ON THE MONEY: Ministers’ approach to banks about Guptas sets off very loud alarm bells

SEVERAL years ago, I was interviewing the CEO of one of the big banks in his office. Despite having put his calls on hold, the phone on his desk rang. It was clearly important. He sat bolt upright when he answered, and asked me to wait outside. But the door remained open and I could make out some of the conversation. There was a lot of “yes sir, no sir”, but it seemed to concern someone having difficulty paying back a loan.

After the call, the CEO apologised. He said there were some calls you have to take: the president’s. This was the Mbeki era. I have no idea whose loans were being discussed, but a prominent MP was later reported to have settled a home loan dispute with that bank.

The point of this story is that there are many conversations that happen between politicians and banks. Politicians have power, and banks have an interest in keeping them happy. The rest of us should worry that this does not become unhealthy.

If you want to see how wrong things can go, Nigeria provides many examples. Before it decided to clean up its banking sector a decade ago, the system was riddling with bad loans that had been made to politicians. The banks couldn’t foreclose without incurring their wrath. Politicians don’t only have a hand in who gets government business, but also in who has the right to operate a bank at all.

So, when ministers announce they are intervening in a banking relationship, as three of ours did last week in the case of the Gupta family’s Oakbay company, very loud alarm bells go off. Oakbay has been sent packing by the big four, with only an Asian bank, thought to be Bank of Baroda, servicing it. Baroda is an Indian state-owned bank with a South African branch licence.

Banks have international and domestic obligations not to be caught up in financing or facilitating illegal activity. SA is a member of the International Financial Action Task Force, and has committed to implementing its recommendations.

The ministers include Finance Minister Pravin Gordhan, Minister of Labour Mildred Oliphant and Mineral Resources Minister Mosebenzi Zwane, to whom Oakbay says it appealed for help, given that it can’t conduct business without a bank.

They have stressed they were on an information-seeking exercise only.

A few things are clear. Zwane has been widely panned as a Gupta hack, but Gordhan is certainly not. Also, I would bet that Gordhan knows exactly why the banks iced out the Guptas. He is more than capable of picking up the phone. There must be a reason he has accepted being named as some sort of errand boy on behalf of the Guptas. Might this all be a strategy to bring out the reason the banks have distanced themselves from the Guptas? The banks can’t just tell us — they must adhere to strict client-confidentiality laws.

The first bank to axe them was Absa, in December. This might have happened soon after Nenegate. What is it about the Guptas’ banking around that date that may have alarmed Absa? I do hope we find out.

WHEN it comes down to what the Guptas actually do to make money, the answer seems to be to intermediate themselves between the government and state-owned enterprises, and suppliers to those.

That allows them to slice themselves a margin.

It brings to mind a poem by the economist Charles K Rowley. In 1986, the journal Public Choice published his Ode to a Rent Seeker:

I aim to seek out every rent/ be it honest or be it bent

I seek out rent on every margin/ let fools engage in wealth enlarging

Some may shirk whilst others toil/ I spend my time on fertile soil

Government transfers I endorse/ as a highly fruitful income source

Receipts in excess of gains foregone/ mean others lose what I have won

These first lines would, I think, make an excellent family sing-along for the Guptas.

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