The bold steps taken by the South African commercial banks to close or freeze the bank accounts of Oakbay Resources and other businesses owned by the Gupta family may have big implications for other high flying individuals – including for the president and his family.

The South African Banking Association acknowledged on Thursday, that the decision made by the four commercial banks to sever ties with Gupta-controlled businesses is due to compliance with the Financial Intelligence Centre Act (Fica). This act is squarely aimed at fighting money laundering and the financing of terrorism and it has now catapulted the commercial banks into the midst of South Africa’s political war zone. The banks may now be forced to also take action against many other key individuals; some even more prominent than the Gupta family.

Minister of finance Pravin Gordhan, will also soon play a more critical role, as he is the last stop in the Fica chain, but more about that later.

Fica and the FIC

Let’s first look at Fica. This act came into effect in 2003 and followed South Africa’s participation in coordinated international initiative Financial Action Task Force (FATF) in 2003. This inter-governmental body was established in 1989 to formulate policies combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

FATF recommendations and policies are endorsed by the United Nations and more than 30 countries. As a member, South Africa is forced to implement these policies. Failure to do so will result in the country’s exclusion from the international financial system and, by implication, our umbilical cord to the world economy will be severed.

This has brought about Fica and the Financial Intelligence Centre (FIC), the body tasked with the implementation of the policies.

Among other things Fica, as well as proposals in the proposed amended Fica Bill – which will be promulgated later this year – places significant emphasis on what it terms ‘prominent individuals’ (see below). Based on new FATF policies, the proposed amendments compel banks to be extremely vigilant when dealing with these individuals and to actively involve themselves with the sources of funds in bank accounts. The banks must also act swiftly if they suspect any contravention of the Fica or FATF policies.

It seems that we may have just witnessed the first high profile execution in terms of this act.

PIPs and PEPs

The Financial Intelligence Centre Amendment Bill contains a detailed definition for so-called Prominent Influential Persons (PIPs). This definition of a PIP differs slightly from the FATF referral to Political Exposed Individuals (PEPs), but the intention of this list is clearly not to suggest that all PIPs are criminals, but rather serve as an indication for financial institutions of which individuals should receive “appropriate standards of due diligence”.

This is where it gets interesting. The very first individual listed as a PIP is the president. The (rather long) list then proceeds to virtually every single senior government and parastatal official, as well as their associates. It also includes executives of any company, which provides goods and services to an organ of State.

The intention of the inclusion of this PIP/PEP provision is for financial institutions to keep an additional eye on high profile individuals who could abuse their positions to launder money and/or be complicit in corrupt practices.

Within this context, it is evident that the Gupta family and their operations could be the subject of many other investigations in terms of Fica.

Financial Intelligence Centre

A key institution of the legislation is the FIC. It is the special unit that is tasked with the implementation of the Fica regulations.

Banks are compelled to inform the FIC if they have flagged potentially irregular activity, especially if it pertains to a PIP. The FIC will then conduct an investigation and may refer cases to the Hawks and Special Investigative Unit for further investigation.

It is also very interesting that the FIC, as part of its duties, reports directly to the minister of finance, or Gordhan. He is, of course, a prominent individual in the current unraveling of the relationship between the president and the Gupta family, replacing as he did Des van Rooyen as the minister of finance. Van Rooyen allegedly has close ties with the Gupta family. Small irony….

What triggered the banks?

It is significant that the Gupta business empire was the first target of the banks, at least in the public domain.

A leading legal professional with integral knowledge of Fica says despite the strict regulations pertaining to the activities in bank accounts, the banks also pay close attention to information and facts in the public domain.

The recent allegation that Mosebenzi Zwane, minister of mineral resources, accompanied the Guptas to Switzerland to negotiate with Glencore regarding the sale of the Optimum Coal mine would have aroused the interest of the banks.

Similarly claims by Mcebisi Jonas, deputy minister of finance, and former MP Vytjie Mentor, that the Guptas offered them senior Cabinet positions would have alerted the banks to possible corruption. These facts are not tested in court, but it is almost certain that the banks took this into consideration when determining whether Oakbay and related businesses complied with Fica regulations.

The legal professional also said that banks would have much more information than is currently in the public domain, and that their decision to close the accounts would not have been a knee-jerk reaction. It is also telling that all four banks came to the same conclusion.

Other individuals

It is with this perspective that the actions of the banks are telling. It also implies that other individuals and their bank accounts may be subject to similar scrutiny. A casual glance at any news publication reveals serious allegations of corruption and inappropriate conduct and it is also significant that the same names and surnames are frequently mentioned.

It is clear that the banks’ decision to flag the Guptas may not be isolated. There are many other PIPs that now by default have become the subjects of similar investigations and this may include the president and his extended family.

The South African financial system is one of the most respected in the world. Hopefully it will continue along this path and play a role in providing some ethical direction in the current political mess.

–Moneyweb