Opinionista Omphemetse S Sibanda 14 October 2019

What the US blacklist of Gupta brothers means

It is now well known in South Africa that the United States of America took a bold step in visiting consequences upon certain Gupta family members and an associate for capturing South Africa.

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued an Executive Order (E.O.) 13818 blacklisting the Gupta brothers and Salim Essa from doing business in the US, and with US businesses, for their involvement in grand corruption in South Africa pursuant.

The Gupta family leveraged its political connections to engage in widespread corruption and bribery, capture government contracts, and misappropriate state assets,” said Sigal Mandelker, the US Treasury’s Under Secretary for Terrorism and Financial Intelligence. Predictably, South African authorities have embraced the US position on the Guptas and their associates, even informing the public that they have issued requests for mutual legal assistance to other countries.

Interestingly on 10 December 2018, the 70th anniversary of the Universal Declaration of Human Rights, the European Ministers of Foreign Affairs unanimously approved the Dutch proposal for the EU-wide Magnitsky Act (the EU Global Human Rights Sanctions Regime). This and other developments will surely expedite responding to the mutual legal assistance requests by South African authorities.

The Gupta Executive Order builds upon and implements the Global Magnitsky Human Rights Accountability Act of 2016 [Pub. L. 114-328, Title XII]. The Global Magnitsky Act is a remodelled and expanded version of the 2012 Magnitsky Act, which applied exclusively to Russians. The 2012 Magnitsky Act was named after Mr Sergei Magnitsky, a tax lawyer for Hermitage Capital Management, who was allegedly killed by Russian authorities for his role in exposing corrupt activity in the form of a tax refund fraud scheme.

Should we, as South African citizens and residents, celebrate the US Executive Order against the Guptas and their associates; or should we be concerned that the sovereignty and political will of the South African government to act against corruption has been put into question? John Temin of Freedom House, an independent watchdog organisation that supports democratic change, applauded the US for taking the bold step of placing sanctions on South African State Capturers.

But some have branded the Gupta listing on the Magnitsky List as an embarrassment to President Ramaphosa; others questioned the timing and motives of the US. Responding to the US blacklisting the Guptas, for example, analyst Ebrahim Fakir stated, “It’s a shame and shameful that US authorities did this, hypocritically – considering their own corrupt president ought to be susceptible to this. South Africans shouldn’t be celebrating this. We should be rueing and regretting the fact that our own authorities are not doing this when it is them who should be. The Hawks, the NPA, the Asset Forfeiture Unit and so on.”

Perhaps one can say the Guptas’ Magnitsky listing is selective. It can be asked: What about Global companies such as Klynveld Peat Marwick Goerdeler (KPMG) and McKinsey & Company, and the British public relations group Bell Pottinger for working with the Guptas? As a matter of speculation, perhaps it was not going to be a good business move to touch KPMG, given its multinational professional services network, and its position as one of the Big Four accounting organisations, with Deloitte, Ernst & Young, and PricewaterhouseCoopers.

Those sceptical about the Gupta blacklisting may argue that McKinsey & Company survived being tainted by the Magnitsky blacklisting, obviously, because it is an American firm. Anyway, as it is colourfully known and named by New York Times, McKinsey is the “Godfather of management consulting” which happened to make a big mistake when it landed a contract in South Africa and found itself at the centre of a “swirling corruption scandal” involving the Guptas. This was in reference to McKinsey’s partnering with Trillian, controlled by the Guptas, to win a R1.6-billion ($120-million) contract with Eskom in 2016 (For more on McKinsey read here].

We will continue to exclude from the US financial system those who profit from corruption,” Mandelker said.

In view of this commitment to fight corruption by Mandelker, is the US also considering alleged friends-in-corruption, associates, and affiliates of the Guptas in the same way it did with the listing of 39 associates of the 13 individuals in 2017 for their alleged human rights abuses and corruption?

