My Lords, it is a pleasure to follow such an expert and impressive speech from the noble Baroness, Lady Bowles, in moving Amendment 69B. The amendment is supported by my noble friend Lord Collins, and I have put my name to it. It introduces a failure to prevent offence.
In June 2011, the then Financial Services Authority found shocking inadequacies in UK banks’ anti-money laundering controls, with one-third of banks accepting,
“very high levels of money-laundering risk”,
and three-quarters of banks failing to take adequate measures to establish the legitimacy of the wealth they were handling. The then acting head of financial crime at the FSA, Tracey McDermott, said publicly:
“The banks are just not taking the rules seriously enough”.
Yet, after all these strong words, what happened? Instead of the FSA—now the FCA—getting tough with the banks, since 2010 there have been only 10 convictions under the money laundering regulations, not one of them of a bank. It is therefore hardly surprising that there have been repeated money laundering scandals involving UK banks. There is simply no adequate deterrent or serious regulatory risk to make UK banks turn away profitable business that they are offered, and there will not be until the FCA starts prosecuting people and banks for failing to apply the regulations.
By chance, I met a business analyst this morning. Although I did not know it beforehand, he happened to be an expert in this area, and he described London as the money laundering capital of the world. If he is right, that is shameful. The UK is woefully behind where it should be on holding banks and financial institutions to account for money laundering. HSBC was fined $1.2 billion in the US in a criminal settlement for money laundering, and just a few weeks ago it was fined $352 million in France to settle criminal charges for money laundering. Despite being a UK-headquartered bank, and despite being under investigation since last December by the FCA, HSBC has not yet faced regulatory sanction in this country, even though it has been named repeatedly in corruption cases, for example in Nigeria in 2012 and during the 2000s. No UK action was taken against HSBC in any of those cases. Earlier this year, HSBC was again implicated, with other British banks, in laundering ill-gotten money out of Russia.
A failure to prevent offence for money laundering, as provided for in Amendment 69B, would make it significantly easier to hold large global banks such as HSBC to account for poor procedures and for turning a blind eye to handling corrupt wealth. Without this reform, as Jonathan Fisher QC, a money laundering expert, has explained, it would be difficult and clumsy for the FCA or any other agency to prosecute a bank such as HSBC because it would have to show that a director or some other controlling mind in the parent company in London knew about the alleged misconduct. Indeed, it would have to show that that director intended the misconduct to happen. This is an exceptionally high bar which makes it virtually impossible to hold large global financial actors such as HSBC to account in the UK.
In my speech at Second Reading on 1 November 2017, I described a vivid context for this Bill: the massive money laundering organised from the very top of government in South Africa—the presidency itself—and the systematic transnational financial crime network facilitated by an Indian/South African family, the Guptas, and the presidential family, the Zumas. British-based financial institutions such as HSBC, Standard Chartered, the Bank of Baroda and other international institutions have been conduits for laundering hundreds of millions of pounds or billions of rands, mostly through Dubai and Hong Kong.
The South African Parliament itself is in the process of holding a public inquiry into large-scale state capture involving even larger-scale corruption and looting of state-owned enterprises. On 21 November 2017, Mr Zola Andile Tsotsi, erstwhile chair of the state-owned electricity generator, Eskom, gave evidence under oath. What resulted is the first smoking gun implicating the President of South Africa, Jacob Zuma, who exerted shadow control over state-owned enterprises which have been exploited through large-scale looting and money laundering, from which his family and friends have benefited. He did this by deploying one of his nominees, Ms Dudu Myeni, a person near and dear to him—he fathered a child by her. Educated as a primary school teacher, in 2012 she was appointed chair of Africa’s largest state-owned airline, South African Airways. In early December 2015, the then Minister of Finance, Nhlanhla Nene, rejected her request to renegotiate a fleet renewal deal for SAA, because it smacked of corruption. Within days, the President sacked Minister Nene.
