Corruption Watch

Guptagate: Dance of the Skeletons has just begun

Skeleton dance.jpg

As the South African judicial system is forcefully asserting itself, backed by civil society and opposition parties, the withdrawal of major banks from the Gupta business empire might be but the beginning of a Dance of the Skeletons.

It is becoming clear that it was legal, rather than public relations (PR) considerations, that saw banks and other financial institutions sever ties with the Gupta-controlled Oakbay Investments (PTY) Ltd.

Some more “skeletons” are likely to emerge soon.

Coinciding with the recent revelations of the Panama Papers and their exposure of how international treaties fail to keep the global financial system honest, there are also serious international implications at stake.

Domestically

In March the president of the ANC’s Women’s League (ANCWL) and Minister of Social Development, Mcebisi Ndletyana, said in New York: “Even that family (Guptas), if people feel it has to be brought to book, structures must do that, the officials must call them and talk … because all of us in the NEC [African National Congress National Executive Committee) have our small skeletons and we don’t want to take all skeletons out because hell will break loose.”

Then, interestingly, the ANCWL last week attacked financial institutions who distanced themselves from Oakbay. In a statement the league attempted to put a spin on the matter that “the victims of the move were in the majority the unemployed SA women and children who are the dependents of the employees”.

It happens to be a spin very similar to one used by Oakbay, creating the impression that they were left without banking facilities to pay employees’ salaries. It later, however, emerged that they indeed still have banking services with a major Asian bank operating in South Africa.

The ANCWL also “also propose(d) a total shut down of these institutions”, apparently ignoring the fact they also have ordinary employees.   

Real rationale

While the ANCWL and trade union federation Cosatu accuse banks of pulling a “political stunt” closer scrutiny reveals that these institutions were probably trying to avoid a business relationship that could put them on the wrong side of the law.

What would have been the implications for Absa, First National Bank (FNB), Standard Bank, Nedbank, investment bank Sasfin and the local unit of global auditors KPMG if they did not cut their ties with Oakbay?

Each of the institutions made its own decision within a regulatory environment that requires bankers to do business in a way that does not introduce risk into the economy, Cas Coovadia, MD of the Banking Association of South Africa (BASA), said in a statement last week.

In short, the institutions had to make a call in terms of the Financial Intelligence Centre Act (Fica) and money-laundering regulations, which makes it incumbent on banks to conduct a detailed due diligence on clients, especially those in the public domain.

“Such due diligence is conducted on an ongoing basis to ensure the bank is aware of any significant changes in the affairs of the client, particularly to satisfy itself that a client is abiding by Fica and anti-money-laundering regulations,” he said.

Fica, first passed in 2003, and its accompanying Financial Intelligence Centre (FIC) – the body tasked with the implementation of policies – is aimed at fighting money laundering, the financing of terrorism, international organised crime involved in activities like drug smuggling and threats to the integrity of the international financial system.

The adoption of Fica and establishment of FIC were the result of South Africa’s participation in the 30-country coordinated international initiative, known as the Financial Action Task Force (FATF), launched in1989.

FATF’s recommendations and policies are endorsed by the United Nations. As a member, South Africa is obliged to implement these policies.

Failure to do so could result in the country’s exclusion from the international financial system, with all the negative trade implications attached to such an eventuality.

Ironically, Fica, and proposed amendments to the relevant legislation – set for promulgation later this year – places significant emphasis on “prominent influential persons” (PIPs) or in FAFT terminology “politically exposed persons” (PEPs).

Based on new FATF policies, the amended act will compel banks to be especially vigilant in dealing with these PIPs, and to involve themselves actively 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.

The amendment bill contains a detailed definition for so-called PIPs. Top of the list is the president, followed  by virtually every single senior government and parastatal official, their associates and the executives of any company that provides goods and services to an organ of state.

Real Dance of the Skeletons

It seems that we may have just witnessed the first high-profile financial sector action in terms of the to be amended Act.

It is fairly safe to speculate that for the institutions involved in the ‘mass-withdrawal’ from the Guptas, ‘Guptagate’ was a gifted opportunity to come pre-emptively on the right side of the to be amended law.

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

As Ryk van Niekerk wrote on the Moneyweb site last week: “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 may include the president and his extended family.”

Wider implications

The emergence of Guptas, and those linked to them, so prominently in the spotlight might only be the first notes in the Dance of the Skeletons, as is clear from a number of other recent news items:

  • The DA has called on the Hawks to widen their investigation into the R80 million paid to an Angolan businesswoman who is close friends with President Jacob Zuma;
  • The proliferation of reports in recent times of PIPs visiting another notorious tax haven, Dubai;
  • A report on the Amandla website doing the rounds on social media, accompanying a petition to stop companies hiding billions oversees, claiming the exposure of J. Arthur Brown of Fidentia, Gary Porrit of Tigon and Khulubuse Zuma of Caprikat;
  • Absa Bank Ltd., a subsidiary of Barclays Africa Group Ltd. In March said it “has identified potentially fraudulent activity by certain of its customers using import advance payments to effect foreign-exchange transfers from South Africa to beneficiary accounts located in Asia, the U.K., Europe and the US”; and
  • The non-release of a report on the “job for cash” scandal in the Department of Basic Education, to name but a few.

But then, as we reported before, corruption seems to have the world in the grip of an epidemic and the way our final waltz of the Dance of the Skeletons is shaping, the interaction between our judiciary and other institutions of society might set an international example of how to deal with it.

by Garth Cilliers & Piet Coetzer

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