Best of 2018: Bank of Baroda SA only existed because of Gupta money laundering

Article published 27 February 2018.JOHANNESBURG — The below story is a shocking revelation about how the Johannesburg Bank of Baroda branch ended up purely existing for the Guptas. A report published by the US-based investigative journalism unit, the Organized Crime and Corruption Project (OCCRP), together with India's The Hindu newspaper, has exposed the Indian bank's role in state capture and money laundering. The most striking line in this story (published below) is that the Guptas peddled R4.5bn through the branch between 2007-2017 and that this amount "was so large that it dominated the transactions of the entire Bank of Baroda branch in Johannesburg". What's further shocking are revelations that top staff in the Johannesburg Bank of Baroda branch regularly turned a blind eye to money laundering and that Nedbank underpinned their systems. In the meantime, the cowardly Bank of Baroda plans to shut down completely in South Africa by the end of March rather than own up to its contribution to state looting. (This below piece has been republished here with permission of the OCCRP.) – Gareth van Zyl.By Khadija Sharife (OCCRP) and Josy Joseph (The Hindu).India's state-owned Bank of Baroda — one of the country's largest — played a crucial role in the financial machinations of South Africa's politically influential Gupta family, allowing them to move hundreds of millions of dollars originating in alleged dirty deals into offshore accounts, an investigation by the Organized Crime and Corruption Project (OCCRP) and The Hindu has found..The bank's Indian head office denies any wrongdoing in the affair. But interviews and documents obtained by reporters prove otherwise. The documents show that the bank's South African branch issued unapproved loan guarantees, quashed internal compliance efforts, and prevented regulators from learning about suspicious transactions in a way that benefited the Guptas' network..This report reveals new details of a scandal that has rocked South Africa in recent months..The Gupta brothers — Atul, Ajay, and Rajesh, who immigrated to the country from India in the 1990s — are accused of using their money and influence to pursue a project of "state capture," in collaboration with former President Jacob Zuma, to enrich themselves at the expense of taxpayers..The scandal led to Zuma's resignation under pressure from his ruling party, the African National Congress (ANC), on February 14. Earlier on the same day, police raided the Guptas' Johannesburg mansion; an arrest warrant for Ajay has been issued. The three brothers, as well as the former president's son, Duduzane, are on the run and believed to be in Dubai..Duduzane Zuma is accused of being a key player and beneficiary in the Guptas' financial dealings. His father appointed many of the key officials that made the family's schemes possible..At the core of these was the South African branch of the Bank of Baroda. The documents obtained by reporters show the bank played host to hundreds of millions of dollars' worth of suspicious transactions..One of the larger deals that appears in the transactions is the Guptas' irregular acquisition and allegedly illicit sale to themselves of a major South African coal mine..The revelations in the documents follow the bank's announcement in mid-February that it was shuttering its South African operations..Reporters have also learned that the head of Bank of Baroda's South African branch, Sanjiv Gupta, may face disciplinary action over the bank's business in the country. (He is not known to be related to the Gupta brothers.).A senior Indian government official, who asked to remain anonymous because of the sensitivity of the matter, confirmed to reporters that the bank has asked the Central Vigilance Commission, the country's top anti-corruption body, to initiate penalty proceedings against Sanjiv Gupta, which could result in his dismissal..Revolving Funds.The three Gupta brothers have for years been major players in South African business. After immigrating from India, they ran a computer hardware company called Sahara Computers, named after their hometown of Saharanpur. But their business really started to grow after they developed a relationship with Jacob Zuma, who was then Deputy President, in 2003. Both parties benefitted from an arrangement in which the Guptas allegedly provided Zuma's family with financial support while he provided access to lucrative state tenders and appointed friendly officials. Since then, the Guptas have moved into the mining and media industries, eventually building an empire that made the family one of South Africa's richest..Their rise has not been without controversy. Previous reporting by OCCRP has shown how the Gupta empire earned millions on the back of Transnet, the country's main transportation infrastructure firm. The Guptas' alleged large-scale raiding of South Africa's public purse has for years been a public preoccupation in the country, particularly after the details were made public in the 2016 release of a critical report, "State of Capture," by former public