In his memoir, A Pretoria Boy: South Africa’s ‘Public Enemy Number One’, Peter Hain describes his journey from anti-apartheid Pretoria boyhood to British cabinet minister and subsequently member of the House of Lords, where he exposed to a global audience international money laundering and corruption under former president Jacob Zuma and the Gupta brothers. He now demands global government cooperation. This is an edited extract from his new book.
Without complicit fee-clutching global corporates and turn-a-blind-eye governments — from London and Washington to Dubai, Delhi and Beijing — the “Zupta” decade of prodigious looting and money laundering could not have happened.
Robbing South African taxpayers of billions of rand and contributing to a catastrophic loss of GDP of about a fifth under former president Jacob Zuma, was ultimately the fault of international actors. They helped the Gupta brothers move their ill-gotten gains out of South Africa, and then sometimes back in, undetected.
It was international actors who helped the Guptas and their associates create complex corporate structures disguising the true ownership of funds and complicating the tracing and repatriation of stolen funds while earning huge fees out of the looting.
It was international actors who provided refuge to corrupt individuals and the means to continue their activities through less regulated “open” economies such as Dubai and Hong Kong.
Electronic banking remains the simplest and fastest way of transferring funds between people and across borders. It allows criminals to move their money to more convenient (often also less regulated) jurisdictions and it “cleans” the money by mingling it with other funds and disguising its source so that it is easier to spend.
The Guptas used a number of international banks — many of them household names such as HSBC, Standard Chartered and Bank of Baroda — to transfer money, disguise payments and hide the source of their illicit funds through the global banking network out of South Africa and then back in.
These banks should have spotted this suspicious activity by the Guptas much sooner, or immediately. It included: secretive transactions to obscure the ownership of the accounts; unexplained payments to and from third parties with little or no apparent connection to the underlying transaction; the transfer of funds around shell companies, which do not conduct trading and obscure the persons who control them; and unexplained connections with and movement of monies between jurisdictions.
Much of this occurred when South African media outlets such as the Mail & Guardian were exposing corruption under Zuma and identifying the Gupta brothers’ key role, and when legitimate funds created by the Gupta enterprises were dwarfed by the funds they amassed through illegal activity.
A specific example of a transaction that should have been stopped, or at least investigated by the Bank of Baroda South Africa (part of India’s state-owned, global Bank of Baroda), was
a loan on 18 January 2017 by Trillian Management Consulting (then majority-owned by a Gupta associate, Salim Essa) of R160-million to Centaur Mining (a Gupta-owned company) through Trillian Financial Advisory (a Gupta-owned company).
The Bank of Baroda simply waved this through. So did Standard Chartered over South African government funding for the Estina dairy project, transferred through the Gupta-controlled Estina (Pty) Ltd to an account held by Gateway Limited (a Gupta-owned company registered in the United Arab Emirates).
Standard Chartered did not stop these transactions, despite the fact that government funds were leaving the South African jurisdiction to a company beneficially owned by the Guptas with no material explanation provided for the suspicious payment structure.
More than $100-million of the alleged kickbacks received by the Guptas over purchases of Chinese locomotives by Transnet were reportedly channelled through the HSBC Hong Kong accounts of their front companies Tequesta and Regiments Asia.
It is unacceptable that senior directors of HSBC and Standard Chartered — who cited “client confidentiality” — would not cooperate when I specifically asked them at meetings in my House of Lords office to trace and track the money laundered by the Guptas. The Bank of Baroda bosses brazenly denied any culpability.
Then there are the “professional enablers” — lawyers, consultants, auditors/accountants and estate agents — who “clean” the money for a fee. Their role is to disguise the source, location and ownership of funds.
Lawyers assisted the Guptas to set up complex shell companies enabling money to be moved from one country to another country where there is low transparency.
Accountants audited incorrectly, leaving suspicious transactions hidden in the accounts. Estate agents received laundered money into Gupta or Gupta-controlled accounts during property purchases.
They all profited while the Guptas hid stolen funds that could otherwise have been spent on essential public services and on helping to repair the colossal damage caused by apartheid.
Global firms such as Bain and KPMG have access to client data, and it is high time they established robust compliance policies and procedures to spot and prevent money laundering.
Globalisation has made it easier for criminals to dissipate tainted funds to countries unconnected to the underlying crime. Without global cooperation and coordination between states, criminals are able to dodge the rule of law by relocating themselves and their stolen funds to other jurisdictions where regulations are weaker, regulators are underfunded or where there is less transparency around corporate ownership.
The United Kingdom and South Africa, for example, both have strict anti-money laundering regulations but the Guptas seem to have easily managed to evade this legislation with the assistance of South African public officials and London-headquartered or -located global banks and professional enablers.
The ruler of Dubai, a steadfast ally of the United States and UK, has allowed the Guptas to safeguard their stolen wealth (including in a luxury home). Hong Kong has taken no public action against the Guptas for funnelling laundered funds and receiving kickbacks. India (their country of birth, where they also reside) claims to have investigated the Guptas, but has taken no enforcement action nor repatriated funds to South Africa.
Investigative agencies (such as the Serious Fraud Office, National Crime Agency and Financial Conduct Authority in the UK, and the Directorate for Priority Crime Investigation within the South African Police Service and the National Prosecuting Authority and the Special Investigations Unit in South Africa) require proper resourcing.
Yet in neither country has that been the case. In the UK in 2019 the head of the National Crime Agency requested an additional £2.7-billion in funding for that agency alone. It was not granted.
Banks and professional enablers should be on the frontline in combatting financial crime, and it should be a source of shame for the world’s leading economies that the banks and other corporates responsible for facilitating corrupt practices in foreign countries are headquartered in their jurisdictions (London, New York, Delhi and Shanghai, for instance).
How can it be right that the average, honest citizen on a modest or medium income is subject to all manner of frustrating and time-consuming bureaucratic procedures and requirements to open a bank account or legitimately move money, but somehow banks wave through global crime, such as that allegedly perpetrated by the Guptas, their cronies and allies, on a gargantuan scale?
Funds moved around the world today leave a digital footprint. Banks especially possess the technological and financial clout needed to force change, and that power should be harnessed to assist — not hinder or obstruct — regulators to target their limited resources.
Although some sharing of information already occurs, it is paltry and ineffective, and banks should stop hiding behind client confidentiality (or the limits of current reporting systems) and work collaboratively and proactively to share useful data and intelligence on a confidential basis with regulators and enforcement agencies.
Banks and professional enablers should face additional sanctions at both an organisational and an individual level. Licences should be immediately stripped from banks if they consistently fail to meet anti-money-laundering standards. A “senior manager’s regime” should be introduced to ensure personal responsibility. This should include disbarment for money laundering and corruption failures such as over South Africa’s state capture scandal.
Looted billions were siphoned from the South African offices of Standard Chartered, HSBC and the Bank of Baroda, through their international digital pipelines to offices mainly in Dubai and Hong Kong. Their Johannesburg managers cannot be allowed to get away with saying, “Nothing to do with me, guv”. They are global institutions, culpable for facilitating money laundering.
And on top of all this the governments — especially of India, Hong Kong/China, Dubai, the UK and the US — must lead the fight against global money laundering and corruption instead of merely paying lip service to the cause.
Without such cross-border cooperation, no country will be emancipated from financial crime estimated by the United Nations Office on Drugs and Crime, to be worth about 5% of global GDP, or $2-trillion, each and every year.