A footnote in the Competition Appeal Court (CAC) order in favour of the banks in their long-running battle against the Sekunjalo Group reveals just about all a bank executive needs to know when deciding whether to “terminate” a client.
The footnote refers to a quote about the Sekunjalo Group from the report drawn up by the Mpati commission of inquiry into allegations of impropriety at the Public Investment Corp (PIC). It’s the sort of chilling remark that would have most bankers searching frantically for the exit button: “The evidence gleaned from various bank statements shows that there has been significant movement of the funds between different related parties. This created the impression of funds in bank accounts but, in reality, this was only the case at specific moments in time.”
A few paragraphs later the report, published in March 2020, notes: “The commission recommends that [the] PIC must conduct a forensic review of all the processes involved and all transactions entered into with the Sekunjalo Group. Ensure that the PIC obtains company registration numbers of every entity to be able to conduct a forensic investigation as the flow of monies out of and into the group.”
More than three years later, the banks are still struggling to extricate themselves from the controversial group. Their efforts have been stymied by the Equality Court and, until recently, the competition authorities.
This month the CAC set aside an interim order by the Competition Tribunal that obliged the banks to reinstate, or not to close, bank accounts of Sekunjalo firms. The initial interim order against eight banks, granted in September 2022, expired last March, and was rolled over to September 2023.
The tribunal found that, in refusing to deal with the Sekunjalo companies, the banks acted in co-ordination with one another. It also found the banks acted unilaterally, as dominant firms, to abuse a dominant position.
A mere observation of parallel behaviour coupled with a conclusion that it is exclusionary does not suffice
— Norman Manoim
The banks, the tribunal said, adopted a common position — to close or threaten to close Sekunjalo Group accounts — and did so within a time frame of just 15 months. It was not persuaded that the banks’ actions were justified by the fact that because they were all operating in the same regulatory environment, a common response would have been expected.
But in his order, CAC judge president Norman Manoim was roundly dismissive of the tribunal’s ruling and of Sekunjalo’s allegations of anticompetitive conduct by the banks. A reading of his order, which highlights how threadbare the competition arguments are, suggests it was a somewhat inspired move by Sekunjalo’s legal team to buy some time as they searched for alternative banking facilities. One competition lawyer tells the FM it is likely that even Sekunjalo’s legal team was surprised by their victory at the tribunal.
Manoim said there is no evidence in the tribunal’s record that any of the banks directly co-ordinated with each other in refusing to deal with the Sekunjalo Group. “Firms may frequently have regard to the approach taken by rivals but that at best is conscious parallelism, not parallel behaviour, and the two should not be confused,” he said.
An additional difficulty with the tribunal’s ruling is that it didn’t identify the objective of the banks’ assumed co-ordinated action, though it did acknowledge that it didn’t relate to price, market division or collusive tendering, which are the illegal baddies in terms of the Competition Act.
Manoim said the tribunal did not identify what anticompetitive harm had been caused by the banks’ behaviour, such as higher prices, reduced supply, inferior service or quality, or lack of innovation. An explanation or theory of harm “is completely absent in this case”, he said. “A mere observation of parallel behaviour coupled with a conclusion that it is exclusionary does not suffice. Otherwise, every firm that cut off a debtor at the same time as its competitors would be vulnerable to accusations of perpetrating a concerted practice.”
Given that no evidence of anticompetitive harm had been provided, Manoim said it was unnecessary for the banks to provide an explanation for their conduct. As it happens, their explanation — that their action was justified by the danger of reputational risk — was rejected by the tribunal. It instead accepted Sekunjalo’s argument that the banks had been selective in this regard, as they had continued to offer banking services to companies such as Steinhoff and Tongaat Hulett.
Sekunjalo’s allegation that the banks’ conduct was anticompetitive because the outcome was exclusionary is not sufficient proof for the competition authorities, said Manoim.
The judge president was even more dismissive of the tribunal’s findings on the second leg of Sekunjalo’s case — that the banks were dominant and had abused this dominance.
To be dominant, a firm has to control more than 35% of the market or have “market power”. Instead of determining whether each of the eight banks had market power, the tribunal rather bizarrely considered the banking sector as a whole and concluded the banking services market is highly concentrated.
It said Sekunjalo’s unchallenged evidence was that Nedbank, Standard Bank, FirstRand, Absa and Investec collectively have a market share of about 90%. “This suggests that the market is oligopolistic, with a fringe of small players,” said the tribunal.
The combination of high market concentration, high barriers to entry and a weak position of customers indicates the banks have an appreciable degree of market power, the tribunal concluded, seemingly oblivious to the rash of new entrants that have made solid inroads into the digital banking market in recent years.
From there it was a small step for the tribunal to also conclude that each of the banks “individually possesses market power”. This hardly seems credible in the case of Access Bank (formerly Bank of Athens) and Mercantile (now part of Capitec), each with a market share of about 1%.
By contrast, the CAC says Sekunjalo failed to prove that any of the banks, on an individual basis, has market power.
In the case of Standard, the CAC notes that, at the time of the tribunal hearing, the bank had not yet refused services to any Sekunjalo companies that it served, though it had indicated it was reviewing these clients. It requested information from Sekunjalo and, after conducting a due diligence process, terminated the services.
In its case before the CAC, Standard stressed it had conducted a due diligence investigation to demonstrate it had not acted in concert and that in terms of the Financial Intelligence Centre Act it was obliged to refuse providing services to Sekunjalo given the information it had received.
The CAC found the banks were neither dominant nor abusive. And, given that they also had not acted in concert, it is appropriate that Manoim awarded costs against Sekunjalo.
[The judgment] confirms Standard Bank’s position, since inception, that we have not been involved in any anticompetitive behaviour as alleged
— Ross Linstrom
It’s unclear where the CAC order leaves the banks, given that only three — Standard, Mercantile and Access — challenged the tribunal ruling before the CAC. While an additional six-month roll-over of the tribunal’s original obligation is off the cards, there is still the Competition Commission’s investigation to be finalised. That could take years. But it’s difficult to imagine that the commission would ignore the CAC’s findings.
A Nedbank spokesperson tells the FM the bank did not appeal against the tribunal’s interim order as it continues to be bound by the Equality Court interim order.
In June 2022 that court ordered Nedbank to reopen any Sekunjalo accounts that had been closed. Nedbank was also prohibited from closing the accounts of the companies that were due to be closed.
After the Equality Court denied Nedbank the right to appeal, the bank successfully petitioned the Supreme Court of Appeal. That appeal is due to be heard in November. Meanwhile, “Nedbank will continue to pursue all legal avenues to enable it to execute on its decision to close the Sekunjalo [accounts]”, says the spokesperson.
Standard Bank spokesperson Ross Linstrom tells the FM the bank welcomes the judgment, “which confirms Standard Bank’s position, since inception, that we have not been involved in any anticompetitive behaviour as alleged”.
Linstrom says the bank is engaging with the Sekunjalo Group on the next steps.
The FM was unable to get comment from the Sekunajlo Group.
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