protector Thuli Madonsela..Over the years, the Gupta family has run afoul of several South African banks, including Standard Bank, Nedbank, and ABSA, which all shut down their businesses' accounts, citing reputational risks. In recent years, the Bank of Baroda's South African branches, which the Guptas have used since 2005, took on a crucial role as the family's preferred financial institution..Years of transaction records obtained by OCCRP and The Hindu, as well as internal documents and audits, shed new light on how exactly the Gupta family made use of the bank for nearly a decade..Click here for selected graphs detailing transactions involving persons and companies relevant to this article..The documents show a wealth of suspicious transactions among several of the Gupta's real firms, as well as a series of shell companies controlled by the family. A key Gupta associate who appears in many of the transactions is Salim Essa, a director and shareholder in some of the companies, who is seen as the financial architect of many of the deals. The transactions include a number of back-to-back loans and other transfers that have no apparent legal or business purpose but which appeared to be used to disguise the origin of the money. Especially large amounts moved in and out of Sahara, the firm at the apex of the Gupta empire..Close to 4.5 billion rand (about US$ 532 million, based on an average exchange rate over 10 years) was transferred among just a handful of the companies between 2007 and 2017. As a whole, the amount of cash flowing through the Gupta accounts was so large that it dominated the transactions of the entire Bank of Baroda branch in Johannesburg..In some cases, the significant benefit to the Guptas and their allies was clear. The Baroda account of Atul Gupta, for instance, shows that he received 57.3 million rand ($4.8 million) from Westdawn, one of the shell companies, in a single transaction on March 26, 2015 (while reporting taxable income of just 1 million rand ($80,000) two years prior). Some of the money enriched former President Zuma's son Duduzane, who held shares in a number of the companies that received large transfers. And the Gupta-controlled Westdawn provided Gloria Ngema Zuma, one of the former president's wives, with a 160,000 rand ($12,300) monthly salary for a position she held at one of their firms..But many of the transactions were more complicated. Their purpose may have been to disguise the origin of money as it entered the Gupta empire — much of it obtained through friendly state companies and cozy contracts — and to blend it together to the point that it could no longer be tracked. At least some of the funds that flowed through the bank ended up in accounts controlled by the Guptas as far away as the United Kingdom, Hong Kong, and even the United States..Many of the transactions lacked adequate documentation about the purpose of the transfers, as is required in South African banking regulations. Other times, information was included, but didn't make sense. For example, on June 14, 2016, the Gupta-controlled Koornfontein Mine wired 100 million rand ($6.5 million) to a Gupta-controlled mining company called Tegeta for "[environmental] rehabilitation," meaning the repair of damage caused by mining activity. But Tegeta does not itself offer such services, which are typically handled by outside contractors, raising the question of the real purpose behind this transaction..Transactions flagged as "intercompany loans" involving companies owned or controlled by the Guptas. Infographic: OCCRP. One particular technique shows up frequently in the transactions: Inter-company loans with no "apparent legal or commercial purpose." For instance, on Jan. 18, 2017, transactional paperwork shows that Trillian Management Consulting, at the time majority-owned by Gupta associate Salim Essa, loaned 160 million rand ($11.8 million) from its Baroda account to another Gupta company, Centaur Mining. The actual loaned funds passed through another similarly titled company, Trillian Financial Advisory. However, while the transactions describe a loan, no loan documentation could be found and there was no explanation for why the funds for the loan were provided by another company..Internal documents also show that some of the funds originated with two state-owned companies: Eskom, an electricity utility, and Transnet, a railroad company. (The Guptas' dealings with Transnet were detailed in an earlier OCCRP report.).By June 2017, Eskom alone paid 466 million rand ($36.3 million) to Trillian for "management and financial services" at a time that the company had few employees and could not have performed the work. Internal Baroda documents noted that bank employees filed alerts about several irregularities about the payments, including the fact that some were made on the same day as invoices were received (giving Eskom no time to assess the quality of the work) and the fact that, for some reason, some of the payments were made to accounts held by other companies..Despite all of the suspicious transactions, Baroda kept doing business with the two dozen shell companies controlled by the