South Africa


Zuma, Cabinet and Abrahams weakened systems to stop money laundering — now SA is paying the price

Zuma, Cabinet and Abrahams weakened systems to stop money laundering — now SA is paying the price
Illustrative image | Sources: Treasury’s Acting DG Ismail Momoniat. (Photo: Gallo Images / Financial Mail / Robert Tshabalala) | Former president Jacob Zuma. (Photo: Leila Dougan) | Alleged State Capture kingpin Atul Gupta. (Photo: Gallo Images / Foto24 / Felix Dlangamandla) | Jason Alden / Bloomberg via Getty Images

South Africa is a developing terrorism hotbed. When the National Treasury tried to take hasty steps in an attempt to align Fica legislation to international standards, Parliament’s two finance committees in June pulled up the handbrake, making a palatable argument for not skipping on public participation. Treasury Acting Director-General Ismail Momoniat was gracious enough not to remind Parliament that the Zuma-era ANC Cabinet, Shaun Abrahams and Parliament itself were, for years, the actual stumbling blocks in aligning South Africa’s legislation with international standards — mostly at the behest of the Guptas. This article explores past lessons we dare not ignore.

South Africa’s devastating story of State Capture is, in contrast, also the story of devoted public servants standing in the way of political sellouts and crooked business people betraying the country.

For every Siyabonga Gama, there is a Mosilo Mothepu and a Mariëtte Venter. For every Tom Moyane, Lynne Brown and Brian Molefe, there is a Themba Maseko, a Martha Ngoye, a Doctor Radebe, countless SARS officials and whistle-blowers.

The Guptas caught on quickly. 

Corrupting our moral fabric in totality was unattainable.

So they focused on the subversion of legislation designed to keep an eye on illicit money flows and attempted to buy a bank. 

This story of South Africa’s battered and weakened financial framework and how the National Treasury, the Reserve Bank, its officials and whistle-blowers held the line is told in an affidavit submitted to the State Capture commission by National Treasury Acting Director-General Ismail Momoniat, the longest-serving top official at Treasury. Every South African should read it.

Now, Momoniat is spearheading the struggle — initiated in 2014 — to get Parliament’s two finance committees to adopt crucial amendments to schedules of the Financial Intelligence Centre Act (Fica) legislation designed to align South Africa with world standards and keep us off the grey list of global money laundering and terror financing watchdog, the Financial Action Task Force (FATF).

The FATF is an intergovernmental policymaking body that sets standards and coordinates a global response to prevent organised crime, corruption and terrorism.

To be greylisted will mean that South Africa’s legislative and implementation shortcomings are seen as a risk to the international financial system, along with countries such as Burkina Faso, Albania and Yemen. 

A peer review report from the FATF found that South Africa’s anti-money-laundering and terrorism-financing legislation is to international standards what bumper stickers are to philosophy — a good attempt, but found completely wanting, holey and in dire need of a facelift

The really bad part of the FATF’s report is that law enforcement’s (police, Hawks, intelligence agencies and the National Prosecuting Authority) efficiency in implementing the law is akin to catching rain with a sieve

Underscoring the FATF’s findings, the US independently announced in March that individuals in South Africa “are playing an increasingly central role in facilitating the transfer of funds from the top of the Isis hierarchy to branches across Africa.” 

The US at the time sanctioned two South Africans from Durban and Cape Town as well as an Ethiopian and a Tanzanian based in Johannesburg for terror-linked activities. (The accused were “shocked and appalled” by the US’s accusations.)

Briefing Parliament in February, the Financial Intelligence Centre (FIC) told MPs that foreign agencies had a better insight about local terrorism activities than our own law enforcement agents.

“South Africa’s counter-terrorism strategy does not identify the pursuit of terrorist financiers as an operational mitigant in the fight against terrorism,” the FIC said.

On 15 June, MPs of Parliament’s joint meeting of the standing and select committees on finance expressed unease when the National Treasury asked them to adopt wide-ranging amendments to the schedules of the Financial Intelligence Centre Act of 2001. The MPs’ argument — asking for public participation, first, before making drastic decisions — seems solid. 

To accept Parliament has all of our best interests at heart, however, in the context of MPs’ decade of ineptitude and political shielding of criminals is much more difficult. To explain the point, we need to revisit Momoniat’s affidavit before the Zondo Commission of Inquiry into State Capture.

How the ANC Cabinet, Abrahams and the Guptas tried to stop the Fica bill

The year is 2015. Then president Jacob Zuma has just fired finance minister Nhlanhla Nene. The crashing markets’ rejection of Des van Rooyen forced Zuma to appoint Pravin Gordhan in the position.

