The recent cabinet reshuffle was a clear attempt to remove obstacles from the path of those individuals who seek to profit from the state. South Africans are increasingly concerned that a culture of impunity is eroding hard-won gains in the form of democratic state institutions. Recent revelations from Russia reveal the extent of looting possible when institutions of accountability for both the public and private sector are disabled.
This has been laid bare following an investigation by the Organised Crime and Corruption Reporting Network — dubbed the #GlobalLaundromat. It reveals that prominent oligarchs in Russia, many with suspected links to Russian intelligence, organised crime and the Kremlin, have shifted at least R260bn offshore in a complex money-laundering system. Using several shell companies (most registered in the UK), fake loans and bribery of judges and other officials, money has been looted from Russia and siphoned off to cities such as London, New York and Dubai, to be splurged on luxuries for the superwealthy.
This would not be possible without the financial services provided by the world’s largest banks. In fact, a staggering 732 banks in 96 countries had accounts that received or transferred money as part of this "laundromat". Some banks, such as HSBC and the Bank of China, each handled between R5bn and R10bn of this money. The banks’ defence is often that these transactions have "slipped through the cracks" and that better controls are needed. However, the track record of these financial giants suggests that it is more a case that ethical compromises are made for the sake of profit.
In this case, investigators noted that much of the money was "obviously criminal in origin". So why did big banks that should know better facilitate its movement? Perhaps, it is because strict compliance with anti-money-laundering controls is seen as a cost with very little financial return.
The Russian example will resonate with South Africans, not only because the government looks set to conclude a R1-trillion nuclear deal with that country. The Global Laundromat reveals a network of superwealthy individuals using their proximity to political power to engage in looting. These individuals require eroded and toothless institutions, and a lack of regulatory oversight, to succeed. They also require a financial system that will move and receive money without asking questions.
These are factors that we are grappling with in SA today as the government flirts with growing state securitisation straight from the Russian playbook. In addition, there is a fierce battle within the state and the ANC regarding attempts by individuals to capture institutions to enrich themselves through their political connections. The recent cabinet reshuffle and subsequent political and economic upheaval have confirmed that the president listens less to his party or people than he does to outsiders when making such decisions.
It is no surprise that a primary battleground in the "state capture" saga has been the banks that closed accounts of Gupta-linked companies. Those banks allege that severe pressure was placed on them by senior politicians to reopen these accounts. AmaBhungane’s 2016 investigation revealed how Gupta-linked companies used a similar system of letterbox companies and a web of bank accounts to take dubiously acquired cash offshore to Hong Kong. The use of the financial system is key to those who engage in shadowy business and want to guard the proceeds.
However, while some have painted the banks as some sort of bulwark against the Gupta cabal, some of these same banks were exposed earlier in 2017 as having been engaged in their own malfeasance. In February, the Competition Commission announced that it had found that 18 South African and international banks engaged in collusive behaviour over a period of six years at least, manipulating the rand-dollar exchange rate.
This was not simply a lack of adequate internal controls but a willing and eager engagement by currency traders at those banks to engage in collusion for profit. If true, this was done at the expense of other businesses as well as institutional investors such as pension funds. While the executives at these institutions may plead ignorance, such systemic long-term conduct surely demands accountability from senior management.
The notable difference in the South African case that is clearly absent in Russia was the presence of an effective and independent regulatory institution, the Competition Commission. The case has been aided by three whistle-blower banks — Absa, Citibank and Barclays. They agreed to provide information on the collusion in return for lenience from the commission. The presence of independent regulatory authorities with the ability to impose fines was thus an essential tool in the fight against financial malfeasance.
The Treasury’s commitment to introduce a market conduct regulator to challenge reckless and unlawful behaviour in the financial sector should also be welcomed. A dedicated regulator of this nature would allow for greater scrutiny of the conduct of financial institutions and their role in facilitating criminality.
Such institutions, also the target of "capture", are essential for accountability. The erosion of independence at institutions such as the National Prosecuting Authority and the Hawks has evidently dealt a blow to accountability elsewhere in the state. Ousted finance minister Pravin Gordhan has highlighted the danger of institutions directing their energies towards "criminalising honest people" instead of pursuing those engaged in criminal behaviour.
We are fighting a deepening accountability deficit in SA. We also often feel besieged by scandal and it is tempting to focus on the problems plaguing the state and turn a blind eye to the private sector. Yet the lesson from Russia is that the looting of a state is achieved through the collusion of private sector interests with state functionaries. Behind many daily injustices is a bank willing to look the other way to facilitate a dodgy deal, harbour illicit gains or engage in collusion.
It’s also a reminder that while the country mobilises in opposition to a president, it is equally important to mobilise in support of institutions of accountability. From the Competition Commission to the National Prosecuting Authority, we need these institutions to be independent and have the teeth to ensure that both the public and private sectors are held to account. These are the real safeguards against the looting of SA’s wealth. In the months and years ahead, we will need citizens on the streets to defend these democratic institutions.
• Marchant is a researcher at Open Secrets
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