Guptas leveraged existing SA money laundering networks

Sophisticated money laundering networks existed in South Africa before the Guptas, the Zondo Commission has revealed in Part VI Vol III of the Zondo Report.

These networks were already plugged into international money laundering networks including in Hong Kong and China, “and they served a wide range of clients other than the Gupta Enterprise”.

The money laundering networks used by the Guptas and other criminal enterprises were “embedded in a pre-existing milieu of criminality and wrongdoing”.

The Zondo Commission retained Paul Holden of Shadow World Investigations to trace the money flows relating to the kickbacks emanating from the massive irregular contracts with state-owned entities.

This revealed a vast international money laundering network that was accessed by criminals, and to which the South African authorities, through ignorance or intent, were oblivious.

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Holden submitted three extensive reports to the commission, which was restricted to investigating the domestic money laundering networks, as it didn’t have offshore information-gathering powers.

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The Chinese locomotive companies that got the Transnet locomotive contracts used the money laundering network based in Hong Kong/China to pay the kickback to the Guptas.

China South Rail and China North Rail merged to create the Chinese Railway Rolling Stock Corporation (CRRC).

Gupta enterprises held bank accounts at HSBC

CRRC paid kickbacks into HSBC bank accounts held by Gupta enterprises in Hong Kong.

Between December 2014 and September 2016 some $145.2 million of kickbacks from the Transnet/CRRC contract was paid into the Hong Kong HSBC accounts.

An internal investigation by HSBC indicated that Regiments Asia, Tequesta and Morningstar, which received kickbacks for the Gupta Enterprise, “showed that 92 of the companies receiving payments from these three entities held accounts at HSBC bank”.

Sixty of these accounts were active, had received just over 50 000 payments totalling $4.2 billion, and in turn made onward payments to nearly 6 000 beneficiaries. Regiments Asia, Tequesta and Morningstar also made payments to 55 of these beneficiaries.

The commission said that the total value of onward payments was R3.78 billion in some 33 000 transactions.

HSBC’s investigation was limited to only 60 accounts paid by Regiments Asia, Tequesta and Morningstar, which represents only a “slither of the entirety of this global money-laundering network” that has laundered billions of dollars internationally.

Kickbacks paid within South Africa

In South Africa, the kickbacks, comprising payments from third-party companies in return for contracts awarded by state-owned companies and government departments, were first paid into so-called “first-level” laundry entities.

The Gupta enterprises used “15 known first-level laundry entities”, which in turn fed into four separate laundering routes that were activated chronologically.

Some R1.2 billion in kickbacks was paid into the first-level laundries.

Holden identified the numerous names, as well as the money flows.

“The payments were made into international laundry networks by what Holden calls onshore-offshore bridges” which acted as the final stop of the local money laundering chain.

These bridges paid into a couple of different networks, from where the funds were “comingled with an extremely large number of cash payments from mixed sources”.

Some payments were eventually made back into Gupta entities or to entities with connections to Gupta entities.

The first-level money laundering network known as Chivita received R154 million from Regiments, Combined Private Investigations, Zestilor, Homix and Denel.

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Between April 2014 and May 2015, Homix – which was part of the “second money laundering network” – received R395.4 million from state capture proceeds, and transferred R324 million to a company called Bapu Trading, which made payments to known entities. Included in the payments was an amount paid to Hulley and Associates, which then settled former president Jacob Zuma’s bill with Advocate Kemp J Kemp, SC.

The third-level money laundering network of Forsure and Hastauf received R16.9 million and R12.4 million of state capture proceeds from Regiments. Forsure received another R14.8 million from Albatime and Hastauf another R17.7 million from Albatime. IPocket Global paid Forsure R11.4 million and Hastauf R14.2 million.

The fourth money laundering network, dubbed by Holden as the “spider’s web”, received R314.9 million from state capture contracts.

Entities and individuals identified

Holden has identified all the entities as well as the individuals who received funds, and also identified 12 companies that performed the function of onshore-offshore bridges for established money laundering networks within South Africa.

The first-level money laundering networks paid hundreds of millions into the onshore-offshore bridges, all itemised by Holden.

The South African Reserve Bank (Sarb) has also identified a large number of onshore-offshore bridges and issued forfeiture orders in respect of funds held be several of these entities.

“However, the NPA [National Prosecuting Authority] does not appear to have instituted any money laundering prosecutions arising out [of] the SARB investigations”, according to the Zondo Report.

Griffin Line Trading

It was not possible to trace funds from within South Africa to the offshore money laundering networks, except “where those responsible for laundering these funds became undisciplined” and paid the funds into the offshore Gupta company Griffin Line Trading, which was registered in Dubai.

“Griffin Line Trading was the ultimate source of R842 million of the purchase price paid by Tegeta for the Optimum Coal Mine.”

An amount of $200 000 representing the “unlawful proceeds of frauds on Transnet and thefts from the Transnet Second Defined Benefit Fund” had been “laundered into a fixed deposit held by Albatime at the Bank of Baroda” before being “laundered domestically” through the Seattle onshore-offshore bridge.

Further funds from this illicit source were paid into another onshore-offshore bridge called Varlozone.

Some R8.8 billion was paid into the Hong Kong/China laundries.

The international networks of SA money laundering networks

SA money laundering networks had networks beyond the Hong Kong/China laundry such as entities based in the United Arab Emirates (UAE).

These networks allegedly laundered money for international drug cartels and for terrorist groups.

The Sarb also has records of moneys paid to the Hong Kong/China laundries.

Commission’s recommendations

If South Africa is to recover any of these funds, it will first have to trace the location:

• The South African authorities should engage with the HSBC for assistance in tracing the funds;
• The Financial Intelligence Centre (FIC) and the NPA should engage with their counterparts in Hong Kong and China to seek their assistance in tracing the funds that were paid into the Hong Kong/China laundry network using HSBC accounts;
• The FIC and the NPA should engage with their counterparts in Dubai for tracing of funds that were paid to entities in Dubai; and
• When these funds are located, the NPA should arrange to have these funds frozen and repatriated to South Africa.

So far, enforcement action against money laundering networks has been confined primarily to forfeiture orders issued by the Sarb. These forfeiture orders are unlikely to have a deterrent effect as they are merely seen as a cost of doing business.

Holden’s three reports to the commission provide ample basis for the NPA to investigate and prosecute a wide range of individuals for criminal money laundering activities.

Chief Justice Raymond Zondo recommended that the effectiveness of the current system of suspicious transaction and cash threshold reporting should be urgently reviewed.

Read Parts 5 and 6 of the Zondo Report:
Part V Vol I
Part V Vol II
Part VI Vol I
Part VI Vol II
Part VI Vol III
Part VI Vol IV