Carl Niehaus takes a look at the forex scandal and how some economists, “experts” and media manipulated the story and downplayed the seriousness of the harm. Article first published in African Times….
FOR Me the most disturbing element about the responses that I have encountered about the announcement by the Competition Commission about the forex manipulation scandal, is the sense of impunity that the banks display.
None of the banks involved, including the three South African banks that are at this stage of the Competition Commission’s investigation implicated, have shown any sense of guilt or have been prepared to acknowledge how serious the allegations against them are.
The consistent narrative that they are spinning is that the fraudulent collusion that they have been involved in over years hardly caused the consumer ‘any major harm’, and that they will get away with minor fines that are a pittance compared to their annual earnings.
As disturbing as this blatant sense of impunity by the perpetrators is the overall cynicism and sense of disempowerment of the general public, who seem to accept too easily that this is what banks do, and that they will get away with because bankers always get away with the fraud and theft that they commit.
To ultimately finesse this sorry and rotten state of affairs are the so-called ‘independent’ economists who with all their high fluent economic jargon try to slap a glossy layer of veneer of respectability over all it. Their dubious accomplishment is to make the ordinary citizen feel that they do not understand at all what is going on, and for them to get upset about being fleeced by the banks on a daily basis is to display their ignorance and stupidity. To achieve the alienation of the citizenry and to ultimately disconnect them from their own interests is the underhand goal of these charlatans in their power dress suits.
A prime example of the spin that they excel in appeared in the City Press of Sunday the 19th of February. Written by one Dewald van Rensburg the article opens as follows:
“The banking industry has been under political attack from an array of parties, ranging from government – in the form of President Jacob Zuma and Minister of Mineral Resources Mosebenzi Zwane – to the Gupta family and the Progressive Professionals’ Forum.
This week, trade unions and political parties – notably, the ANC – issued uniformly scathing attacks on the banks, after allegations of price-fixing and other irregularities were made by the Competition Commission.”
Evidently the reader is right from scratch made to believe that the case against the banks is ultimately politically motivated, and he then proceeds to present a case that the forex collusion is still only an allegation, and that it will involve “a massive burden of proof to establish exactly what damage had been inflicted between 2007 and 2013”.
Having said this, Van Rensburg, however, does not shy away from hastening to add that according to ‘experts’ the damage is likely to be only a fraction of what South Africans seem to believe.
Stating that only a few traders in South African banks have been involved (therefore telling the reader that this is not something big, it is just those with political motives who try to make it seem ‘big), he then states that it is impossible that the collusion “alleged in the case” could have caused the Rand to trade at a meaningfully different value against the Dollar than it would have anyway. So by implication the ordinary citizen is silly/stupid to get him/herself worked up about this by those manipulating politicians because as a ‘source with intimate knowledge of the matter’ stated they do not get harmed in the way people are supposedly made to think.
It is really only about bonuses for the forex traders, and anyhow the actual scale of the ‘alleged fraud’ was “tiny compared with the market for Rand trading”. All of this is backed up by the authoritative word of Stuart Theobald, Chair of the economic research agency Intelidex (wow, with a name like that they must obviously be intelligent!), and Van Rensburg had to point out that they have a “reputable track record in financial and competition research”.
So Mr. and Mrs. ordinary man and woman you better stand on attention and listen to these ‘experts’, please note no serious crimes have been committed, just minor misdemeanours by eager traders who wanted a bit more commission for themselves, and you cannot really blame them for that – they are after all just human. As another ‘expert’, Mr. Ian Cruickshanks, with the big title of Chief Economist of the SA Institute of Race Relations, so glibly stated: “wherever you have a market, you will have someone trying to beat it.”
Having shared all of this technical expertise and wisdom with us the final coup de grace comes in the form of a threat that the Competition Commission and government must be careful not to undermine confidence in the South African banking sector, because if this happens the South African economy will suffer dire consequences and it is the ordinary person in the street who will suffer most.
These are the same scare monger tactics that are being deployed with regards to the demand that ABSA must pay back the lifeboat of taxpayer’s money that was so irregularly and criminally granted to them by the South African Reserve Bank during the dying days of apartheid. Azar Jammine, the Chief Economist of Econometrix, emerged as the main proponent of this line of defence.
This, and the general argument that the collusion to manipulate the forex trade of the Rand had minimal impact on the value of the Rand, Mr. Jammine advanced on BizNews, which together with its main proponent journalist Alec Hog can only be described as embedded propagandists for White Monopoly Capital. This is blatant untruths, and Jammine as a well trained economist knows very well that the moving averages of the Rand as well as its daily closing price does get impacted on heavily because they are part of the local and international trading pool. No doubt the Rand could have regularly closed at considerably higher levels if there was no collusion.
