims will arise where such damages have not been included as part of the consent order. It does not appear that such damages were included in the consent order between the commission and Standard Chartered Bank,“ Kondo and Ndlovu said.
On Thursday respondent banks were set to conclude a hearing before the Competition Appeal Court (CAC) seeking an order to set aside a Competition Tribunal order of March 30, 2023 which ordered respondent banks to file their answers to the commission’s complaint referral.
Weighing in on the matter, the EFF said: “The failure to deal with currency manipulation, however, is just a symptom of a banking sector that is a law unto itself. The South African Reserve Bank (SARB) has failed to oversee the banking sector because of friendship-based nepotism, which has led to the revolving door of staff members between the banks, the National Treasury, and the Reserve Bank.”
The party claims that when it previously raised concerns about currency manipulation, former finance minister Tito Mboweni and the National Treasury apparently “ridiculed the EFF, and denied that there was currency manipulation to protect the cabal in the banking sector, and refused to consider such treacherous and criminal conduct on the economy”.
Approached for comment on the allegation that it failed to oversee the banking sector, the SARB said: “The SARB does not comment on entities that it regulates.”
The Treasury did not respond to requests for comment by deadline on Thursday.
The EFF called for severe action, saying “all those who admit guilt to the charges of currency manipulation must lose their banking licences. The directors and staff members who were involved must also be prosecuted, and their assets must be seized.”