In recent years, competition authorities have not only become more vigorous in investigating anti-trust claims in financial services, but also more diligent in imposing significant fines on banks. In a recent decision, the European Commission (EC) has imposed unprecedented fines of up to EUR 1.07 billion on Barclays, the Royal Bank of Scotland (RBS), Citigroup, JPMorgan and MUFG Bank (formerly Bank of Tokyo-Mitsubishi) for getting involved in a foreign exchange spot trading cartel[i]. One of the addressee of the decision, UBS, was however exempted from fines due to its cooperation with the EC under the EC’s Leniency Program[ii].
After an extensive investigation, the EC found that competing Forex spot traders exchanged competitively sensitive information via various online professional chatrooms to coordinate their strategies on behalf of five banks[iii]. The in-depth investigation revealed that there were two distinct cartels as part of the overall collusive behaviour in the market for Spot Foreign Exchange[iv]. The first one, the so-called ‘Forex-Three Way Banana Split’ cartel involving Barclays, RBS, Citigroup and JPMorgan, lasted from December 2007 to January 2013, while the second one, known as the ‘Forex- Essex Express’ cartel, involved Barclays, RBS and MUFG Bank and extended from December 2009 to July 2012[v].
Similarly, the Antitrust Division of the U.S. Department of Justice (DOJ) addressed the guilty pleas of five banks for colluding to manipulate the price of U.S. Dollars and Euros exchanged in the foreign currency exchange (FX) spot market in 2015[vi]. The DOJ concluded that euro-dollar traders at Citicorp, JPMorgan Chase & Co., Barclays PLC and RBS, the members of the cartel, communicated through an exclusive electronic chat room to influence benchmark exchange rates between December 2007 and January 2013[vii]. Citicorp, JPMorgan, Barclays and RBS eventually agreed to pay fines in excess of 2.5 billion Dollars[viii].
In Turkey, on the other hand, the Turkish Competition Board (“TCB”) investigated similar claims against 14 leading banks including the RBS Istanbul Branch, Barclays Bank PLC., and Citibank A.Ş. in 2016. Interestingly, however, the TCB decided not to initiate a full-fledged investigation against these banks after an extensive preliminary investigation. As far as can be understood from the reasoned decision, the TCB found that the traders exchanged competitively sensitive information, but concluded that the information exchange was not sufficient to create anti-competitive effects in Turkey[ix].
Growing anti-trust enforcement efforts and the resulting penalties indicate that the industry is subject to increased scrutiny because of its particular vulnerability to the exchange of information between sector traders. While it may bring certain efficiencies to the sector, the sharing of competitively sensitive poses risks when traders reach tacit collusion at the expense of competition. Considering these issues, a recently published EC Report referred to the Royal Bank of Scotland Group plc v Barclays Bank decision of the UK’s former Office of Fair Trading (“OFT”) involving charges on exchange of confidential and commercially sensitive loan pricing information between October 2007 and February 2008[x].
The Report noted that lenders could harm the competitive process by sharing information with one another during the bid process to coordinate their offerings[xi]. In RBS v Barclays, after an in-depth investigation, the OFT had found that the banks violated competition rules by engaging in a concerted practice regarding the supply of loan products to various professional services companies and imposed fines on RBS, whereas Barclays benefitted from total immunity under the OFT’s Leniency Policy.[xii]
Given the secret nature of information exchange, it is hard for competition authorities to detect collusive behaviours without employing leniency programs. These programs thus constitute crucial tools for agencies to uncover secret cartels, and provide a significant incentive for companies to disclose a cartel to competition authorities in exchange for full immunity or a reduction in fines. Similarly to the EC, the TCB has adopted a leniency program in 2009 and successfully applied it in various industries, including in the financial industry.[xiii] One example was the leniency application submitted by Bank of Tokyo-Mitsubishi UFJ Turkey A.Ş. (BTMU), which led to the TCB’s investigation of 13 international banks for exchanging competitively sensitive information in the syndicated loan market in April 2016[xiv].
The investigation revealed that the banks granting corporate and commercial loans to corporate customers had violated Article 4 of Law no. 4054 on the Protection of Competition, by engaging in concerted practice through the exchange of sensitive information on prices and other traded terms[xv]. After the comprehensive investigation, the TCB decided to impose fines on ING and RBS while it granted BTMU full immunity under the Turkish Leniency Program[xvi]. The decision is noteworthy since the TCB admitted phone (voice) records submitted by BTMU as admissible evidence under free evaluation of evidence rules[xvii]. The Administrative Court affirmed the TCB decision, by rejecting ING’s defences regarding the inadmissibility of the phone records on the grounds that the records were obtained from the phone conversations recorded without its consent[xviii].
Lastly, a recent Council of State decision in the 12 bank case, a landmark case initially handled by the TCB back in 2013, has brought back to the fore a hotly debated issue[xix]. The Turkish Council of State rectified its own ruling affirming the TCB’s decision, which had imposed record fines on 12 leading banks for sharing sensitive information with regard to cash deposits, credits and credit cards services, and remanded the case to the lower court for re-examination[xx]. In its rectification ruling, the Council of State concluded that the TCB had made significantly erred in the application of the ”single continuous infringement” concept to the facts of the case[xxi]. In particular, the Council of State noted that the TCB had failed to meet the required standards of proof in establishing each bank’s participation in a single and continuous infringement[xxii].
The concept of single continuous infringement has been adopted by many competition authorities in prominent cases, including the above mentioned OFT decision in RBS v. Barclays, following its first application by the EC in the 1986 Polypropylene decision [xxiii]. Established case law indicates that the authority must demonstrate that each party is aware of its contribution to the overall plan, or may be reasonably expected to be aware of such agreement or common plan pursuing a common objective[xxiv]. The decision of the Council of State will thus be crucial to future competition analysis of the financial industry in Turkey.