South Africa

Shadow World Investigations

The Guptas’ Transnet Laundromat (Part Two): Inside the Guptas’ HSBC washing machine

The Guptas’ Transnet Laundromat (Part Two): Inside the Guptas’ HSBC washing machine
Atul and Ajay Gupta. (Photos supplied)

Last month, Shadow World Investigations (SWI) made a detailed submission to the Zondo Commission on State Capture, tracing and explaining the full details of the money laundering vehicles used by the Gupta enterprise in stealing and hiding vast kickbacks from Transnet contracts. SWI is now making the submission public. In the second of three articles picking out the highlights of the submission, SWI traces how major Chinese state rail manufacturers paid more than $140m to Gupta front companies in Hong Kong, and how this money was immediately injected into two separate money laundering systems.

In July 2020, Shadow World Investigations (SWI) made a detailed submission to the Zondo Commission describing the multiple money laundering systems used by the Gupta family and their associates to wash the vast kickbacks they were paid by Chinese state rail manufacturers, all of which were paid to the Guptas for their role in helping the companies secure more than R50-billion in orders from a captured Transnet.

Based on access to banking documents emanating from the global mega-bank HSBC, SWI can now reveal additional key details of how the Guptas’ criminal enterprise laundered their funds through cut-out HSBC bank accounts based in Hong Kong.

Our analysis shows that Chinese state rail manufacturers – initially China North Rail (CNR) and China South Rail (CSR), but later CRRC, a merger of the two entities – paid a jaw-dropping $145,177,084.41 into the HSBC accounts of two front companies registered under the name of Salim Essa, a key Gupta lieutenant. This vast sum of money was paid out in hundreds of transfers to over 190 identifiable recipients. Our analysis suggests that the vast majority of these funds were paid out into two separate professional money laundering networks. And while these networks pose a serious challenge to any law enforcement who wish to untangle them, our analysis suggests some potential leads.

The kickback agreements

As amaBhungane has extensively and brilliantly exposed, CNR, CSR and CSSR got into bed with the broader Gupta criminal enterprise from at least 2012. Leaked copies of agreements between the Chinese companies and various fronts and cut-outs for the Guptas, in addition to an invaluable kickback spreadsheet, have indicated that the three companies were due to pay the Guptas’ R9-billion in kickbacks related to contracts worth R41.9-billion. Calculations performed by amaBhungane show that R3.69-billion had been paid by October 2016.

Setting up the washing machine – with some professional help

To launder the kickbacks, the Guptas initially made use of a group of companies controlled by an Indian scrap metal dealer, Worlds Window Group (WWG). WWG controlled two Dubai-registered companies, JJ Trading and Century General Trading, through which payments were made on the kickback arrangements until at least 2014.

However, for reasons still unknown, the Guptas decided to jettison its arrangement. Two companies were formed to replace them: Regiments Asia and Tequesta Group, both based in Hong Kong. Leaked contracts show that CNR and CSR signed new kickback agreements to replace those originally held with WWG with Tequesta Group and Regiments Asia.

Company formation documents show that Regiments Asia and Tequesta Group were registered in Hong Kong on 20 June 2014. The initial sole director was key Gupta lieutenant Salim Essa. Essa would be replaced in late 2016 by another Gupta associate, Aashika Singh, but by then this washing machine had already been turned off.

Hong Kong company registry documents show that the email address provided for both was corporate secretary, PAMM Secretarial, given as [email protected]. The corporate secretary, in this instance, would have referred to the person or company that helped to establish the company in Hong Kong.

Our research has shown that this email belonged to an associate of one Stephen MS Lai. HSBC banking documents for Tequesta and Regiments Asia show that they jointly paid Lai $11,600 in five payments between May 2015 and June 2016, presumably to act as the corporate secretary for the two shell companies.

Lai is a chartered accountant who operates between Hong Kong and the UK; company registration documents in the UK show that he controls a company by the name of Stephen M.S. Lai & Co. CPA Limited, while online searches indicate that he also runs an office out of the Hillier Commercial Building in Hong Kong.

Lai’s company website informs that Lai specialises in creating and setting up companies in a range of notorious secrecy jurisdictions, including the British Virgin Islands, Cayman Islands, Delaware, Luxembourg, Mauritius and Hong Kong. Lai offers prospective customers a set of different packages, ranging from $350 to $600. In each of these packages, Lai offers to create a company in Hong Kong with a registered address and contact details in Hong Kong. If anybody needs to verify the company exists, Lai’s entity will offer to receive all calls at the Hong Kong number, indicate that all officers are out of the office, and take a message to be forwarded to a prospective client. Like many offshore company formation agents, Lai is effectively offering a full suite of services to create or sell a secret shell company with all the apparent trappings of an ordinary business.

