First Thing, Daily Maverick's flagship newsletter

Join the 230 000 South Africans who read First Thing newsletter.

Zondo let the State Capture bankers off the hook Zondo...

South Africa

OPEN SECRETS OP-ED

Zondo let the State Capture bankers off the hook

The Bank of Baroda building in Mumbai, India. (Photo: Adeel Halim / Bloomberg via Getty Images) | Atul Gupta. (Photo: Gallo Images / Financial Mail / Robert Tshabalala) | Adobe Stock

How did the State Capture network move billions of rand stolen from the South African people across the globe? The Zondo Commission report provides some of the details of the network of banks who profited from this — but fails to provide any remedy of how to prevent a repetition of these crimes.

The Zondo Commission dedicates 100 of the 5,500 pages in its final reports to describing the money laundering systems used to divert the loot of State Capture to Gupta bolt holes outside South Africa. It is a vital part of the State Capture story. 

Yet despite describing obvious failures of South Africa’s anti-money laundering systems, the Zondo Commission made no strong recommendations to hold the banks and regulators to account for these failures. This is one of the most significant gaps in the commission’s final reports.

In describing the Gupta enterprise’s money laundering systems, the Zondo Commission relied heavily on the incredible forensic work of Paul Holden from the civil society organisation Shadow World Investigations (SWI)

Holden testified to the commission and submitted thousands of pages of evidence that tracked, in fine detail, the flow of funds out of state-owned entities through corrupt contracts, into the Guptas South African money laundering vehicles, and then offshore through laundering networks in jurisdictions like Hong Kong and the UAE.

Holden showed that contracts worth over R57-billion were tainted by State Capture, and that over R16-billion was laundered and ultimately went to the Gupta family or companies under their control. 

While Holden was one of the final witnesses to testify, his testimony provided an ideal finish to the commission by showing South Africans exactly how stolen public funds from Eskom, Transnet and elsewhere were laundered into Gupta hands. 

In February 2020, Open Secrets and SWI jointly submitted detailed information to the Zondo Commission in the form of an investigative report, The Enablers: The Banks, Accountants and Lawyers that Cashed in on State Capture.

The report argued that to understand the Gupta racketeering enterprise, the commission needed to scrutinise the conduct of banks, law firms, accounting firms and other professionals that facilitated State Capture and failed to perform their lawful duties. 

It argued that many of these private actors had co-created a global financial system predicated on secrecy and impunity that enabled corrupt actors like the Guptas to launder the proceeds of their crimes.

The report gave advance warning to the commission:

“A failure to interrogate, fully and energetically, the private enablers of state capture would leave the work of the Commission incomplete; it would also undermine ongoing efforts not only to understand state capture, but to rebuild institutions and systems in ways that guard against similar abuse in the future.”

Inexplicably, a full and energetic interrogation of these private actors, and particularly the banking sector, was largely missing from the commission’s work. 

There were notable exceptions, with the grilling of PwC auditor Pule Mothibe for his obvious failures at SAA a small victory in this regard. Yet, on the whole, corporate CEOs were able to engage the commission on their own terms. 

For example, the CEOs of South Africa’s major banks were given ample time to describe how former president Jacob Zuma and Mosebenzi Zwane placed them under great pressure after the Gupta accounts were closed in 2016. 

The commission rightly found that this pressure was unlawful and a clear abuse of public power in an attempt to protect the Gupta family. 

Yet those CEOs were never compelled to answer questions from the commission on why, for several years before the closures, the banks facilitated numerous obviously dubious transactions that allowed the Guptas to launder the proceeds of State Capture crimes.

A good example of this gap is in the Estina dairy scandal. 

FNB and Standard Bank were never called by the commission to explain why they continued to provide banking facilities to Estina despite the obvious money laundering red flags that the case presented. 

Money arriving into these accounts was often paid out immediately to secondary accounts, often in equal amounts, leaving little or no operating balance behind. 

Much of the money, purportedly for a Free State farming venture, was being paid by Estina to companies in the United Arab Emirates with no experience in farming. 

Finally, both FNB and Standard Bank continued to facilitate these transfers long after the media had reported the concerns about corruption in the contract with Estina. FNB even did so after the Free State government had cancelled the Estina contract. 

These are all red flags for money laundering. 

SWI wrote to both banks in late 2019 to ask them whether they had conducted any due diligence on Estina, investigated the source and rationale of the payments into Estina’s accounts, and if they had filed any suspicious activity reports with the Financial Intelligence Centre (FIC). Both refused to answer. 