If Jammine is honest he will have to acknowledge that massive damage had in the past been wrecked on our economy by cartels. The Competition Commission has in the past uncovered collusion in our country’s bread and flour industry, among cement producers and by construction companies. The break-up of four cartels in wheat and maize products, poultry and pharmaceuticals impacted positively on the lives of ordinary South Africans.
Real people win if cartels are cracked. Surely as a well-read economist Jammine knows about the studies that estimate that if the wheat, flour and pharmaceutical cartels were still in place wheat and flour would have been up to 42% more expensive, poultry prices would have been about 25% higher, and pharmaceuticals between 10% and 15% more expensive. Surely he also knows that the World Bank estimated that the smashing of cartels kept more than 200 000 people above the poverty line.
So why is he now soft pedaling and finding excuses for what is clearly a massive banking cartel, which had already inflicted huge harm on ordinary South Africans and if not stopped in its criminal tracks can still inflict far more harm? Is it because he, and those of his ilk, is politically conflicted? Surely it cannot be co-incidental that Jammine has in the past called for the resignation of President Jacob Zuma, and is closely associated with that well-known agent of White Monopoly Capital, Sipho Pityana’s so-called ‘Save South-Africa’ campaign.
When the ANC Youth League (ANCYL) held their massive march on the 10th of February to the Head Office of ABSA and Barclays Africa they stated that the time had come to take the gloves off in the manner that the ANC as the governing party responds to and deals with the arrogance, corruption and exploitative practices of white monopoly capital. I would argue that it is long overdue.
History of Currency Manipulation
A synopsis of the currency manipulation in South Africa shows that this matter has been dragging on for inordinately long time:
Though the Competition Commission started their investigation into the currency market manipulation in May 2015, there is a considerable run-up history. The Competition Commission’s probe follows investigations into the rigging of currency markets in the U.K. in 2013, where a huge fine of $5.6 billion was imposed on six major financial institutions involved in currency manipulation, JP Morgan Chase, Barclays Bank, Royal Bank of Scotland and Citigroup all pleaded guilty to foreign exchange manipulation. At that time it was revealed by the US Justice Department’s top officials that for five years the banks had used “chat rooms” to manipulate currency prices almost daily.
In 2002, former president Thabo Mbeki launched a commission of inquiry into the collapse of the Rand after ex-South African Chamber of Business Chief Executive, Kevin Wakeford, blew the whistle on currency manipulation. He fingered three major companies in the collapse of the Rand. Besides the allegations made by Wakeford, several market participants indicated that there was manipulation of the Rand/Dollar exchange rate. This can be summarized as follows:
“Generally the rand is volatile, which gives arbiters room to survive. “However, the information asymmetry gives space to exchange rate manipulation, which indeed is illegal,” said Econometer Global Capital head of research Mr. Takunda Mugaga.
In 2001 Wakeford wrote a letter to President Mbeki. In the letter he stated that South African companies had been involved in currency trading which led to the fall of the Rand. Wakeford did not mince his words and he accused South African businesses of contributing to the fall of the Rand. Because Wakeford dared to make a public suggestion about the secret dealings of big business, he was attacked on almost a daily basis by other business leaders and the business press.
In 2002 it was reported by Market Analysts, “For years, these dealers have moved their money around the globe without being accountable in any way”.
In October 2001, former Reserve Bank Governor, Tito Mboweni made a statement which said that the Bank was going to enforce the existing rules on moving money in and out of the country more strictly. However, he did not mention any new restrictions on foreign exchange dealers, and he did not have any kind words for Wakeford. (This whole sorry saga is in detail recorded in Barry Sargeant’s seminal book, The Assault on the Rand, Kevin Wakeford and the Battle to Save a Currency).
In 2002 President Mbeki decided to appoint the Myburgh Commission to investigate the said currency manipulation. In 2002 the Myburgh Commission started with an investigation into currency manipulation. However the SARB indicated that the review proceedings would remain confidential for policy reasons and fell within the ambit of section 33 of the South African Reserve Bank Act, No. 9 of 1989. In response to this Wakeford warned that “this stance now defeats the initial intentions and duties of a Public Commission of Enquiry,”
After the release of the Myburgh Commission Report a Minority Report was issued. The Minority Report contended that “In hindsight, a public hearing was not the most appropriate forum for conducting such investigations”. In its “General Recommendation” (page 432) the Minority Report called for a further investigation, which “should not be a public one.
The Myburgh Commission, although shedding light on the world of currency trading, strangely did not find evidence of irregularities despite a considerable body of evidence.
