PETER HAIN: SA must implement financial action task force recommendations on money laundering
The country should also establish a body such as the UK’s joint money laundering steering group without delay
Because state capture in SA was in part facilitated by the complicity of global banks, corporates and governments (notably Dubai, India and Hong Kong), they each have a responsibility to help recover the billions of rand that were looted. Much of this was laundered abroad — part of about 5% of global GDP or a staggering $2-trillion laundered globally each and every year.
By allowing the Guptas to open local accounts, international banks (including HSBC, Standard Chartered and Bank of Baroda) granted access for the Gupta brothers to their global networks, enabling them to move huge amounts out of SA and then sometimes (as in the Estina dairy farm scandal) back in, undetected, for nefarious purposes. This despite clear warning signs of suspicious dealings, secretive transactions obscuring both the source of funds and the ownership of the accounts, and unexplained payments to and from third parties.
Governments also provided refuge for the Guptas and the means to continue their activities through less regulated “open” economies (the main culprits being Dubai, Hong Kong and tax havens in the Caribbean). Obviously, therefore, wholesale reform, improved corporate governance, increased transparency and more efficient global co-ordination is needed to reduce financial crime.
The average, honest citizen on a modest or medium-income is subject to all manner of frustrating and time-consuming requirements to open a bank account or legitimately move money, but somehow these banks turn a blind eye to global crime such as that perpetrated by the Guptas, their cronies and their allies, on a gargantuan scale.
When HSBC and Standard Chartered met me in London (after I had named them under parliamentary privilege in November 2017 as complicit in state capture and money laundering), they cited “client confidentiality” as a barrier when I specifically asked them to trace and track the money laundered by the Guptas under the Zuma administration.
Client confidentiality is important for honest citizens, but surely not for rampant criminals? Lawyers assisted in setting up complex corporate structures of Gupta shell (front) companies, enabling money to be moved from one country to another where there was low transparency, via the global banking network. Accountants incorrectly audited, enabling suspicious transactions to be hidden. Estate agents happily received laundered money for property purchases. There should be a public register of beneficial owners to expose the real owners of commercial entities.
Global corporates and professional service firms complicit in state capture — such as McKinsey, KPMG, Bain & Co, SAP and Hogan Lovells — had access to client data, meaning they were well-placed to monitor and recognise suspicious transactions and customer activities and alert the authorities. Instead, they earned fat fees. With banks, they should be the first line of defence in identifying corruption and financial crime.
Though some sharing of information already occurs, it is not effective and banks must cease hiding behind confidentiality and work collaboratively and proactively to share useful data and intelligence on a confidential basis with the SA authorities, global regulators and enforcement agencies.
To encourage such information sharing to create a more complete picture of a customer and their transactions, a body replicating the UK’s joint money-laundering steering group should be set up within SA without delay. There should be legislation permitting the voluntary sharing of data among banks, where there is a suspicion of money laundering, as is the case in other states.
And SA should establish a body replicating the UK’s joint money laundering intelligence task force to promote the exchange and analysis of information on money laundering and wider economic threats. Since its inception, the intelligence task force has supported and developed more than 500 law enforcement investigations in the UK and directly contributed to more than 130 arrests and the seizure or restraint of more than £46m. Its membership should include local and international banks.
The SA Reserve Bank should conduct audits of banks without notice, making it more difficult to hide any compliance failures. Banks and professional enablers should face sanctions at both organisational and individual level, in addition to those already included in SA’s anti-money laundering legislation, enabling banking licences to be immediately suspended, and culpable senior managers refused permission to work for any regulated entity, fined and perhaps even imprisoned.
It is important that SA joins the global extractive industries’ transparency initiative to help to tackle corruption, for instance, the dodgy sale of the Optimum coal mine to the Guptas. The initiative’s principles should also be rolled out to other business sectors.
The Gupta businesses and others often claimed BEE status but never delivered on their promises or empowered black communities. The BEE programme is important to the future of SA, yet it has been exploited and manipulated by state capture criminals a protracted period. Much greater transparency and accountability is essential to ensure its real objectives are fulfilled.
The UK has recently introduced unexplained wealth orders into its regulators’ toolbox, requiring a person to explain the source of wealth used to acquire certain property. If a legitimate explanation is not provided, the property can be seized by the regulators and deemed recoverable proceeds of crime. This regulation allowed the UK’s national crime agency to require the wife of a jailed banker (who was convicted of embezzling up to $3bn in Azerbaijan) to explain how she had come to acquire certain valuable properties and assets in England worth more than £22m.
The global financial action task force has proposed a set of recommendations aimed at preventing, detecting and sanctioning money laundering. But simply being a member is not enough: SA must implement its recommendations.
Mutual legal assistance treaties are also crucial. But though such a treaty (and extradition agreement) with Hong Kong was signed more than 10 years ago, it has yet to be submitted to parliament for ratification.
Making the radical changes needed to combat global financial crime, investigate potential corruption and repatriate stolen funds will not be easy, but SA’s corruption near-death experience cannot be repeated if it is to survive and prosper in future — and if the values of the freedom struggle are to be realised.
• Lord Hain is a former anti-apartheid campaigner who gave evidence to the Zondo state capture inquiry on Monday.