After delivering a solid set of results this week, Nedbank chief financial officer Mike Davis has insisted that impending interest rate cuts won’t flatten the group’s performance this year.
(Nadine Hutton/Bloomberg via Getty Images)
One of South Africa’s so-called “big four” banks has been seriously implicated in the first state capture report — and, considering evidence that the sector may have played an integral role in enabling graft, more revelations may follow.
Nedbank and Standard Bank are the first to have their names brought into the state capture saga detailed in the Zondo commission’s findings.
Nedbank has been the subject of a serious indictment arising from the 874-page report: The bank’s involvement in an interest-swap agreement with Airports Company South Africa (Acsa), from which the Gupta-linked Regiments Capital extracted R50-million in gratuitous payments, was “disturbing”, said commission chairperson Justice Raymond Zondo.
According to the report, the first of three set to be handed to President Cyril Ramaphosa, Acsa entered into interest-swap agreements with Nedbank and Standard Bank for the payment of the additional fees to Regiments.
Former Acsa treasurer Phetolo Ramosebudi, who according to the report developed “a corrupt relationship” with Regiments, provided comfort to Standard Bank that the airport management company was willing to enter into these arrangements.
In response to the M&G’s questions, Standard Bank said it was still reviewing the report’s findings. It confirmed being approached by Regiments in its capacity as financial advisor to Acsa, to enter into an interest-rate-swap transaction.
“Standard Bank’s role in this transaction was limited to acting as the bank counterparty to Acsa under the interest-rate swap. Standard Bank remains of the view that there was no wrongdoing on its part,” the bank said.
“We are satisfied that we have complied with all regulatory requirements and we confirm our commitment to co-operate with the appropriate authorities in much the same manner as we have co-operated with the Zondo commission throughout its process.”
But Zondo points to what could be more nefarious dealings on Nedbank’s part, whose officials Mario Visnenza and Moss Brickman, the report notes, appear to have had an arrangement with Regiments founding partner Eric Wood. The arrangement meant that the Regiments “fee”, which was to be repaid by Acsa over the life of the transaction, would be matched by an equivalent amount to be paid to Nedbank.
The bank was incentivised, Zondo found, to act contrary to Acsa’s interests by increasing the margin payable by the airport management company to Nedbank and thus increasing its 50% share of this margin.
Moreover, there is no evidence that Nedbank ever sought proof from Acsa that the company had authorised the arrangement, according to the report: “Still less is there evidence that Nedbank informed Acsa that Regiments Capital, as Acsa’s agent, was being incentivised to increase the margin payable by Acsa to Nedbank.”
Time constraints meant that the commission did not hear Nedbank’s response to the allegation.
The Enablers
Nedbank has faced similar allegations over interest-swap transactions with Transnet. The transaction — which also involved Regiments and Ramosebudi, who became Transet’s head of treasury — was outlined in a 2020 Open Secrets report, titled The Enablers.
Regiments became involved with Transnet during the deal to secure 1 064 locomotives, which cost the state R55-billion, R16-billion more than initially projected by the state rail company. An investigation by the treasury found that Transnet’s consultants, Regiments and McKinsey, amassed millions of rands in fees between 2012 and 2015.
According to The Enablers report, which was submitted to the commission, Nedbank helped to secure one of Regiments’ biggest payoffs. The bank agreed to two interest-swap agreements, which together generated more than R74-million for it. By February 2019, it was estimated that the swaps had cost Transnet more than R780-million in additional interest payments to Nedbank.
The bank has defended its part in the transaction, saying in a 2019 statement that the interest-swap agreements were “commercially sound and the return on equity — a key measure of bank profitability — earned by Nedbank on the series of transactions was fair, reasonable and appropriate, at 15.5% over the life of the transactions”.
After the Zondo report was released last week, Nedbank said it was “currently conducting a comprehensive review of its findings and recommendations”. However, based on the bank’s initial review, no adverse findings have been made against it.
“We remain of the view, as previously stated, that there has been no wrongdoing on the part of Nedbank in relation to these transactions. We will continue to fully co-operate with any further investigation undertaken by the appropriate authorities in this regard.”
In a later response to the M&G, the bank said the most appropriate role the banking sector can play in recognising and preventing state capture is to ensure its own internal systems are robust and strengthened as they evolve.
“For our part, we have significantly enhanced our governance structures and processes, both at a client and transaction level … Despite every effort, however, the banking sector cannot safeguard against our client governance processes that fail or are contravened. Our role is to remain vigilant to every extent possible.”
The role of South Africa’s banks in the state capture saga has long been a subject of Zondo’s inquiry. In 2018, each of the big four banks appeared before the commission to give evidence regarding their closures of Gupta bank accounts two years previously — and subsequent alleged political pressure on them to keep Gupta accounts open.
