Guptas and the banks can now provide a court with details of the 72 suspicious transactions

The decision by Finance Minister Pravin Gordhan to approach a court for a declaration that he was not permitted to intervene in the relationship between various Gupta-owned companies and the banks was surely a tactical move aimed at uncovering some of the financial dealings of the Guptas and the companies they own. The move provides the banks with the legal justification to break their client confidentiality and places pressure on the Guptas and the firms owned by them to explain 72 transactions – which the banks flagged as suspicious – to the appropriate court.

The Financial Intelligence Centre Act (FICA) is a complicated piece of legislation adopted in 2001 to combat money laundering and the financing of terrorist and related activities.

The Act places a duty on anyone who manages a business (which would have included the now suddenly retired CEO of Gupta-owned Oakbay Investments) and on any other institution with knowledge of a business (which would have included those banks who provided banking services to Oakbay Investments) to report certain suspicious transactions to the Financial Intelligence Centre (FIC).

Section 29 of the Act lists a series of transactions which must be reported to FIC. The list of transactions that must be reported relate both to the financing of terrorist and related activities and other suspicious transactions. The latter category includes transactions or series of transactions to which the business is a party that:

• has no apparent business or lawful purpose;
• is conducted for the purpose of avoiding having to report to the Financial Intelligence Centre;
• may be relevant to the investigation of an evasion or attempted evasion of a duty to pay any tax, duty or levy imposed by legislation administered by the Commissioner for the South African Revenue Service; or
• transactions which may show that the business has been used or is about to be used in any way for money laundering purposes.

Section 29 makes clear that the Guptas, businesses like Oakbay Investments and their bankers have a legal duty to report not only suspicious transactions that they know fall into the list above, but also suspicious transactions that they “ought reasonably to have known or suspected” to fall within the list above. Banks will therefore err on the side of caution and will report any transactions to FIC which they suspected to fall into the list of transactions set out above.

Section 31 of the Act also requires banks to alert FIC if one of its clients instructs it to make an electronic transfer in excess of R25 000 out of the country or receives money in excess of R25 000 from abroad.

The papers lodged on Friday by Minister Gordhan as part of his court application do not provide sufficient information about the 72 suspicious transactions reported to FIC by those banks who held accounts for the Guptas and their various businesses to determine whether the banks alerted FIC about these transactions because of concerns that the Guptas and their companies were trying to launder money to hide corruption, theft or fraud, because they were trying to avoid paying tax, because they were trying to move money out of the country, or for some other suspicious purpose.

We do know that the banks reported various suspicious transactions by the Guptas and many of the businesses they own (amounting to almost R7 billion) to FIC because the banks believed that they had a legal duty in terms of section 29 of the Act to do so. We also know that a lawyer for the Gupta-owned companies denied that there was anything wrong with the transactions but this blanket denial was not accompanied by detailed information to back up the denial.

But at this stage it is not clear whether the banks suspected the Guptas and several of their companies of involvement in money laundering, or whether they suspected them of other illegal activity.

It is also not known whether FIC reported any of the suspicious transactions to the Hawks or to the National Director of Public Prosecutions as it is legally empowered to do by section 34 of the Act in cases where it has reasonable grounds to suspect that a transaction or a proposed transaction constituted money laundering.

If some or all of the transactions were reported to FIC because of fears that it formed part of a money laundering scheme by the Guptas and their companies, it would raise questions about whether the Guptas are being investigated by the Hawks and if they are not being investigated, why the Hawks are not pursuing the matter.

Recall that money laundering is defined as an activity which has or is likely to have the effect of concealing or disguising the nature, source, location, disposition or movement of the proceeds of unlawful activities or any interest which anyone has in such proceeds.

It usually occurs when individuals try to hide the facts that money in their possession was obtained from criminal activity like corruption, fraud or theft. Money launderers “launder” the money obtained from crime by moving it from one bank account through various other banks accounts to the recipient to try and conceal the fact that the source of the money was some or other criminal activity.

When various businesses owned by the same family start moving around large sums of money between these businesses or between bank accounts without any obvious purpose, it would immediately raise questions about whether this is being done to launder money.

This often occurs when a person or entity is trying to avoid prosecution for the original criminal offence (which may include fraud and corruption) and to hide the fact that an individual or entity is benefiting from such fraud or corruption.

As noted above, there is not sufficient evidence in the public domain to make any credible assessment about whether the Guptas and their companies have been involved in activities which could amount to money laundering.

But some facts are now in the public domain which otherwise would never have seen the light of day. South Africans may never have heard about the almost R7 billion of suspicious transactions concluded by the Guptas and various of their companies over the past few years. Had the Minister of Finance not lodged his court application late last week this information would have remained secret.

This is because the Financial Intelligence Centre Act prohibits anyone from disclosing confidential information held by or obtained from the FIC except in defined situations which include “for the purpose of legal proceedings, including any proceedings before a judge in chambers”. Thus section 41 of the Act states that:

No person may disclose confidential information held by or obtained from the Centre except (a) within the scope of that person’s powers and duties in terms of any legislation; (b) for the purpose of carrying out the provisions of this Act; (c) with the permission of the Centre; (d) for the purpose of legal proceedings, including any proceedings before a judge in chambers; or (e) in terms of an order of court.

This is one reason why the banks would have refused to provide the so called ministerial task team with any reasons for the closure of the Oakbay bank accounts. The task team (which practically appears to have consisted only of Mineral Resources Minister Mosebenzi Zwane) were appointed by cabinet to approach the banks about their decision to cut ties with Oakbay Investments.

The cabinet might not have been aware when it asked the ministerial task team to approach the banks for an explanation of why they closed the Oakbay accounts, that it was mandating the task team to request the banks to commit a criminal offence in terms of section 60 of the Financial Intelligence Centre Act. This section prohibits the banks (and anyone else) from disclosing confidential information held by or obtained from FIC except under the prescribed circumstances listed in section 41 of the Act.

The Guptas themselves could of course have approached a court of law to challenge the decision by the banks to close their accounts. While case law suggest that such an application would not have been successful, it would have forced the banks and FIC to provide reasons why the 72 transactions by some of the Gupta brothers and by some of their companies were flagged as suspicious.

Whether this failure to approach a court was the result of an ignorance of the relevant legal provisions of FICA or because the Guptas were reluctant to ventilate the matter in open court because it did not want the banks to make public the reasons for the closure of the accounts, is not clear.

But this reluctance of the Guptas to approach a court has now become irrelevant after the Minister of Finance decided to do so instead.

The court application by the Minister – which is, quite frankly, legally unnecessary as the Minister already knows that he is not allowed to intervene in the dispute between the banks and Gupta-owned companies – was probably launched exactly to allow the banks to break their silence and to force the Guptas and their companies to explain the nature of the 72 suspicious transactions flagged by the banks.

The Guptas, through their lawyer, have welcomed the court application by Minister Gordhan claiming it will allow the Guptas to clear their name. If this is correct, it will allow the banks to provide the court with details of the 72 suspicious transactions and with reasons why they believed these transactions were suspicious. The Guptas will then be required to provide explanations of the suspicious transactions to try and explain why the 72 transactions are all above board.

It is only after all sides have submitted all the evidence they have about the 72 suspicious transactions by the Guptas and some of their companies to the court, that a clearer picture will emerge. It is only then that we will have some indication of whether the Guptas should be investigated and perhaps prosecuted for corruption, fraud, theft or money laundering, or whether the banks all made a terrible mistake.

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