THE ENABLERS R R R $ R $ R R ERS THE BANKERS, ACCOUNTANTS AND LAWY URE THAT CASHED IN ON STATE CAPT R R R R R R R R Published byby OpenOpen SecretsSecrets in in February February 2020 2020 Research by: MichaelMichael Marchant,Marchant, Mamello Mamello Mosiana, Mosiana, Paul Holden andand HennieHennie van van Vuuren Vuuren ISBN: 978-0-620-86351-3 Copy editor: Helen Moett CopyDesigner: editor: Gaelen Helen Pinnock Mo ett | www.polygram.co.za Designer:Printing: XGaelen Mega PinnockDigital | www.polygram.co.za JuniorCopyright designer: of Text: Skyla Open Francis Secrets Printing:Copyright X of Mega Images: Digital Respective Rights Holders Copyright of Text: Open Secrets CopyrightThe publication of Images: of this Respective report has Rights been Holdersmade possible by E Open Secrets’ funders. They are the Claude Leon Foundation, TH theThe Heinrichpublication Böll of Foundation this report has(Southern been made Africa possible oce), by JoeOpen Charitable Secrets’ funders. 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For more information about Open Secrets’ work: www.opensecrets.org.zaFor more information about Open Secrets’ work: S www.opensecrets.org.za R ERS For more information about Shadow World Investigation's E AWY For more information about Shadow World Investigation's work: L ND L work: shadowworldinvestigations.org B NTS A A UNTA RE shadowworldinvestigations.org N ACCO PTU E RS, CA KE E THE BAN N STAT HED IN O THAT CAS R R R R $ $ $ $ R R R R Investigation by Open Secrets and Shadow World Investigations Submitted to the Zondo Commission of Inquiry into Allegations of State Capture, Corruption and Fraud R in the Public Sector, Including Organs of State R February 2020 R R R R R R R Published by Open Secrets in February 2020 Research by: Michael Marchant, Mamello Mosiana, Paul Holden and Hennie van Vuuren Copy editor: Helen Moett Designer: Gaelen Pinnock | www.polygram.co.za Printing: X Mega Digital Copyright of Text: Open Secrets Copyright of Images: Respective Rights Holders The publication of this report has been made possible by E Open Secrets’ funders. They are the Claude Leon Foundation, TH the Heinrich Böll Foundation (Southern Africa oce), Joe Charitable Trust, Luminate, Open Society Foundation Human Rights Initiative, Open Society Foundation for South Africa and individual donors. For more information about Open Secrets’ work: www.opensecrets.org.za S R ERS For more information about Shadow World Investigation's E AWY L ND L work: shadowworldinvestigations.org B NTS A A UNTA RE N ACCO PTU E RS, CA KE E THE BAN N STAT HED IN O THAT CAS R R R $ $ $ R R R R Investigation by Open Secrets and Shadow World Investigations Submitted to the Zondo Commission of Inquiry into Allegations of State Capture, Corruption and Fraud R in the Public Sector, Including Organs of State R February 2020 R R R R R R THE MONEY LAUNDERED IN THE GLOBAL NUMBERS AT A GLANCE: US$2 TRILLION FINANCIAL SYSTEM EVERY YEAR THE PROPORTION OF LARGE CORPORATIONS ON THE UK AND US 98% STOCK EXCHANGES AUDITED BY THE ‘BIG FOUR’ ACCOUNTING FIRMS. R billionR R100 THE DECLINE IN SOUTH AFRICAN TAX REVENUE FOLLOWING THE ATTACK ON SARS, R16 billion FACILITATED BY BAIN & COMPANY. R THE ESCALATION IN COST ON THE TRANSNET 1064 LOCOMOTIVE DEAL, TO FACILITATE KICKBACKS. 50% $ THE PROPORTION OF R288 million / 82% R20 billion SOUTH AFRICANS WHO OF THE PUBLIC FUNDS SPENT ON THE ESTINA DAIRY PROJECT WENT IRREGULAR EXPENDITURE AT POWER UTILITY LIVE IN POVERTY... TO GUPTA­CONTROLLED COMPANIES IN DUBAI AND SOUTH AFRICA. ESKOM BETWEEN 2012 AND 2018. HAVING LESS THAN R1227 PER MONTH R600 million R1 billion PER YEAR IRREGULAR PRE­PAYMENT BY ESKOM TO TEGETA THE VALUE OF THE CONTRACT BETWEEN ESKOM AND MCKINSEY. GUPTA­LINKED TRILLIAN TO ENABLE THE PURCHASE OPTIMUM COAL MINE. WAS TO RECEIVE 30% OF THIS, DESPITE THERE BEING NO SIGNED CONTRACT IN PLACE. 02 – OPEN SECRETS: THE ENABLERS THE MONEY LAUNDERED IN THE GLOBAL NUMBERS AT A GLANCE: US$2 TRILLION FINANCIAL SYSTEM EVERY YEAR THE PROPORTION OF LARGE CORPORATIONS ON THE UK AND US 98% STOCK EXCHANGES AUDITED BY THE ‘BIG FOUR’ ACCOUNTING FIRMS. R billionR R100 THE DECLINE IN SOUTH AFRICAN TAX REVENUE FOLLOWING THE ATTACK ON SARS, R16 billion FACILITATED BY BAIN & COMPANY. R THE ESCALATION IN COST ON THE TRANSNET 1064 LOCOMOTIVE DEAL, TO FACILITATE KICKBACKS. 