South Africa competition decision provides guidance on jurisdiction in prosecution of international cartel cases

The case stems from allegations that a number of domestic and international banks - including several with no branch, office or other physical presence in the country - colluded to manipulate the exchange rate between the US dollar and the South African rand, contrary to South Africa’s Competition Act.

Following an investigation, the Competition Commission of South Africa (CCSA) referred the matter to the Competition Tribunal (CT) for determination. Several banks challenged the CT’s jurisdiction to hear the case, particularly in relation to the foreign banks that lacked any physical presence in South Africa.

The Constitutional Court had to appraise jurisdiction under two aspects: subject matter and personal jurisdiction. The former is a function of the effects that investigated conduct has in South Africa, while the latter concerns the question of whether there are sufficient connecting factors that would empower a South African court to make an order that is binding on a party.

In advancing its case, the CCSA argued for a wide application of the Competition Act and put forward the theory that because both the foreign and local conduct were part of a “single overarching conspiracy” (SOC) antitrust liability could be attributed to both the foreign and local banks.

The court clarified that the usual and well-established “qualified effects test” remains applicable when determining subject-matter jurisdiction in cross-border investigations. In addressing the CCSA’s argument that the Competition Act extends jurisdiction to all economic activity taking place within South Africa or having any effect within the country, the court stuck with “qualified effects”, the test being whether it was “foreseeable that the prohibited conduct would have a direct or immediate, and substantial, effect in South Africa”.

The court accepted the CCSA’s argument that jurisdiction could be asserted if local and foreign banks, with and without presence in South Africa, had participated in an SOC with “adequate connecting factors sufficient to found the tribunal’s jurisdiction”.

Mark Thomas, competition law expert at Pinsent Masons, said: “From the decisions that led to this judgment, it seems that the courts have accepted that the test for a SOC requires a knowing participation in the broader conspiracy, which may be inferred from a broader pattern of conduct, and conduct that is sufficiently directed at South Africa or involving South African market participants, excluding actors that were merely present in an alleged worldwide conspiracy.”

Although the Constitutional Court rejected attempts by the CCSA to expand the qualified effects test under South African law on which jurisdiction could be established, “the judgment nevertheless represents another step in the evolution of South African competition law’s approach to international cartel enforcement. It strengthens the CCSA’s ability to investigate businesses with no physical presence in South Africa and to call them to answer to the South Africa courts,” said Andrew Attieh, competition law and disputes expert at Pinsent Masons.

Thomas said: “The Constitutional Court left open the possibility that the argument could return in a future case, which means businesses operating outside South Africa should not assume that the jurisdictional debate has been definitively settled. In practice, most global hardcore cartels that affect South Africa will meet the qualified effects test. Having the SOC doctrine vindicated is of great importance for the CCSA as antitrust watchdog.”

Christian Peeters, an EU competition law expert at Pinsent Masons, said: “The recognition of the SOC doctrine in South Africa will substantially expand the CCSA’s enforcement powers. This is not just about jurisdictional reach. We can expect the CCSA to be better equipped to capture the economic reality of complex cartels, to prove cartels and take enforcement action, to attribute liability in complex and broad schemes, and to avoid limitation-period problems that may arise if older elements of a cartel are characterised as separate infringements.”

“The court’s judgment makes extensive references to EU precedents that link an SCI to common anticompetitive objective, a firm’s intentional contribution by its own conduct to the common objective pursued by all the participants and that the firm was either aware of the actual conduct planned or put into effect by other firms in pursuit of the same objective or could reasonably have foreseen it and was prepared to take the risk,” he said.

Following the ruling, the CCSA can proceed with its prosecution before the CT against six banks.

However, the judgment will be of interest far beyond the banking sector, according to Thomas.

He said: “The decision has implications for cross-border trade, multinational businesses and international cartel investigations more generally. As markets become increasingly interconnected, competition authorities continue to examine how domestic enforcement powers should apply to conduct occurring beyond national borders but capable of affecting local markets. Businesses engaged in cross-border commercial activity should continue to monitor these developments closely.”