Bloomberg: Companies controlled by the Guptas lost a court bid to prevent Bank of Baroda from shutting their accounts, which would leave the politically connected family without banking services in South Africa from the end of this month.
Judge Hans Fabricius dismissed the application of 20 companies linked to the Gupta family and awarded costs against them at the Pretoria High Court on Thursday.
The Bank of Baroda was the family’s last hope after a series of lenders, including South Africa’s four biggest banks and Bank of China Ltd., canceled their accounts amid concerns the companies risked falling foul of regulators and the law. The family, who are friends of President Jacob Zuma and in business with one of his sons, has been accused of wielding undue influence on the state and orchestrating the awarding of government contracts to their companies. The Guptas and Zuma deny any wrongdoing.
Bank of India and State Bank of India started shutting the Gupta accounts in July after finding out that Bank of Baroda was planning to end their ties, Ronica Ragavan, who heads several companies with links to the family, said in court papers filed last month. The Guptas are selling some of their businesses, which range from coal mines to newspapers, computer company and a 24-hour news channel. They previously said the account closures could affect their ability to pay about 7,000 employees.
Severe Sanction
The family’s companies are using a pay agency to distribute salaries, Ragavan said in her court papers, adding that the firm has also been used to receive payments from South African tax authorities and a mine.
Bank of Baroda, which has offered services to the Gupta family since 2005, was fined and issued with the most severe sanction possible without being shut down after the South Africa Reserve Bank spent more than two weeks inside the lender’s offices, Manoj Kumar Jha, Baroda’s acting chief executive in South Africa, said in court papers. The unit was fined 11 million rand ($824,724) in June and issued with a directive after it was found that it didn’t comply with certain requirements of laws set up to combat financial crime, he said.
“A directive is the most severe sanction that may be imposed” before a bank’s license is suspended or withdrawn, the executive said.
The Guptas were last year named in a probe by the country’s former Public Protector into government-linked bribery and corruption. The former ombudsman said her findings weren’t conclusive and instructed Zuma to set up a judicial inquiry. Zuma is challenging the directive, issued 10 months ago, that the chief justice appoint commissioners for the probe, and hasn’t followed through on a pledge to set up his own inquiry.
Bank of Baroda had reported 36 suspicious transactions worth 4.25 billion rand linked to the Guptas between September 2016 and July 2017 to the Financial Intelligence Centre, Jha said in the court papers. The number of transactions generated by the family’s companies increased substantially as the other lenders abandoned them, with Bank of Baroda and its 16 local staff unable to keep up, he said.
After the fine and the directive, Bank of Baroda told the companies on July 6 that their accounts would be terminated within 11 days and all loans recalled by the end of September. After talks, the bank agreed to extend the account closures until Sept. 30.
Protecting Trusts
Soon after the court ruling on Thursday, a South African civil society group called the Organisation Undoing Tax Abuse said it was bringing an urgent application against the Bank of Baroda to try and freeze rehabilitation trust-fund accounts associated with the Gupta-owned Optimum and Koornfontein coal mines. The trusts hold 1.75 billion rand and are meant to be used to restore environmental damage in and around the collieries the companies operate.
“We want to ensure that this money doesn’t leave the country,” said Ben Theron, OUTA’s chief operating officer. “Recent actions by the Bank of Baroda seem to indicate that they are serious about continuing to do business in South Africa, but if it’s serious about cleaning up shop, we trust that it will not attempt to oppose our interdict.”
Bank of Baroda had total assets of 2.76 billion rand in South Africa by the end of June, according to its central bank filings. That was down from a peak of 4.36 billion rand a year earlier as the Guptas moved their funds to the Indian lender. OUTA calculates that the trusts represent more than 90 percent of the Gupta-linked deposits held by the bank.
OUTA said the interdict against Bank of Baroda is expected to be heard within the next few days. Gary Naidoo, a spokesman for the Gupta family, didn’t immediately return a call seeking comment on the court case or the OUTA application.
