How Bank of Baroda’s misadventures dragged it into SA’s political crisis

0
378
This article was first published in the Hindustan Times.In June 2017, an anodyne footnote to the Bank of Baroda’s (BoB) quarterly results mentioned a fine levied by the South African Reserve Bank (SARB), headquartered in Pretoria.The sum — Rs 5.45 crore (R11 million) — was insignificant for an institution the size of BoB. No further details were given; the penalty passed unnoticed in India.But in South Africa, the SARB’s actions suggested BoB’s involvement in the “State Capture” scandal: an avalanche of allegations that President Jacob Zuma was under the sway of three brothers from Saharanpur, Uttar Pradesh — Ajay, Atul, and Rajesh Gupta, collectively known as “The Guptas”.

As the scandal continues to unfold, BoB’s role as the Gupta family’s banker of choice for their most controversial deals, has attracted increasing attention from South African regulators, investigators and the press.

A joint investigation of thousands of pages of court documents, bank records, SARB records, internal Gupta company correspondence, and interviews with bank officials, by Hindustan Times, South Africa’s amaBhungane Centre for Investigative Journalism, Finance Uncovered and the Daily Maverick’s Scorpio unit, reveals a laundry list of potential violations, and a seeming disregard for banking ethics and regulations by BoB executives.

An example: As early as 2010, BoB financed the purchase of a luxurious house that was bought in the name of President Jacob Zuma’s fourth wife, but paid for by the Guptas through BoB accounts operated by secretive trusts.

READ: Bank of Baroda ordered to keep Gupta accounts open for now

And as late as November 2016, an investigation into the Guptas’ controversial purchase of a coal mine by the South Africa’s Public Protector, a constitutional public ombudsman, found that “the conduct of the Bank of Baroda appears highly suspicious” in the bank’s role in underwriting the deal.

BoB stood by the Guptas as four major South African banks shut their bank accounts in 2016 on the grounds that anti-money laundering laws made it too risky to do business with the family. While BoB executives say they began to “exit” their relationship with the Guptas in July 2016, the bank sent out account termination notices a full year later in July 2017.

The Guptas took the bank to court.

At the time of going to press, BoB was stuck with the accounts of at least 35 Gupta companies according to the most recent court disclosures.

What follows is an inside account of how a culture of wilful blindness in BoB’s South Africa operations exposed India’s second largest bank to a damaging investigation in a foreign jurisdiction.

Bank executives sought personal favours from the Guptas and enjoyed their hospitality, emails show, while the family used BoB accounts to funnel millions through an international network of secretive companies and trusts.

Personal favours aside, the systemic shortcomings identified by the SARB audit lead back to BoB’s compliance department in Mumbai, raising questions about the bank’s operations in India and across the world.

South African investigators now are probing if the money in these accounts included kickbacks for prominent politicians for awarding dodgy government contracts to the Guptas.

In October 2017, the Financial Times reported that American authorities had begun probing the Gupta family as some of these transactions were in US dollars, raising questions of how much BoB knew, and what action, if any, the bank took?

Today, as the Indian government prepares to pump Rs 88 100 crore into the country’s ailing public sector banks, of which BoB will get Rs 5 307 crore, the bank’s actions in South Africa offer a sobering glimpse of how some of India’s biggest banks may be doing business.

When HT sent BoB a detailed questionnaire, the bank arranged two interviews with CEO PS Jayakumar, only to cancel both meetings without explanation at the last minute. BoB has not responded to repeated requests for comment on the events described below.

HT also wrote to the Gupta brothers, their family lawyer, and the South African High Commission in India, but did not receive a response.

A House for Mrs Zuma

On June 29, 2010, Bank of Baroda signed off on a mortgage of R3 840 000 (approximately Rs 2 crore at current exchange rates) for a residential property in Waterkloof Ridge, a leafy suburban neighbourhood with some of the most expensive real estate in Pretoria. The loan, mortgage documents reviewed by HT reveal, was to be repaid in monthly instalments of R79 715.

It was unusual for BoB to offer this home loan in South Africa, as the bank did not offer retail banking services and its primary products in the country were fixed deposits, trade credit and overdraft facilities. Stranger still was that the loan was granted to Sinqumo Trust, whose primary trustee was Bongekile Gloria Ngema Zuma, the fourth wife of Jacob Zuma, the President of South Africa.

