HSBC flags Mkhwebane among Gupta transactions

Mystery surrounds payments made to public protector Busisiwe Mkhwebane in 2014 and flagged as suspicious by the international bank HSBC.

The payments were among a number of transactions totalling R1bn that HSBC identified as somehow being linked to the powerful Gupta family.

The Guptas, now believed to be in Dubai, have described themselves as "friends" of former president Jacob Zuma and are at the centre of the state capture allegations now being probed by the Zondo commission.

Until now, no direct connection has been made between the Guptas and the public protector, whose credibility has been shaken in recent weeks by a series of court rulings, the last of which accused her of making a "nonsensical" ruling.

But for some as yet unexplained reason, Mkhwebane is now named in a new leak obtained exclusively by the Organised Crime and Corruption Reporting Project (OCCRP), an international network of journalists.

The leaked information came from a highly restricted internal HSBC investigation, which sought to identify a network of Gupta-linked accounts and companies around the world. The network’s key accounts and companies were located in Hong Kong, a tax haven that has been known for providing financial secrecy for foreign clients.

It maps a flow of funds from 2014 to 2017, much of it through the Guptas’ Hong Kong operations and involving more than 100 entities. The leak includes details of:

• More than $114m in alleged Transnet-linked kickbacks paid to companies associated with the Guptas, such as Regiments Asia, from state-owned Chinese companies;

• Private offshore bank accounts of key Gupta lieutenants including Salim Essa;

• Payments made by Gupta-linked companies such as Westdawn, Homix, Morningstar International Trade and Tequesta; and

• Flows of money from the Guptas’ accounts in Hong Kong to numerous jurisdictions, including the UK and the US.

The web of transactions using HSBC’s network seemed intended to produce a trampoline effect in which funds were bounced through various structures to obscure their origins, with the help of the secrecy offered by tax havens.

According to the leak, two 2014 transactions involving Mkhwebane were flagged — though quite what connection the bank believed they had to the Guptas is not clear.

At the time, Mkhwebane was being transferred from a government posting in China to the department of home affairs in SA.

The funds appeared to have been sent from an HSBC account associated with Mkhwebane to her FNB account in SA. There is no clue in the records what these transactions were for.

In the documents, HSBC seems unclear as to exactly who the money came from, describing the sender as a possible pseudonym for "Busisiwe Joyce Mkhwebane". The transaction dated June 30 2014 wasn’t flagged because of the size — it was for a relatively small amount, HK$40,000 ($5,100) — but rather because of the as yet unexplained potential link to the Guptas.

At this point, there is no indication that Mkhwebane received money directly from the Guptas, or that the source of the funds was in any way illegal.

Asked to explain why it appeared to believe there was a Gupta-Mkhwebane relationship, HSBC was guarded.

"We continue to investigate any potential links to the Guptas or Gupta-related companies. We will review any name that comes to our attention for potential involvement in financial crime and exit those relationships as appropriate," it said, adding that it had "no desire" to do that sort of business. "But it is inherently challenging to uncover illicit finance networks because those who seek to launder money are often extremely sophisticated, hiding behind legitimate companies, layers of front companies, connected parties and individuals that have controlling interests in those companies," it said.

When the OCCRP asked FNB whether it had also flagged the payments to Mkhwebane’s account, the bank said only that "due to client confidentiality, FNB cannot comment on the bank accounts of individual customers". But FNB said it will co-operate with any "external or judicial process".

Asked this week to comment on possible reasons for HSBC’s decision to flag the two payments to her, Mkhwebane’s spokesperson Oupa Segwale said she was "not aware" of the bank’s action and that she had not sent any money to herself in SA in June 2014.

On Tuesday, Mkhwebane said she "rejects with contempt" the suggestion that she had any links with the Gupta family.

Between 2010 and 2014, Mkhwebane, an advocate, worked in an SA government post in China, before returning home. Two years later she began working for the State Security Agency. After a few months in this post, in October 2016, she was chosen to replace Thuli Madonsela as public protector. She was rumoured to be Zuma’s preferred pick for the post.

Her tenure as public protector has been marked by a series of questionable decisions that her critics view as attempts to undermine the investigations into state capture.

This week, high court judge Sulet Potterill interdicted Mkhwebane’s finding that President Cyril Ramaphosa must take "disciplinary action" against his public enterprises minister, Pravin Gordhan. The judge said some of Mkhwebane’s remedial orders were "vague, contradictory, and/or nonsensical".

Instead, say critics, Mkhwebane’s rulings have focused on two individuals seen as championing the eradication of state capture: Gordhan and Zuma’s successor as president, Cyril Ramaphosa.

She recently used her subpoena powers to obtain details of how hundreds of millions of rands flowed into Ramaphosa’s campaign while he was fighting to win the ANC presidency in 2017. In her report on Ramaphosa she said accepting donations from private companies "creates a situation of the risk of some sort of state capture by those donating these moneys to the campaign".

