Banks caught in political crossfire
The Gordhan-Gupta court battle has overshadowed the institutions’ need to comply with international regulation
At the heart of the Guptas’ vitriolic response to Finance Minister Pravin Gordhan’s court case is a highly politicised battle over the autonomy of South Africa’s banks and their investigative and enforcement duties.
Gordhan’s application to the high court in Pretoria, asking it to declare that he is not empowered to intervene in a bank-client relationship, is just one site of this battle. Another is being fought out in Parliament, over amendments to the Financial Intelligence Centre (FIC) Amendment Bill, which would require greater scrutiny by banks of their clients’ affairs. There is also mounting pressure for a commission of inquiry into the banking sector.
A court order would shore up Gordhan’s position that he cannot intervene, and it would bolster the banks’ autonomy, enabling them to monitor and investigate their clients to comply with international banking standards.
On the other side, however, are influential business people, such as the Gupta family, allegedly linked to certain Cabinet members who, in their capacity as members of an interministerial committee, are investigating why four South African banks closed the family’s accounts.
Gordhan’s second set of filed court papers this week comes on the back of heated public hearings in Parliament over the amendment Bill, which aims to strengthen banks’ investigative powers.
President Jacob Zuma sent the Bill back to Parliament, expressing concern about its constitutionality.
But, since Gordhan filed his first court papers in October, mudslinging has obscured the real issue — the autonomy and powers of the banks. In support of Gordhan’s application, Standard Bank has gone further and asked the court in the same proceedings to declare that no member of the executive — the president, Cabinet members and deputy ministers — and not only the finance minister, may interfere in banking relationships.
If the court should grant such an order, executive members who wanted to assist the Guptas in their banking woes would risk breaching a court order.
Replying to Gordhan’s founding papers, the acting chief executive officer of Guptaowned Oakbay Investments, Ronica Ragavan, denied any legal dispute between Oakbay and Gordhan. But she still continued to oppose Gordhan’s application for a declaratory order on his powers.
The family showed their hand when Ragavan insisted in court papers that the “four major banks aided by the Reserve Bank” should be subjected to “further investigation” and “decisive action”. Ragavan claimed there was an elaborate plot by Gordhan, the banks and big business to eliminate the Guptas’ businesses in South Africa, hence the need for the investigation.
Gordhan, in his papers filed this week, has used Ragavan’s insistence on an investigation into the banks as a trump card in his effort to convince the court to grant the declaratory order.
Said Gordhan: “Oakbay’s concession of the illegality of executive intervention is therefore inconsistent with Oakbay’s own answering affidavit — which still insists on ‘decisive action’ against the banks … whether the executive may take ‘decisive action’ remains a vital issue.”
His founding affidavit was explosive. It revealed 72 “suspicious transaction reports” red-flagged by the Financial Intelligence Centre, totalling R6.8-billion.
He described the series of payments as a “crescendo of controversial transactions” and used the damning but undetailed information to bolster his assertion that the “risks” for local banks doing business with the Gupta family became “very high”.
Gordhan also revealed how the Guptas persistently in at least seven letters appealed to him for “assistance” when the banks closed their bank accounts. It was a plea he interpreted as a demand to “intervene” in the bankclient relationship.
In their replying affidavit, filed two weeks ago, the Guptas hit back, accusing Gordhan of being the master conspirator in a far-reaching plot to throttle the family’s business interests in South Africa.
Describing Gordhan’s accusations as “untrue, scandalous, vexatious and irrelevant” to the case before the court, the Guptas asked the court not to entertain Gordhan’s “politically motivated” request.
Citing “credible” sources, who were not named, the Guptas further accused Gordhan of bad-mouthing the Oakbay Group and Gupta family at a meeting with 60 local “captains of industry” in January 2015. According to these unnamed sources, Gordhan allegedly said steps must be taken “to clip the wings of this family”.
In his replying affidavit Gordhan described the “conspiracy theory” as inadmissible hearsay and a “fabrication”.
He attached evidence of the meeting and a guest list, and said he was a guest at a meeting hosted and controlled by Nedbank at which the economy, the authority of the finance minister and integrity were included in the discussion points.
“I do not, however, recall referring to the Gupta family, or using the words ascribed to me,” he said.
According to Ragavan, the fallout from Gordhan’s alleged plot was severe. Three banks — FNB, Standard Bank and Nedbank — cut ties with the family. Absa was the only bank to have closed the family’s accounts before Gordhan’s supposed unveiling of the “co-ordinated campaign”.
The South African Revenue Service (Sars), the Reserve Bank, the Financial Intelligence Centre and local big business are also accused of aiding Gordhan. The Bank of Baroda, which now holds some of the family’s accounts, has complained of “interference” by Sars and the Reserve Bank.
The Bank of China opened accounts for a Gupta-linked company, VR Laser Services, but ended the relationship within a month.
Ragavan also revealed that the banks contacted alleged Gupta lieutenant Salim Essa and other employees to inform them that their bank accounts were under review.
To add insult to injury, several local firms suddenly refused to do business with any Gupta-linked entity, Ragavan complained.
“I submit that these interferences should become the subject of further investigation and decisive action,” Ragavan said.
The court will hear the matter in March.