Evidence before the South African parliamentary public inquiry showed that, as chair of the state-owned airline, Ms Myeni not only facilitated looting by the Zuma and Gupta families, but also sought to control, instruct and manipulate the running of another state-owned power utility, Eskom, from which the Gupta family, through an intricate network of companies, have siphoned off billions of rands, via various banks, including London-based banks which I am asking the British authorities to investigate. I am grateful to the FCA for the contact it has had with me to pursue this.
First, Eskom chair Mr Tsotsi was ordered by the government Minister for Public Enterprises in February 2015 to refrain from “interfering” with the management of Eskom. He only chaired the Eskom board, after all—why on earth should he bother himself with holding to account the executives underneath him? This ministerial instruction, to put it simply, was aimed at stopping him scrutinising the decisions and behaviour of Eskom and instead ensuring he turned a blind eye to the corrupt award of multibillion-rand contracts to the benefit of the Gupta and Zuma families.
According to the evidence at the parliamentary inquiry that same day in February 2015, Mr Tony Gupta phoned Mr Tsotsi, accusing him of not “helping us with anything”, adding: “We are the ones that put you in the position you are in. We are the ones who can take you out!”. A few days later, on the eve of the newly appointed Eskom board’s first meeting, President Zuma called Mr Tsotsi, instructing him that the board meeting be postponed, without even giving reasons. Less than a week later, Mr Tsotsi was instructed by South African Airways chair Ms Dudu Myeni to attend the presidential residence on 7 March 2015, where she unlawfully ordered the suspension of three of Eskom’s key executive members. President Zuma arrived late to the meeting and ordered that Mr Tsotsi go along with the plan, resulting in one of the most notorious examples of looting in South Africa’s recent history. This Zuma-Gupta conspiracy then left the door wide open for the appointment of Gupta stooges, who in less than 18 months had bled the power utility dry. It now faces bankruptcy and has been downgraded by international financial institutions due to governance failures. I am explaining the background before coming to the point about money laundering and the responsibility of UK authorities.
Eskom has more than 471 billion rands in outstanding debt, the majority of which is guaranteed by the South African Government and owed mainly to funders outside the country. In October 2017, Eskom revealed to its largest shareholder, the South African Government, that the power utility only had 1.2 billion rands left in its cash reserves until the end of November 2017, when it should have had 20 billion rands. It is estimated that by the end of January 2018, Eskom will be running a deficit of 5 billion rands. Eskom’s virtually giving billions to the Gupta-Zuma syndicate through nonsensical consulting contracts, tenders for fictitious goods and services, and advances to allow them to buy the coal mines from which they then sold back overpriced, poor-quality coal is the underlying cause of what went wrong.
Similarly, in September 2017, South African Airways was given emergency Treasury funds to help it repay loans of 3 billion rand to Citibank, again diverting precious money from taxpayers into the pockets of the Zumas and Guptas. The bill is being picked up by taxpayers when there is a shortage of the decent schools, hospitals, housing and job opportunities those billions should be spent on.
Each South African state-owned enterprise has been looted using the same modus operandi by the same elite individuals at the very top of the chain—namely President Zuma and his family, and the now infamous Gupta family. They have placed cronies such as Ms Myeni in key decision-making positions in these public enterprises to ensure that all valuable tenders are siphoned off to the Guptas, and in return a cut is then given to the Zuma family. Hundreds of millions of pounds have been siphoned off these important public companies in a process that has been described by the South African media as “state capture”. What is more, well-placed South African whistleblowers inform me that UK financial and banking institutions have been used for the systemic transnational financial crime network run by Gupta and Zuma families.
Then there is the shadowy figure of Mr Nick Linnell, a “Mr Fixit” who, in the late 1970s, operated in the illegal racist white minority regime of Ian Smith in then Rhodesia. He was unlawfully hired by Eskom, on Ms Myeni’s instructions, to assist in unlawfully getting rid of certain executives, thereby clearing the way for the corrupt capture of Eskom. It has now emerged that South African Airways, through dubious unauthorised payments to Mr Linnell, and working hand-in-glove with the remnants of South Africa’s notorious apartheid police, has deliberately targeted well-known anti-corruption activists. This has resulted in unlawful arrests, detention and torture, as part of a desperate attempt to silence these courageous men and women, to stop them exposing systemic state-sponsored corruption. By the way, last weekend it was announced that Dudu Myeni had been appointed as the special adviser to the Transport Minister and that she came “highly recommended”.
