STUART THEOBALD: Far from targeting Mkhwebane, banks are merely reacting to global pressure on money laundering

Posted in: i-Blog, Politics, South Africa on August 5, 2019

Public protector’s account is being investigated for exchange control violations and suspicious transaction from Hong Kong

This column was first published in Business Day

Leaks of personal bank account information seem to be becoming a political strategy. Last week we heard about an alleged $5,000 payment from a Gupta-linked account at HSBC in Hong Kong to public protector Busisiwe Mkhwebane’s account at FNB.

That report came from the Organised Crime and Corruption Reporting Project, a global investigative journalist network.

Later in the week a story emerged in the Mail & Guardian, corroborated by “four independent sources”, that the public protector’s account is being investigated by FNB for exchange control violations regarding amounts received from accounts in Brussels and Paris.

I have no idea whether any of these allegations are correct. But it certainly is true that the banks have been placed under worldwide pressure to search out and expose any corruption linked to their accounts — HSBC perhaps more than others after being fingered by Peter Hain in the British parliament for its “possible criminal complicity” in “theft and money laundering” related to the Guptas.

That will have triggered an extremely thorough investigation by the British bank to ensure its books are free from Gupta-related malfeasance. It shut many Gupta accounts in 2017, but digging through detail to identify fingers of the Guptas takes time.

FNB apparently had already been investigating. SA banks are all subject to much the same rules against money laundering as HSBC, but they have the additional burden of protecting against exchange control violations.

Twitter exploded with allegations that Mkhwebane is being targeted by “Stratcom”, “white monopoly capital” and various other epithets du jour.

The reality is far more mundane. The banks are under immense pressure to monitor and report misuse of their systems. Failure can lead to direct monetary penalties, such as the R500,000 fine dished out to small bank Sasfin last week by the Reserve Bank for “noncompliance with certain provisions of the Financial Intelligence Centre Act” because it didn’t have as robust a monitoring system as the Bank would like. But the bigger risk is reputational, as HSBC has amply demonstrated through its links to the Guptas.

More interesting is that this information is emerging at all. Client bank account details are usually sacrosanct. SA’s banks have been frustrated in not being able to respond to allegations against them linked to the state capture era. There is an imbalance: while disaffected clients can rail against the banks in public, the banks cannot fully respond without violating strict confidentiality provisions. So when the banks were being beaten up by the Guptas and assorted Zuma-aligned political figures for closing accounts at the height of state capture, they largely had to grin and bear it, unable to say what they really knew.

With some exceptions. SA’s constitution sets the ground for a balance of rights. If banks are aware of some great harm to the public interest, it would be illegal for them to hold that to their chests on the grounds of a client’s right to secrecy. This point was driven home when Bank of Baroda, near the end of the SA branch’s Gupta-related implosion in early 2018, agreed to share the bank account details of the Guptas with the Helen Suzman Foundation and Freedom Under Law.

Its lawyers acceded to the request saying, “Our client [Baroda] is of the view that the requested records would reveal evidence of a substantial contravention of, or failure to comply with, the law.” While that was never tested in court, it provided an interesting lesson for the banking industry: sometimes you should tell the public what your clients are up to if it is of sufficient import to the public interest.

I don’t know who has been leaking information about the public protector but if it is indeed coming from the banks (and it needn’t be — regulators, accountants, lawyers and others could also be sources), they may be doing it on the view that the public interest demands it.

Of course, it could also be all made up, and the public protector has rejected “with contempt” the claim that “she was flagged” by HSBC and has “absolutely no links with the Guptas”.

Of course, the banks should never be in a position of having to consider giving such sensitive information to journalists. They are compelled to report all suspicious transactions to the Financial Intelligence Centre. That entity can then flag suspicious transactions to the investigating authorities. Those should then investigate and pursue criminal convictions if appropriate. But the links along that chain are broken. They are also broken on exchange control violations — the Reserve Bank said it referred 110 cases to law enforcement authorities in six months of 2017, with not a single conviction resulting.

All this also serves to highlight why the state capture faction have it in for the Reserve Bank. The formal banking system, and the rules that govern it, are an insurmountable obstacle. They need a bank of their own (as the Guptas tried to achieve by buying Habib Overseas Bank) and the reporting and investigating aspect of banking shut down. Reserve Bank nationalisation is the thin end of the wedge.

• Theobald is chairman of Intellidex.

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