Opinionista Peter Hain 24 November 2019

State Capture: Global banks and corporates must be held accountable

While the NPA begins rolling out prosecutions over State Capture, it is worth looking at ways to recover stolen loot to help plug the huge gap in public finances created by corruption.

When in a deep hole, stop digging.

Standard Chartered Bank must have forgotten that axiom when it replied in a short memo over my evidence last Monday to the Zondo Commission of Inquiry into State Capture.

The commission had very properly notified the individuals and corporates I named in my 10,000-word written submission, giving them the opportunity to respond.

I had fingered Standard Chartered along with HSBC and Bank of Baroda as being complicit in State Capture and corruption by providing the financial pipelines through which billions of rand looted from taxpayers were laundered out of South Africa – sometimes through front companies – by the Gupta brothers.

But, instead of improving its reputation, the bank ended up damaging it even more, as I argued before Deputy Chief Justice Raymond Zondo.

First, it cited “client confidentiality” as a barrier to tracing and tracking the money laundered by the Guptas under the Zuma administration.

But surely the principle of “client confidentiality”, though essential for honest citizens (the great majority), must never be deployed to protect rampant criminals? Yet it is and was for all these banks – like HSBC and Standard Chartered which made this same excuse to me personally when their UK chiefs asked for meetings two years ago after I had named them in parliament.

Banks (global and domestic) must cease hiding behind confidentiality, and work collaboratively and pro-actively to share useful data and intelligence on a confidential basis with South African authorities, global regulators and enforcement agencies.

Some information is shared already, but to encourage that on a systematic basis and to create a more complete picture of a customer and their transactions, a body replicating the UK’s Joint Money Laundering Steering Group (JMLSG) should soon be set up within South Africa.

It consists of the leading UK trade associations in the financial services industry, and its focus is to spread good practice in banks in countering money laundering and to give practical assistance in interpreting money laundering regulations.

There should be legislation permitting the voluntary sharing of data between banks where there is a suspicion of money laundering, as has occurred in other states.

Banks, global corporates and professional service firms should be the first line of defence in identifying corruption and financial crime. The firms complicit in State Capture – such as McKinsey, KPMG, Bain & Co, SAP and Hogan Lovells – had access to client data, meaning they were ideally positioned to monitor and recognise suspicious transactions, projects and customer activities, and alert the authorities. Instead, they earned fat fees from fraudulent money.

The other piece of sophistry from the Standard Chartered lawyer to the Zondo Commission was the assertion that its South African branch could not be held accountable for money laundered through its Dubai branch because that was in a different jurisdiction.

But Gupta accounts in the bank’s Joburg branch were used to move vast amounts of illicit money by opening the door into the bank’s international network, to, for example, Dubai and Hong Kong, and sometimes then through tax havens in the Caribbean and the wider global financial system.

Like HSBC and Baroda Bank where the same thing happened, Standard Chartered is an international bank. It is unacceptable to claim that what happens through its branches in loosely regulated money laundering centres – such as Dubai or Hong Kong or Caribbean tax havens – is nothing to do with the Joburg arm. These are international banks with digital financial networks connecting all their branches across the world.

The Guptas didn’t carry out their billions of looted rand in brown paper bags: it all went thought these global networks, so the banks were both complicit and culpable for permitting that.

Their “confidentiality” and “not-me-guv-just-my-cousins-abroad” excuse is similar to sophistry deployed by the international law firm Hogan Lovells.

In 2018, I referred Hogan Lovells to the UK Solicitors Regulation Authority (SRA) for whitewashing corruption within the South African Revenue Service, requesting it be disbarred from practising in the UK for its terrible complicity in State Capture. But the SRA eventually accepted Hogan Lovells’ own defence that it was only an international law firm for “branding purposes”, and that the SRA therefore had no locus to censure or suspend its UK arm for the corruption collusion of its South African branch. Yet Hogan Lovells promotes itself as a top international law firm.

Meanwhile, the Guptas continue to spend their loot – one example being an exotic joint wedding reception for two of their sons costing R427-million in June 2019 in India.

Perhaps it’s time for the NPA and the Treasury to look at what Nigeria is doing for asset recovery. Recognising they don’t have the resources or capability to do it themselves, the Nigerian government commissioned a partnership of expert lawyers and forensic financial analysts to recover $1.2- billion stolen oil money from Shell, ENI and JP Morgan Bank.

I understand that around $70-million has already been recovered, with most of the rest expected.

It’s an expensive business to hire these private firms. But the neat thing for the South African Treasury is that it is being done without cost to the Nigerians. The lawyers and analysts are funded by risk-investors, their large costs then paid on a pre-negotiated basis as a percentage of the recovered funds.

It is very encouraging that the NPA has just triggered prosecutions over State Capture, but it is surely worth looking at that Nigeria option to help plug the huge gap in public finances left by the looting. DM

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