Having said the above, I would like to acknowledge that the blacklisting approach, in general, cannot be divorced from developments in US foreign policy. For instance, the sanctions related to the initial 2012 Magnitsky Act that were focused on human rights abuses were designed to address citizens’ abuse in Russia. The 2014-2015 sanctions with respect to the Ukraine/Russia conflict attempted to deal with Russia’s infringement on the sovereignty of an independent country.

As a South African who is tired of corruption and corrupt activities, and without holding any brief for the US, though I studied in the US, I would not disregard the positive boost the Gupta listing has given to Ramaphosa’s crusade to fight corruption and clean up government.

There is a litany of settled cases where government officials and key influential American figures have been indicted and convicted of malfeasance. For instance, David Butler, a US political figure and Governor of Nebraska from 1867 until 1871 was impeached and removed from office in 1871 after being found guilty of using $16,000 from the sale of public lands for his own private use. Mrs Corrine Brown, a former American federal politician who served as a member of the US House of Representatives from Florida from 1993 to 2017, was sentenced to five years in prison on felony counts of wire and tax fraud, conspiracy, lying to federal investigators and corruption. She was also ordered to pay restitution.

The listing of the Gupta family members is not ground-breaking because the US has been one of the countries ferociously doing whatever is possible to combat corruption all the way back to its 1977 Foreign Corrupt Practices Act (FCPA), which punishes US persons and business even for acts of corruption outside US borders. As of 10 December 2018, the US has designated 101 foreign persons (individuals and entities) under Executive Order 13818. In 2017 the US backlisted 52 individuals, 13 of whom were listed for serious human rights abuses and corruption, and 39 affiliated individuals and entities. Allow one to note the following companies/individuals, as widely publicised by OFAC:

  • Angel Rondon Rijo, a politically connected businessman and lobbyist in the Dominican Republic who siphoned money from Brazilian company Odebrecht, to Dominican officials to ensure that Odebrecht was awarded state projects to build highways, dams, and so on. Rijo pled guilty to charges of conspiracy to violate the anti-bribery provisions of the US Foreign Corrupt Practices Act, and agreed to a criminal fine of $4.5-billion.

  • Gulnara Karimova, daughter of former Uzbekistan leader Islam Karimov, who led a powerful organised crime syndicate and was actively involved in political influence (state capture). She was in July 2017 charged by the Uzbek Prosecutor General’s Office for offences including hiding foreign currency through various means, such as embezzlement of state funds, theft, tax evasion, and concealment of documents, money laundering through a complex web of subsidiary companies, and corrupt activities in the telecom sector.

  • Roberto Jose Rivas Reyes, president of Nicaragua’s Supreme Electoral Council, accused among others for electoral fraud and receiving protection against prosecution from Nicaraguan government officials.

  • Dan Gertler, an international businessman and billionaire who allegedly amassed his fortune through hundreds of millions of dollars’ worth of corrupt mining and oil deals in the Democratic Republic of the Congo (DRC) using his friend and President Joseph Kabila to act as a middlemen for mining asset sales in the DRC and to be awarded business by the Congolese state.

  • Benjamin Bol Mel, the President of ABMC Thai-South Sudan Construction Company Limited (ABMC) and once the chairman of the South Sudan Chamber of Commerce, Industry and Agriculture, and former principal financial adviser of South Sudanese President Salva Kiir and his private secretary, was linked to doing business with government officials despite the Sudanese constitution prohibiting “top government officials transacting commercial business or earning income from outside the government”. Bol Mel and ABMC were allegedly awarded contracts worth tens of millions of dollars by the government of South Sudan and obtained preferential treatment from high-level officials, sometimes with ABMC not going through any competitive bids to transact with the government.

Can we, as South African citizens and residents, celebrate the US Executive Order against the Guptas and their associates? Perhaps, but it must be a measured celebration because the business environment that is cleansed and protected from the illegality of State Capture is the US environment and stream of commerce. The same cannot be said of South Africa.