The Guptas were effectively running the country from Saxonwold. Two months earlier, they had told deputy finance minister Mcebisi Jonas they wanted him to be minister of finance and planned to get rid of then director-general Lungisa Fuzile as well as three DDGs, including Momoniat. 

In his affidavit to the Zondo Commission, Momoniat describes this as a particularly low point, saying that the National Treasury had operated in an “increasingly hostile environment” and “remained continually on the defensive” from the moment Zuma took office in 2009.

By December 2015, when Nene was fired, the Fica bill had just been tabled after Cabinet had been brooding over it for a year. With the FIC Amendment Bill, the Treasury aimed to jack up South Africa’s financial intelligence framework by introducing closer scrutiny of politically exposed persons and beneficial ownership (to unveil where the money really goes). 

These measures would ensure South Africa met the FATF’s international standards in fighting fraud, money laundering, terrorist financing and corruption. 

“To the surprise of National Treasury Management, the FIC Amendment Bill was met with great resistance from Cabinet…” Momoniat writes. “[Cabinet’s] key objection related to the [Politically Exposed Persons] clause in the Fica bill.”

The clause suggested tighter legislation around politically exposed persons — an international concept to scrutinise anyone linked to a prominent public position. The ministers, however, felt it discriminated against politicians and did not include the private sector.

Because Cabinet continuously rejected the bill, the Treasury had already had to plead with the FATF in 2014 not to initiate sanctions against South Africa for failing to align our legislation with international standards. 

Why Zuma didn’t sign

Parliament’s Standing Committee on Finance, chaired by Yunus Carrim, adopted the Fica bill in April 2016 after meeting at least 12 times to discuss it, Momoniat told the Zondo commission. 

Only at the last meeting did Carrim refer to a letter received from the employees of a Gupta company, concerned about losing their jobs because major banks had closed the company accounts. 

By the middle of 2016, it seemed that the banks had caught on to the Gupta’s criminality and, one after another, started to close all family and business-linked accounts. 

In the middle of all of this, the Fica bill — aimed at enhancing financial intelligence — was sent to Zuma’s office to be signed into law. 

Zuma did not sign the Fica bill into law. 

Instead, Zuma waited until the end of November 2016 to return the bill to Parliament to reconsider, claiming sections of it were unconstitutional. The president risked South Africa being publicly shamed at the FATF plenary in December 2016 where the Treasury had to report back on its progress to whip our legislation into shape, Momoniat said.

Treasury under attack

When the banks closed the Guptas’ bank accounts around 2016, the family did not engage the banks directly, nor make representations on why their dealings were perhaps misunderstood. 

Instead, the Guptas cooked up a multipronged offensive in which they used their tools — Zuma, the ANC Cabinet, Cosatu, government — to bully the Treasury and the banks into submission. In the background, the Guptas were briefing British PR firm Bell Pottinger to whip up a race-based fight to channel away the public’s attention. 

The Fica bill being signed into law and taking effect would have been like an ultraviolet light shone on the then invisible writing of the Guptas’ criminality — their wrongdoing had no chance of staying hidden.

“I believe that is why they began to focus on stopping the Fica bill,” Momoniat wrote to Zondo, and why the Guptas attempted “shifting the FIC reporting to another minister who was more loyal to the Gupta family … and [why they attempted] to buy their own bank”.

Momoniat believes Zuma’s delay in signing the Fica bill into law “was deliberate and that the Gupta family intervened after their bank accounts were closed, to delay and stop the bill from being enacted into law”.

Instead of backing South Africa’s Treasury, Zuma, ministers and SOE leaders linked to the Gupta family, started attacking the Treasury and Gordhan. The latter found himself to be the target of a Hawks and State Security investigation. 

In a move that was unconstitutional, Cabinet decided to investigate why banks had closed the Guptas’ accounts, spearheaded by Mosebenzi Zwane, then the minister of mineral resources. 

Zwane acted with great urgency to assist the Guptas — an urgency that stood in stark contrast to his handling of the black-empowered mining company Exxaro that had been forced to retrench 1,500 workers after Eskom failed to renew its coal contract in favour of the Gupta-owned company Tegeta Exploration and Resources.

Unprecedented support by Cabinet

Momoniat described Cabinet’s coming out to bat for the Guptas as “unprecedented”.

“I am not aware of any other instance since 1994 where Cabinet decided to intervene in a bank-client relationship… [W]e suspected that the decision of Cabinet was not in accordance with the law. We were also surprised by the speed at which Cabinet took this decision to support the Guptas.”