Sinqumo’s other trustee was Duduzane Zuma, President Zuma’s son from a previous marriage. “Sinqumo”, is the name of President Zuma’s son with Ngema Zuma.

The documentation included a declaration by Ngema Zuma, under South Africa’s Financial Intelligence Centre Act of 2001, that the loan was to finance the purchase of the house, and the money used to repay the loan was her own.

Yet transaction details and emails reviewed by HT suggest that the loan was repaid by the Guptas by routing regular payments to Sinqumo’s BoB accounts via an entity called Mabengela Investments, a trust controlled by Duduzane Zuma and Rajesh “Tony” Gupta.

An email by Ugeshni Naidu, an accounts officer for the Guptas, shows how this worked: In a mail dated February 8 2012, Naidu lists a cascading array of transactions in which a large sum of money is moved between three Gupta fronts before R65 000 is transferred to Mabengela, and then from Mabengela to Sinqumo’s BoB current account, and from the current account to the BoB’s mortgage account.

HT found 17 such emails, including one in September 2013, in which a lump-sum of R535 000 was transferred from Mabengela to Sinqumo.

These transactions correspond to what money laundering experts call ‘structuring’, where large sums are broken into smaller transactions to evade detection, ‘layering’, in which the money moves through multiple companies to remove links to its source, and ‘integration’, where layered funds are gathered in a seemingly innocuous investment – like buying a house.

“By this stage it is practically impossible to trace the funds to its originator or illicit origins except as ‘disproportionate assets’,” said M Nanda Kumar, a London-based anti-money laundering specialist, who declined to comment on specific Gupta transactions.

BoB internal documentation, viewed by HT, lists Sinqumo as a Gupta affiliated entity, indicating that the bank knew the Guptas, the Zumas, and Sinqumo Trust were connected, and of the complications this posed, yet went ahead with the loan anyway.

Indian, South African, and international banking laws require banks to identify Politically Exposed Persons (PEPs) like Ngeme Zuma — and flag suspicious transactions within 15 days. BoB labelled Sinqumo Trust as PEP only in 2015, five years after giving the loan.

“A loan to a President’s wife, in a foreign country, serviced by a private company, is an immediate red flag,” said Hemindra Hazari, an independent banking analyst, “As an Indian, government-owned bank, Bank of Baroda should not have touched this loan.”

A former BoB official put it more bluntly: “Imagine a purchase of a house for the wife of a prominent Indian politician, involving Chinese businessmen and a loan from a Chinese state-owned bank,” the official said. “How would that look?”

The purchase of Mrs Zuma’s house is not the only controversial Gupta deal underwritten by Bank of Baroda. The bank underwrote progressively riskier Gupta deals until it caught the attention of South African regulators.

Indians with a Business Plan

Bank of Baroda’s Africa connections date back to 1953, when the bank opened its first foreign branches in Mombasa and Kampala to cater to traders from the Gujarati diaspora.

The bank opened shop in South Africa in 1997 in Durban, another diaspora hub, followed by Johannesburg in 2007. Ajay, Atul and Rajesh Gupta moved from Saharanpur, Uttar Pradesh, to South Africa in the mid 1990s, and opened their first South African BoB account in 2005, court documents show.

Over two decades starting in the 1990s, the brothers used their business acumen and political connections to build an empire spanning everything from computer peripherals to uranium mining, and lucrative government contracts.

“Our international operations go where the Indian diaspora goes,” said a BoB executive seeking anonymity, “So when the Guptas came to us, we just saw them as Indians with a business plan.”

Over the next decade, the client-banker relationship would deepen to the point where senior bank executives tasked with monitoring Gupta accounts were instead asking for personal favours from their riskiest client.

Visas, Internships, Hotel Rooms

On January 30, 2013, Ashu Chawla, a key Gupta aide, sent an email to Jack Monedi, Chief Director of Permits at South Africa’s Department of Home Affairs, requesting him to expedite the renewal of the work permit of Ramesh Salian, a senior manager at the Johannesburg Branch, who oversaw the Gupta loan accounts.