Perhaps the Gupta blacklisting should have been broadened to state that any South African alleged to have been part of the Gupta takeover with assets in American-controlled territories would have such assets frozen and prohibited from entering US territories until they were cleared. It is fortunate or unfortunate, depending on which side of the story you stand, that the Gupta Magnitsky Listing is so limited and does not include South African government or public officials.

I am assuming that the US Government did not, for now, list South African politicians, government officials and executives out of respect and appreciation of political comity and deference. The expansion of the Magnitsky Listing, hypothetically speaking, would include individuals who publicly declared that they did business with the Guptas above board or that they are affirmed friends with the Guptas. This would invariably or probably have persons such as Duduzane Zuma listed as persona non-grata in the US.

Mr Tony Gupta is a business partner of mine and he is also a very dear and close friend,” said Duduzane Zuma at the State Capture Commission on Monday, 7 October 2019. Of course, Tony Gupta is not mentioned in the US blacklist. The US order lists Ajay Gupta, Atul Gupta, Rajesh Gupta and Salim Essa. But if I am a self-confessed business partner of Tony, I would be very concerned that I could be prohibited from American soil and its stream of commerce.

In terms of the Executive Order 13818, listing can extend to “any foreign person determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Attorney General” as a perpetrator, co-perpetrator, complicit in, or who have directly or indirectly engaged in, “serious human rights abuse”.

The order also extends to any person who is a “current or former government official, or a person acting for or on behalf of such an official, who is responsible for or complicit in, or has directly or indirectly engaged in “(1) corruption, including the misappropriation of state assets, the expropriation of private assets for personal gain, corruption related to government contracts or the extraction of natural resources, or bribery; or (2) the transfer or the facilitation of the transfer of the proceeds of corruption”.

It is very clear that the Magnitsky Listing has a very broad reach. If it was implemented in South Africa as is, many would have been caught in the corruption snare. Just take a minute, pretend that the Magnitsky Listing Executive Order was to be issued by President Ramaphosa. Which and how many government officials – past and present and political parties’ elites do you think would make it top of this list? Which and how many businesses holding government contracts do you think would make it to top of the list?

Let us complicate it further, section 4(b) read with section 1 of the Executive Order prohibit receiving “of any contribution or provision of funds, goods, or services from” any person whose property and interests in property are blocked in terms of the Executive Order. Then let us take it back to the R5,000 Bosasa donation to the CR17 campaign, and other donations received by all other political parties and their leaders/contestants in the past general elections. Recipients of these donations from corruption and State Capture-suspected families/individuals/companies would fall foul of the US anti-corruption efforts should companies such as African Global Operations (Bosasa) fall under the Magnitsky Listing.

Numerous lessons can be learnt by South African society, particularly the NPA and other law enforcement agencies, with the following coming to mind:

  • The Global Magnitsky Act has as its intonation enabling the US to sanction the world’s worst human rights abusers and most corrupt oligarchs and foreign officials. These listed individuals are effectively financial pariahs who may not operate in the corruption-free international financial system.

State Capture, in the way it has been explained and defended at the Zondo Commission, is clothed in violations of human rights and dignity. It is an act of “significant corruption” as identified in the US Code [22 USC § 2304]. The lesson therefore is that the inaction and/or slow-paced action on the part of the South African government to prosecute those alleged to have played a key role in state resources theft, gross corruption and corrupts activities such as the State Capture and the Great VBS Bank Heist confirms the perception that South Africa is a corrupt state; and that you are shielded from any consequences for as long as you are in government or part of the political executive.

When addressing himself to the 2017 Executive Order 13818 of 20 December 2017 on Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption, President Trump highlighted that:

The United States seeks to impose tangible and significant consequences on those who commit serious human rights abuse or engage in corruption, as well as to protect the financial system of the United States from abuse by these same persons.”