On that basis, Open Secrets and SWI urged the Zondo Commission to compel the banks to appear at the commission and answer these questions in public. This never happened. 

The commission dedicated an entire volume to the Estina case in its report, but the role of the banks is treated as mere background. 

The Estina case is just one example where the role of banks was left unanswered by the commission. Nedbank was never required to publicly explain why it continued to act as the Bank of Baroda’s correspondent bank after it had closed its own Gupta accounts. 

zondo holden
Researcher Paul Edward Holden testifies before the Zondo Commission on 3 December 2020 in Johannesburg. (Photo: Gallo Images / Fani Mahuntsi)

Nedbank closed its Gupta-linked accounts in 2016, citing corruption and money laundering concerns. Yet Nedbank decided to continue acting as Baroda’s correspondent bank, only terminating this relationship in 2018. This was long after widespread reporting had indicated that Baroda’s South African business was dominated by Gupta companies.

Even HSBC, which receives the most detailed attention of any bank in the final report of the commission, is let off lightly. 

Using Holden’s evidence, the commission confirms that HSBC was central in providing the banking facilities — particularly to Tequesta and Regiments Asia in Hong Kong — that facilitated the laundering of the kickbacks from the Transnet deal for 1,064 locomotives. 

This was the single largest State Capture contract. Again, HSBC missed obvious red flags. 

Had they met their anti-money laundering obligations, the bank should have swiftly identified that the Tequesta and Regiments Asia accounts required monitoring, investigation and, ultimately, suspension. 

In fact, the Gupta money laundered in this way was part of a much larger multibillion-dollar global money laundering network run through HSBC’s Hong Kong accounts.

Despite this failure, the only recommendation in the Zondo Commission’s final report is that South African authorities “engage HSBC to require HSBC to assist in the tracing and dissipation of the funds” that were laundered through the Gupta’s Hong Kong front companies. 

The Zondo Commission does acknowledge that something is fundamentally wrong with South Africa’s anti-money laundering system. 

In our submission in February 2020, we told the commission that, either South African banks failed to report suspicious activity reports to the FIC as required by law, or they did meet these reporting requirements but the FIC’s own system and relationship with law enforcement rendered these reports useless. 

The commission appears to accept this. It recommends that the FIC urgently investigates whether South African banks complied with the FIC Act with regard to State Capture laundering; what action the FIC took pursuant to any suspicious activity reports that were submitted by banks, and, in turn, whether law enforcement acted on anything passed to them by the FIC.

Yet these are the questions everyone knew needed to be asked when the commission started. The commission also had an entire project team dedicated to examining money flows. 

It is now nearly a decade after many of the transactions in question took place. 

With the commission showing itself willing to cover so much ground and indicating a desire to understand the systems that underpinned State Capture, it is disappointing that it made no effort to ask these questions itself. 

Why did it ignore our recommendation to call the relevant banking executives and regulators to answer these questions? 

So many government officials received a public grilling at the commission, but the banking executives, and indeed most corporate CEOs, were spared this. 

The country’s attention is now squarely focused on securing the extradition of the Guptas from the UAE. 

Though this is an essential battle to win for the NPA, if they want to change the system of corruption, they need to go a step further — request the urgent assistance of authorities in the UAE, USA, UK and Hong Kong to provide bank account information which will enable South African authorities to trace all the State Capture loot. 

This information will help them to prosecute the State Capture networks and the professional enablers who assisted them. 

When money laundering works, one of the crucial consequences is that the crimes necessitating the laundering, including corruption, are rendered profitable. Those involved in the crimes are then able to enjoy the proceeds. 

This is why banks should have to answer publicly for their role in secreting away illicit money through the banking system to offshore jurisdictions, beyond the reach of local authorities. 

They must also be held to account if they have failed to fulfil the requirements of the law. 

If we fail to do this, we will have set the scene for the next generation of State Capture elites to use the same systems to fleece the South African people once again. DM

www.opensecrets.org.za

@OpenSecretsZA

Gallery

Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or sign in if you are already an Insider.

Everybody has an opinion but not everyone has the knowledge and the experience to contribute meaningfully to a discussion. That’s what we want from our members. Help us learn with your expertise and insights on articles that we publish. We encourage different, respectful viewpoints to further our understanding of the world. View our comments policy here.

All Comments 11

  • Michael has hit the nail on the head; with banks profiling customers by their every transaction, they had to have known long before it was exposed by the press. The possibility of the banks being held to account is, however, minuscule.

