The Supreme Court of Korea has justified the Korea Fair Trade Commission (KFTC)’s decision to punish Citibank and JPMorgan Chase for allegedly colluding to bid on a currency swap contract. The ruling means that if a bidder cooperates with another participant during a bidding process to agree on the bid price, it can be sanctioned as collusion even if the organizer and the preferred bidder have verbally agreed to sign a contract in advance.
The Supreme Court issued a ruling that overturned the Seoul High Court’s original ruling in favor of the KFTC with regard to sanctions against Citibank and JP Morgan for colluding to bid on a currency swap and reversed and remanded the cases to the Seoul High Court on Aug. 31.
Citibank and JP Morgan filed an administrative lawsuit against the KFTC in May 2020 and May 2021, respectively, with the Seoul High Court and won the case in May 2021. But the KFTC appealed to the Supreme Court. This time, the Supreme Court ruled that the KFTC’s decision was legal.
Initially, in the original trial, the court judged that each ordering party verbally agreed to enter into the currency swap transaction with a specific bank, which can be considered as a de facto contract. It did not believe that a currency swap bid in this case had the substance of competitive bidding as it cannot be ruled out that they had the appearance of bidding as if there was a tender such as receiving bidding proposals from the plaintiff and other banks without conducting a bid to leave evidence that the process had been conducted.
On the other hand, in a currency swap tender, the ordering party had to hold a tender in accordance with internal regulations or business practices. Therefore, the Supreme Court judged that the tender was held because both cases were different from a case where a formal tender document was prepared without conducting a tender at all and manipulated to make it look like the tender had been held.
In fact, Korea Hydro & Nuclear Power (KHNP) requested prospective bidders, Citibank, Hong Kong and Shanghai Banking Corporation (HSBC), and “Bank A” to submit proposals in advance, and HSBC did not participate in the tender in accordance with an agreement with the plaintiff, so the plaintiff with the lowest interest rate was selected as the preferred bidder. Bank A offered a higher interest rate than Citibank.
Korea Expressway Corporation requested the winner-to-be, HSBC, to submit proposals from other banks, and at the request of HSBC, JP Morgan and Citibank submitted higher fixed rates in the Korean won than HSBC so that HSBC, which offered the lowest rate, was selected as the winning bidder.
The Supreme Court judged that the currency swap tender was in fact similar in structure and form to an actual tender such as being the sole bidder using a conspirator to make the tender look as if it were competitively held or an orderer conspiring with a specific person to inform other bidders of the expected price so that the specific person will be able to become the winner by colluding with the other bidders.