In two of the packages, Lai offers to open a bank account in Hong Kong. In one package, this offer is, indeed, “guaranteed”. Strikingly, Lai’s website places considerable emphasis on his relationship with HSBC. At one point on the website, Lai records that “we are a QJ license [issued under the name of Chui, Lai & Co, previous name of Stephen M.S. Lai & Co CPA] holder from HSBC.” The nature of a QJ license is not clear, but the context appears to suggest that it allowed Lai to open HSBC accounts for his customers with greater ease.

In the circumstances, it is thus entirely plausible that, in addition to using Lai to set up Regiments and Tequesta, the Gupta network also relied on Lai to open up their HSBC bank accounts in Hong Kong.

Exploring Lai’s website is both comic and enraging. On the one hand, the website’s attempts to appear “formal” and “proper”, including a poorly delivered advertising video featuring a fetching lady in a suit, is so shoddily executed that one can’t help laughing. But, on the other hand, the website revels in the ease with which anybody – including the criminal, corrupt and craven – can open virtually anonymous shell companies in notorious tax and secrecy havens for a few hundred dollars and with a little bit of time online. For this rather measly amount of money, MS Lai provides the infrastructure needed for the criminally corrupt to loot South Africa’s coffers.

The HSBC Accounts: Headline figures and important leads

Our understanding of how the Gupta criminal network was paid via its HSBC Hong Kong shells has been made possible by the Organised Crime and Corruption Reporting Project (OCCRP), which provided us with copies of detailed transactional records for a range of HSBC accounts. The documents aren’t actually bank statements; instead, they appear to be transaction records generated by searching by keywords, such as “Regiments Asia” or “Morningstar”.

These records show that between December 2014 and September 2016, the CRRC group of companies paid $145,177,086.91 into the accounts of Tequesta Group and Regiments Asia. Of this, $41,978,136.50 was paid by China North Rail and its subsidiary Da Lian Rolling Stock, $89,206,698.16 was paid by CSR and $13,992,251.75 by CRRC. Of the two entities, Regiments Asia received the largest share of these payments: It received $83,782,437.41, while Tequesta Group was paid $61,394,649.50.

These amounts were almost immediately paid out of the Regiments Asia and Tequesta Group accounts in a welter of transactions. In total, our analysis of the HSBC documents shows that Tequesta Group and Regiments Asia made 656 outward payments to 181 different recipients. Most of these payments were made to companies of various descriptions, although a small number of payments were made directly to individuals. Salim Essa, for example, was paid $99,985.13 in a single deposit in October 2015, into an account with Habib Bank in Dubai. Many of the other individuals had common Chinese names that have made identifying the recipients nearly impossible. They include individuals with names such as Mark Wai Yeung (paid $70,000 in January 2015) and Cheng Shuang (paid $99,985.14 in April 2015).

Our analysis shows that 27 different recipient companies received a total of over $1-million in payments from Tequesta and Regiments Asia. Of these, only three companies were paid above $10-million. The top five recipients of funds were as follows:

Clearly, if authorities in South Africa and elsewhere want to unravel these complex payment systems, Al Malaki Limited, Success Stand Limited and Honourway Garment Limited would be an excellent starting point, seeing as they received approximately 25% of all of the payments made by Tequesta and Regiments Asia.

The HSBC documents also show a number of transactions for a company by the name of Morningstar International, which, as amaBhungane has revealed, was another Gupta criminal front that received payments from a South African shell company implicated in kickback scandals, Homix. Our analysis has shown that only five companies received payments from all of Tequesta, Regiments Asia and Morningstar: Al Malaki Limited, Success Stand Limited, Meridian Warrior GL, Flybridge International DMCC and Celertus Co. These companies, too, might prove interesting for any financial investigators.

Washing cycle one: Rinse through Hong Kong

Our analysis of the HSBC banking documentation strongly suggests the existence of two distinct money laundering systems used.