I therefore hope not only that this amendment will be supported by the Government but that there will be an immediate investigation by the City of London Police, the Metropolitan Police and the financial regulatory authorities into all bank accounts held in London by any South African state-owned company. Can the Minister, in replying to the amendment, please give me an assurance that this investigation will proceed? Because of the South African Airways chair’s patently unlawful involvement with the Zuma and Gupta families, the authorities should start their investigations with the airline, which is known to bank here in London, to ensure that its UK accounts have not been used for the illegal laundering of moneys from the proceeds of financial crime in South Africa, and that payments from it into UK banks have not been used to pay off stooges who have unlawfully targeted corruption whistleblowers.
The British Government must not permit any UK-based financial institution to be complicit in the plundering of state-owned companies in foreign lands, especially when that plunder affects the poorest of the poor. South Africa suffered enough repression over the apartheid years, and we cannot stand idly by while economic repression replaces racial oppression, serving the greed of corrupt leaders, when we have the ability to help stop it.
The exposure of HSBC, Standard Chartered and the Bank of Baroda to the parasitic Gupta financial crime network is currently the subject of international law enforcement investigations from the FBI to our own FCA. Inevitably, when dirty money from a global criminal network infects one financial institution, it will sequentially infect a number of others. This is the result of what is known as “correspondent banking”—a term that I have just been educated in—which by its complex nature is often misunderstood. Correspondent banks are international banks that clear smaller, generally domestic banks’ foreign currency transactions through large financial centres. In practice, this means that one transaction can move through a chain of financial institutions from the point of payment before it reaches its intended beneficiary. This creates significant money laundering and terrorist financing risks because each bank in the chain has to rely on the other to correctly identify the customer, determine the real owner and monitor the transaction. In essence, the correspondent bank is only as strong as the weakest link in the chain.
Umpteen domestic and regional banks will inevitably have been part of the money laundering chain of Gupta money. These include, in South Africa, Nedbank and Standard Bank; in the UAE, Habib Bank; in China, Citibank China and Bank of China; and almost certainly every well-known bank in continental Europe.
In the UK, Barclays Bank, which has a significant presence in South Africa and Africa, together with Santander, which also has a global footprint, should be given a red flag warning to check their exposure to Gupta money laundering—both direct and indirect. It is essential that all UK banks refuse to have anything to do with the Guptas or Zumas. I hope that the Minister will confirm that that will happen and that the same warning is given to RBS, Lloyds and any other UK banks—indeed, any bank that has had any contact with the Guptas or Zumas, inadvertently or knowingly. I, for example, passed sheets of evidence from HSBC accounts to the FCA only recently. In those accounts are clear debits—hard payments—to members of the Gupta family here in Britain. So this is infecting the whole of our banking and the whole of our country.
It is not good enough for those banks to argue that they reported suspicious transactions to their relevant domestic regulatory authorities. For over 10 years the Guptas have washed their money, aided by a labyrinth of correspondent banks—names that we would all recognise and probably bank with. Had these banks closed the Gupta accounts of their own volition, even five years ago, and not simply in reaction to recent political and investigatory journalist pressures, South Africa might not be on her economic knees today.
In the same way as other companies such as Bell Pottinger, KPMG, SAP and McKinsey have been exposed and called to account for complicity in corruption for doing business with the Guptas, so too must these banks of ours. It is not good enough just to haul HSBC, Standard Chartered and Baroda over the coals, because the nature of dirty money is that it passes through a chain of banks from originator to beneficiary. The banks in between are also guilty, and if they do not act, they risk exposure and reputational damage of the kind suffered by HSBC. Look at what happened to Bell Pottinger: as a result, it went bankrupt.
