National director of public prosecutions Shamila Batohi. (Photo by Gallo Images / Sunday Times / Alaister Russell)
With South Africa’s censure by the Financial Action Task Force (FATF) now official, the government is focusing its efforts on getting off the grey list quickly to prevent further harm to an already fragile economy.
Before it is taken off the list, the state will have to prove to the Paris-based financial crimes watchdog that, among other things, it has the ability to investigate and prosecute more cases involving money laundering. But the difficulty the National Prosecuting Authority (NPA) has faced in prosecuting these often complex crimes may set the government’s ambitions back.
The FATF has given South Africa an eight-point plan, which it will have to implement by the end of January 2025. According to a treasury document explaining the country’s greylisting, the government hopes to address them sooner, possibly in 2024.
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At the root of South Africa’s greylisting is state capture, which hollowed out a number of state institutions, including the NPA.
In the final volume of his state capture report, Chief Justice Raymond Zondo pointed to a sophisticated group of international and domestic money laundering networks, allegedly used by the Guptas to conceal the proceeds of state capture.
According to Zondo’s report, which relied on evidence by Shadow World Investigations’ Paul Holden and Reserve Bank records, the Gupta enterprise used existing local money laundering networks to transfer more than R8.8 billion to Hong Kong. The report also flagged the possibility of the existence of a separate network based in the United Arab Emirates.
Although the NPA has expressed its readiness to prosecute state capture-era crimes, some have questioned its ability to do so.
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“What is so concerning is that the NPA and the Hawks keep saying that everything is fine — that they are coordinating well and that things are moving forward. State capture cases are all being lined up,” said Michael Marchant, head of investigations at Opens Secrets.
“But then if you look at something like what is happening in Bloemfontein, in the Nulane prosecution, it raises serious, serious questions about how much the NPA actually has been rebuilt.”
Marchant said South Africa should be concerned that institutions such as the NPA appear not to be bouncing back after the state capture era.
If a country demonstrates that it has implemented the FATF’s plan, it may be moved off the list relatively quickly. Mauritius, for example, was able to claw its way back to compliance in under two years, while arguably still maintaining its status as a tax haven.
“The difficulty is that the FATF has said that the major outstanding issues are enforcement, investigations and prosecution. Unless these agencies demonstrate that … there is a very real risk that we will end up on that list for a very long period of time,” Marchant said.
Analysts have warned that South Africa’s greylisting will hurt its economy — raising its risk profile and hampering investment and international financial transactions in the country — especially if it is sustained.
In its benign scenario, an Intellidex report estimated that less than 1% of GDP a year will be lost during the greylisting period. In a severe scenario, in which South Africa is perceived as being inactive in addressing the FATF’s concerns, the estimated loss would be up to 3% of GDP a year.
The report noted that in the event that greylisting is sustained and global confidence in South African efforts to address the FATF’s recommendations is low, the reputational damage will have a material effect on investment flows and financing costs. International banks will also be more likely to reject South African clients on compliance cost and risks.
Last October, the NPA told MPs that by September 2022 it had successfully enrolled nine seminal cases as part of its constitutional mandate to take decisive action against high level corruption and state capture.
Of the nine, three — the Estina Dairy Farm, the Asea Brown Boveri and the SA Express cases — have money laundering charges attached to them. The NPA began pre-trial proceedings in the Nulane Investments case last year. The trial got underway in late January and the state closed its case a week ago.
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At that same meeting, national director of public prosecutions Shamila Batohi said the NPA was “finally reaching solid ground”.
“Our rebuilding efforts have begun to yield results,” she said. “I’d like to give our commitment to the people of South Africa that impunity is no longer a given.”
According to the NPA’s presentation to parliament, it failed to achieve its target relating to money laundering cases. It did, however, finalise 86 cases involving money laundering, almost double the number recorded during the previous year.
“Money laundering matters usually consist of several charges and intricate financial investigations, which are time consuming, trials are protracted with several legal challenges,” the presentation noted.
In the first five months of the current financial year, the NPA secured orders related to corruption cases of R131 million — a fraction of its annual target of R1.8 billion.
In the Nulane matter, associates of the Gupta brothers stand accused of fraud and money-laundering involving just shy of R24 million.
The state has argued that Nulane Investments, of which former Transnet board member Iqbal Sharma was the sole director, transferred R19 million into a Standard Chartered Bank of Gateway Limited account in the United Arab Emirates after it was laundered through a host of companies in the Guptas’ business, including Islandsite Investments, Tegeta Resources and Oakbay Investments.
It has relied on the doctrine of common purpose to argue that Atul and Rajesh Gupta and their spouses colluded with the other accused to this end.
The prosecution abandoned attempts to have information in the Gupta Leaks email trove admitted as evidence. Commentators have been quick to suggest that this was lethal for its case, and future state capture trials, but this is premature and overly pessimistic.
The decision on the Gupta Leaks is not dispositive of the admissibility of the evidence in future state capture prosecutions and the state feels strongly that the money-trial alone could persuade the court.
But should the state fail to secure a conviction, its chances of seeing the Gupta brothers extradited from the United Arab Emirates, and putting them on trial for the Estina scandal where 10 times as much money was stolen, will diminish.
Commentators also continue to question the wider commitment and ability of the NPA and the executive to act on the recommendations in the Zondo report.
But an additional budget allocation this month of R1.3 billion suggests that there is the political will to do so. The money is intended to allow the NPA and its Investigating Directorate (ID) to appoint more staff, with a focus on enlisting specialists in solving complex financial crimes.
The Financial Intelligence Centre will get an additional R265.3 million over the medium-term to implement both the recommendations of the Zondo commission and the FAFT, and to recruit 107 new staff members.
Lawson Naidoo, the executive secretary of the Council for the Advancement of the South African Constitution, said he believed the budget allocation signified a sincere push to see those named in the Zondo report prosecuted, rather than a last-ditch attempt to avert greylisting.
“One obviously cannot separate that out neatly and say it has nothing to do with FATF. It clearly would have influenced it, but I do not think FATF was the driving force. I think the driving force was there is a commitment from the minister and from the president to see that the ID is properly capacitated.”
In an ideal scenario, the windfall will serve to bring state capture masterminds to justice, with the added benefit of convincing the FATF of improved capacity in countering financial crimes.
Compliance is a question of meeting technical benchmarks though, not merely showing competence in court.
In 2021, the FATF found that South Africa failed 20 out of 40 set standards and fell short on all 11 measures agreed to combat money-laundering.
In response, two laws were enacted in 2022 — the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act and the Protection of Constitutional Democracy Against Terrorist and Related Activities Amendment Act — that addressed 15 of the 20 shortcomings flagged by the FATF.
The remaining five will be addressed by way of adopting regulations, improving enforcement and applying strong sanctions.
Naidoo said for the NPA to do its part, it now had to find the right people for the job.
“By the looks of it, the ID got what it asked for. But the problem is going to be: how easily available are those skills? It is not just a question of money but of whether you can find these people and bring them in.”
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