The operative phrase here is imposition of “tangible and significant consequences” for offenders; something which South African authorities and the administration of President Ramaphosa still have to convince the country that they can master, without being led by another country as the US just did with the blacklisting of the Gupta cabal, to deal with thieves and kleptocrats.

It is interesting to note that the Executive Order prohibited from payment, transfer, exportation, with withdrawal or otherwise “all property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person of” people blacklisted.

  • Second, investigative journalists face a great deal of risk in their quest to unearth acts of criminality and need protection by way of the state investigating and prosecuting those alleged to have been involved in acts of corruption. The Magnitsky Act was an acknowledgement that journalists are faced with great injustices and perpetrators of corruption and human rights are rewarded with the medal of impunity. Accountability if not prioritised; as has, in my view, been the case in South Africa.

  • Corruption is not only about economics and financial values. It is about the erosion of human rights. South Africa prides itself, at least it did at one point, particularly during the era of the late President Nelson Mandela, as a champion of the rule of law and human rights. Some may argue that taking a human rights approach to corruption is problematic and not justified. The evidence on the ground and issues of non-existent service delivery directs otherwise for South Africa. I am from a township called Letsopa next to a town called Ottosdal in the North West province. Service delivery has been non-existent for more than two decades. You can smell poverty and suffering of the residents two kilometres away approaching both the township and the town.

The point I am making is that countries perceived to be highly corrupt exhibit a poor human rights culture; lack of accountability and poor service delivery. President Ramaphosa must use a human rights approach as a frame through which to combat gross corruption. The UN General Assembly’s Agenda 2030 for sustainable development requires all states to “substantially reduce corruption and bribery in all their forms” and get the stolen money back by 2030 [Read Transforming Our World: The 2030 Agenda for Sustainable Development, GA Res. 70/1, 25 September 2015, Points 16.4, 16.51]

South Africans need to see justice done. The revitalised NPA must be characterised by effectiveness and efficiency in the pursuit of purposes as mandated by the Constitution and the enabling legislation. Effectiveness measures whether or not the prosecution service is achieving the goals society has set for it. The work of the NPA must help in punishing criminals. The NPA cannot continue to be seen as representing the interests of specific parties. Something ought to give and that something must be corruption.

Of course for individuals such as me as academics and others — including political commentators and armchair critics — it is easy to criticise the Zondo commission, and the perceived slow pace of the NPA to initiate criminal prosecutions against grand corruption and State Capture perpetrators.

A mistake must not be made that the Zondo commission was constituted as in investigative arm of the NPA, with the expectation that the NPA must spring to action once an alleged act of corruption is exposed at the Zondo commission. Legally and technically, the functions and mandate of the NPA and the Zondo Commission with regard State Capture are separate. Be that as it may, one would have expected that by now a blueprint would have been developed to co-ordinate the efforts of the NPA and commissions of inquiry, and their sharing of information with regard to corruption.

No law or instruction has been issued by the legislature prohibiting parallel investigation by the NPA. Obviously, the Zondo commission cannot afford to find itself under allegations of deceitfully carrying on a criminal investigation under the guise of a presidential inquiry. In fact, if I remember well the allegation was made during the first appearance of former president Zuma at the Zondo commission.

It was argued by his legal representative, Muzi Sikhkakhane SC, that his continued role at the commission under the circumstances the Zuma camp denounced would risk Zuma’s constitutional rights. However, as taxpayers, we will need to know at the conclusion of the Zondo commission if there is the existence of or the potential for a criminal investigation. We also need to be led by our own state institutions such as the NPA and the Hawks in combating corruption and prosecuting all those proven beyond reasonable doubt that they have had a hand in corruption (State Capture) and corrupt activities (theft of state resources, self-enrichment, abusing public office, embezzlement, tax evasion, fronting for state tenders, and many other acts of corruption).

Professor Omphemetse S Sibanda Snr is a full Professor of Law in the Department of Public and Environmental Law at the School of Law Faculty of Management and Law, University of Limpopo.

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