FROM THE WSJ: The long, winding and treacherous road to the Guptas' state capture
From Atul Gupta’s arrival in 1993, to the current fall of international companies associated with the Gupta name, the saga of SA’s state capture is a sobering read
Many South Africans believe the country’s real seat of power is a suburban, 13,000m² compound shielded by concrete walls and sometimes guarded by an armoured personnel carrier.
The sprawling complex is the home and headquarters of the Gupta family, who moved to SA from India in the early 1990s as apartheid was ending, and built a business empire stretching from media to mining. Their riches and close ties to President Jacob Zuma have plunged the country into its gravest political crisis since the overthrow of white-minority rule.
The Guptas are at the centre of a corruption scandal that has entangled international firms from KPMG to McKinsey to SAP, amplified calls for Zuma to resign and has become a battle line in the race to succeed him as leader of the ANC, the country’s ruling party since Nelson Mandela.
One party official said last year that one of the three Gupta brothers who oversee the family business offered him the Cabinet-level job of finance minister at the Gupta compound while Zuma’s son was there. An investigation by SA’s Public Protector said Zuma and other officials steered government contracts to Gupta businesses.
In the past five months, a flood of e-mails and other documents that appear to have been obtained from Gupta-controlled companies has buttressed long-standing suspicions among many South Africans that the family has used its connections to Zuma to help it amass gigantic financial gains.
"I could not help to wonder whether‚ unbeknown to me‚ democracy and the rule of law had somehow been suspended," Pretoria High Court Judge Hans Fabricius wrote in a court ruling two weeks ago in favour of a bank that wants to stop doing business with the Guptas.
The judge suggested that SA’s future as the liberal democracy and free-market economy conceived of by Mandela is at risk because of the Gupta family’s political influence. The judge wrote: "Could it be possible that the future‚ so bright in 1994‚ was now only history?"
Zuma, who became president in 2009, has repeatedly denied any wrongdoing and pledged to establish a commission to investigate business influence on government.
A lawyer for the Guptas said they declined to comment, and a spokesperson didn’t respond to questions. The family has previously denied wrongdoing and said they are victims of an attack by the country’s established, mostly white-owned businesses. Atul Gupta, who leads the Gupta businesses, has said "there is no authenticity" to the leaked documents, without being more specific.
Among the companies that have been drawn into the scandal, the UK operations of one of Europe’s largest public-relations firms, Bell Pottinger, collapsed in mid-September after revelations that it tried to discredit rivals of Zuma as defenders of "white monopoly capitalism" and "economic apartheid". Bell Pottinger was hired by the Gupta holding company, Oakbay Investments.
SAP, the German software maker, and US-based consulting firm McKinsey have put employees on leave and launched internal investigations of their dealings with Gupta-linked companies. Last month, KPMG cleared out its top management in SA after concluding it fell short of its own standards during the 15 years it audited Gupta firms.
Zuma has kept dissension within the ANC over the scandal under control. He survived a no-confidence vote in the National Assembly in August. His presidential term runs out in 2019, and the winner of December’s vote to lead the ANC will become the favourite in the presidential race.
The party’s top two candidates are Cyril Ramaphosa, the ANC’s deputy president and a critic of Zuma, and the president’s ex-wife and political ally, Nkosazana Dlamini-Zuma. Ramaphosa said in April that "state capture" by business, "if left unchecked, could well destroy our revolution".
Three Guptas and a wedding
Atul Gupta, arrived in SA in 1993, months before the first democratic election brought the ANC into power. He said in a 2011 interview that his father, a businessman in the Indian state of Uttar Pradesh, believed "Africa would become the America of the world". Atul started a computer-hardware distribution company, called Sahara Computers, and his brothers Ajay and Rajesh soon followed.
In 2007, Zuma won the ANC presidency. Eight months later, two of his roughly 20 children, Duduzane and his twin sister Duduzile, then 26, joined Sahara’s board of directors, according to court documents. Some outsiders saw the move as the culmination of a quest by the Gupta family to court connections in the ANC and convert them into personal wealth.
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Duduzane didn’t respond to requests for comment, and Duduzile couldn’t be reached. She is no longer a Gupta-company director.
The Guptas landed in the consciousness of most South Africans when a chartered Airbus SE A330 jet carrying more than 200 guests from India to a family wedding was allowed to land at an air-force base near Pretoria in 2013. Police cars escorted the passengers to the wedding venue in Sun City, a gambling resort. The landing generated headlines across the country.
Invited guests included Zuma and his ex-wife, 18 government ministers, 12 deputy ministers, the leaders of most South African state-owned enterprises, and prominent journalists and businessmen, according to documents that appear to have been obtained from Gupta-controlled companies and were made public.
Zuma didn’t attend the wedding, but the CEO of KPMG SA did — and e-mailed a thank-you note to Atul. "I have never been to an event like that and probably will not because it was an event of the millennium," wrote KPMG’s Moses Kgosana.
The thank-you note was among more than 100,000 e-mails, bank statements and other Gupta-related documents that surfaced in May. The documents were first reported by the amaBhungane Centre for Investigative Journalism. The Wall Street Journal has reviewed some of the documents, andSA ’s National Prosecuting Authority, which can bring criminal charges, has said it is investigating potential wrongdoing detailed in the leaked documents.
The judge suggested that SA’s future as the liberal democracy and free-market economy conceived of by Mandela is at risk because of the Gupta family’s political influence
The documents also include an invoice for R30m ($2.2m) sent by an event organizsr owned by the Gupta family to another Gupta-owned company for the wedding. The invoice showed $17,959 spent for a fireworks display and $34,301 for drinks, among other items. Other documents show that money to pay the wedding costs flowed from a provincial government to a dairy farm for poor South Africans to various Gupta-controlled accounts in Dubai and then back to SA.