The message from our Parliament should be loud and clear: no UK commercial entity should have anything to do with the Guptas or Zumas. By accepting this amendment, the Government would at last demonstrate that the UK is serious about ensuring that its financial institutions must stop being used to pilfer public money from countries around the world and ensure that banks do not put profit before ethics when handling risky money
Lord Hain (Lab)
My Lords, why was anybody surprised by yesterday’s negotiating car crash in Brussels? Unionists were quite legitimately always going to insist that they could not be put in a status distinct from the rest of the UK. At the same time, to maintain the Irish border as open as it has been alignment would be needed on trade, customs and regulation. Surely the answer is to apply that alignment across the UK, then the problem is solved.
As the noble Lord is aware, we are leaving the customs union and the single market. Northern Ireland will be leaving them with us.
My Lords, I enjoyed the spirited exposé of octogenarian privilege from the noble Lord, Lord Tugendhat. I noted that before the Budget George Osborne’s former chief of staff, Rupert Harrison, called for a “safety first” Budget. He thought the Chancellor could not afford another slip-up like the mess he made in March over self-employed national insurance contributions. The last thing the Tories needed was another bananadrama.
Mr Harrison got what he wanted. Nevertheless, it was a Budget that brought more bad news—very bad news—about Britain’s economic prospects. Just eight months ago, the Chancellor began his March Budget by claiming that the British economy had confounded critics with “robust growth”. He contended in November that it “continues to grow”. He should have said it “continues to slow”, because March’s “robust growth” proved to be a flight of ministerial fancy that melted away with the winter snow.
The stark reality is that Britain’s growth rate has fallen every year for three consecutive years and is set to plumb fresh depths next year, in 2019, and again in 2020. It is in their failure to get the economy growing at anything like the rate it did under Labour before the global financial crisis, let alone the growth rates achieved in the 30 years following the Second World War, that the Tories have done most damage. By the way, the debt bequeathed after the Second World War fighting Hitler was double as a proportion of GDP what my noble friend Lord Darling had to cope with after the global financial crisis.
The Tories have spent the past seven years sacrificing living standards, public services and our social safety net on the altar of their austerity policy. The Institute for Fiscal Studies says we face two decades without a rise in average pay, with average earnings in real terms £750 a year lower in 2022 than in 2007. What a total, shameful failure of Conservative economic policy.
The pedestrian pace of economic expansion since 2010 is the root cause of the hardship Britain has endured for years now. What has held growth back is the Tories’ savage tax and spending squeeze. George Osborne used to boast about having squeezed the UK economy tighter than any in the advanced world, all in the name of ending the budget deficit, but squeezing growth out of the economy has left the Tories well short of a balanced budget while doubling national debt. Having failed to end the deficit completely by 2015—their original target—they now say they will only halve it by 2022. By then your Lordships can be sure the goalposts will have moved yet again to maintain the illusion that their plan is still on track and to justify still more austerity. Clearly the modern Tory Chancellor is like the frog in a pond whose successive jumps only ever take him half way to the edge. He and the frog share an aim that they cannot realise unless they try a new approach. In the Chancellor’s case that means abandoning austerity and promoting faster growth, as Labour, in particular its shadow Chancellor, is indeed urging.
Some people think, mistakenly, that the Chancellor has already done so. The BBC economics editor Kamal Ahmed said that, compared to the March Budget, the Government are,
“doing more to stimulate the economy”.
I am afraid that is wrong. By making a smaller cut in the structural deficit than he had planned in March, the Chancellor is doing less to hold the economy back, not pushing it forward. There has been no U-turn. He still plans to take a big slice out of overall spending in the economy. More cuts are coming to departmental budgets, with real-terms cuts outside the NHS of more than 6% according to the Institute for Fiscal Studies. More cuts to working-age benefits are already in the pipeline—£12 billion on top of the £29 billion already made. Local government is being hammered. Head teachers are in despair. Further education colleges, surely key to any recovery, face even more cuts.
Their obsession with ending the deficit has blinded today’s Conservatives to the fact that bringing down Britain’s debt burden does not require a balanced budget. No Tory leader delivered more budget deficits than Margaret Thatcher—11 in her 13 years in power. Only one of the last six Tory Chancellors ever ran a budget surplus, the noble Lord, Lord Lawson, and he managed it in only two of his six Budgets.