The trailing mails contained a long-running correspondence between Salian, from his official BoB email address, and Monedi’s department, regarding a waiver of certain technical requirements for Salian’s visa.

Chawla’s mail to Monedi was direct:

“Dear Sir,

As discussed, I request you to sign the below waiver tomorrow. Thanks

Ashu”

Salian got the waiver on February 22, 2013, and a new work permit, signed by Monedi, soon after.

Two years later, in July 2014, Salian sent another email from his official BoB email account to the Guptas — this time to get a study permit for his daughter to pursue a degree in South Africa.

Salian wasn’t the only BoB official requesting Gupta favours.

On February 17, 2014, Salian’s superior, Sanjiv Gupta, wrote a one-line mail from a personal Yahoo account to Chawla, “Please find enclosed herewith CV of my son for internship at T systems from 15.05.2014 to 15.07.2014.”

Chawla forwarded the email right away to his boss Rajesh “Tony” Gupta, saying “This is the CV I received for BoB Chief Manager son; please advise how to go further.”

On February 26, Sanjiv, the BoB manager wrote to Evan Tak, a Gupta employee, saying, “Archit Gupta will be available for internship from 15th May to 15th July. He plans to travel from 10th May to 19th July.”

Tak wrote back a week later with a return ticket on Emirates in Archit’s name: Delhi to Johannesburg on May 10, 2014, with a return two months later on July 19, 2014.

BoB’s chief executive for South Africa, Murari Lal Sharma’s name appears in a hotel bill for at Taj Palace Hotel in New Delhi, dated July 24, 2015, for two nights in Room 872 as a guest of Rajesh Gupta. Other guests on the same bill include Duduzane Zuma — President Zuma’s son, and co-owner of the house that BoB provided the mortgage for.

Murari Lal Sharma, is now a General Manager at BoB’s corporate office in Mumbai, where he heads the asset recovery division.

If these allegations were proved true, Hazari the analyst said, “It would appear that BoB’s senior management was asleep at the wheel, while executives at Johannesburg were complicit.”

Who are ‘The Guptas of South Africa’?

How three brothers from Saharanpur built an empire in South Africa.When Ashish Gupta first arrived in South Africa in the early 1990s, Nelson Mandela had just been released after 27 years in captivity, the apartheid regime had ended, and the country’s first democratic elections were around the corner.

In Saharanpur, where Ashish grew up with his brothers Atul and Rajesh alias “Tony”, their father ran a small trading business. In South Africa, the brothers set up Sahara Computers to import computers and peripherals.

Over the next quarter of the century, their company would grow into South Africa’s most influential business empire with interests in uranium and coal mines, real estate, media companies, scrap metals, and lucrative government procurement contracts.

The brothers’ outsized influence in South Africa was laid bare in 2013 when a plane-load of Indian businessmen and politicians, bound for the wedding of their neice Vega Gupta, landed at a South African Air Force base and drove to the wedding under military escort.

In the brouhaha that followed, it emerged that the brothers shared a close relationship with President Jacob Zuma, to the extent that President Zuma’s son Duduzane was a director in many Gupta companies.

Matters reached a head in the “State Capture” scandal of 2015 when prominent members of President Zuma’s cabinet alleged that the Guptas were behind key decisions taken by the presidency.

In India, the brothers have flown mostly under the radar except in Saharanpur where they are financing the construction of “Shivdham” — a sprawling 8-acre temple complex — that was inaugurated in 2014 in the presence of Baba Ramdev.

Dodgy deposits

The Guptas gradually came to account for a disproportionate share of BoB’s South Africa business, to the point that it posed a risk to the bank.

“When we go into a foreign country, we don’t do loans where only one party accounts for 40% of our book,” said another BoB executive, speaking off record. “We don’t involve ourselves with risky clients. We don’t do business we don’t understand.”

But in South Africa, it seems BoB did.

Email records suggest that the bank’s exposure to the Guptas was even higher than what was reflected on the books.

In 2011-12, BoB offered a R16 million (Rs 8.2 crore million at current exchange rates) loan overdraft facility to Everest Global Metals, a company controlled by Piyoosh Goyal – an Indian businessman accused by the CBI of allegedly bribing a senior State Bank of India executive to enhance a 250-core loan facility in November 2013.

