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Nedbank: Were they enablers of the state capture fiasco, or just mere bystanders?

Photographer: Lubabalo Poswa/African News Agency (ANA)

Photographer: Lubabalo Poswa/African News Agency (ANA)

Published Jan 17, 2022

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By Corrie Kruger

SOME YEARS ago, a senior broker at the Johannesburg Stock Exchange (JSE), informed me that his company had very strict moral and ethical rules of engagement with clients, however, if the client did not like them … they had others too.

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From the revelations made at the Zondo commission, could it be that one of South Africa’s big five banking institutions, Nedbank, have a similar philosophy?

Acting Chief Justice Raymond Zondo, chairperson of the commission, in his report into state capture, states: “The support of the people of South Africa has kept all of us going in the commission.” Having witnessed the hearing over a period, and having a full realisation of the consequences of the theft from the poor that State capture engendered, the people of the country are now calling for action on the recovery of the loot.

The commission and the subsequent report recently handed to President Cyril Ramaphosa, reveal that corruption has been like a cancer that has metastasised.

Aside from the State itself, the commission had some harsh words to say about the role private companies, auditors, and banks have played in the endemic corruption, the decimation of the economy and breakdown in trust between the State and its electorate.

The report, for example, wants Nedbank and its employees probed for their alleged role in a “corrupt” contract involving Airports Company SA and the Gupta-linked Regiments Capital.

The prosecuting authority announced its intention to bring charges of fraud, corruption and money laundering against Regiments and its owners.

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However, they were unsuccessful in their attempt to obtain a restraint order of more than R1 billion of Regiments Capital assets. The case is now on appeal, with some of the most senior advocates in the legal fraternity called in to argue the case.

Lord Peter Hain, a British politician, former Labour minister and anti-apartheid campaigner, brought global attention to state capture in South Africa in 2017.

He said that he feared for his life when he revealed global banks’ complicity in the Gupta corruption. Hain detailed how global banks helped the Gupta family move up to R7.9bn to overseas banks.

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Hain has suggested the bankers in question are as culpable in law for ignoring or even facilitating suspicious transactions, as the looters are for their criminal actions.

Certainly, those auditors and accountants, lawyers and consultants who participated in, facilitated or turned a blind eye to the corrupt activities, should also be sued for damages. Also for aiding and abetting the politically exposed persons, who are usually implicated in the looting.

Unfortunately, as most of them are insured, success in court translates into payment, not empty judgments.

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Banking institutions implicated in shady dealings are not a new phenomenon. Just look at the global financial collapse of 2008, although they seem to get away with it with impunity and with very few consequences – even receiving bailouts.

The Zondo commission, however, is strongly recommending that South Africa’s law enforcement agencies investigate the role of the dealers involved at Nedbank, Mr Brickman and Mr Visnenza, and also Nedbank itself, in relation to the contracts in question.

If law enforcement finds reasons, which it seems that they might, then Justice Zondo recommends that the National Prosecuting Authority (NPA) prosecute Brickman, Visnenza and/or Nedbank on charges under section 6(b) (ii) of the Prevention and Combating of Corrupt Activities Act.

Additionally, the commission’s report suggests that the Asset Forfeiture Unit should attempt to recover Nedbank’s profits under the interest swop contracts, also under Chapter 5 or 6 of the Prevention of Organised Crime Act, unless Nedbank has a valid defence to such recovery claims.

The Zondo report specifies two individuals at Nedbank, but on further investigation, it might well be more appropriate that the entire credit committee should answer to the NPA.

Deals of this nature are not authorised by a single dealer. One would imagine that the credit committee, and perhaps also the risk and compliance committee should give their versions.

The minutes of the meetings of these various committees should reveal much of what measures were taken to ensure there is no reputational risk for the bank. The public, whose money the bank supposedly safeguards, has the right to know how it is possible for Nedbank to become bedfellows with the likes of Regiments and the Bank of Baroda, for example.

In an article in Corruption Watch in March 2018, they published: “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 that 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.”

In June 2017, the Independent Regulatory Board for Auditors issued a rule prescribing auditors of public interest entities in South Africa, must comply with mandatory audit firm rotation with effect from April 1, 2023.

Deloitte Touche Tohmatsu Limited (Deloitte), has been the auditor of the Nedbank Group for 47 years.

Ernst Young has been the auditor of Nedbank Group Limited for two years. Perhaps the time has come for a rotation of auditors?

Banks are regulated by the Prudential Authority. As such, the people of South Africa would like to know what, if any, investigations the regulator has undertaken in relation to the banks’ involvement in facilitating state capture.

The regulator could start by having a look at the margins charged on the swop transactions and compare them with the going market-related margins.

In financial circles, we all know that every yield tells a story. If margins are too good to be true … they generally are. That being the case, it is important to take a closer look at how Nedbank applies its “Know Your Customer” (KYC) methodology/ regulation.

KYC procedures are a critical function to assess customer risk and a legal requirement to comply with antimoney laundering laws.

Effective KYC involves knowing a customer’s identity, their financial activities, and the risk they pose. KYC is a fundamental practice to protect your organisation from fraud and losses, resulting from illegal funds and transactions.

Could the alleged large margins charged be the result of Nedbank having foreseen the reputational risk relating to these clients?

The primary KYC step required for the bank to understand the nature of the customer’s activities is to satisfy that the source of the customer’s funds is legitimate.

Nedbank denies any wrongdoing and is not prepared to acknowledge that they had erred in this instance.

The coming months will be closely watched by a public who have become increasingly impatient with widespread state capture and its enablers.

In this instance, given their role in protecting and growing people’s hard-earned money, full transparency and disclosure from Nedbank, and their role in relation to the matters raised at the Zondo commission, is an imperative. Same too, for all other financial institutions.

Corrie Kruger is an independent analyst.

*The views expressed here are not necessarily those of IOL or of title sites.

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