Gupta inner circle. The bank's employees dutifully filed suspicious activity reports (SARs), which banks are legally required to file with regulators whenever they see suspicious or potentially suspicious activity. On some days, they filed as many as half a dozen SARs related to the Guptas' transactions. However, Bank of Baroda managers often stepped in and voided the reports, marking the transactions as "genuine." As a result, most of the SARs never reached the South African Financial Intelligence Centre, the state body in charge of reviewing and acting on them..Abdication of Responsibility.In 2016, the Baroda transactions spiked dramatically even as other South African and foreign banks closed out their own Gupta accounts amid negative headlines about the family. Tens of millions of dollars moved through the Guptas' Baroda accounts during that year..Because the Bank of Baroda is a foreign bank, it needs a local sponsor bank to work in South Africa. That bank was Nedbank. All transactions the Indian bank made used Nedbank's infrastructure. But this relationship made it possible for the two banks to shift responsibility for the Guptas' transactions to each other..For example, Nedbank could perform due diligence on the foreign bank branch itself — but did not have access to money moved between Baroda accounts. It was up to Baroda to check these clients and oversee those transactions. On the other hand, there was other information Baroda could not see, such as the origin of transactions made to Baroda accounts from external banks. Partly as a result, neither bank took responsibility for ensuring that the transactions were legitimate..It remains unclear whether the Bank of Baroda ever reported any suspicious activities to South Africa's Finance Intelligence Centre. But one thing is apparent: Nedbank kept Baroda on as a client despite evidence that suspicious activities were taking place. Like other South African banks, Nedbank closed down their own Gupta family-related accounts, but shutting down Baroda, a bank the Indian government owns, would have been politically costly, an insider close to Nedbank told OCCRP and The Hindu..This helped keep the Guptas in the money-moving business even as authorities circled in..The Bank of Baroda continued to allow the Guptas' activities until January this year, when a South African court ordered it to share information about the accounts of more than 20 Gupta-linked companies. This was prompted by a Public Access to Information Request filed by the Helen Suzman Foundation, a local NGO. The bank has said it will release the records in a few weeks..Prepaying Corruption.The Bank of Baroda transactions related to Tegeta, the mining company, offers an instructive example of the questionable origin of some of the money that circulated within the Gupta accounts..On April 13, 2016, Tegeta, a joint venture of the Guptas and Mabengela, a company owned by the former president's son Duduzane, received three deposits totalling 823 million rand ($65 million). The money arrived in Tegeta's account via several different Gupta-controlled accounts at the Bank of Baroda..On the same day, Baroda bank employees filed four SARs against the Gupta's Sahara account. Four more alerts were filed the next day when new transactions came in. But sometime between April 13 and May 2016, Baroda officials nullified the alerts, pronouncing the transfers acceptable, which ensured that the Financial Intelligence Center did not discover them..Much of the money flowing into Tegeta's Baroda account was South African taxpayer money that came from state-owned entities. From January 2016 through February 2017, Eskom, the state electricity provider, deposited over 1.8 billion rand ($143 million) into various Gupta accounts at Baroda..Eskom was like a bankomat machine for the Guptas — and there is evidence of high-level political involvement. Eskom executives like Anoj Singh and Brian Molefe had been handpicked by senior Gupta allies, like Public Enterprises Minister Lynn Brown, who themselves had been appointed by the president..Tegeta was a major Eskom subcontractor. In one 2016 deal, it was given a massive 564 million rand ($48 million) contract to supply Arnot, a large power plant, with six months of coal. Eskom had been purchasing coal for an average price of $19.40 per ton, but Tegeta received more than double that amount. It was the most expensive supply contract on Eskom's books. Money from this contract was among the millions that flowed into the Gupta's Baroda accounts..Another deal involving Tegeta stands out: the company's purchase of the Optimum Coal Mine in April 2016..Previously owned by Glencore, a multinational commodity trading and mining company, Optimum Coal was a major supplier of coal to Eskom, the country's electric utility. But there was a hitch: Eskom claimed that the Glencore coal was of a low quality and demanded 2 billion rand ($170 million) in penalties..Glencore said that, due to the fine, it was no longer profitable to supply Eskom and decided to sell the Optimum Coal company. With a huge penalty on its books that Eskom refused to waive, interested buyers were