At the Conservative Party conference Theresa May pledged to revive what she called the British dream. Perhaps her inspiration came from “The Island of Dreams”, the Springfields’ last hit before they broke up in the 1960s. That left Dusty Springfield to launch her solo career with two other features in the Prime Minister’s repertoire: “I Just Don’t Know What to Do with Myself” and “Wishin’ and Hopin’”. Ministers keep saying that they want to send a signal to the world that Britain is open for business, but all our friends abroad can hear is a garbled transmission on channel 16, the international distress frequency: “Mayday, mayday, mayday”. The British economy is in deep trouble. Frankly, that is because of primitive Conservative economic policies.
The Chancellor pledged to meet the challenge posed by Brexit and new technology, and to make whatever change is needed to fix Britain for the future. But by only easing his fiscal squeeze, instead of ending austerity altogether, he is cheating the challenge and faking the change. What the economy needs more than ever is a strong stimulus, not a weaker squeeze. Instead, all we are getting is austerity for ever, and that means failure for ever. Meanwhile, as my noble friend Lord Livermore pointed out so eloquently, Brexit grimly awaits to make the situation even worse.
Text of my speech to the House of Lords on 1st November 2017
My Lords, it is a real privilege to follow the noble Baroness. I have been in the House for less than two years, but she has always struck me as a real star. I have marvelled at the way in which she has managed to make the Government’s case on Europe vaguely plausible, which shows expertise and charm. I have also noticed that the noble Baroness has always spoken and answered questions from the Front Bench, including from myself, with great courtesy, even giving the impression in her answers that she has listened to the questions. Her colleagues may well want to bear that in mind. I note that the casualty rate in the post that she has just left seems to be quite high. I wish her all the best in the future, and I am sure that the whole House does as well.
The noble Baroness made the case for sanctions against South Sudan and elsewhere compellingly. I do not refer to her specifically, but I remember the way in which this House opposed sanctions against the apartheid regime. If she had been in the Conservative Government at the time, perhaps that might have changed.
There have been no criminal prosecutions for money laundering of financial institutions, and very few of other “enablers” such as lawyers and accountants. There have been regulatory fines, but it is not clear that these are enough to deter banks and other financial players from making their anti-money laundering compliance regimes a tick-box exercise rather than a meaningful one. This Sanctions and Anti-Money Laundering Bill enables the Government to introduce regulations that would create new civil penalties and criminal offences for money laundering, but the threshold for the latter is low—a maximum three-month sentence for a criminal conviction.
As the noble Baroness, Lady Bowles, mentioned, using such powers to enable the Government to introduce criminal offences by regulation is against parliamentary convention. The noble and learned Lord, Lord Hope, also referred to this matter with his expertise. Surely it would be better for the Government to accept or introduce an amendment to the Bill to introduce a “failure to prevent” money laundering offence, like that in the Bribery Act and as there now is for tax evasion, which would ensure that such an offence was introduced by primary legislation.
As I said, the noble Baroness, Lady Anelay, made moving points about South Sudan and elsewhere from her experience. However, my main focus today is whether the Bill will deal effectively with the massive money laundering organised from the very top of the Government in South Africa, the presidency itself—the subject of my Oral Question on 19 October in your Lordships’ House and my letter to the Chancellor of 25 September. I beg some indulgence in speaking at greater length than the noble Baroness on this to spell it out. It is serious.
Corruption within and money laundering from a monopoly capital elite around the President’s family in South Africa and their close associates the Gupta brothers—which is painful for me to witness, having been active along with my brave parents in the anti-apartheid struggle—show that winning the war against financial crime will require co-ordination, influence, action and accountability between multi-jurisdictional law enforcement agencies. Money laundering is a key enabler of organised crime, allowing criminals to transmit multi-billion pound illicit funds into the legitimate economy, undermining its integrity and public trust. However, confronting it is difficult, partly due to the fragmented information-sharing arrangements across borders and between banks and law enforcement agencies. It is all very well to develop better protection for our own country, as this Bill purports to do, but, without simultaneously enhancing cross-border co-operation, we will not win the war against financial crime.