Nedbank, Standard Bank, FNB and Absa had, in 2016, all unexpectedly cut ties with Gupta-owned businesses and shut down their bank accounts amid allegations of political influence by the infamous family.
They made the decision in the wake of considerable reputational risk, but — as evidenced by the Nedbank example — the sector’s part in the state capture project was likely far more complex.
Red flags
Standard Bank, for example, was also identified as a state-capture enabler in the Open Secrets report.
The bank was also implicated in the Transnet saga. It was uncovered that South African shelf company BEX, which allegedly received kickbacks relating to a deal with China North Rail, held Standard Bank accounts. It remains unknown whether Standard Bank identified and reported the suspicious activity.
Standard Bank has also been linked to the Estina dairy project, through which more than R280-million of Free State government funds were syphoned to accounts owned or controlled by the Gupta enterprise.
According to the Open Secrets report, Estina’s bank records show that, of the six payments made into Estina’s Standard Bank account by the Free State government, most were immediately paid out, including to an offshore company registered in Dubai.
FNB also provided essential banking services to Estina. “There were a number of obvious red flags that FNB should have identified in relation to its provision of banking services to Estina,” the report notes.
In response to the M&G, Standard Bank said, as in the Acsa case, it was satisfied it had complied with all regulatory requirements when it came to both BEX and Estina: “Standard Bank affirms its role in combating corruption by allocating material resources to compliance with Fica [Financial Intelligence Centre Act], Precca [Prevention and Combating of Corrupt Activities Act] and all related legislation.”
FNB did not respond directly to questions relating to the Estina account, saying only that it was currently reviewing the Zondo report: “We will continue to support the state capture commission and co-operate with any judicial processes.”
‘A missed opportunity’
The commission missed an opportunity to call the banks to account for the suspicious activity they seemingly overlooked in the years prior to the Gupta account closures, Open Secrets investigators Mamello Mosiana and Michael Marchant said.
In its submission to the commission, Open Secrets said implicated banks should be urgently summoned and questioned about whether they filed suspicious activity reports.
“In the banks’ responses to us, as well as to media inquiries, they have continuously said that they are co-operating with the commission and that the commission has all the information it needs. But we haven’t seen any evidence that that information has been revealed to [it],” Mosiana said.
Marchant added: “The power of the commission was exercised when it got people on the stand and cross-examined them … They should have had to answer questions in a public forum and I think it is a big shame that they weren’t called to do so.”
Despite the banks not being cross-examined about their failure to red flag suspicious activity, the Open Secrets investigators are hopeful that more details about the sector’s involvement in state capture will come to light.
“I think that Nedbank will come up again in the future reports. I think that’s inevitable. The fact that they have been identified for the Airports Company South Africa interest-rate swaps; I assume they will be identified for the Transnet interest rate swaps,” Marchant said.
“Given that [the commission has] focused on Nedbank in their report, I still retain some hope that [it] will address the role of the banks in the future reports.”
The second report, which will focus on Transnet, Eskom and Estina, will deal with some of the more significant money-laundering stories within the state-capture saga, Marchant added. “I think that while the commission missed the opportunity to call the banks, that hopefully doesn’t mean that it won’t make findings based on the evidence before it.”
It would be hard to detail examples of state capture without looking at the flow of money, Mosiana added. “I can’t see how you could write the Estina story without mentioning FNB or Standard Bank.”
Troubling, sad, tragic, regrettable
Financial crimes expert Olwethu Majola said it was not surprising that South Africa’s banks would be implicated in state capture, particularly considering international precedent. “If you look at banking institutions across the world, similar news has been reported,” Majola said.
“There is a sort of culture in which financial institutions bypass or overlook their obligations in favour of making money and maintaining certain relationships and would rather be fined.”
South Africa has a strong legal framework for tackling illicit financial flows, but enforcement remains a problem, Majola added. “We have a huge disadvantage in our implementation, which poses a huge risk for the country.”
Bonang Mohale, the president of Business Unity South Africa (Busa), said it is “extremely troubling, sad, tragic and regrettable” that members of the private sector, including banks, stand to be implicated in state capture.
“At Busa, we are unequivocal in saying that every single one of the companies that are named in that report — and where it is warranted — must be charged, convicted and sentenced,” Mohale said.
On Tuesday last week, Busa released a statement saying it had resolved to urgently engage with its members “to ensure we have a comprehensive response, and position, on the report”.
“The board was clear that business must utilise the report for very serious introspection and develop a position that reflects serious consideration of the involvement of businesses in the state capture saga.”
Mohale added that it is critical banks are held to account if they are found to have enabled illicit financial flows. “Business must be above reproach. And especially the banks, because they are dealing with public and institutional money.”
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