Cabinet came up with all sorts of ludicrous ideas, including moving the Financial Intelligence Centre away from the minister of finance to the more pliant justice, crime prevention and security (JCPS) cluster ministers — where the Guptas could control any suspicious transaction-record reports. 

“I am not sure if he knew, or cared, that his actions could cause financial and economic instability,” Momoniat wrote to Zondo, “and that it was in the public interest to strengthen our anti-money-laundering system and to avoid sanctions from overseas regulators if we did not update our [financial] system.”

As the official dealing with anti-money-laundering legislation, Momoniat said it was clear that “President Zuma and Mr Zwane were determined to weaken our anti-corruption and anti-money-laundering legislation, as well as our financial regulatory framework, all of which Cabinet had previously approved. All this to serve the interests of the Gupta family and their businesses.”

While Cabinet was busy fighting the Guptas’ fights for them, South Africa was “now in hot water at FATF”. The FATF president cancelled a high-level visit for June 2016 and wrote a devastating press release saying the FATF was “deeply concerned” about South Africa.

Surprisingly, after Zuma fired Gordhan and appointed Malusi Gigaba as minister of finance in March 2017, he deemed it safe to sign the Fica bill into law. 

Kneecapping the Fica bill

The low-water mark of Momoniat’s affidavit is where he describes how Shaun Abrahams, the former national director of public prosecutions (NDPP) at the NPA, attempted to kneecap the Fica bill in May 2017. 

Abrahams’ sudden energy for the Fica bill came at a time when the JCPS cluster ministers suddenly became very interested in becoming the custodian of the FIC.

At a meeting with the Treasury in May 2017, Abrahams rocked up, apparently at the invitation of Gupta stooge Michael Masutha, then minister of justice. Curious, Momoniat noted, because the NPA is not responsible for policy and legislation. 

The high-water mark of this meeting is a petulant Abrahams storming out in such a raging huff that he left his bag behind. He followed up his uncouth schoolyard fight with an SMS to Momoniat, who was also hot under the collar, saying: “There will be no apology forthcoming from me. Your understanding of professionalism leaves me speechless and your arrogance has no bounds. This is regrettable. Fortunately, you are only a DDG. Don’t forget that!”

The facts will show that Abrahams’ showmanship was as efficient and impactful as his career as NDPP.

Neither Abrahams nor Masutha sent the Treasury any comments on the Fica bill and, on 13 June 2017, Gigaba gazetted the act. By November that year, South Africa was taken off the FATF’s targeted list, with the secretariat calling it a “borderline case”.

“It should be noted that later in the year, Mr Gigaba appeared to get cold feet, and I suspect he must have been put under further pressure from some of the JCPS ministers, as without discussion with any of the Treasury or FIC officials involved with the FIC Act, he requested the department to amend the definition of prominent person in 2018 to also include all businesses.”

The cost of Zuma’s, Cabinet’s and Abrahams’ interventions is a weak anti-money laundering system. Our capability lags behind most G20 and other FATF countries.

FATF’s poor rating

Because of Cabinet’s interventions, Zuma’s dithering and Parliament’s inadequacy, South Africa received a really bad rating on its financial legislation and its implementation during the peer review by the FATF nations. 

However bitter it is to be seen as a skunk among great nations, South Africa should not forget that a strong financial system is to the benefit of us all. 

A question we must ask is, how long it will take for our country to be a foothold for terrorists, to our country and citizens being attacked by terrorist elements?

When we read this blood-curdling piece by Caryn Dolley, it seems that day may already be with us. 

“It is vital to our democracy,” Momoniat wrote to Zondo, “that we have better disclosures in future on all political funding, not just for registered political parties, but all organised political players. We need to know as a society how the many paid agents and lobbyists, as well as PEPs [politically exposed persons], are funded…

“I believe that our institutions like the FIC, SARS, Hawks and the NPA can bring them to justice quickly if they work closely together, using as a basis the many suspicious transactions that I believe banks would have reported to them. They need to act against those who cannot explain these suspicious transactions or source of income and wealth.”

What we also need is a Cabinet and government who have all our best interests at heart. DM



Comments - Please in order to comment.

  • Tony Reilly says:

    Pauli, as always – great journalism. Thank you.

  • Dennis Bailey says:

    “What we also need is a Cabinet and government who have all our best interests at heart.” And we-the-people were gullible enough to think we had such a cabinet and a government in the ANC … and we’re gullible/stupid enough to elect these same crooks again.

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