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Listening to the testimony of bankers before the Zondo Commission of Inquiry into allegations of state capture, you might believe they were unwitting victims of the Guptas and acted quickly and virtuously to throttle their corrupt ways by closing their bank accounts in 2016.
It turns out they may have been part of the capture project.
A report by Open Secrets and London-based Shadow World Investigations released on Thursday (February 6) puts bankers, lawyers, accountants and consultants squarely in the frame of the state capture project.
Entitled ‘The Enablers: The bankers, accountants and lawyers that cashed in on state capture‘, it pulls together the intricate threads of a campaign of corruption that is staggering in its reach and audacity.
Dirty tricks
The report outlines the tools of money laundering: smurfing and layering being two of the most common.
Smurfing is where you break up large sums into smaller amounts to defeat anti-money laundering reporting requirements. The money is scattered around in a blizzard of transactions designed to hide the source and eventual destination.
Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
To help cover their tracks even further, the Gupta’s stoked racial tensions in SA by promoting the meme ‘white monopoly capital’ to divert attention away from their looting.
This reprehensible chapter in SA’s recent history is outlined in gory detail in The Enablers.
Here are the key figures in the report:
Lais, lies and more lies
The Guptas and their enablers reportedly made use of money laundering hubs such as Dubai, Hong Kong and the British Virgin Islands. The report lists as an enabler one Stephen Lai, a Hong Kong chartered accountant who helped spirit away the gains of corrupt deals at Transnet.
Lai made little attempt to disguise his fabulous menu of services.
It included hiding one’s identity from the public, shifting funds offshore to reduce tax liabilities to zero and the possibility of never having to submit a report to regulators.
Lai would set up companies for the Guptas and make them look legitimate by, for example, creating a fake history.
Lai pops up as a key Gupta enabler even though he was the recipient of just $11 600 in fees. He set up Regiments Asia and Tequesta Group Limited, both on the same day –June 20, 2014 – and had Gupta front-runner Salim Essa listed as director. Regiments Asia and Tequesta made hundreds of payments to 181 accountants.
The role of SA banks in state capture
SA’s major commercial banks, when approached for comment on their roles as Gupta enablers, offered the kind of self-exculpatory bosh one might expect.
This new report won’t do their reputations much good.
When the four major commercial banks shut down the Gupta bank accounts in 2016, it was left to India’s Bank of Baroda to clear transactions on their behalf via Nedbank.
“Nedbank’s conduct with regard to their relationship with Baroda is curious for many reasons,” say the authors.
Nedbank closed its own Gupta-linked accounts in 2016, citing corruption and money laundering concerns, notwithstanding pressure to keep the accounts open from senior ANC officials. “Despite these overtly suspect circumstances, Nedbank only terminated this relationship in 2018, long after widespread reporting had indicated that Baroda’s SA business was dominated by Gupta companies.”
Transnet locomotive deal
HSBC was arguably the most important enabler of looting at Transnet, having handled most of the transactions for front companies CGT, JJT, Tequesta and Regiments Asia. HSBC only flagged suspicious transactions between CGT, JJT and other shell companies three years after the transactions.
Nedbank’s name pops up again in respect of Transnet’s 1 064 locomotive deal. Gupta-linked Regiments facilitated and arranged a R12 billion syndicated loan from several banks. Two days after this facility was arranged, Regiments organised an “interest rate swap” which was agreed by Nedbank.
This dramatically increased the rates payable by Transnet, generating significant profits for Regiments and Nedbank.
Nedbank defended its participation in the swaps– from which it made about R75 million – saying there was “nothing untoward” about the deal. The report raises doubts about this: a whistleblower reports Nedbank was the only bank willing to undertake the swap, while other banks found it inexplicable that an unknown external consultant, rather than Treasury, would be brought in to handle the swap.
Those familiar with the swap market regarded the fees as “unimaginable” and a “rip off”, not to mention the conflict of interest that arose with Nedbank being both lender and orchestrating the interest rate swap.
Nedbank didn’t ride this gravy train alone. All SA banks, including several international ones, were on board.
In another Transnet deal, the Guptas used shelf company Bex to facilitate the China North Rail deal with Transnet to supply locomotives. Transnet reported in December last year that it would approach the courts to recover money for locomotives paid for but not delivered. Of 232 locomotives ordered, only 22 had been delivered.
Standard Bank set up the Bex bank accounts, and held accounts for other Gupta front companies, including Homix, which has been implicated in laundering kickbacks related to several corrupt contracts.
In his evidence before the Zondo commission in June 2019, South African Reserve Bank official Shiwa Mazibuko said the Homix transactions raised almost every single red flag for money laundering, and that it was inexplicable that Standard Bank did not pick up on these, or, if it did, failed to act on them.
The red flags included a bank account lying dormant for a long period, then seeing a massive spike in deposits which were immediately transferred to other accounts.
The Estina dairy project – the Guptas’ cash cow
In 2013, Ace Magashule, then Free State premier, announced the launch of the Vrede dairy farm as a state-of-the-art facility producing 100 kilolitres of milk a day. Estina was the company contracted to build the farm.
Analysis of banking records and other documents by Shadow World Investigations shows the vast majority of the R280.2 million paid to Estina by the Free State government was transferred into accounts controlled by the Guptas.
There were red flags aplenty from the get-go: Estina had no prior experience in agriculture; was headed by a former IT salesman, Kamal Vasram, who continued working at Toshiba while supposedly setting up a giant dairy farm; there was no competitive bidding process for the project; and 51% of the shares in the project was earmarked for local beneficiaries.
National Treasury investigated the project in 2014 and concluded that no further payments should be made to the project until various risk factors had been identified, such as lack of clarity about the actual deliverables. The Public Protector concurred, but none of their recommendations were acted on.
A decision was then made to transfer the project to the Free State Development Corporation, which should have ended Estina’s role.
Estina relied on an agreement that required further payment of R136 million for services supposedly delivered. The claim was ludicrous.
Estina had spent almost none of its own money on the project, nor had it delivered substantial services of any kind. By May 2016, Estina’s claim for R136 million was settled in full.
The report shows that 64% of all the money paid by the Free State government to Estina was transferred to the Guptas’ Dubai vehicle, 18% to their local vehicle and 11% to Sars for VAT costs. A paltry 7% was spent on other expenses.
Gupta auditors KPMG found nothing wrong with so many glaringly suspicious transactions.
Jail time for offenders
At the launch of the report last week, Andrew Feinstein of Shadow Watch Investigations, said the arms deal was the first example of state capture.
Hennie van Vuuren of Open Secrets says the Zondo commission must secure the evidence in its possession. “We want to see criminal liability for CEOs involved in state capture, and we want a reparations fund to be established to recover stolen money to assist social movements and civil society.”
Reforms needed
A key deficiency in SA law relates to public disclosure of beneficial ownership. Shell companies were set up for the Guptas and others both in SA and abroad. The institutions implicated in state capture are conflicted in performing their duties and torn between their obligations under law and the need to protect their clients.
The Companies Act needs to be amended to provide a publicly accessible registry of beneficial ownership, states the report.
“The failure of SA’s financial institutions and professional bodies to prevent grand corruption has meant that investigative journalists and activists have been solely responsible for pursuing transparency and accountability.”
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