Post-Gupta sanctions blues: Anti-corruption battle has a long way to run

By J Brooks Spector 14 October 2019

Ajay and Atul Gupta (Gallo Images)

The announcement that the Gupta brothers and one of their associates now face severe American financial sanctions has generated much applause, but much remains to be done and important questions are yet to be answered.

Over the past two years, South Africans have watched as the Gupta family and all its allies have gone from being at the very core of political power and the intersection of that power with South Africa’s economy — to men on the run. Many of that family’s misdeeds were, of course, investigated and then chronicled in-depth in this publication, in partnership with a number of other persistent, courageous civil society and media organisations, through the #GuptaLeaks. 

As a result, like many others, we were pleased to hear America’s undersecretary of the treasury, Sigal Mandelker, praise these efforts. In an international telephone conference on Friday, 11 October, Mandelker discussed both the imposition of financial sanctions against corrupt figures in South Sudan, and the three infamous Gupta brothers — and their close business associate, Salim Essa.

In her opening comments, Mandelker said:

We took two separate actions related to sub-Saharan Africa under our Global Magnitsky Sanctions authority, which targets human rights abuse and corruption. First, OFAC, the Treasury’s Office of Foreign Assets Control, took action today against a network of South Sudanese businessmen engaged in massive corruption that includes millions of dollars in bribery, kickbacks, and fraud.

Second, yesterday OFAC sanctioned members of the Gupta family, who have operated out of South Africa and elsewhere, and their associates for engaging in corruption, bribery, and misappropriation of state assets. Those separate actions both send a resounding message. Treasury and the United States will continue to hold well-connected elites and corrupt government officials accountable for stealing from their people and breaking the public trust. [Italics added]

What we are looking for is real, significant change on the ground where corruption isn’t the norm, where violence doesn’t pay. First, though – first I want to take a moment to explain Treasury’s focus on addressing corruption and human rights abuse and why we have put such emphasis on using all available tools, whether sanctions, advisories, technical assistance, or multilateral outreach to address these endemic problems.

Serious human rights abuse and endemic public corruption undermine the foundation of stable, secure, and functioning societies, financial inclusion, and ultimately, economic prosperity. They devastate individuals, weaken democratic institutions, and degrade the rule of law. They perpetuate violent conflict and undermine economic markets.

Kleptocrats around the world over have ruled with impunity and stolen from their people for decades because of individuals like those we have designated yesterday and today. Such individuals use a combination of business and financial acumen and political bribery to prop up their patrons and hide the spoils of war. Our role at the Treasury Department is to expose the action of those in power and prevent such kleptocrats and their facilitators from using the US and global financial system to hide and clean their money.” [Italics added] (Now, keep this larger responsibility for confronting both corruptors and bent officials in mind.)

Mandelker continued:

We look to impose financial consequences on those like the Guptas or Al-Cardinal, who think that they can escape with the ill-gotten profits from corruption, cronyism, and criminal activity. We focus not just on taking financial sanctions against corrupt individuals, but on rooting out entire transnational networks designed to evade oversight and enforcement. We advance standards that build strong, transparent financial systems and oversight mechanisms.

We engage with partners, financial institutions, NGOs, and international standard-setting bodies like the Financial Action Task Force to identify reforms that enhance transparency and prevent future abuse. Our goal is simple: to support this generation of people, whether from South Africa, Sudan, DRC, or elsewhere, who clearly and firmly state that they have had enough of the past corruption and violence…

In South – related to South Africa, again, yesterday we sanctioned multiple members of the Gupta family, which has engaged in widespread corruption and bribery, won inflated government contracts, and misappropriated state assets. The family has been implicated in a series of corrupt schemes, allegedly stealing hundreds of millions of dollars through illegal deals.

In one example, the Gupta family strategically overpaid for government contracts, then funnelled a portion of the overpayments into donations to a South African political party. In another example, the Gupta family paid money to a South African government official in exchange for the appointment of other cronies’ family to the Gupta family business interests.

This action supports South Africa’s ongoing anti-corruption efforts by its independent judiciary, law enforcement agencies, and the judicial commissions of inquiry. Moreover, we commend the extraordinary work by South Africa’s civil society activists, investigative journalists, and whistleblowers who have exposed the breadth and depth of the Gupta family’s corruption… Similarly, we commend the work of NGOs in the case of Al-Cardinal.

Treasury’s co-ordinated actions against Al-Cardinal, the Guptas, and other racketeers in sub-Saharan Africa reflect our longstanding commitment to ensuring that corruption does not pay. We will continue to impose tangible and significant consequences on kleptocrats and well-connected elites who attempt to steal from their people as we seek to protect the international financial system from abuse.”

During this briefing, we asked the following:

Daily Maverick is, as you know, one of the institutions, one of the investigative journalism enterprises, that was instrumental in revealing some of this corruption, and I’m glad you’re focusing on this and you’ve taken the actions you have.

