Credit the banks in war on kleptocracy

Years back, when banks were first being forced to combat money laundering, I was sympathetic to the argument that they should not be made to play policeman. Now I am extremely grateful that they were. In some ways, I suspect they are too. It means they are empowered to protect the integrity of the whole financial system, without which their institutions couldn’t exist.

It is the banks that are the biggest obstacle to the epidemic of corruption that has infected our country. The criminal justice system has been compromised and is failing us. Banks, both here and in the rest of the world, are taking on the task that they once resented, in flagging transactions and closing accounts that might be linked to corruption. The more effective they are in doing so, the harder life will be for the kleptocracy.

The Guptas have been the most public target of banks’ actions but only because the family went public in an effort to use political clout to force the banks to continue servicing them. When that didn’t work, they turned to the courts to try to save the only banking relationship they had left, with Bank of Baroda, a case the high court is still considering.

Banks are compelled by client confidentiality rules to keep quiet about who they do, or do not, do business with. It is only when clients such as the Guptas and Duduzane Zuma tell everyone their accounts have been shut, that we come to know about it.

Banks have to be constantly alert to new information. I hope their financial intelligence teams are carefully reading Jacques Pauw’s explosive new book, The President’s Keepers. Pauw has painstakingly revealed the web of spies and criminals who surround President Jacob Zuma. There are many names that he links to brazen theft, tax evasion and money laundering.

Some are very powerful people, such as Arthur Fraser, the director-general of the State Security Agency, who Pauw alleges defrauded the spy agency of hundreds of millions of rand. I do not envy the banks for the difficult decisions they will have to make, but they have criminal liability to worry about. The Prevention of Organised Crime Act makes it illegal for any person to deal with property including money, that she ought to suspect is the proceeds of unlawful activity.

The “ought to suspect” wording implies a heavy burden for every banker. They, of course, have information the public doesn’t, particularly the details of transactions going through bank accounts. Part of their analysis will involve examining those accounts. Then they will have to decide whether it is worth the risk of continuing to do business with them.

The state-capture machine was not blind to the risk it faced from the banking system. Nedbank was put under significant pressure to hire Brian Molefe as CEO back in 2010, when Tom Boardman retired from the role. That move would have positioned Nedbank as the conduit for access to the banking system by the corrupt.

It didn’t happen because then Nedbank chairman Reuel Khoza stood in staunch opposition. Two years later, he wrote in the Nedbank annual report that “our political leadership’s moral quotient is degenerating and we are fast losing the checks and balances that are necessary to prevent a recurrence of the past”.

He was roasted at the time, but he was the first business leader to point to what was going on. He had worked hard to protect Nedbank from being captured. Imagine the trouble we’d be in if he hadn’t.

The Guptas have persisted, including trying to buy a bank. The Reserve Bank frustrated that. The Bank has to approve any change in control and any appointment of a bank CEO. So you can see why the state capture brigade has been so keen to cast aspersions on the Bank.

The family is relying on the rest of the world, but even that is being closed to them. Lord Peter Hain, a British member of the House of Lords, who played a prominent role in the UK’s antiapartheid movement, has lit a fire under HSBC, which he alleges continued to handle transactions for the Guptas even after its own internal systems had flagged the family.

HSBC has significant operations in Dubai and Hong Kong, jurisdictions the Guptas have used to launder money, and inevitably the bank would have been touched by those. I can’t imagine the bank did not detect the family as a problem. It should come out publicly and say whether and when it chose not to do business with them.

However, the Guptas can still rely on banks that don’t have to worry about UK or US oversight; there are plenty to be found in Dubai and Hong Kong, although even they are terrified of action from US regulators.

Banks are far from perfect policemen. They are, after all, profit-maximising firms. Closing accounts always has to be weighed against the benefit, in terms of income, of keeping them open. Banks juggle risks and benefits, and bank oversight is critical to ensure that the balance is socially useful.

For now, the banks are proving far more socially useful than the criminal justice system.

BANKS ARE FAR FROM PERFECT POLICEMEN. CLOSING ACCOUNTS HAS TO BE WEIGHED AGAINST THE BENEFIT, IN TERMS OF INCOME, OF KEEPING THEM OPEN