Though largely off the radar, HSBC has done substantial business in SA. In 2015, the year in which $114m in kickbacks were paid, SA was HSBC’s fifth most profitable location.

The most obvious illegality exposed in the HSBC leak involves more than $114.5m paid by China’s state-owned China South Rail in a deal involving 359 locomotives worth $1.5bn.

According to the contract China South Rail promised to pay $321m as an "advisory fee" to Essa. That fee, an astounding 21% of the total contract, was paid to Tequesta, Essa’s Hong Kong-registered company, for assistance it provided with black economic empowerment aspects of the deal.

The fee was to be paid under an unusual arrangement that required Transnet to cover the cost. The fees appeared to be structured like a kickback to the Gupta empire — funded, ultimately, by the SA taxpayer.

HSBC records for this "advisory fee" include 42 transactions totalling nearly $115m paid by China South Rail — $39.8m in the three months leading up to the contract signing and $75m afterwards.

The OCCRP was not able to trace all $321m of the fee payments, some of which may have been channelled through the Guptas’ other banking structures. The documents show the money flowed first to Tequesta and Regiments Asia, before being diverted through a series of small payments to various shell companies controlled by the Guptas.

In return for this money, Transnet bought dud trains. When the first two locomotives arrived in SA in early 2017, they turned out to be defective. They never ran.

It also appears that letters authored by China South Rail’s local representative, Wang Pan, were edited by Eric Wood, a director of Regiments. Wood and Essa went on to create Trillian. Those letters were sent to Transnet’s then CFO Anoj Singh, who later resigned under a cloud.

Wood e-mailed a draft of one letter to another Gupta associate, Ashok Narayan, who ran an alleged money laundering conduit known as Homix. The flow of funds through Homix was so vast that one of its accounts was shut down by Mercantile Bank after just 11 days.

Of the Transnet money, Tequesta paid over $60m to several offshore and shell companies holding HSBC bank accounts. They included Success Stand, Shun Shi, Honorway, Bestway, Al Malaki and Daya.

The HSBC leak shows the Gupta finance empire was far more extensive than initially thought. More than 20 international banks received money from the Guptas’ Hong Kong trampoline, including National Westminster in the UK, Wells Fargo in the US, India’s state-owned Bank of Baroda, Habib Bank, Standard Chartered Bank and a dozen Chinese banks, including Bank of China. Often such transfers were listed as "commissions".

Regiments Capital, at the time the OCCRP began publishing its findings in November 2017, denied any knowledge of Regiments Asia and said its relationship with Transnet was "duly mandated". Neither Wood nor Essa responded at the time of OCCRP’s initial publication. E-mails to Wang Pan (also known as Alton Wang), China South Rail’s local representative, had not been answered at the time of publication.

The new leaks reveal the extent to which HSBC bent over backwards to assist Wood and, by extension, the Guptas.

In one e-mail to Wood in 2015, HSBC’s Amaresh Joshi says: "I’m currently working out of HSBC’s Joburg offices and on the back of the increased SOE [state-owned enterprise] funding and hedging activity, I thought it would be good for us to catch up."

In another e-mail in January 2016, Joshi refers to work with an SOE that he says he’ll soon give Wood information about. In another, he suggests meeting, preferably outside the office, to discuss business.

HSBC has a tarnished history.

Born from the ashes of the Opium Wars, when Britain forced China to accept opium imports from British-ruled India, HSBC was co-founded in 1865 by a Scottish merchant whose opium warehouses were repeatedly shut down by Chinese police.

Known at first as the Hong Kong & Shanghai Banking Corp, the bank gave the British empire the infrastructure to repurpose Hong Kong as a financial conduit for Britain’s trade with the East Indies.

About 70% of this trade was opium. As the decades passed, HSBC’s dubious origins expanded into other ventures: allegations included the rigging of currencies and abusive trading practices, and laundering cash for Mexico’s most infamous drug cartel, Sinaloa. But the scandal with the most stick factor was Swissleaks, in which an HSBC scheme designed to support tax evasion to the tune of more than $200bn on behalf of more than 100,000 global clients was exposed.

The US government fined it $1.9bn for this behaviour, the equivalent of five weeks’ profit in a typical year. A US official explained: "Had the US authorities decided to press criminal charges … HSBC would almost certainly have lost its banking licence in the US, the future of the institution would have been under threat and the entire banking system would have been destabilised."

In 2015, when HSBC reported SA as its fifth most profitable jurisdiction, the bank reported a profit of more than $8.9bn in Hong Kong, where little tax was paid. That year, HSBC was ranked as Europe’s most profitable bank, clocking up $17bn.

Now it appears to be another of the global institutions, alongside McKinsey, Bain Capital and law firm Hogan Lovells, that may have helped grease the wheels for state capture.