India’s Bank of Baroda is being investigated by South Africa’s central bank over money held for companies controlled by the politically connected Gupta family, according to a person familiar with the matter.
The South African Reserve Bank’s probe, which comes after it fined the bank in June for not doing enough to combat financial crime, was sparked after the Organisation Undoing Tax Abuse alleged in court papers that mine-rehabilitation funds held for two of the Gupta family’s companies had been mismanaged and used to repay loans, the person said.
While there’s no clear evidence that the trust funds were used as collateral or mismanaged, Bank of Baroda may have breached its own rules about having significant exposure to certain clients, said the person, who asked not to be identified because the matter is confidential. Bank of Baroda holds as much as R1.75 billion ($130 million) on behalf of trusts for the mines and by law that money must be used for environmental rehabilitation, according to the civil society group known as Outa.
Bank of Baroda, which is the only lender in South Africa still offering services to companies linked to the Guptas, is seeking a court order that will allow it to close the accounts. The Gupta family, who are friends of President Jacob Zuma and in business with one of his sons, have been accused by politicians and civil society groups of using that relationship to influence state contracts and cabinet appointments. Zuma and the family deny wrongdoing.
The lender’s Johannesburg-based unit was fined R11 million by the central bank in June and issued with a directive to improve its monitoring and reporting of unusual transactions, the most severe sanction aside from being shut down.
Spokesmen for the Bank of Baroda and the Gupta family didn’t respond to requests for comment. The central bank declined to comment.
Outa’s chief operating officer Ben Theron said on Wednesday the organization has asked its attorneys to inquire if its allegations prompted another investigation into Bank of Baroda, but they haven’t yet had an answer on the matter.
The Guptas had their accounts closed by South Africa’s four biggest banks last year because the lenders were concerned they would fall foul of regulations aimed at combating money laundering and other financial crimes. Bell Pottinger, the Guptas’ London-based public relations firm, collapsed last month after it was found to have stoked racial tensions in South Africa in its work for the family.
In the ten months through July 2017, Bank of Baroda reported 36 suspicious and unusual transactions related to the Guptas’ accounts with a combined value of over R4.25 billion to South Africa’s Financial Intelligence Centre, Manoj Kumar Jha, head of the Bank of Baroda’s South African unit, said in court papers filed in August.
After the central bank’s fine, the Bank of Baroda told the Guptas and their 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 September 30. While the Guptas and their companies have fought this in the Pretoria High Court and the accounts are still open, the Bank of Baroda has said the terminations are “not negotiable.”
© 2017 Bloomberg