A CBI spokesperson said a chargesheet has since been filed.

Everest Global Metals is not a known Gupta company; BoB court documents listing all Gupta-related accounts held by the bank make no mention of Everest. Yet, much like Zuma’s house, the Guptas made the monthly interest payments on Everest’s BoB loan.

Emails reveal BoB would send Everest a monthly statement on the loan, which Everest would forward to the Guptas. The money would then be wired from JIC — a Gupta company — to Everest, who would settle accounts with the BoB.

This circular lending, three bankers interviewed by HT said, is a not uncommon, but illegal, practice to surreptitiously give new loans to a favoured client who already owes the bank too much money.

“You want to give someone a loan, but you can’t because you are already over-exposed to them,” said a risk officer with a European bank who asked not to be identified. “So, you give the loan to a front company instead.”

In this case, the fronting was so transparent that when Everest missed a payment on November 13 2012, Salian, the BoB manager, wrote directly to Ronica Ragavan, a director of several Gupta companies, to say, “Good Day, we are yet to receive credit for interest charged on M/S Everest Global Pty Ltd for the month of October 12.”


From Saharanpur to Johannesburg

1993: 25-year-old Atul Gupta comes to Johannesburg to seek his fortune just as South Africa’s apartheid regime is crumbling. His brothers soon join him.

1997: Bank of Baroda (BoB) opens its first branch in South Africa in Durban.

2003: South Africa passes the Black Economic Empowerment Act to push non-white ownership of companies. As naturalised South Africans, the Guptas use these deals to build their empire

2005: Guptas open their first account with BoBs Durban branch.

2007: BoB opens a second branch in Johannesburg.

2009: Jacob Zuma becomes president of South Africa.

2010: BoB gives a loan to Bongekile Gloria Ngema Zuma, President Zuma’s wife, to buy a house. The loan is repaid by the Guptas.

2011: Gupta-BoB relations deepen. Bankers ask for personal favours while BoB assists in transactions now being probed by South African authorities.

2013: Guptas burst into public view with the wedding of their niece Vega Gupta. Guests are flown into an Air Force base and given a military escort, prompting an inquiry.

2015: President Zuma fires his finance minister prompting a media scandal that the Guptas have allegedly “captured” the presidency.

2016 April: BoB underwrites the Gupta’s controversial purchase of the Optimum Coal Mine.

2016 May: BoB opens last Gupta account.

2016 June: South African banks shut Gupta accounts. BoB is the Gupta’s sole bank in S. Africa.

2016 November: Public protector calls BoB’s role in OCM purchase “highly suspicious”.

2017 July: BoB formally decides to close Gupta accounts. Guptas take the bank to court to keep accounts open.

2017 June: SARB sanctions BoB ZAR 11 million, approximately Rs 5.45 crore.

January 2018: BoB and the Guptas remain stuck in litigation.


Politically Exposed Bank

On December 9, 2015, President Jacob Zuma fired his well-regarded finance minister Nhlanhla Nene. The move spooked investors and prompted intense speculation that Nene had been removed at the behest of the Guptas.

The media outcry was so intense that even the normally placid BoB was moved to act. On December 13, BoB senior manager in Johannesburg, Gurbax Singh sent a note to his superiors recommending that 35 accounts held by the Guptas and Gupta affiliated companies at the Johannesburg branch be designated “Politically Exposed Person” accounts “which pose a high money laundering risk to the bank because of their position of influence.”

Included in the list was Sinqumo Trust, the entity used by the President’s wife to buy her house, and Mabengala Investments, the company used by Tony Gupta and Duduzane Zuma to pay for the house.

“Banks must conduct extra scrutiny of PEP accounts as laundering risk is high,” said a retired official of the Reserve Bank of India, questioning why the bank didn’t flag the accounts as politically exposed earlier, when they knew the President’s family was involved. “Why did they wait till 2015?”

Sanjiv Gupta, the chief executive who had asked the Guptas for an internship for his son, signed off on the note, saying the accounts could be kept open on the condition of “enhanced due diligence” and that “transactions must be monitored.”

READ: SARB probes Bank of Baroda over Guptas – source

BoB opened eight fresh accounts for the Guptas from January to May 2016. Meanwhile, South Africa’s biggest banks severed their ties with the family citing money laundering concerns.

