Why collapse of rand manipulation case sets a bad precedent

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Interview starts at the 11:53 mark

JEREMY MAGGS: Now, financial services watchers are today calling for South Africa to enact tougher competition laws following the dismissal of cases against some of the 28 banks that were accused of manipulating the rand. Harry Scherzer is chief executive officer of Future Forex, and he’s going to weigh in now with some thoughts. Firstly, how then does this recent ruling affect, in your opinion, the integrity of the financial markets?

HARRY SCHERZER: Hi Jeremy. Ja, I’d love to talk to you and say that the banks were cleared because they’ve done nothing wrong here, and our South African banks are basically completely innocent. However, when digging a bit further into the Competition Appeal Court’s (CAC) ruling, we noticed that the reason for the acquittance of these major banks, being FNB, Standard Bank and Nedbank, was more to do with the incompetence of the Competition Commission that were unable to get a case off the ground.

Read: Standard Bank welcomes dismissal of rand-fixing case

So really, it’s not that our banks were seen as not guilty, but rather there wasn’t enough evidence portrayed by the Competition Commission to prove them guilty, which shows more about the regulatory oversight in this country than it does about the goodness of our major banks.

JEREMY MAGGS: So you would be convinced there was a case to answer for?

HARRY SCHERZER: I’d be very surprised if there wasn’t, Jeremy.

JEREMY MAGGS: So what then needs to change in terms of better competency and perhaps also, Harry, do we need any re-examination of competition laws in this respect?

HARRY SCHERZER: Ja, Jeremy, what’s happened is back in 2016, the crime of collusion became a criminal offence. So what ended up happening is that because it was now a criminal offence, these major companies, like the major banks and companies in the past, have thrown huge amounts of resources behind defending their case, knowing that their directors and shareholders can sometimes be held liable, should they have known about it, in a criminal capacity.

So what’s happened is in an attempt to create a deterrent for collusion, it’s quite ironic, it’s done the opposite.

What’s happened is these companies have been more likely to partake in collusion and simply throw a ton of legal resources behind themselves and are often acquitted as a result because of the lack of competency of our Competition Commission. So if we really want to rid ourselves of collusion from the highest level, what we need to do is make sure that we start setting precedents of winning these cases, and that starts with a higher level of quality from our Competition Commission than what’s currently available.

JEREMY MAGGS: You talk about competency within the Competition Commission. Amplify that for me, where is the deficiency?

HARRY SCHERZER: Well, let’s take this case as an example. There was collusion by the major banks and the Competition Commission weren’t the ones to pick that up. This collusion happened around the South African rand. So you would think if anyone were to identify that it would be our government, but no, it was identified by the US Department of Justice that basically said, right, we’re going to try these international banks that were involved in manipulation of the rand. Then the Competition Commission realised, oh, if they’re trying the international banks on something like this, we should be looking at our major local banks to try them as well.

So we almost piggybacked on the US, and it just shows the levels of difference in regulatory authority where the US Department of Justice not only found this collusion but has since had a small fine paid by Standard Chartered that admitted wrongdoing and continues to try other banks, whereas the South African major banks have been acquitted.

Three of the four that were involved have been acquitted almost immediately due to how poorly our Competition Commission handled this, in contrast to the US Department of Justice, that are going to probably get tons of fines paid by banks and wrongdoing admitted.

Read: Standard Chartered settles forex rigging case after eight years in court

So you can just see the huge levels of differences in regulatory authority, where American companies are scared of their authority, as they should be if they do something wrong, and our local companies aren’t as scared and know that we can get off if we just fight it enough and ensure that we put enough resources into it as a company, which is not a good position to be in. It basically allows banks and other companies to do whatever they want.

JEREMY MAGGS: Well, that’s exactly what you’re saying, that a climate of impunity will continue unless something changes.

HARRY SCHERZER: Exactly right. We need a significant change, and we’ve seen that the banks for one, this is not uncommon to banks to put their own needs ahead of their clients and ahead of the general public, and it’s amplified by a poor regulatory regime where it’s difficult to get the accusations within South Africa and to get guilt admitted by these banks, so they can keep doing it as long as they need to.

Read:

JEREMY MAGGS: So where do we stand right now as far as this situation is concerned? Do you believe that anything is going to change?

HARRY SCHERZER: I’d like to hope so, Jeremy, but it’s highly unlikely. I think the Competition Commission couldn’t even get the case off the ground. It’s not a matter of it was a tight-fought battle and they ended up losing. The Competition Appeal Court had very poor things to say about them in saying that the case didn’t have the legal muster to even get off the ground. So we’re far behind where we need to be in this regard. So it’s unlikely that any of the banks that have been acquitted will have anything done to them, but that doesn’t mean that they weren’t guilty of this, and their reputations, while remaining intact, should really be tested and examined here because I’d be amazed if the local South African currency was being manipulated and none of the local banks had anything to do with it.

JEREMY MAGGS: Harry Scherzer, thank you very much indeed.