Run on numbers: Does foreign exchange manipulation affect citizens
1. The South African economy is a relatively open economy.
The table below indicates the values for one month that were potentially involved in the conspiracy.
This makes for a combined value of close to R2 trillion, and that is for a single year. The years under investigation span over 7 years.
We are looking at potentially R14 trillion. It is mind-boggling that one of our most trusted institutional sectors, namely the banks, may have been involved in such a backstabbing conspiracy in breach of their trust obligations to clients and allegiance to our country.
2. The table below illustrates the enormous amounts involved. These are big numbers, and it is exactly what sends shivers through the market.
3. The foreign exchange market is known for its sensitivity and extreme volatility.
During 2015 President Jacob Zuma made a disastrous decision to appoint unknown Des van Rooyen to replace Minister NhlanhlaNene, in the important position of Finance Minister. Within hours the rand lost more than 200 basis points exacerbating the decline of its value that started at the beginning of 2015 as per the table below.
The 2015 USD ZAR history summary. This is the US Dollar (USD) to South African Rand (ZAR) exchange rate history data page for the year 2015.
Worst exchange rate: 15.8924 ZAR on 12 December 2015. The average exchange rate in 2015: was 12.7776 ZAR. The best exchange rate was 11.2913 ZAR on 05 February 2015.
There was a rumour that legendary Trillian boss Eric Wood profited from the foreign exchange market based on advanced knowledge of the Van Rooyen appointment. Wood appeared in court alongside “Gupta fixer" , Kuben Moodley and former Transnet bigwigs over a dodgy R93 million double payment flowing from the parastatal’s deal for 1 064 locomotives.
President Zuma then reinstated Pravin Gordon as Finance Minister and stated that he wanted to send a clear message to the markets that sustainable budgeting had been taken on board. Zuma said among Gordhan’s tasks would be to “promote and strengthen the fiscal discipline and prudence”, that had characterised its management of public finances. Now after seven years, we can see how hollow these words were.
4. Another potential victim of the forex manipulation is the participants in our debt market. The table below depicts the repayment periods, which when known to conspirators will be easy to “front run”. Unexpired maturity of the national government’s marketable foreign debt at a face value of R427 billion as of June 30, 2023, on an unexpired maturity basis comprised R28.4 billion in the one-year-and less interval, R61.6 billion in the more than one-year-but-less-than-thee-years range, and R337 billion for more than three years to maturity. The average unexpired maturity of this debt was 156 months as of June 30, 2023.
The Foreign Exchange market is very exposed to the National Treasury position, which is well known to our banks and can be acted upon to anticipate potential demand for dollars.
5. Consequences
- Financial penalties for wrongdoing must punish the shareholders of the bank in that their dividends are diminished.
- It should be established what the quantum of open positions were relative to the bank's equity, and the line should be drawn at what point foreign currency licences should be suspended, if not withdrawn.
- The bank's reputation is also adversely affected, making it rather unpalatable when they close bank accounts based on the reputational risk of being associated with such a client. However, no society can accept that the penalty stops there.
- Every bank insists on employees being “fit and proper” to work at a bank. The line of authority in a bank is very clear and is contained in the KPIs (Key Performance Indicators) for everyone. The organisational chart of the bank will clearly show the forex division, its traders, and its management. All these individuals must bear a proportion of the penalty in their personal capacity. These individuals must also repay every cent received as bonuses paid to them. Suspensions as forex traders should be considered, and criminal investigations may be warranted,
- In addition, the internal auditors must be held accountable.
- The bank's external auditors should also bear the brunt. What is easier to spot than an open position when traded as a principal (for the bank’s account) and subsequent execution of a client’s order?
- In terms of the International Audit Standards bank, auditors should pay specific attention to ASA 315, which reads as follows: “Controls – Policies or procedures that an entity establishes to achieve the control objectives of management or those charged with governance. In this context: (Ref: Para. A2–A5) (i) Policies are statements of what should, or should not, be done within the entity to effect control. Such statements may be documented, explicitly stated in communications, or implied through actions and decisions”. At the planning of an audit stage, it must be clear that the forex division trades for its own book and also for its clients. The following ASA standards apply. “Inherent risk factors – Characteristics of events or conditions that affect susceptibility to misstatement, whether due to fraud or error, of an assertion about a class of transactions, account balance or disclosure, before consideration of controls.”
- Once an auditor has discovered a collusion, it should be reported to IRBA (The Independent Regulatory Board for Auditors) as an unlawful act perpetrated by management of the bank. It remains the responsibility of management including directors to prevent and detect fraud and implement appropriate controls and systems.
- The Social and Ethics committees of the banks must be held accountable for not acting on their mandate.
In an IOL article by Patrick Bond, a professor at the University of Johannesburg Department of Sociology, he said: “In 2019, the then Finance Minister Mboweni was confronted in Parliament with evidence – including successful US prosecutions – that 30 banks were engaged in currency manipulation against the rand. Even though it sparked a Competition Commission investigation, Mboweni told MPs, he did “not have any evidence that any bank has taken part in currency manipulation”. Yet Standard Chartered and Citibank had already paid fines for that very crime.
Well, Minister Mboweni, we are now in 2023, and as can be expected, the wheel kept turning, and the lack of evidence has increased substantially.
What gives South Africans hope is that there are still institutions, such as the Competition Tribunal, that operate without fear or prejudice and are much like a fox terrier, happy to take on a much bigger opponent. We wish them well in their fight for justice, and we are quietly confident in the strong set of teeth that they hold.
* Corrie Kruger is an independent analyst.
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