On June 1, 2016, Standard Chartered Bank faxed a letter to the Guptas’ lawyers explaining they were shutting accounts as continuing business with the family would expose them to “an unacceptable level” of risk of prosecution under local and international anti-corruption laws.

A year would pass before BoB’s head of international banking would formally write to the Guptas to terminate their account on July 1, 2017. By then BoB had already concluded its most controversial deal, which would lead to an audit and penalty from South Africa’s Reserve Bank.

Optimum Coal Mine

Like the mortgage for Mrs Zuma’s house, the first question haunting the Guptas’ controversial purchase of the Optimum coal mine is why such a complex deal was structured by BoB’s tiny, understaffed office of 16 employees rather than its South African competitors with many thousand employees on their rolls.

In 2015, Optimum Coal Holdings (OCH) — a subsidiary of global mining and commodity giant, Glencore – was bankrupt. The company was saddled with millions of rand worth of debt, and a looming penalty from its principal customer, Eskom – South Africa’s state-run electricity utility.

In September that year, the Guptas offered to buy the company. On December 10, 2015, Glencore agreed to sell for R2.15 billion.

Bankruptcy resolution professional Piers Marsden said the deal was concluded on the understanding that the Guptas had the money to buy OCH.

“We were given a letter of comfort from their bankers that they did have the funds available to conclude the transaction,” Marsden said in a sworn testimony to Parliament. “We relied on that letter for concluding the transaction.”

But on April 11, 2016, 10 days after BoB’s letter of comfort expired, Nazeem Howa, a Gupta aide, approached Marsden to say the Guptas were R586 million short of the agreed price and asked if OCH’s lender consortium would finance the shortfall to ensure the deal went through.

The consortium declined, but the Guptas mysteriously stumped up the cash in three days and bought Optimum. It later emerged that Eskom, the electricity utility, had given the Guptas the same amount of money – R586 million — as a pre-payment for future sales of coal. The Guptas used the money to conclude the sale.

The revelation that South Africa’s state-owned electricity utility had part-financed a Gupta takeover of OCH resulted in a public scandal, and an investigation into the acquisition.

In a parliamentary inquiry into the deal, South African lawmakers expressed bewilderment about the credibility of the BoB’s letter of comfort.

“The Bank of Baroda says we’ve got 2.15 to pay over for the transaction, am I right?” asked Pravin Gordhan, a former finance minister who had clashed with the Guptas. “But just prior to that 585 was the missing amount out of the 2.15.”

Misappropriated Funds

When the Guptas bought OCH, they also became custodians of two mine-rehabilitation trusts called Optimum and Koornfontein, collectively worth R1.75 billion, that they deposited in BoB accounts.

Under South African law, the money in mine-rehabilation trusts is meant to ameliorate the environmental impacts of mining, and cannot be used by the mining company for commercial purposes.

But the Guptas wanted to get at the money locked away in these trusts, so BoB found a way.

BoB documents indicate that in June 2016, the bank used R170 million deposited in the Koornfontein Rehabilitation Trust as collateral to give the Guptas a R150 million loan.

This was a threat to both the bank and the environment.

“If indeed the mine used the Rehab Trust fund as collateral for a business or bank loan, and the mine went into liquidation or bankruptcy, then the bank would attach the rehab fund,” said Stephanie Fick, head of legal affairs for Organisation Undoing Tax Abuse, a South African NGO. “The public will be without the funds required to rehabilitate the environment.”

Alternately, if the bank was legally prevented from seizing the rehabilitation fund, it would not have been able to recover the loan.

“If indeed the BoB were ignorant of the prevailing laws I imagine this would be of great concern to amongst others the shareholders of BoB,” Fick said.

Audit Woes

“As a bank, you never want to be audited by a regulator,” said an anti-money laundering investigator, seeking anonymity as he works with banks and auditors. “Once they go in, they are always going to find something.”

In BoB’s case, the SARB found that the bank’s Financial Crime Risk Manager (FCRM) system, software that automatically flags suspicious transactions, was incorrectly configured. BoB’s FCRM, the audit noted, was run out of a data-centre in India, suggesting the BoB might be struggling to adequately monitor transactions in India as well.