  • The large State Capture transactions that have significant overseas participants, require funds to be internationalised and taken over our borders. At its simplest, this can just be simple over-pricing that ought to have been picked up at the tendering stage when the right contract comparisons can be made, but the transactions that Paul Holden referred to were not of this nature and alert, competent bankers ought to have been able to flag these transactions and clearly also fell woefully short on the “know your Customers” requirement.

    As such, all banks, and this article references The Bank of Baroda and Nedbank in particular, as well as Standard and FNB earlier in proceedings, ought to be held fully accountable and properly investigated and appropriately fined. Rules apply to all – and not just the little guys.

  • Banks are complicit in money laundering all over the world, and prosecutions are rare. Time to change that! The Zondo Commision is not the end, but the beginning. No one at FIC, SARS or the banks can plead
    ignorance ever again. Are private prosecutions a possibility? Shareholder activism? All shareholders of these banks inadvertently received the proceeds of dirty money: are they comfortable with that?

  • If the transmissions offshore were conducted in US$ then the US SEC could be notified and they would do the forensic and prosecutorial work for the NPA. Fraudulent transactions in US dollars automatically fall under US jurisdiction – as happened in the Mozambique Tuna Bond scandal (where the former Mozambique minister of finance still sits in an SA jail awaiting extradition to the US)

  • Banks fleece anyway, everywhere and until regulatory bodies come to the table and act to end massive “oversights” nothing will change. Zonda called for the investigation of enabling banks, whats more could he do?

  • There is seldom successful government corruption without private sector involvement. It is high time banks (senior bankers) are held accountable for their actions. Profiting from and even facilitating the funding of wars, their massive role in the 2008 financial crisis, and harboring wealth stolen by nazis to name but a few. SA banks are quick to report cash deposits to the FIC and self-righteously freeze accounts of regular South Africans on the grounds of incomplete FICA documentation but failed to detect these vast and suspicious flows of funds? I would very much like to see a few of these SA bankers trying to explain this in the dock.

  • The banks can rightly say that they were prevented from dumping the Guptas as clients when they first wanted to. BUT between that time and the time they eventually and successfully dumped them, and after the first stories of money laundering and state capture had emerged, the banks should have applied a great amount of circumspection to any large transactions, particularly transfers to other countries. Being forced, to some degree, to remain as bankers did not mean that the banks had to automatically and without skepticism simply process each and every transaction the Guptas wanted.

  • @DailyMaverick – whenever I hear abut questions that aren’t answered in a news piece. I think well isn’t this a great opportunity for the journalists…
    Maybe somebody should start calling banking CEOs for interviews.

  • I am not so sure that we can really expect the banks to do all of this. The money regulation systems of the international monetary system, as far as I know, is meant to prevent a collapse of the international banking systems and/or the international markets, not to do the work of the law enforcement agencies. What is described in this article looks to me more like the work of law enforcement, for which we as taxpayers pay the government to do. If the banks are expected to do it, in other words having to appoint more investigators for all these actions, much of which are extremely technical, who is going to pay for it? Us as the clients, while we are already paying the tax to the government. So let us not blame the banks for the failures of government. It seems to me that Zondo was right to leave this out.

    • Obviously a banker!
      Banks are the conduits for all financial transactions and the duties imposed on them are not unduly onerous. Just programme their system to flag money movement instructions of certain types and values-then an initial perusal with deeper investigation to follow if warranted.
      The FIC is the body to whom anomalies are(should be) reported with their action to follow.
      To expect law enforcement agencies to duplicate those activities is naive and unworkable.

  • I’ve been banging on about these topics on the DM wires for ages without any responding support or endorsements. Indeed massive omissions from the Zondo scope of enquiry.
    At last a cogent article and some excellent comments from readers!
    It is self-evident that between the banks themselves (and as authorised agents of SARB), SARB itself, the FIC and SARS- there have been massive and wilful derelictions of duties.
    In the banks, deliberate and criminal activity from which there has been profit for them as companies and bonuses for individuals.
    It is shameful that the banking association has not stood up to compel their member banks to make full disclosure of these activities and name names.
    As minimum, unwitting (but negligent) facilitators, at worst active collaborators.
    Irrespectively, none have been sanctioned, charged or prosecuted-this where the FIC, SARS and SARB have statutory pre-emptive powers and there being legislated penalties running into millions of rands(plus reimbursement/
    compensation) and/or many years in jail.
    As said elsewhere-the US will investigate where USD is involved(which must be the case). Look forward to seeing them wading into these transactions!

Please peer review 3 community comments before your comment can be posted