FIC fines Bank of Baroda for flouting anti-corruption laws

The Bank of Baroda South Africa (BOB) flouted a range of anti-corruption and money laundering laws to help the Gupta family buy the controversial Optimum Coal mine in March last year.

This was revealed in documents compiled by auditing group Deloitte following an in-depth investigation into a range of deposits from various parties into the Gupta-owned Tegata bank account at the BOB, which ultimately saw the family acquire the Optimum coal mine for R2.15 billion.

Deloitte was appointed by the Reserve Bank to conduct the investigation shortly after the Public Protector released the State of Capture report in October last year. The report, among other damning allegations, detailed a range of dubious transactions in which more than R2 billion flowed into Tegeta’s BOB bank accounts.

Deloitte found that the BOB has contravened several provisions in the Financial Intelligence Centre (FIC) Act related to the bank’s lack of verification of the identities and source of funds of the deposits.

Subsequently, the FIC has levied a R11 million fine.

Apart from the Deloitte report, BOB’s auditor Nexia SAB&T also identified several transgressions and stated in its audit report for the BOB’s latest financial year that it has reported several Reportable Irregularities (RI) to the Independent Regulatory Board for Auditors (Irba) related to the Optimum transaction.

It also appeared as if the BOB was less than cooperative and forthcoming with information during both the Deloitte investigation and the Nexia SAB&T audit. The auditor even went so far as to suggest that the BOB submitted fraudulent documents during various phases of the audit process.

The dash for cash

From the State of Capture report, as well as the Deloitte and Nexia documents in Moneyweb’s possession, it became clear how the Gupta family scrambled to raise the necessary funds to acquire the Optimum mine.

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In terms of the purchase sale agreement signed between Tegeta and the Business Rescue Practitioners (BRPs) of Optimum, the sale was supposed to have been completed by the end of March 2016.

As described in the State of Capture report, Tegeta approached the BRPs on April 11 and advised that they were R600 million short. So Eskom came to their rescue. At an emergency late-night board meeting on April 11 2016, the Eskom board approved the payment of R586.7 million to Tegeta under the guise of “pre-funded coal sales”. The amount was transferred to Tegeta’s FNB account the following day. A day later on April 13, a total of R883 million was sent from this account to Tegeta’s BOB account.  

Prior to this, Centuar (R885.3 million), Trillian Capital (R65 million) and Trillian Advisory (R47.2 million) had made substantial transfers into the account. As the State of Capture revealed, all the companies were linked to the Guptas. Aakash Jahajgarhia is listed as a director of Centaur. He just so happened to marry Atul’s niece. Trillian’s sole shareholder at holding company level is Salim Essa, a long-time Gupta associate. And Albatime lists one Kubentheran Moodley as a director, who is an advisor to Mines Minister, Mosebenzi Zwane.

But they weren’t quite done yet. One more transfer for R10 million came from Albatime on the 14th of April, and with that in place, it was time for BOB to do its part. BOB placed the monies deposited by Centaur, Trillian and Albatime on fixed deposit, took receipt of letters of fixed deposit as collateral undertakings from each of the companies (letters that allow the bank to issue loans against these deposits using them as collateral) and then approved the loans to Tegeta amounting to about R951 million. This, as well as the final payment for the mine, was all done in the space of two days.

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FIC Act transgressions

Deloitte’s investigation focused on these deposits. The audit firm found that the BOB did not file FIC reports in respect of the deposits made by Tegeta, Trillian, Centaur or Albatime, and did not identify related parties.

The report does not identify which FIC Act provisions were transgressed, but the act’s intent is for a bank to identify all parties involved in transactions, and verify the source of the funds to fight corruption and money laundering.

Deloitte also found that the BOB failed to report these transactions to the FIC despite the amounts exceeding the prescribed amount for such reports.

The BOB also did not identify the depositors related parties, despite Salim Essa being a shareholder in all of the companies involved: Tegeta, Trillian, Albatime and Centaur.

These are serious contraventions of the anti-money laundering and Know Your Client provisions of Fica and given the size of the deposits relative to BOB’s total balance sheet and client base, this was a glaring omission.

BOB’s apparent lack of cooperation

It is also clear that Deloitte was less than impressed with BOB’s cooperation and states in the covering letter of the report: “We cannot attest to the completeness of this information as we have relied upon management’s representation although given the size of the transaction and given the size of the bank, in our experience we would have expected more correspondence with the parties involved.”

And just to round things off, BOB bizarrely classified Tegeta as an SME retail customer, and not a corporate triggering different reporting codes.

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Nexia SAB&T also highlighted suspicious conduct on behalf of the BOB. In its audit report, it states: “Documents subsequently submitted by the bank appeared inconsistent to those initially submitted for audit purposes, thereby raising suspicion.”

Reserve Bank reaction

Moneyweb sent several questions to the Reserve Bank mostly relating to whether the bank instructed the BOB to close the Gupta’s accounts (which came into effect on August 31), and whether the transgressions of the FIC Act were of such severity that it warranted a suspension of its banking license.

The Reserve Bank provided the following response: “The information requested falls within the ambit of the confidentiality provisions of Section 33 of the South African Reserve Bank Act, 1989 (Act No. 90 of 1989). We are therefore not in a position to respond to the questions raised in your e-mail.”

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