Auditors also found that BoB had not “applied sufficient scrutiny/ care while processing transactions involving loans and fund transfers among entities within the same group” – which accounted for a lion’s share of the bank’s business with the Guptas.

The SARB’s findings were backed up by BoB’s own auditors in the South Africa branch’s 2017 annual report.

“The bank did not maintain a complete record of business relationships,” the auditors wrote.

“Furthermore, documents subsequently submitted by the bank appeared inconsistent with those submitted for audit purposes, thereby raising suspicion.”

When BoB’s acting chief executive in South Africa Manoj Kumar Jha appeared before the South African high court for permission to close Gupta accounts, he noted that the SARB fine “is the most severe sanction that may be imposed before the imposition of a restriction or suspension of the bank’s business.”

Keeping Gupta accounts open, Jha continued, was not feasible as any compliance slip-ups in the future would have prohibitive consequences for the bank’s operations.

The SARB could impose a fresh penalty, Jha said, prompting investigations by every regulator the 26 countries where BoB operates.

“The adage that the currency of every bank is trust is absolutely true,” Jha said. “The international community will lose all trust in the bank.”


Questions for Bank of Baroda

HT made multiple attempts to elicit a response from BoB. The bank responded by arranging two meetings with their CeO P.S. Jayakumar, only to cancel at the last minute. Here are the questions we asked them, edited for brevity. (1 ZAR = Rs 5.32)

South African Reserve Bank penalty

The SARB imposed two penalties on BoB: a R1 million fine for breaching the daily cash limit, and a R10 million fine for non-compliance with section 42 (1) (d) of South Africa’s Financial Intelligence Centre Act, which would enable the Bank to spot and report suspicious transactions.

Why does a bank of BoB’s stature, operating in 25 international jurisdictions, have inadequate anti-money laundering protocols? Has this penalty prompted a review of BoB’s procedures in other jurisdictions?

Loan to wife of South African President Jacob Zuma

On June 29, 2010, BoB extended a loan of R3 840 000 to Bongekile Gloria Ngema Zuma, wife of President Jacob Zuma.

Documents viewed by HT indicate that, despite Ms. Ngema Zuma attesting that the loan would be repaid by her own funds, the loan was in fact paid by a Gupta investment company.

At the time of extending the loan, was the BoB aware that the loan for President Zuma’s house would be repaid by a private company?

If yes, what steps did BoB take to ensure that the loan would not be repaid by laundered funds obtained through corruption? If no, why not?What are the circumstances under which Ms. Zuma became a BoB client?

Is it correct that she was introduced to the bank by the Gupta family?

Bob employees requesting favours

In October 2012, BoB Senior Manager Ramesh Salian’s work permit application was forwarded to Ashu Chawla, a Gupta company director, who sent it further to Jack Monedi, chief director of permits at South Africa’s department of home affairs with a request to expedite Mr Salian’s work permit.

Is it normal practice for BoB to enlist the help of their clients in processing work permits for their employees?

Does Bank of Baroda see any conflict of interest/violation of banking ethics in relying on a client to influence government departments in a foreign country for the bank’s business?

On February 17, 2014, Sanjiv Gupta, chief executive at BoB, South Africa, requested a summer internship for his son Archit at a Gupta company.

Subsequent emails indicate that the Guptas provided a summer internship and also an air ticket for Sanjiv Gupta’s son Archit.

The flight details are: Emirates Flight EK 515, Delhi- Dubai – Johannesburg, departing on May 10, 2014, and a return leg on EK 762 flying Joburg- Delhi on July 19, 2014.

Is it normal practice for BoB employees to request summer internships for their children from their clients, and to accept gifts like air tickets for personal use?

Does BoB see any conflict of interest requesting such favours from clients?

A hotel bill indicates that on from July 22, 2014 to July 24, 2014, BoB’s senior executive and former South Africa chief executive Murari Lal Sharma stayed in the Taj Palace Hotel in New Delhi as a guest of Rajesh Gupta, of the Gupta family, whose accounts were supervised by Mr. Sharma.

Can BoB clarify if Mr. Sharma was availing of the Guptas’ hospitality in his personal or professional capacity?

Does the BoB have any codes of conduct governing accepting gifts and hospitality from clients?