On regular visits to South Africa—most recently last month—I have been stunned by the systemic transnational financial crime network facilitated by an Indian-South African family, the Guptas, and the presidential family, the Zumas. If there had been more proactive and genuine co-operation between the multi-jurisdictional law enforcement agencies, and within and between the banks, which have been moving money for the Gupta/Zuma laundering network, the devastation wrought on South Africa could have been significantly reduced, and perhaps the financial institutions involved would have been able to better mitigate their exposure.
I had delivered by hand last night to the Chancellor printouts of transactions and named the British bank concerned, and I asked that he again refer these to the Serious Fraud Office, the National Crime Agency and the Financial Conduct Authority for investigation. This information shows illegal transfers of funds from South Africa made by the Gupta family over the last few years from their South African accounts to accounts held in Dubai and Hong Kong. The last columns of each sheet, now in the Treasury, show the relevant banks involved, and the records show all account numbers used. Many of the transactions are legitimate, but many certainly are not.
The latter illicit transactions were flagged internally in the bank concerned as suspicious, but I am reliably informed that it was told by the UK headquarters to ignore it. That is an iniquitous breach of legal banking practice in the UK, which I trust Ministers would never countenance, and it is also an incitement to money laundering, which has self-evidently occurred in this case, sanctioned by a British bank, as part of the flagrant robbery from South African taxpayers of many millions of pounds and many billions of their local currency, the rand.
Each originating transaction would start with one bank account and then be split into a number of accounts a couple of times to disguise the origin. Undoubtedly, hard questions will need to be asked of the facilitating banks, because they have aided and abetted the Gupta money laundering activities. Can the Chancellor please ensure that such evident money laundering and illegality is not tolerated and that the bank is investigated for possible criminal complicity in this matter? Urgent action is needed to close down this network of corruption.
Then let us consider an example of the devastation caused to South Africa by cross-border money laundering. The Free State, one of nine provinces in the country, is marked by miles of flat, rolling grassland and crop fields, and it is the country’s granary, responsible for 70% of total maize production. Britain played a defining part in the history of this province, as it marked one of the most contested spaces during the late 19th century/early 20th century South African wars involving the British imperialists, the Afrikaner nationalists and the Basotho people.
Today, the Free State is one of the poorest provinces in South Africa. Nearly one in two of the people are unemployed and nearly two-thirds live below what is called the “upper bound poverty line”. More than half of the people in that province survive on one meal a day, tens of thousands of children go to school hungry, if they are fortunate enough to be in school, and over half of the province’s children drop out of school before obtaining their matric—roughly equivalent to our A-levels—primarily because their daily focus is on survival.
Therefore, when in February 2013 the Free State Government announced that they would spend £18 million —approximately 340 million South African rand —to build, in a small Free State town called Vrede, a dairy farm which would be part-owned by 80 impoverished beneficiaries, the local community felt a sense of hope. Indeed, this kind of public/private partnership is a commendable and deeply necessary model of economic empowerment to redress the profound racial inequalities generated by the apartheid state, which continue to reverberate throughout South Africa.
What the people of Vrede did not know was that this project, and therefore their village, would become the scene of a transnational money laundering crime committed by collaborators from within the Free State Government on the one side and the now notorious Guptas on the other. In essence, this criminal network used these 80 people and their families as pawns in a swirl of international money laundering, which involved some British and other financial institutions.
The laundering operation went like this. Step 1: in May 2013, three months after the Free State Government announced the dairy farm project, a company called Estina—ostensibly the vehicle for the 80 beneficiaries but which was actually linked to the Guptas—was handed a farm to begin building the dairy. Estina’s sole director was an IT salesman with no farming experience. The project was not put out to public tender. Step 2: the Government almost immediately transferred about £6 million to Estina. Step 3: instead of investing this in the farm, Estina transferred most of the money to a Gupta company in the United Arab Emirates called Gateway Ltd. Gateway is registered in Ras al-Khaimah, RAK, which is one of seven emirates making up the UAE and a highly secretive offshore company jurisdiction. At the time, Gateway held its account with the British bank Standard Chartered, which the bank has subsequently closed.
