Via Banking Day:
The ACCC had its final day in the Federal Court in Sydney yesterday in its civil action against ANZ and Macquarie Bank over their “attempted cartel conduct” – or, more specifically, their attempt to influence foreign exchange rates for buying and selling financial products on specific dates for rate-fixing in the USD-Malaysian ringgit pair.
Prior to the Federal Court hearings, the Australian Competition and Consumer Commission regulator had negotiated a total of A$15 million in penalties.
These respective penalties were confirmed by Justice Michael Wigney, following the filing of joint statements of facts and submissions by the parties:
• $9 million against ANZ, based on its admission that it engaged in ten instances of attempted cartel conduct in mid-2011;
• $6 million against Macquarie in respect of its admission that it engaged in eight instances of attempted cartel conduct, with most instances in the third quarter of 2011; and
• in addition, the banks were each ordered to contribute $200,000 to the ACCC’s costs.
The steps taken by FX traders working for ANZ and Macquarie in their respective Singapore trading desks were seen by the ACCC as contraventions of the new Competition and Consumer Act, so the outcome of this case represents an early vindication of the updated competition law.
They were being prosecuted for their roles in trying to influence the setting of the buying and selling benchmark exchange rates between the Malaysian ringgit and the US dollar.
Given that the ringgitt is of crucial local importance but can be a thinly traded pair mostly confined to the currency’s domestic market, the rate-setting mechanism involved a panel of banks, echoing the process for setting other key benchmarks at the time, such as the daily LIBOR interest rate.
In his judgment, Justice Wigney stated: “There could be little doubt that the attempted contraventions … were very serious… The conduct of the traders in question was deliberate and systematic.”
“Attempts by banks and other market participants to fix prices or financial benchmarks in the financial system should be regarded as particularly serious contravening conduct. It is essential that market participants and the public generally have confidence in the integrity and efficacy of the financial system.”
Briefly, the core facts were that on at least ten occasions in mid-2011, traders employed by ANZ engaged in conversations with their counterparts at other banks, attempting to convince them to submit either higher or lower estimates of their ringgit-USD rate for the day.
Macquarie Bank was found to have tried its own arm-twisting on eight separate occasions, primarily in the third quarter of 2011.
Whether the banks’ far-flung FX traders were successful or not in boosting their FX dealing revenue was not relevant, it was the attempt to influence the rate that was the key. The fact that several banks would consider colluding – and then attempted to do so – demonstrated cartel behaviour, the ACCC argued successfully.
Interestingly, a successful anti-cartel prosecution requires one of the members of the group to break ranks and negotiate immunity from prosecution, before turning in their co-conspirators. That opportunist was not identified by the Court.
With the facts agreed, the quantum of penalties was the key uncertainty for the court to settle.
Justice Wigney noted that the maximum penalty for an action such as the ones undertaken by the banks’ FX traders was $10 million, meaning ANZ could have been up for a bill of $100 million, and Macquarie for $80 million.
He also noted that penalties should not be set so low as to be merely seen as “an acceptable cost of doing business”. The amount of penalties needed to be set high enough to have deterrent value.
Countering this was the acknowledgement by the ACCC and the Court that ANZ and Macquarie had obtained no benefit from their actions, showed contrition and had settled early with the ACCC on the basis of agreed facts.
Justice Wigney then noted the penalties initially imposed by the ACCC, namely $900,000 per offence for ANZ ($9 million in total) and $750,000 for Macquarie ($6 million in total) were at the very bottom of the scale of permissible penalties, and in the absence of any guidance from ACCC the court would have imposed much higher penalties.
However, in keeping with what the judge said was an established series of precedents for Court, the fines of $9 million and $6 million already imposed were upheld on the basis that, if a regulator negotiated a proposed penalty, and it was in the “acceptable range”, the courts would not revise the amount.
One wonders what else is going on at the majors that is “deliberate and systemic” corruption. We’ll never know thanks to Do-nothing Malcolm and his 99 smoke screen inquiries.