A group of companies linked to South Africa’s politically connected Gupta family said the country’s banking regulator encouraged lenders to shut their accounts, broadening a battle to retain the last of their banking services.
The 20 businesses, which are suing Bank of Baroda’s local unit to keep their accounts open, have now included Reserve Bank Governor Lesetja Kganyago and the Registrar of Banks Kuben Naidoo, whose office sits in the central bank and where he also serves as a deputy governor, as respondents in the court case before the Pretoria High Court, according to court papers.
All four of South Africa’s biggest banks, including Standard Bank Group Ltd and FirstRand Ltd, cut ties with the Guptas in 2016, saying they were concerned their reputations may suffer harm and that they are bound by regulations prohibiting money laundering. Other lenders including State Bank of India, Bank of India and Bank of China Ltd followed suit, leaving Bank of Baroda as the last financial institution in South Africa to offer them banking services.
“There is a pattern of conduct among the banks which is aimed at shutting the applicants out of the South African financial system,” Ronica Ragavan, a director of nine Gupta-linked companies, said in court papers dated October 26. “The banks, together with the regulators, have acted in concert to do so, and, where any bank, such as Baroda, has remained outside of the pattern, the regulator has stepped in to pressurise such bank.”
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The Reserve Bank will respond in court, the Pretoria-based regulator said in an emailed response to questions on Thursday. The Notice of Motion filed by the Gupta companies gave it until November 24 to file responding affidavits.
“We totally disagree with the assertion of the Gupta companies,” Cas Coovadia, the Banking Association South Africa’s managing director, said in an emailed response to questions on Friday. “Individual banks consider risks according to their business models and regulations and take decisions accordingly.”
The High Court ordered Bank of Baroda to keep the accounts open pending a final ruling on the matter. The Gupta family, who are friends of President Jacob Zuma and in business with one of his sons, have been accused of using that relationship to influence state contracts and cabinet appointments. Zuma and the family deny wrongdoing.
The Guptas are using salary-distribution agencies to pay staff at the different business, which range from a computer-services firm and a media organisation to coal and uranium mining companies, according to court documents. Thousands of jobs are at risk if they no longer have access to banking services, according to the documents.
The central bank is selectively “targeting” Gupta companies, Jagannath Arora, general manager of the Gupta’s Sahara Computers Ltd, said in court documents also dated October 26, citing Sanjay Agarwal, who was head of the Bank of Baroda in South Africa until he died earlier this year.
Describing his relationship with Agarwal as “extremely close,” Arora said the late bank manager told him the Reserve Bank was interfering with the Bank of Baroda’s dealings with the Guptas’ companies. Agarwal was “happy with the manner in which the companies were conducting their accounts,” Arora cited him as saying.
In the 10 months through July 2017, Bank of Baroda reported 36 suspicious and unusual transactions related to the Guptas’ accounts with a combined value of over 4.25 billion rand ($298 million) 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.
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.
The Bank of Baroda holds as much as 1.75 billion rand on behalf of trusts for mines linked to the Guptas and by law that money must be used for environmental rehabilitation, according to the Organisation Undoing Tax Abuse, a civil society group known as OUTA. After OUTA alleged in court papers that the mine-rehabilitation funds had been mismanaged and used to repay loans, South Africa’s central bank started a second investigation into the Bank of Baroda, a person familiar with the matter said in October.