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Cape Town – Finance Minister Malusi Gigaba has vowed that government will crack down on illicit financial outflows as he attempts to find extra revenue to keep the country within its fiscal ceiling.
South Africa will breach its fiscal ceiling by R3.9bn if it doesn’t find additional revenue, Gigaba revealed in his mini budget this week.
The focus on illicit outflows comes as pressure mounts on authorities to investigate the Guptas for their alleged illicit outflow activity.
The FBI in the US have started investigating such claims, while the UK is engaging with Standard Chartered and HSBC who have a major banking presence in the United Arab Emirates.
The Hawks – criticised for their lack of progress regarding the Guptas - said this week they are cooperating with the FBI in their investigation.
News24 investigative journalists Angelique Serrao and Pieter-Louis Myburgh published an online documentary on Friday, which traced their trip to Dubai when they went knocking on doors to find Gupta-linked firms.
They discovered a trail of shell companies, where much of the illicit funds scored by state-owned entity contract kickbacks have allegedly flowed.
Now, Gigaba has raised his voice regarding illicit outflows.
“Regional development requires combating illicit financial flows,” Gigaba said on Wednesday in his mini budget speech. “SARS is also aware of the major problem of illicit financial flows. To this end, SARS is working closely with FIC [the Financial Intelligence Centre] and SARB [SA Reserve Bank] to close gaps, which are currently arbitraged.”
On Friday, Gigaba and Deputy Finance Minister Sfiso Buthelezi raised the topic again in public engagements.
“We will tighten measures to prevent illicit flows and recoup resources that leak from such illicit activities,” Gigaba told investors at a JSE event in Cape Town. “There will be additional concrete steps that we will announce to tackle this.”
Buthelezi, speaking at the African Infrastructure Dialogue outside Cape Town, said: “Practices like illicit financial flows and base erosion rob Africa of billions of resources. Therefore, we have to monitor these better and have stiff penalties.”
As much as $70bn (R965bn) is estimated to leave Africa in illicit financial flows each year.
Daniel Silke: Probes should start with politically-connected
However, political analyst Daniel Silke said that if their comments are to be taken seriously, the investigations should start at home with a variety of different political players, who may or may not be the Guptas.
“This certainly doesn’t indicate that they are going after the Guptas,” he told Fin24 on Friday. “The private sector is targeted, but those with political linkages are not identified.
“Any investigation into illicit outflows that doesn’t take into account the many allegations against the Guptas and the body politic in South Africa would be wrong.”
Gigaba’s spokesperson, Mayihlome Tshwete, told Fin24 that Treasury’s “interest is all the money South Africa should have taxed and given us revenues”.
“There are many ways the money is leaving that shouldn’t leave,” he said. “Minister Gigaba expects authorities to go after everyone suspected of illegality without fear or favour.”
Asked whether Gigaba should publicly target the Guptas in such an investigation, he said: “If authorities want to investigate any particular individual, they will have the minister's support."
However, he added: “They are not going to go after everyone, but the Guptas.”
Daryl Glaser: Sceptical authorities will go after Guptas
Daryl Glaser, a political science professor at the University of the Witwatersrand in Johannesburg, is sceptical that authorities will go after the Guptas before December.
“The general background leads one to scepticism that they are going after the Guptas,” he told Fin24 on Friday. “Although Zuma and the Guptas are hedging their bets if they lose in December, I find it hard that the apparatus will find the will to act against them.
“There is going to be a lot of people doing complex calculating before December, because the indication is that the tide is turning against (ANC presidential candidate) Nkosazana Dlamini-Zuma.”
Asked if Gigaba was hedging his bets on who to back with his focus on illicit outflows, he said: “It is possible. He sometimes displays unexpected independence.
“Gigaba was seen as a rising star and competent, but he blew that through his time as public enterprises minister. Now, he may be trying to recapture that.”
An example of that may be that, during his mini budget speech, Gigaba thanked Dlamini-Zuma’s presidential competitor, Cyril Ramaphosa, for the encouragement he has given him.
Zuma, Zwane and Moyane all very outspoken against illicit flows
Gigaba is not the first person to focus on illicit flows.
Zuma said recently that the country had taken several measures to combat the “scourge” of illicit outflows at both domestic and international levels.
Other politicians who have vowed to crack down on illicit flows include Mineral Resources Minister Mosebenzi Zwane and SARS Commissioner Tom Moyane.
"This matter will receive priority attention early in the new year, and if it warrants a forensic investigation, this will be done, so that we can take decisive corrective action," Zwane - who is allegedly linked to the Guptas - said in December 2016.
That followed reports that R272bn in Ghanaian gold left South Africa as part of an illicit outflow operation.
"Illicit money that leaves Africa reduces money available to Africa to create jobs and develop economies," said Moyane, a close friend of Zuma.
"The same goes for illicit flows between African countries, which could include illegal trading in diamonds or under-pricing of mineral resources for instance."
However, Glaser warned Zuma has always been very outspoken against corruption, and that actions speak louder than words.
Lord Peter Hain, a part of the UK’s House of Lords, asked his government to engage with Standard Chartered and HSBC regarding illicit flows from South Africa to Dubai.
He says they need to probe flows stemming from all Gupta-linked and Zuma-linked accounts.
“Having looked into this and talked with experts, and noting the reported views of the highly respected former South African finance minister Pravin Gordhan, I have deep concerns and questions around the complicity, whether witting or unwitting, of UK global financial institutions in the Gupta/Zuma transnational criminal network," Lord Hain wrote to Phillip Hammond, UK Chancellor of the Exchequer.
“Based on my knowledge, the majority of the illicit funds have flowed through the UAE and Hong Kong. In both these jurisdictions, two of the UK's largest financial institutions - Standard Chartered and HSBC - have their biggest footprints.
"It will be no secret to financial crime experts that criminals target large and credible financial institutions for the same reasons that legitimate multi-national networks do - for their global reach.
"Experts I have talked to cannot see how they will not have been exposed to this network.”
As the focus heats up on the Guptas and Zuma, it is becoming clear that the issue of illicit outflows will intensify. But whether it will focus on the Guptas is another question altogether.
- With additional reporting from Carin Smith at the African Infrastructure Dialogue.
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