How Misadventures of Bank of Baroda Dragged It into South Africa's Political Crisis

Hindustan Times (New Delhi, India), February 6, 2018 | Go to article overview

How Misadventures of Bank of Baroda Dragged It into South Africa's Political Crisis


India, Feb. 6 -- In June 2017, an anodyne footnote to the Bank of Baroda's (BoB) quarterly results mentioned a fine levied by the South African Reserve Bank (SARB), headquartered in Pretoria.

The sum - Rs 5.45 crore - was insignificant for an institution the size of BoB. No further details were given; the penalty passed unnoticed in India.

But in South Africa, the SARB's actions suggested BoB's involvement in the "State Capture" scandal: an avalanche of allegations that President Jacob Zuma was under the sway of three brothers from Saharanpur, Uttar Pradesh - Ajay, Atul, and Rajesh Gupta, collectively known as "The Guptas".

As the scandal continues to unfold, BoB's role as the Gupta family's banker of choice for their most controversial deals, has attracted increasing attention from South African regulators, investigators and the press.

A joint investigation of thousands of pages of court documents, bank records, SARB records, internal Gupta company correspondence, and interviews with bank officials, by Hindustan Times, South Africa's amaBhungane Centre for Investigative Journalism, Finance Uncovered and the Daily Maverick's Scorpio unit, reveals a laundry list of potential violations, and a seeming disregard for banking ethics and regulations by BoB executives.

An example: As early as 2010, BoB financed the purchase of a luxurious house that was bought in the name of President Jacob Zuma's fourth wife, but paid for by the Guptas through BoB accounts operated by secretive trusts.

And as late as November 2016, an investigation into the Guptas' controversial purchase of a coal mine by the South Africa's Public Protector, a constitutional public ombudsman, found that "the conduct of the Bank of Baroda appears highly suspicious" in the bank's role in underwriting the deal.

BoB stood by the Guptas as four major South African banks shut their bank accounts in 2016 on the grounds that anti-money laundering laws made it too risky to do business with the family. While BoB executives say they began to "exit" their relationship with the Guptas in July 2016, the bank sent out account termination notices a full year later in July 2017.

The Guptas took the bank to court.

At the time of going to press, BoB was stuck with the accounts of at least 35 Gupta companies according to the most recent court disclosures.

What follows is an inside account of how a culture of wilful blindness in BoB's South Africa operations exposed India's second largest bank to a damaging investigation in a foreign jurisdiction.

Bank executives sought personal favours from the Guptas and enjoyed their hospitality, emails show, while the family used BoB accounts to funnel millions through an international network of secretive companies and trusts.

Personal favours aside, the systemic shortcomings identified by the SARB audit lead back to BoB's compliance department in Mumbai, raising questions about the bank's operations in India and across the world.

South African investigators now are probing if the money in these accounts included kickbacks for prominent South African politicians for awarding dodgy government contracts to the Guptas.

In October 2017, the Financial Times reported that American authorities had begun probing the Gupta family as some of these transactions were in US dollars, raising questions of how much BoB knew, and what action, if any, the bank took?

Today, as the Indian government prepares to pump Rs 88,100 crore into the country's ailing public sector banks, of which BoB will get Rs 5,307 crore, the bank's actions in South Africa offer a sobering glimpse of how some of India's biggest banks may be doing business.

When HT sent BoB a detailed questionnaire, the bank arranged two interviews with CEO PS Jayakumar, only to cancel both meetings without explanation at the last minute. BoB has not responded to repeated requests for comment on the events described below. …

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