The first system used a range of Hong Kong-registered front companies. After extracting all of the company names from the documents, we identified, where possible, the location where each company was registered, and accessed the available company records. This exercise allowed us to construct a profile of these companies, which shared some striking similarities:

  1. The companies were most often formed between 2013 and 2014, and usually by company formation agents specialising in the creation of shell companies;
  2. The companies are purchased by a second company formation agent or company secretarial service, usually a few months prior to them receiving payments from Tequesta and Regiments Asia;
  3. The companies are then almost universally registered to a sole shareholder and director, almost always a lone Chinese citizen; and
  4. There is a distinct cross-over in the company secretarial services and company formation agents forming and trading the shell companies.

Together, this strongly suggests that the companies were purchased off-the-shelf in the months leading up to the setting up of Tequesta and Regiments Asia. The cross-over in the agents used suggests a plausible coordination. This, we believe, strongly indicates that the Hong Kong companies paid by Regiments Asia and Tequesta Group formed part of a single money-laundering network.

Washing cycle two: Spin in China

The second system that was used was based mostly in mainland China. Our analysis shows that a large number of the companies that received payments from Regiments and Tequesta were wholesalers, mostly textiles but also furniture and electronics, operating from China. Moreover, many of these companies had, in the past and during the period in which payments were made to them by Regiments or Tequesta, filed customs declarations for exports to South Africa with Chinese authorities.

It is highly unlikely – in fact, profoundly implausible and not backed by any available evidence – that the Gupta enterprise suddenly got into the wholesale import-export game for textiles and flat-pack furniture.

SWI has it on good authority that the customs declarations do not track with imports into South Africa, as declared to SARS. It is possible that the vendors filed dummy customs forms with Chinese authorities, which were used to justify the outward payment of funds to further recipients.

The role of HSBC

The manner in which the Tequesta and Regiments Asia accounts were run should have raised serious red flags at HSBC. These red flags would have included the fact that:

  1. Two newly formed companies with no notable infrastructure or trading history were suddenly paid over $100-million by Chinese state rail manufacturers;
  2. The two companies had a lone director, Salim Essa, who, by 2016, had already been named in the South African media as a Gupta enterprise associate;
  3. The payments into the accounts were immediately dissipated across hundreds of transactions to a range of companies, many of which were also Hong Kong shell companies with no trading history; and
  4. The accounts retained no operating balance, which would be typical if an account was being used for legitimate business.

Lord Peter Hain has claimed that internal whistleblowers at HSBC were quick to alert HSBC’s head office about what was happening with these accounts. Nevertheless, the accounts remained open and active, stealing and laundering vast sums of corrupt kickbacks.

HSBC needs to come clean – urgently – about why it failed to take action to close these accounts and report their activity to the relevant authorities.

Meanwhile, South African authorities – both the public companies defrauded of billions and law enforcement – should also be knocking on HSBC’s door to demand an explanation and totally unlimited assistance in tracing the ultimate disposition of billions in kickbacks.

State Capture is an affliction that takes advantage of the globalised nature of business. Too often, ordinary South Africans have been let down by august international companies that claim to care about corruption, only to enable the most obvious and egregious examples of State Capture. Some of this has recently been revealed, again, in the Financial Crimes Enforcement Network (FinCen) leaks. Justice demands that these enablers are not only held to account, but are made to pay for their crucial enabling roles. DM


Comments - Please in order to comment.

  • Alley Cat says:

    Fascinating and we needed to pay an amount of $340 to our parent company but this was blocked because it exceeded our contract agreement amount?? Go figure??

  • Johan Buys says:

    What does the Chinese government have to say about their two state owned companies’ roles? Since the projects were inflated by these bribe amounts, we look forward to the cash plus interest plus a 300% penalty being paid to South Africa

  • Dennis Bailey says:

    Not clear to me that anyone cares, least of all SAs. Where are the toyitoying masses who have had their financial futureS shattered? No we would rather smash the Racist frontages of stores as a distraction from real issues we cannot confront. Why do SAs do business with banks that impoverish them?

  • District Six says:

    It’s obvious that plundering a national state’s resources requires cooperation from global corporates. It’s fantastic to have the evidence now. Big Business told the TRC that it is not in the business of ethics, but of profit. And here we are.
    Well, the enablers of state plunder should be held accountable as much as the actual looters.

  • Tim Price says:

    Sickening on numerous levels.

  • Frans Ferreira says:

    Isn’t China one of our BRICS partners which we are told is closer than family? All HSBC assets must be siezed and kept until they come clean. It is time for gloves off.

  • District Six says:

    It’s obvious that wholesale plundering of a state’s resources requires global corporate cooperation. We heard from Big Business at the TRC that Big Business isn’t in the business of ethics. And here we are. Now the enablers should be held to account in addition to the actual looters.

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