Contraventions of exchange control regulations in a transaction involving Nampak and Deutsche Bank should be referred to the prosecuting authority for appropriate action, it was recommended on Thursday.
The suggestion came from the minority report of the Myburgh Commission of Inquiry into the depreciation of the rand.
According to the report, compiled by commissioner Christine Qunta, these contraventions occurred in a Nampak share placement through Deutsche Bank.
Her report claimed the transaction contributed to the depreciation of the rand, although the commission could not ascertain by how much.
A private settlement between the SA Reserve Bank and Deutsche Bank in this regard could have no impact on the commission’s findings, the report said.
”The settlement cannot in any way affect the commission’s report, its findings or its recommendations to the President. If the recommendations do entail any criminal proceedings being instituted, it is the responsibility of the State to prosecute and not the SARB.”
According to the majority report — compiled by commission chairman John Myburgh and member Mandla Gantsho — Deutsche Bank’s hedging, funding and related transactions for the Sasol and Nampak share placements were not unethical, but could have run contrary to the spirit of exchange control regulations.
The minority report recommended that an M-Cell share placement, which fell outside the period the commission investigated, ”should be investigated as it appears to have been implemented on the same basis as the Sasol and Nampak transactions”.
Qunta agreed with the majority finding that transactions of Equity Diamond Cutting Works contributed to the rand’s tumble.
In the week ending December 7 last year, the company bought $65-milion spot, and sold $50-million spot and $10-million forward. The company made a loss of R7,9-million on these deals.
According to the majority report, a statement by the SARB on October 14 and a circular two days later changed the behaviour of market participants and were among many factors which contributed to the decline in liquidity and increase in volatility in the forex markets, thereby contributing to the depreciation of the rand.
The statement and circular indicated that the bank would take appropriate steps regarding trading activities inconsistent with exchange control rules.
”In general, the authorised dealers unanimously testified that the stricter enforcement of exchange controls on non-residents and/or the confusion which arose from differences in the interpretation of the communication, following the… statement.. and circular, resulted in an immediate liquidity drain as a result of market participants ensuring compliance in the circular.”
But the minority report said there was no basis for suggesting that the statement was confusing.
”The commission is… of the view that no basis exists for linking the issuing of the… statement and circular… on the one hand and the depreciation of the rand on the other,” it said.
”What the action of the Reserve Bank resulted in was to remove pure speculators and other participants who were probably not complying either with the letter or the spirit of the exchange control regulations. It may be that non-residents who felt unhappy about having to complete the compliance letter also decided not to trade in the South African market.
”It seems to the commission that if the Reserve Bank had not taken the step it did, the volatility would have continued and possibly increased and the currency may have depreciated further.”
Qunta’s report said speculative activity, both legal and illegal and both by residents and non-residents, contributed to the rapid depreciation of the rand, especially in the second half of 2001.
Due to the lack of investigation of certain crucial areas, like proprietary trading of authorised dealers and client foreign currency accounts, the commission could not establish the exact percentage of such speculative activity.
A number of constraints to the commission are pointed out in the minority report.
Some of the information was of a very sensitive nature, it said.
”In hindsight, a public hearing was probably not the most appropriate forum for conducting such investigations.”
Many of the assistants of the commission work or worked for particular institutions, while only two of the economists who testified were not affiliated to a financial institution that fell within the commission’s terms of reference.
International experience should also have been considered, the minority report said.
It said there was no independent verification of data supplied by authorised dealers.
”All information was aggregated. The team could for example have selected a few transactions and investigated them in detail. The team gathered very valuable information about transactions and did observe some trends that should have prompted further investigation but did not.”
The report concluded: ”South Africa experienced its biggest financial crisis in 2001. It is therefore essential that the reasons for the collapse of the currency be investigated in more detail than this commission has been able to”.
It recommended further investigation. – Sapa