Step 4: once the funds were in Dubai, the Guptas engaged in a classic laundering cycle, transforming illicit money into ostensibly legitimate assets. In arguably the most eye-watering example, they transferred over £2 million of the Estina dairy money in two separate tranches through two shell companies, ultimately consolidating it in their Standard Chartered account for another of their UAE-based companies, called Accurate Investments. The bank has since closed this account too. Step 5: they then transmitted this money into an entity called Linkway Trading, banked with the State Bank of India, back into South Africa.
Step 6: once in Linkway, the Guptas used these funds to pay for a lavish four-day family wedding where, among other extravagances, over £1,000 was spent on chocolate truffles, £120,000 on scarves for guests and £20,000 on fireworks. At about the same time that the Guptas were celebrating at the wedding, veterinarians in the town of Vrede were called to the dairy farm because of the reeking stench of dead animals. According to their report, they found at least 30 cows that had been buried in a ditch having died from,
“an unknown condition that could be caused by malnutrition”.
I have detailed the Vrede dairy example because many of us do not appreciate the destitution caused by money laundering. It almost always requires the complicity, whether witting or unwitting, of financial institutions. In this case, some of those are headquartered in Britain, such as Standard Chartered. I am grateful that the bank is now being investigated, along with HSBC and the Bank of Baroda, by the Serious Fraud Office, the Financial Conduct Authority and the National Crimes Agency following my Question in your Lordships’ House on 19 October and my request to the Chancellor.
The success of these criminal networks relies also on the action or inaction and co-operation or non-cooperation of the relevant law enforcement authorities. Always, it is the poorest who bear the brunt. In my letter to the Chancellor on 25 September requesting that he investigate UK bank exposure to the Gupta/Zuma network, I listed the 27 entities and individuals who were, among others, involved in the Vrede dairy farm tragedy. It is by no means the only example of the devastation wrought on South Africa by the Zuma/Gupta network.
The Vrede dairy criminal catastrophe proves that the laundering was effected through a transnational triangulation between South Africa, the UAE and British and other global banks. Therefore, the success of our law enforcement authorities in protecting our country from the proceeds of ill-gotten gains entering our financial system, as this Bill seeks to do, and by association protecting more vulnerable developing nations from falling victim to extractive criminal networks, depends on genuine and proactive co-operation and collaboration between the relevant law enforcement agencies in the concerned jurisdictions. Frankly, this Bill falls well short of what is required to do that.
Familiarising myself with the Vrede dairy farm tragedy—and taking some time in this House to explain it—what struck me time and again is why an internationally respected bank such as Standard Chartered would open bank accounts for shell entities registered in a free trade zone such as Ras al-Khaimah, whose primary attraction is as a highly secretive offshore jurisdiction. What was it doing this for? Shell companies, by virtue of their ownership anonymity, such as those used by the Guptas in the Vrede dairy tragedy, are generally classic vehicles for money laundering and other illicit financial activity. According to the Financial Crimes Enforcement Network, shell companies,
“typically have no physical presence other than a mailing address, employ no one, and produce little to no independent economic value”.
The Financial Action Task Force, established in July 1989 at the G7 Paris summit, has consistently warned that free zones could be used for illicit trade and money flows that fall below the radar of regulatory authorities. We know that free zones have become an increasingly popular mechanism for the UAE and other countries looking to lure international investment and boost foreign trade. However, the question for us is whether we are ensuring that our financial institutions are facilitating, inadvertently or not, the misuse by those interests attempting to move their illicit funds from one part of the world to another in order to facilitate money laundering, mafia crime, terrorist activity and financing, as the Minister said, and robbery from taxpayers, as in the South African case.
There are disturbing questions around both the complicity, witting or unwitting, of UK global financial institutions in the Gupta/Zuma transnational criminal network, and also about these institutions’ wilful blindness to the reality that the laundering process most often necessitates financial systems with lax regulation and controls. Unless we urgently find ways to leverage our respective capabilities to co-ordinate and influence action between the law enforcement and banking sectors—domestically here in the UK and globally—we cannot win this battle.
