Lest we forget Reserve Bank’s heroic stand against Gupta encroachment
When the history of the kleptocracy is written, we will need to credit the heroes. Most obvious is Thuli Madonsela, who as public protector blew the lid off some of the Gupta family’s most egregious acts in her report on state capture. Several investigative journalists have also been important in bringing to light illegal activities. The person, or persons, who leaked the trove of thousands of e-mails from the heart of the Gupta empire played a key role too. Some auditors, like SizweNtsalubaGobodo, which qualified Eskom’s annual financial statements over payments to the Guptas, also deserve credit.
But a less noticed hero is surely the Reserve Bank. The Guptas have needed the financial system to grease their money machine, but the Bank has been steadily constraining their access. The family’s businesses are now in a court battle to try to save the one banking relationship they have left, with the Bank of Baroda, an Indian bank with a small branch in SA.
Moneyweb broke the story last week that the Reserve Bank had fined Baroda R11m for failing to appropriately enforce regulations against money laundering, one of the largest fines the Bank has levied. According to court documents, the Bank also issued Baroda with directives to fix its money laundering processes, the most severe form of sanction it can impose short of suspending its operations.
Baroda has jumped to attention, reporting 45 suspicious transactions worth R4.25bn to the Financial Intelligence Centre in the 10 months to July 2017 and is working towards shutting all Gupta accounts.
It now wants them closed by the end of September, though it first took a decision to wind down its business with the family in 2016, after all the major banks had already shut the family’s accounts. The problem is almost the entire business of the bank was linked to the Guptas. At that point, it had R1.5bn of loans to various Gupta entities, making up almost three-quarters of the bank’s lending in SA. It has been working on calling those in, but still has about R300m of exposure, approximately a third of all its loans.
Its deposit base is also highly dependent on the Guptas, with R1.9bn — representing more than 90% of its deposits — from two entities: the Optimum and Koornfontein mine rehabilitation trusts. These trusts are linked to Gupta mining operations but are legally required to be independently managed for the purposes of paying for environmental rehabilitation. Still, Baroda has notified the trusts that it is terminating their accounts. Once it does close those accounts, Baroda will have a trivial balance sheet. Despite protestations by the Guptas directly to Baroda’s head office in Mumbai, the Indian parent backed the decision by the branch in SA to cut them off.
The Reserve Bank also acted on allegations in Madonsela’s report that Baroda played a key role in helping the Guptas acquire the Optimum coal mine. It appointed Deloitte to inspect various aspects of Baroda’s actions around the Optimum transaction. The Deloitte report found that Baroda had not submitted suspicious transaction reports about a flood of deposits it accepted in the run-up to the R2.15bn payment the Guptas’ Tegeta made to buy Optimum in 2016. It had also misclassified Tegeta as a small business, so avoiding more onerous reporting requirements to the Bank.
Another blow to the Guptas by the Bank has been on foreign exchange control grounds. In December 2016, it seized R14.5m held in an account at Mercantile Bank in the name of Homix, a company linked to the Guptas and implicated in various reports for receiving kickbacks from state-owned enterprises in return for tenders. Homix was alleged to have submitted false documents to Mercantile in an effort to move the money offshore. In Parliament in August, deputy governor and banks registrar Kuben Naidoo said 41 cases of foreign exchange violations had been handed over for prosecution in the last five years, at least one of which is linked to the Guptas. Nothing, said Naidoo, had been done by the police or prosecutors on any of them.
The Guptas have countered with a spirited attack on the Reserve Bank, accusing it of being a handmaiden of “white monopoly capital”. On social media last week, known Guptarelated Twitter accounts suddenly started tweeting propaganda about Deloitte, apparently in response to the firm’s report on Baroda’s handling of the Optimum transaction. Those same accounts regularly push the idea of nationalisation of the Reserve Bank and challenge its inflation-targeting mandate.
The Guptas’ brownshirts, Black First Land First, marched on the Reserve Bank in February, ostensibly over the public protector’s report on the socalled Absa lifeboat, which cast aspersions on the Reserve Bank and Absa, calling for the Bank’s constitutional role to be rewritten. That report has since been strongly criticised in court.
On the Baroda accounts, the High Court in Pretoria on Friday reserved judgment until September 21. I expect it will bring down the guillotine on the last Gupta banking relationship.