Guptas in financial quarantine as corporate SA closes ranks

The Gupta family is the latest target of corporate South Africa after First National Bank became the fourth mainstream financial services group to cut ties with Oakbay Resources, a Gupta company.

This follows the news on Monday that KPMG, Absa and Sasfin had cut ties with the listed company.

Although “reputational risk” seems to be the main reason for the companies severing ties with the Guptas, it surely cannot be the only reason.

I don’t think it has ever happened that three banks and an auditing firm have cut ties with a group of companies in the way we have seen this week.

Of course a dark cloud hangs over the Gupta’s relationship with president Jacob Zuma. The allegations of state capture seem to have some merit, and it also seems that the Gupta brothers have more influence over state decisions than a normal BFF relationship would suggest. There is indeed a spreading stench of impropriety. But is this enough for four leading financial institutions to fire a client?

Cas Coovadia, managing director of the Banking Association of South Africa, said he certainly hasn’t seen this happen before where several firms cut ties with one group of companies, “but we are faced with interesting circumstances”.

He added that South African banks operate in a highly regulated environment and consequently assess their clients on a continuous basis. “Banks need to ensure that their clients are operating ethically, operate within the law and that they adhere to regulations relating to corruption and money laundering. I have no doubt that they have looked at the criteria and have taken appropriate decisions.”

I wonder – reputational risk is surely not part of the regulations if an assessment shows a firm is operating ethically and within the law? Do these organisations have their doubts?

Another dynamic that is linked to this unfolding development is the role banks played shortly after Zuma fired Nhlanhla Nene as finance minister in December last year. Senior leaders of Barclays Africa, Investec and even Goldman Sachs were instrumental in Zuma’s capitulation and the subsequent removal of Des van Rooyen and the reappointment of Pravin Gordhan in the position.

It recently emerged that the Guptas may have been influential in Zuma’s decision to fire Nene after deputy minister of finance Mcebisi Jonas acknowledged that he was offered the job in Saxonworld, rather than Pretoria.

It is also relevant to mention that shortly after KPMG resigned as auditor of several Gupta businesses, the listed Oakbay Resources quickly released a Sens statement in which it stated that KPMG’s decision was not due to an audit finding. It said it was purely based on a “risk of association” position.

Absa’s decision is also relatively obvious and may have been proactive. Trevor Manuel, spouse of Barclays Africa CEO Maria Ramos, has called for the President to step down. This may not have gone down well in Saxonworld, or for that matter, Pretoria.

Whatever the reasons are, the reaction of these institutions is telling.

I cannot recall a similar situation in recent history. Banks are normally pretty good at identifying criminal activity and reacting, mostly due to the punitive regulations Coovadia referred to.

There may therefore be more to this story than mere “reputational risk”.

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