I have received new information, which is still being corroborated, that the Gupta/Zuma network may be using the global metal recycling sector—some of the company names I have received have a UK presence—to launder the proceeds of their corruption. Indeed, this preliminary information suggests that, as South African banks, including British headquartered ones there, have shut down Gupta accounts in response to the financial crime risk they pose, so the family has simply shifted its laundering machine into the metal recycling sector, using intermediaries within these companies in South Africa, the Middle East, possibly the UK and Hong Kong, to move their funds for them.
My question, therefore, to British-based financial institutions and to the Government is: are their compliance departments applying the necessary forensic eye to this secondary-layer threat—as primary accounts are shutdown, so the illicit funds must find alternative channels—and are law enforcement agencies and their regulators applying their minds, sharing information and, in so far as they can, acting on it?
My latest information, supplied as before by South African whistleblowers deep inside the system and disgusted by the corruption at the heart of the state, suggests metal recycling is the latest conduit. However, there may be other sectors these criminal networks are penetrating and I ask the Minister to investigate this.
Unless we use the opportunity before us to crack down meaningfully on these criminals, they will always be one step ahead. Over the past few months, several multinational companies have either fallen or been massively contaminated as a result of their complicity in the Gupta scandal, including Bell Pottinger, McKinsey, KPMG and SAP. The US Justice Department and the US Securities and Exchange Commission are now investigating German multinational SAP after it apologised the other week—“wholeheartedly and unreservedly”—to the people of South Africa for paying over £6 million in kick-backs to Gupta companies as part of their network of corruption headed by President Zuma and his family.
I believe that it is a matter of time before financial institutions in South Africa, in the Middle East, in Hong Kong, here in the UK and in the US will be forced to answer hard questions about their own complicity, and they must. I am today sending a copy of this speech, together with my letter of 25 September to the Chancellor, to the US Ambassador to London formally asking the US regulatory authorities to intervene, as the FBI has already begun to do. I am also asking the Government—I would be grateful if the Minister could respond on this point—to press the financial authorities in Hong Kong and Dubai to cut all links with the Guptas and Zumas. My Labour MEP colleague Neena Gill is raising the matter in the European Parliament, and Commissioner Pierre Moscovici has agreed to her request to investigate European banks which may be involved. In parallel, I wrote to the President of the European Commission, Jean-Claude Juncker, on 25 September asking him to act, but have not yet had a reply.
It is not only financial institutions and Governments which need to ensure that they are above reproach. A number of other global firms, whether legal, auditing, forensic or advisory in nature, have provided professional services to some of these complicit individuals, companies and institutions. These include UK-based firms such as Grant Thornton and Hogan Lovells, which have conducted forensic investigations at the South African Revenue Service under the brief of its Gupta-aligned head, Tom Moyane. Norton Rose Fulbright and Morrison & Foerster have assisted in the internal investigation at McKinsey into that company’s links to the Guptas. There are other examples. I am not suggesting that these firms are necessarily complicit in the corruption, because in most cases they have been employed by the complicit companies—for example, Norton Rose and Morrison & Foerster by McKinsey—to try and surface the corruption.
In conclusion, I am suggesting that it is absolutely critical that all professional firms cut their contacts entirely with any individuals or entities associated with the Gupta and Zuma families or their associates. At the very least, whatever pressure they may come under from their clients and whatever the cost is to their commission or fees, they must conduct themselves according to the highest professional standards, which most if not all have palpably failed to do so far, as we saw with KPMG, McKinsey and SAP. To its credit, the law firm Cliffe Dekker Hofmeyr recently upheld the highest professional values by boldly exposing corruption and dishonesty by senior executives at the country’s power utility, Eskom.
As I stand here today, the 80 individuals who were supposed to benefit from the Vrede dairy farm are destitute. The complicity of our financial institutions in this, as well as the responsibility of law enforcers and regulators in all the concerned jurisdictions, should make UK Government Ministers and UK parliamentarians hang their heads in shame. Just as they were complicit in sustaining apartheid, so today they are complicit in sustaining the corrupt power elite in South Africa which is now betraying the legacy of Nelson Mandela and the anti-apartheid struggle.