In light of this information, is it a matter of concern that Mr. Sharma is now general manager for asset recovery at BoB in Mumbai?

Lending to Gupta proxies

In 2011-12, BoB extended a R16 million overdraft facility to a South African company called Everest Global Metals Pty Ltd, but the interest payments for Everest’s loan were actually be re-paid by JIC Mining Services — a Gupta company.

Emails between Everest and Gupta company executives confirm that the Guptas were servicing the loan, while an email from an official BoB address, dated November 13 2012, to JIC confirms BoB was aware that Everest’s overdraft was being paid for by JIC.

What was the purpose behind giving the loan to one company, with the understanding that it would be repaid by an unrelated entity?

Was this because the BoB was already over-exposed to Gupta companies, and so decided to give a loan to a shell company with the understanding that the money would be routed to the Guptas?

Politically Exposed Persons / Closure of accounts by other banks

In December 2015, BoB designated 35 Gupta company accounts as belonging to Politically Exposed Persons or PEPs, including Sinqumo Trust — managed by President Zuma’s wife and Mabengala Investments, partly managed by Duduzane Zuma, President Zuma’s son.

Why did BoB wait till 2015 to designate these accounts as PEP, when it was clear from 2010 that these accounts were associated with the highest office in the country?

Documents submitted in court indicate that BoB was aware that major South African banks were shutting Gupta accounts, and auditor KPMG was severing its relationship with the Guptas in June 2016.

Why did it take BoB another 12 months before formally attempting to severe business ties with the Guptas on July 1 2017?

Apart from South Africa, the Guptas also have BoB accounts in Dubai, the US and India. Is the Bank moving to close these accounts as well?

What steps has the bank taken in this regard?

Purchase of Optimum Coal Holdings: December 2015 to May 2016.

On March 4, 2016, BoB offered a letter of comfort indicating that the Guptas had sufficient funds to buy Optimum Coal Holdings (OCH) for R2.15 billion.

According to the sworn testimony of OCH’s bankruptcy practioner, Piers Marsden, the Gupta offer was accepted on the basis of BoB’s letter of comfort, but days before the transaction was concluded, the Guptas did not have the money.

In November 2016, South Africa’s Office of the Public Protector concluded that “the conduct of the BoB appears highly suspicious” in the wording of the letter of comfort.

An audit of BoB found they did not flag 32 different transactions totalling nearly R2 billion.

Can BoB explain why, having designated the Gupta accounts as PEPs, the bank decided to provide a letter of comfort, and structure the purchase of Optimum Coal Holdings by offering three loans (collateralised against fixed deposits)?

One of the pre-requisites of handling PEP accounts is increased compliance monitoring. Can BoB explain why they did not flag suspicious transactions in connection with the Optimum purchase?

Loan against mine rehabilitation trust funds:

On June 6, 2017, BoB granted a loan of R150 million to the Guptas against a collateral of R170 million maintained by the Koornfontein mine rehabilitation trust. But under South African law, a company is merely a custodian of mine rehabilitation trusts and cannot encumber such trusts in any way.

On what basis did BoB accept the fixed deposits of the Koornfontein Mine Rehabilitation Trust as collateral for a loan extended to a Gupta company? Was the bank aware that it could not, by law, seize this deposit if the loan defaulted?

What due diligence did the bank perform before it extended the loan?


BoB’s SA Worries

Indian, South African, and International banking regulations require banks flag suspicious transactions that may relate to money laundering, corruption or financing terrorism.

In South Africa, an audit by the South Africa Reserve Bank found multiple violations by BoB’s South Africa operations in handling the Gupta accounts. Evidence of more violations could affect BoB’s operations in 25 countries.

  • BoB did not flag suspicious transactions now linked to kickbacks for government contracts.
  • BoB helped in the controversial acquisition of a coal mine by the Guptas. This acquisition is now the subject of a parliamentary inquiry in South Africa.
  • BoB allegedly overextended their lending to the Guptas by lending to shell companies backed by Gupta aides
  • The bank underwrote possibly dubious transactions like a home loan for President Zuma’s wife, that was paid for by the Guptas.
  • BoB executives enjoyed Gupta hospitality, and requested Gupta executives for favours such as internships for their children.