50% $ THE PROPORTION OF R288 million / 82% R20 billion SOUTH AFRICANS WHO OF THE PUBLIC FUNDS SPENT ON THE ESTINA DAIRY PROJECT WENT IRREGULAR EXPENDITURE AT POWER UTILITY LIVE IN POVERTY... TO GUPTA­CONTROLLED COMPANIES IN DUBAI AND SOUTH AFRICA. ESKOM BETWEEN 2012 AND 2018. HAVING LESS THAN R1227 PER MONTH R600 million R1 billion PER YEAR IRREGULAR PRE­PAYMENT BY ESKOM TO TEGETA THE VALUE OF THE CONTRACT BETWEEN ESKOM AND MCKINSEY. GUPTA­LINKED TRILLIAN TO ENABLE THE PURCHASE OPTIMUM COAL MINE. WAS TO RECEIVE 30% OF THIS, DESPITE THERE BEING NO SIGNED CONTRACT IN PLACE. – 03 TABLE OF CONTENTS BACKGROUND INTRODUCTION AND CONTEXT PAGE 07 PAGE 11 1 THE BANKERS PAGE 17 THE OFFSHORE WORLD, AUDITORS, & CONSULTANTS PAGE 27 THE LAWYERS PAGE 39 ENDNOTES PAGE 119 RECOMMENDATIONS PAGE 111 CASE STUDIES: ENABLERS IN ACTION ESTINA / VREDE INTEGRATED TRANSNET ESKOM DAIRY PROJECT PAGE 51 PAGE 75 PAGE 87 Corruption is a major problem which has a devastating human cost. In poor countries it kills people and traps millions more in poverty…. The largely hidden truth is that banks play an integral role in enabling this. Corrupt officials need somewhere to hide stolen money. Yet while laws and regulations apply in most countries, which require banks to do a range of checks to detect the proceeds of the corruption, many banks fail to uphold them. As a result they are leaving the door wide open for corrupt people to launder their funds. 1 The Judicial Commission of Inquiry into Allegations of State Capture, Corruption INTRODUCTION and Fraud in the Public Sector, including Organs of State (“The Zondo Commis- 1sion”) faces a difficult but vital task. It is expected to help uncover individual acts of corruption and assign responsibility to specific individuals and corporations for their malfeasance. South Africans expect justice and accountability to follow the findings, and they are growing increasingly impatient. However, to serve the public interest, the Commission has also acknowledged the need to uncover the structural and systemic issues that underpin state capture and corruption in South Africa. To do this requires an un- derstanding of the state and the way in which public officials have both abused their power and violated the law to facilitate the enrich- ment of a small cabal of individuals and enti- ties. In this category, the Commission has re- ceived extensive and damning evidence from a range of whistleblowers, witnesses and ac- complices. This is important work. This investigative report, co-authored by Open Secrets and Shadow World Investiga- tions, argues that an equally important ele- ment of the system of state capture has been largely overlooked by much of the testimony before the Commission to date, and receives not nearly enough public attention. This report aims to address this omission by drawing the public’s and the Commission’s attention to the extensive evidence of the role of the private sector “enablers” in many of the 07 cases already considered by the Commission. Crucially, this enterprise used seemingly It focuses particularly on the role of banks, legitimate entities to facilitate racketeering accounting firms, consultants and lawyers activities, particularly by disguising criminal in facilitating criminal conduct that formed activity and distributing the proceeds of the part of the state capture enterprise. Some- crimes. Many entities used in the enterprise times this conduct constituted gross negli- were presented as and appeared as separate gence, but the evidence all too often suggests and distinct legal service providers “but … intentional complicity. In all cases, there was were, instead, employees or associates of the a failure to fulfill legal or professional duties. racketeering enterprise ultimately taking A failure to interrogate, fully and ener- de facto direction from the Gupta family or getically, the private enablers of state capture their representatives and associates.” 4 would leave the work of the Commission in- Proceeding from this notion of the rack- complete; it would also undermine ongoing eteering enterprise, this report examines the efforts not only to understand state capture, role of some of the largest banks, accounting but to rebuild institutions and systems in firms, consultants and law firms in enabling ways that guard against similar abuse in the and facilitating many of the activities of that future. enterprise. Many of these private actors – from the banks to the accountants and management The report presents comprehensive consultants – seek to portray themselves as evidence in support of the following innocent parties in the story of state capture. conclusions: Some claim to have been unwitting partici- pants in the misconduct of others. Mostly, these private sector firms have come to the Unpicking the Gupta racketeering enterprise Commission to provide evidence that they 1. requires scrutiny of private sector were the victims of political pressure in sup- facilitators. Specifically, the enterprise port of the state capture enterprise. This was required banks, law firms, accounting firms certainly the argument put forward by South and other professionals both to facilitate Africa’s large banks that appeared before the transactions; and to fail to perform their Commission in September 2018. Just as the lawful due diligence requirements.