few..Then, in December 2015, Tegeta announced that it would buy Optimum Coal for 2.1 billion rand ($160 million). South Africa's Mines Minister — a known Gupta ally named Mosebenzi Zwane (who had been appointed by President Zuma) — travelled to Switzerland to meet with Glencore and the Guptas. Shortly afterwards, the penalty was waived..On December 18, 2015, Sanjiv Gupta, the Bank of Baroda's South African head, issued a letter of assurance from the bank on behalf of the Guptas for the full payment. India's Central Vigilance Commission is now examining whether it was in his powers to do so, according to a source..But there was one more snag. On April 11, 2016, the Guptas informed Glencore that they were 600 million rand ($48 million) short of the sale price. South African banks had declined to lend to Tegeta, by then already perceived as a Gupta-Zuma scheme. Yet by 9 p.m. that night, in a wholly unusual move, Eskom agreed to "prepay" the Gupta companies 659 million rand ($52 million) for future work so that the purchase could be completed. The deal was, at best, an interest-free loan for the Guptas and Zuma. At worst, it was another plundering of public assets..Bank of Baroda records show the Guptas using a series of transactions to pay a total of 1.8 billion rand ($144 million) for the mine. There is no record of what happened to the remaining amount..Essentially, Tegeta had paid for much of Optimum Coal using taxpayer money from Eskom — which had waived a fee that, according to the mine's previous owner, had rendered the venture unprofitable..By 2017, the Gupta's deals had come under scrutiny, particularly the allegedly illegal payments made by state-owned entities like Eskom..In August 2017, the Guptas announced that Tegeta had been sold for 2.97 billion rand ($225 million) to a Swiss company called Charles King SA. This was an unusual buyer for a mining company, having been formed in February 2011 as a clothing distributor with 50,000 Swiss francs ($53,500) in capital and managed by a financial services firm with a nominee director. An Emirati named Amir Zarooni, an alleged Gupta proxy, became the company's sole administrator in August 2017, at which time the company's registered activity changed simply to "trading.".If the deal in fact went ahead as described, the Guptas would have effectively paid the $225 million for Tegeta to a foreign proxy — placing the money in Switzerland, a foreign tax haven, where it is beyond the reach of South African law enforcement..There was another financial windfall. When they purchased the Optimum Coal company from Glencore, the Guptas received 1.7 billion rand ($136 million) in "rehabilitation funds," where are meant to be set aside to mitigate environmental damage and used after the mine had closed. But, in violation of South African law, the Guptas took out loans against this money, moving the funds to their accounts at the Bank of Baroda, which allowed them to borrow nearly the same amount against the fund in early 2016..The loan was allegedly approved by Minister of Mines Mosebenzi Zwane, yet another Zuma appointee . It took until November 2016 for the Bank of Baroda to void the loan. It is not known what the Guptas used the money for..Days after former President Zuma resigned, Optimum Coal filed for a business rescue – a term describing a financially distressed company that is seeking external support to survive. Seven other Gupta-related businesses did too..South Africans Will Pay. Will Anyone Else?.The South African authorities say they are seeking to recover as much as 50 billion rand ($4.07 billion) lost through the Guptas' deals..In the meantime, the country is struggling. The government has announced plans to slash the national budget by tens of billions of rand, as well as raising taxes, including the VAT and fuel levy. Meanwhile, Eskom is so financially strapped that it has sought steep increases in electricity tariffs for South African consumers..The Guptas and Essa did not respond to questions sent by reporters. Bank of Baroda officials in South Africa also did not respond to questions..In a statement, Baroda's Indian head office said: "The South African operation of the Bank has always been and continues to be conducted in accordance with the laws and regulations of the home and host country regulators."."To date, neither the South African regulators nor the independent auditors it has appointed to review these accounts and transactions have found that the Bank's South African territory engaged in any intentional wrong doing [sic] whatsoever.".Nedbank also denied any wrongdoing, saying, "In respect of all of our clients, including Bank of Baroda's SA branch, Nedbank has a responsibility to apply anti-money laundering regulations, 'know-your-client' procedures and report all suspicious transactions to the Financial Intelligence Centre. Nedbank has a robust system to comply with its know-your-client and suspicious transaction reporting obligations, and applies these rigorously to all our clients."

Best of 2018: Bank of Baroda SA only existed because of Gupta money laundering

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