KPMG, the auditor of the Gupta event organiser, has said it failed to sufficiently question the origin of the wedding funds, though its internal review found no wrongdoing by the firm or its staff. SA’s auditing regulator and Parliament have said they are scrutinising KPMG, which has said it is co-operating and launched its own independent review. KPMG declined to comment for this article.
Kgosana left KPMG in 2015. He says the firm cleared his attendance at the wedding and that it didn’t affect KPMG’s work for the Guptas.
Media moguls in the making
Later in 2013, the Gupta family launched a 24-hour news channel, ANN7, expanding their media properties beyond the New Age newspaper. Coverage of Zuma was usually positive. Zuma has repeatedly denied any wrongdoing and pledged to establish a commission to investigate business influence on government.
In 2014, a Gupta-controlled mining company made its debut on the JSE with a value of about $600m. The government owned a 3.6% stake in the company. As of last year, Atul was the richest non-white South African, with personal wealth estimated at more than $750m, according to SA’s Sunday Times newspaper.
At least some of the family’s financial success came from its ties to relatives of Zuma, according to the leaked documents and a report last year by the Public Protector, who investigates government misconduct.
In August 2015, SAP signed a contract with a 3-D printing company managed by Sahara Systems, leaked documents show. Sahara was co-owned by the Guptas and Duduzane, the son of SA’s president Zuma.
The contract promised the 3-D printing company a 10% commission if Transnet, a state-owned railroad and port operator, signed a software contract with SAP for at least $7.3m by year-end, according to the leaked documents.
Other documents show SAP paid the printing company last year almost as much as the contract’s total value. Duduzane has denied any wrongdoing and has said he couldn’t comment on the authenticity of the documents. Transnet declined to comment on whether it signed a contract with SAP.
SAP’s South African unit denied making any kickbacks, but the statement was removed from the company’s website. An SAP spokesman declined to comment on the removal. SAP has said it would release the findings of an internal investigation into its dealings with the Guptas before the end of October.
Invited guests included Zuma and his ex-wife, 18 government ministers, 12 deputy ministers, the leaders of most South African state-owned enterprises, and prominent journalists and businessmen
By late 2015, the country’s finance ministry was questioning some of the lucrative deals with government agencies and state-owned companies won by Gupta-controlled companies. Ajay tried to ease the pressure, according to the ombudsman’s report and an affidavit filed with the High Court.
Money for ministers
In October 2015, Deputy Finance Minister Mcebisi Jonas met with Ajay at the family’s mansion in the Johannesburg suburb of Saxonwold. In the affidavit, Jonas said he was offered the post of finance minister — and R600m ($44m) and was told by Ajay that the family wanted to increase its income from government contracts to R8bn from R6bn. Jonas said he refused the job offer and money.
As the Deputy Finance Minister was about to leave, Ajay tried one more time, according to Jonas. "If I had a bag that could carry R600,000 then I could get that amount there and then," Jonas recalled Ajay saying. Jonas couldn’t be reached to comment for this article.
The lawyer for the Guptas says Ajay never met with Jonas. Duduzane has said he arranged the meeting, but no bribe was offered.
In December 2015, Zuma replaced respected Finance Minister Nhlanhla Nene with an untested lawmaker. The move sent the rand down nearly 10% before he replaced the new finance minister.
Jonas went public with his bribe allegations in March 2016. They were denied by the Guptas and the president’s political allies, but the rand sank again, a sign of growing discomfort with the family’s political influence. Newspapers published articles about their connections almost every day.
The Gupta family’s holding company turned to Bell Pottinger, the PR firm that has represented the wife of Syrian President Bashar al-Assad, authoritarian Belarusian President Alexander Lukashenko, and Oscar Pistorius, sentenced to prison last year for murdering his girlfriend.
Leaked documents and a review by an outside law firm hired by Bell Pottinger show that the PR firm launched what it called an "economic emancipation campaign" and led a social media campaign against Zuma’s critics. Bell Pottinger also wrote speaking points for ANC officials.
In the affidavit, Jonas said he was offered the post of finance minister — and R600m and was told by Ajay Gupta that the family wanted to increase its income from government contracts to R8bn from R6bn
Last month, a PR trade group said that Bell Pottinger’s work on behalf of the Guptas was "likely to inflame racial discord in SA and appears to have done exactly that". The firm’s UK operations collapsed as other large clients withdrew their business from Bell Pottinger. The firm’s UK administrator declined to comment for this article.
Bell Pottinger dropped the Guptas in April, citing abusive and threatening comments against the PR firm’s staff as public acrimony about the relationship flared.
The Gupta family’s businesses are reeling from the scandal. Oakbay Resources & Energy was de-listed in July after firms needed to support its stock listing walked away from the family-controlled mining company. The stock had lost about 70% of its value since the start of 2017, shriveling the family’s net worth. The Guptas sold off some mining and media holdings last month.
The family has said selling the assets would help it focus on clearing the Gupta name from "unfounded media allegations."
On Monday, 20 Gupta-owned companies won a temporary reprieve in court to stop the South African unit of India’s Bank of Baroda from closing company bank accounts. All the accounts used by Gupta businesses at other banks in the country have already been closed.
If the court upholds its original ruling that Bank of Baroda can close the Gupta bank accounts, the companies would essentially be cut off from SA’s financial system and unable to pay employees.
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