My question specifically, though, is that in listening to your introductory comments, you mentioned corrupt government officials five or six times, but I note that in the sanctions that were applied in the South African case, none of the individuals named are government officials. Presumably, a corrupt act takes place between a corruptor and a corruptee, and I’m interested in what was the rationale for not including government officials, and for that matter, why not include other organisations, other companies, some of which are based internationally?”

In response, Mandelker said:

As you may know, we don’t comment on why we do or do not take action against certain individuals. Of course, historically, we have used these tools a number of times to sanction government officials.

We have also found that it – and I know of your terrific work – we have also found that going after the money men, the financial facilitators, not just individually but also their companies, as we have done in both of these actions and many other times, can have a real significant, significant impact because not only does it cut off their ability to access the financial system in wide regard, not only does it block their assets, but it shows to those financial facilitators and the government officials that they are often working with that there are real, serious costs to continuing to engage in that behaviour.

And as I’ve made clear many, many times, we will not hesitate to take action against whether it’s the government officials themselves or the financial facilitators and their vast corrupt networks.

So I’m not answering your question directly about why we did or didn’t do – go after particular actors in this action. But I think if you look at the history of our programme, you’ll see that we have done that time and again, and we think it’s very important to do so.”

A follow-up question from another interaction asked:

What kind of action is the US going to take against the companies that are also implicated in State Capture. I mean global consultants like Bain and Company, and McKinsey, Hogan Lovells?”

This elicited the response that:

We simply don’t comment on – it’s not something that we can comment on.”

It is noteworthy that the South African Department of Justice issued a media statement at roughly the same time as the original American announcement. The South African statement extolled this new spirit of co-operation in combating corruption, noting that the US decision was the result of collaborative action between South Africa and the US.

Its statement said, in part:

It is of critical importance that our young democracy confronts corruption and its antecedent effects expeditiously. We welcome the collaborative efforts by the US in the government’s fight against corruption. The interests of justice must not be shackled by any boundary or border.”

Other comments indicate South Africa is now looking for similar co-operation from some seven other nations.

In this regard, we also understand that this sense of the need for co-operation and the discussions on just such efforts has been taking place for months, prior to the US and South African public comments of last week. Nonetheless, these advances also raise a number of interesting questions, in addition to generating deserved applause for this move.

If, for example, this co-operation has been advancing and gaining momentum recently, this could constitute real evidence that the Ramaphosa administration is now sufficiently emboldened to finally move decisively towards rolling back the wave of corruption that has nearly engulfed the country. It is interesting that US experts in combating corruption, money-laundering and other cross-border crimes are now scheduled to train their South African counterparts.

The National Prosecuting Authority has said it has accepted offers of assistance from the US Department of Justice and its Office of Overseas Prosecutorial Development and Training to carry out workshops with the NPA’s Asset Forfeiture Unit and its Investigative Directorate, the South African Reserve Bank, the police, SARS, the Financial Services Conduct Authority and the Independent Police Investigative Directorate.

On this, News24 reported:

Bulelwa Makeke, NPA spokesperson, confirmed the NPA’s acceptance of the US’s offer of assistance. This comes in the wake of last week’s announcement by authorities in the US that they had implemented wide-ranging and crippling sanctions of members of the Gupta corruption ring under that country’s Global Magnitsky Act, which seeks to clamp down [on] international corruption and human rights abuse.”

But, if all of this is true, it now leaves unexplained why no South African politicians were named in the US Treasury notice, unlike for South Sudan. One close observer of South African developments commented to me that in prior years, pre-Zuma and the Guptas, the US “used to do training with the Scorpions. We used to have Assistant US Attorneys embedded in the asset forfeiture division of NPA. This was back in the early years of white-collar law enforcement in democratic South Africa. The problem in SA isn’t a lack of knowledge — the problem is a lack of resources and political will.”

And in this regard, a leading South African political commentator wrote to me, saying:

Did the Americans accede to the request based on specific individuals as targeted (and singled out) by the Justice Ministry? If so — why not finger the politicians? (My suspicion is that it’s to target them or cut off access to a pipeline of funds and resources — while at the same time not rendering them directly or openly susceptible thus preserving the ‘unity’ of the ANC?)

It is curious. Unless there is an elaborate game of lulling them into a false sense of security only to pounce later… but I don’t think so…”

Taken together, this points to the sad possibility of a still-divided South African government and governing party, one as yet unable to fully and completely commit to rooting out the remaining tendrils of State Capture, and to bringing all culprits — regardless of their influence, positions, or connections — to face the legal and criminal music.

If this is true, there is still a long, complex, painful road for the government and nation to travel until the deep damage of the past decade is repaired, and the country can legitimately tell potential investors that the disease of corruption has finally been beaten back. DM


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