In October 2015, the South African Reserve Bank and the Financial Services Board published their report on the operations of authorised dealers in the South African foreign exchange market. The findings of the FXRC Commission can be summarised as follows:
No evidence of widespread misconduct came to light, but there was some evidence of inappropriate sharing of confidential client information;
The FXRC found no evidence of malpractice or serious misconduct in the South African foreign exchange market; nonetheless, but that there was scope for improvement in overall market conduct. Furthermore, the committee found that the foreign exchange market in South Africa is competitive;
The current legal framework in South Africa does not provide specifically for the regulation and/or supervision of foreign exchange traders in their individual capacity
The FXRC recommends that: Legislation in South Africa is amended to give the FSB sufficient powers to declare Codes of Conduct as subsidiary legislation. Furthermore, sections 78, 80 and 81 of the Financial Markets Act, 2012, should be equally applicable to the over the counter foreign exchange market; the domestic Code of Conduct must be in line with the principles enshrined in the single Global Code of Conduct, Standards and Principles for the Foreign Exchange Market when it has been agreed upon by the Markets Committee of the Bank for International Settlements (BIS); the authorisation and regulation of TOCs should be reviewed; the authorisation and regulation of interdealer broker should be reviewed.
Against the background of the Myburgh Commission and the FXRC Committee findings a number of observations can be made. These include:
In both investigations it is obvious that it was difficult to get the relevant information and to analyse the extent of the problem;
Dereliction of duty by Treasury in implementation of recommendations dealing with currency manipulation
Several recommendations were made to the Treasury, however, Treasury seems to have dragged its feet to implement these recommendations all the way up to 2016.
I would argue that the failure to implement these recommendations is tantamount to a serious dereliction of duty. In terms of Financial Surveillance and Foreign Exchange Legislation in South Africa the Minister of Finance is accountable for the foreign exchange market and the surveillance of the foreign exchange market in South Africa.
The Minister of Finance has appointed certain banks to act as Authorized Dealers in foreign exchange that gives such banks the right to buy and sell foreign exchange, subject to conditions and within limits prescribed by the Financial Surveillance Department.
Against this background the following conclusions can be drawn:
The Myburgh Commission and the FXRC Committee investigations were clearly not done thoroughly;
In the light of the findings of the Competition Commission & Wakeford assertion that the pressure from imperialists/big business (read here White Monopoly Capital) to a large extent derailed the Myburgh Commission and FXRC Committee.
Urgent recommendations to Treasury/SARB/Market were ignored up to now.
Serious and rather uncomfortable questions about the motives of the currency manipulation must now be asked.
This unsavoury saga brings me back to where ordinary South Africans now find themselves. Evidently, allowing ourselves to be cajoled by the so-called experts has led to a situation where our exploitation and abuse by White Monopoly Capital simply continue – sadly in cahoots with those whom we have considered to be our fellow comrades.
In this regard a tweet by Bo Mbindwane to an ANC NEC Member is revealing. He wrote: “We worked on the banking issue without the ANC or its NEC. In fact, some in NEC blocked us. I wrote many articles on this.”
In 1815, the French Emperor, Napoleon wrote: “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes… Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
So now is the time to ask the overarching, and hugely uncomfortable question: Is it then that some among us have succumbed to the hand that gives?
Ordinary black (especially African) South Africans now have to ask in the glaring sunlight of that question also many other questions, and among them are:
- Why did Treasury fail to adequately address the foreign exchange manipulation issue?
- Why did the Minister of Finance not be more diligent in terms of the execution of his duties in terms of the Financial Surveillance and Foreign Exchange Legislation?
- In the light of the behaviour of ABSA both in regards to the lifeboat that it was granted, and it’s role in the foreign exchange manipulation scandal, is it co-incidence that a former Director General of Finance, who also happens to be the wife of the former Minister of Finance under whose watch much of this either happened or was condoned, is now the CEO of Barclays Africa?
- Will justice be done to the long-suffering black (African) majority of South Africans if the banks who have colluded in manipulating the value of the Rand are simply given a slap on the wrist in the form of minor fines?
- Why when the President calls for Radical Economic Transformation is he abused by the media that is under the control of White Monopoly Capital, and even by some of those who act as if they are still his comrades and care for the poor?
There are many more questions in similar vein that need to be asked. However, they can, and should, no longer be asked by just a few. Now they have to be asked by the many who are the poor and oppressed, and the manner they are asked cannot be politely in the board rooms of White Monopoly Capital. These questions will now have to be asked in the streets as the crowds march on those who thought they can manipulate them forever.
Carl Niehaus is an MK veteran and a former ANC NEC member