Financial Sector SA

Gupta drama, and more, threaten financial sector’s image

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It might be just coincidences, but coming in a cluster, a good number of events in the South African financial sector might signal a challenging trend developing.

Judged in isolation, a number of news items this past week, and a bit, look innocent enough. However, looked at in the context of other broader dominating news about Gupta state capture, the highly controversial family shedding their South African assets, and allegations of money laundering, it is cause for some unease.

Unease tends to outweigh the positives inherent in some of those news items – including that South African consumers might benefit from considerably more competition in the sector, especially on the banking front – and countering perceptions of domination by ‘white monopoly capital’ (WMC).

General news items

News broke last week that billionaire Patrice Motsepe’s African Rainbow Capital (ARC) is set to purchase a 10% share of South African based lender Tyme, from the Commonwealth Bank of Australia (CBA). Tyme has a provisional banking licence from the SA Reserve Bank (SARB) already.

The South African Post Office and insurer Discovery also have applications for banking licences pending with the SARB. African Bank is also on the come-back trail, after being placed under curatorship and then relaunched last year with new shareholders – including the SARB, Public Investment Corporation and a consortium of six local banks.

(For an in-depth analysis of the changing domestic banking scene we can recommend a look at the Monday Briefing by strategic analyst Stef Terblanche on the subject.)

However, what did not really feature in South African news coverage on the  ARC/CBA Tyme transaction, is the fact that CBA has been subject to an investigation by Australian authorities. It is accused of breaching anti-money laundering legislation, lack of accountability and “serious and systemic non-compliance" with the law more than 50 000 times.

Also read: South Africa mirrors a world in trouble

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While the Tyme deal is most probably a solid one for Motsepe and his ARC and good news for South African consumers, it does raise the question: Was it regarded as prudent timing by CBA to create some distance between itself and its South African interests as implications surrounding the Gupta-family is going global?

Overlapping coincidences

There is a string of coincidences in another news item in the yet unfamiliar, and at times confusing, emerging world of so-called cryptocurrency, which is worthy of much more concern.

In a letter to the publication BizNews, an anonymous reader wrote: “During the course of last week, someone purchased an amount of R32.6 billion (USD 2.5 billion) of a previously little-known crypto-currency coin called the e-Dinar (EDR). The transactions used South African rands, and took place on a very small and obscure crypto-currency exchange.”

About the information revealed by ‘Anonymous,’ BizNews remarks: “A potentially seismic event happened in South Africa’s financial industry last week, but it barely caused a flutter because it occurred on a little-known cryptocurrency exchange and has been surrounded by mystery.”

The revelations coincide with news, and speculations, that the Gupta-family is in the process of extricating from their South African business interest, and their wealth, and themselves, from the country. Against this background it is interesting to note several other coincidences:

  • The cryptocurrency EDR, has thus far been low-profile, is an Arabian based blockchain, which recently opened an office in Dubai – coinciding with Dubai featuring strongly in the Gupta-story;
  • The processes involved, potentially lack transparency over its digital ledger technology. This means that any future trade emanating from the R33bn, may not be immediately apparent on a blockchain;
  • ‘Anonymous’ remarks that “It would be easy enough to set up a ‘wash trading’ system to move the money across to EDR,” using one (account0 selling into the other, at the same price and same time. Buy the currency in Rands, and then sell it back at a later stage in whichever fiat currency serves you best, in whichever country you like.” This coincides with the selling of Gupta business interests, involving billions of rands; and
  • This could be an elaborate money laundering operation and the “kind of people who would be able to do this, and would want to do it, also have access to very tech savvy individuals within their organisations. It would not be difficult to pull this off with the required technical skills.” Coincidentally the Guptas entered the SA business scene on the back of a high-tech corporation.

Real concern

In the meantime, while the Gupta horse might be bolting, the Public Protector’s recommendation of a judicial commission of enquiry into their role in alleged state capture, remains delayed, and law enforcement agencies’ investigations are very slow in getting off the ground. Even a parliamentary committee’s investigation has been stunted by ‘a lack of resources.’

Concerning in a broader context is that the SARB initial response to a BizNews enquiry said “at least among local accredited banks, it has not picked up a transfer of R33bn.”

In its full response, the SARB said: “In South Africa, cryptocurrencies are currencies not backed by the SARB, hence offer no recourse or protection to consumers thereof. Any party or actor involved in the purchase or trading of crypto currencies does so at its own risk.

“The SARB’s Fintech Programme and related Virtual Currency/ Distributed Ledger working group is researching and analysing these emerging currencies and technologies.”

It did, however, point out that Cryptocurrencies is also “an area of focus internationally and therefore South Africa have been working closely with global standard setting bodies.”

Conclusion  

While South Africa is not alone in facing the challenges exposed by the e-Dinar deal, there is clearly a wide-open backdoor for money laundering, manipulative type currency transactions. A backdoor through which the struggling South African economy might be in the process of losing billions of Rand.  

by Piet Coetzer

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