Private suits still threaten markets informer

The whistleblower who tipped off the Commerce Commission to an alleged foreign exchange cartel will not be immune to lawsuits from aggrieved customers.

Regulators around the world are cracking down on alleged currency manipulation in the US$5.3 trillion (NZ$6.2t) a day foreign exchange market.

Yesterday the Commerce Commission revealed that its own investigation was sparked by a company applying for leniency under its cartel policy.

While the unknown applicant may receive conditional immunity from prosecution if it supplies evidence, it does not stop customers taking private action.

Competition law expert John Land said that had happened in the past:

"The immunity under the leniency policy is immunity only to action by the Commerce Commission for a penalty."

The commission has declined to comment further, and will not say which banks are involved or explain the nature of its investigation.

A United States class action now before the courts names 12 banks as defendants, and at least four of them have operations here.

Reuters reported that one of those, Swiss-based UBS, had approached the US Department of Justice with information late last year in the hope of gaining anti-trust immunity.

UBS New Zealand did not return a request for comment.

Locally registered banks Deutsche Bank and JP Morgan, also named in the lawsuit, declined to comment on whether they were in contact with the competition watchdog.

Industry lobby group the New Zealand Bankers' Association maintained that none of the member banks it had spoken to had been approached.

The US suit claims the opaque foreign exchange market was controlled by a small, close-knit group of traders, many of whom lived near each other, northeast of London's financial district.

Traders used chat-rooms such as "The Cartel", "The Bandits' Club," and "The Mafia" to exchange confidential customer order information and trading positions.

The likely victims of the alleged collusion are organisations like insurers and fund managers which use banks to place significant foreign exchange orders on the spot market.

Customers can either order at the market price, or at a fixed benchmark rate, the most widely used of which is the WM/Reuters Closing Spot Rates.

Calculated at 4pm London time, it is also known as the "London close".

The lawsuit claims manipulation of the London close impacted on the pricing of trillions of dollars' worth of foreign exchange instruments, "inflicting severe financial harm on plaintiffs and members of the class".

More than 30 traders at various banks are reported to have been placed on leave, suspended, or fired as a result of the global inquiry.

The foreign exchange investigation comes in the wake of the Libor scandal, when it emerged that banks were manipulating interest rates to profit from trades.

Although that resulted in billions of dollars of fines for some banks and brokers, the scale of the foreign exchange markets means the impact could be even greater.

The Commerce Commission has received 36 leniency applications since it enacted its cartel policy in 2004.

Successful cases include:

December 2011: Brazilian manufacturer Embraco fined $3 million, while cartel partner Panasonic escapes penalty by tipping off the commission.

August 2013: Australian packaging company Visy ordered to pay a penalty of $3.6 million after being dobbed in by competitor Amcor.

March 2014: Carter Holt Harvey fined $1.85m, after rival and cartel partner Fletcher Distribution, operating Placemakers, applies for leniency.

April 2014: The commission pushes for a fine of more than $3m against Kuehne and Nagel, the last of six freight forwarding companies to be penalised following a confidential leniency application. Fines to date total $8.85 million.