South Africa

DAYS OF ZONDO

Reserve Bank official: ‘It is unclear if, or how, Standard Bank missed the Gupta red flags’

Cashflows through the Gupta-linked Homix, a company fingered in a multimillion-rand kick-back scandal involving state-owned entities, had all the hallmarks of money laundering. While Standard Bank operated two Homix accounts, it also banked a cluster of related Gupta entities that either paid or received payments from the company: On Monday, the State Capture commission was confronted with a question about how well the bank knew this particular letterbox customer.

Standard Bank was among the country’s major financial institutions that dumped the Guptas and related companies amid the growing State Capture scandal in 2016.

It confirmed having banked several companies that have now been fingered in broader money-laundering investigations by the South African Reserve Bank — among those, the notorious letterbox company Homix.

On Monday morning, 10 June 2019, the State Capture commission was briefly dealt with a question about whether, or else how, the bank had missed major red flags in the account activity of Homix.

Shiwa Mazibuko of the South African Reserve Bank’s financial surveillance unit, unpacked a string of dodgy transfers involving Homix and various other companies which he says were typically layered to disguise the origin or ultimate beneficiaries of cash emanating from state-owned enterprises.

Homix, a letterbox company with no discernible trade activity, has been repeatedly named as the beneficiary of kick-backs from deals involving state-owned companies, and Regiments Capital and Neotel, among others.

Mazibuko testified that Homix held two accounts with Standard Bank that had been largely inactive or dormant up until around March 2014.

Then, he said, there was suddenly a dramatic increase in activity, characterised by several large deposits.

This is a huge red flag. Banks are at the coalface and when you look at money laundering, there are three stages. If you have stolen money and you can place it into a bank account, then the process has started.”

In this case, Mazibuko said, if such cash is just accepted at a bank without being questioned, it begins the process of integrating illegal money into the formal system.

He said Homix received roughly R660-million in credits between March 2014 and June 2015, the period reviewed by the Reserve Bank.

And, as soon as the money went into the account, it was transferred onwards to various other accounts, most being what he called “sole director” entities with no apparent business track record.

I don’t know what the role of Standard Bank was, but this was an inactive account and all of a sudden there were huge amounts. I don’t know what action was taken.”

Mazibuko said banks are known to monitor client accounts and are generally aware of normal credits and debits such as salary or insurance payments moving in or out of an account in terms of the “know your customer” requirements.

Banks are the first line of defence and are obliged to know their customers under the Financial Intelligence Centre Act.

They would know trends in particular accounts and notice spikes or unusual activities and should detect suspicious transactions quicker,” Mazibuko said.

But in the case of Homix, a company supposedly trading in textiles was suddenly getting huge deposits from entities that did not obviously operate in that sector.

That too, Mazibuko said, should have raised red flags.

Commission chairman, Deputy Chief Justice Raymond Zondo, said while it was not possible to say if this happened at Standard Bank, it was important to examine the sudden flurry of activity in the account and what happened thereafter in order to determine if it was possible that the State Capture crew had a helping hand from bank insiders.

Banks usually report suspicious transactions to the Financial Intelligence Centre and some cases may be forwarded for criminal investigation — but the decision on whether to bank a particular client remains that of the bank.

Daily Maverick asked Standard Bank for comment about Mazibuko’s testimony at the commission, as well as some of its other Gupta-linked clients.

In an emailed response, the bank said:

Our anti-money laundering risk management and compliance programme, which includes KYC (Know Your Customer) and money laundering surveillance systems, processes and procedures, enable us to comply with our legislative obligations.”

The bank also said it complied with regulatory obligations but could not comment on specific clients or transactional activity beyond its own testimony at the State Capture commission.

Customers included Homix, Regiments, Bapu Trading and more

Standard Bank didn’t just bank Homix. The bank’s former group legal counsel, Ian Sinton, previously told the Commission that Standard Bank had also operated accounts for Regiments Capital, a financial advisory firm that has since admitted to both the bank and the Reserve Bank that it had paid between 35% and 50% in kickbacks, labelled supplier development fees, to Gupta kingpin Salim Essa and Kuben Moodley’s Albatime. This account has since been terminated.

Regiments paid R179-million into the Homix Standard Bank account during the period covered by Mazibuko’s testimony.

Sinton’s testimony earlier in 2019 also confirmed that the bank had operated accounts for Cutting Edge Commerce, another known Gupta-linked company that scored huge cash out of Eskom and which also moved cash, mostly nice round figures, through some of the other Gupta-linked companies.

The commission also heard that it banked Westdawn Investments, an entity that assisted one of former president Jacob Zuma’s wives to buy a R5-million home in a Pretoria suburb.

The first traceable media article on the Gupta hand in the purchase of this property was published by the Mail & Guardian in 2012.

According to Sinton’s lengthy submission to the commission, Standard Bank also banked a string of nondescript companies that moved cash to and from Homix, including Bapu Trading, Global Softech Solutions and Futureteq. It is unclear if and when exactly some of the accounts were closed. In the case of Futureteq, Sinton provided bank statements running up to April 2017.

Mazibuko provided the commission with a Reserve Bank cash-flow analysis of the Homix account and said it showed the company would receive huge amounts of cash and once in, this would swiftly be moved onward to other entities.

The single biggest beneficiary of Homix payments was another Standard Bank customer, Bapu Trading, at R327-million, with nearly 50% of cash inflows during the period in question.

Mazibuko explained how within a week of Neotel paying R75-million to Homix, smaller tranches totalling the exact amount were paid to Bapu Trading.

We found no rationale for these payments,” said Mazibuko.

Homix, he said, was supposedly trading in textiles, yet it was being paid by companies that had shown no sign of being connected to that industry, especially Neotel and Regiments.

In May 2017 the Reserve Bank wrote to Regiments asking for an explanation about media reports and the nature of its dealings with Homix.

Eventually, after about a year and once the Reserve Bank threatened legal action, Regiments responded, saying it had made the payments to Homix after being introduced to global consulting firm McKinsey & Co by Essa and Moodley and that they or their nominees were to be paid 35% initially and later on, a whole 50% of their takings from SOEs.

Homix first caught the eye of the Reserve Bank in 2015 after Mercantile Bank flagged cash flows out of the country totalling R51-million.

The Reserve Bank investigated and eventually, after dead silence from the directors of the company, published a forfeiture notice in the Government Gazette in December 2016 for just R14-million, the rest of the R51-million by then having been spirited off to Hong Kong.

The commission resumes on Tuesday when Chetan Vaghela, an auditor from Deloitte, is scheduled to testify. DM

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