The Trengove Talks Part 3: Is the government at war with the banks?

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Visiting Professor Adv Wim Trengove
Visiting Professor Adv Wim Trengove

By Jeremy de Beer

On the 18September 2017, Adv. Wim Trengove SC, well-known as one the country’s most prominent advocates, presented a public lecture at the Rhodes University Law Faculty. Trengove, who has argued many celebrated cases that have shaped our country’s jurisprudence and who has been a regular visitor to the faculty since 2000, chose to focus his lecture on the debacle that unfolded between the Guptas, previous Minister of Finance Pravin Gordhan, and President Jacob Zuma. Trengove noted that the case on its own has very little legal significance, but when seen in the context of the bigger puzzle, is worth a look.

Considering the turmoil our economy and the “revolving door of Ministers of Finance” that have been appointed and fired, we can only speculate as to the reasons for these appointments. “All that we know is that the explanation offered by the President is not true, and that Pravin Gordhan was appointed much to Zuma’s resentment,” explained Trengove. Trengove went on to explain that the Oakbay case comprises of three intertwined stories, although not all three were explicitly mentioned in the case. The first story is the clash between the Guptas and the banks. This started with an international body called the Financial Action Task Force which was set up by the G7 countries (USA, Japan, Germany, Italy, United Kingdom, France, and Canada) in 1989. The Task Force protects the global financial system against money laundering, and has so far published 40 recommendations to this effect. The task force today has 37 members, including South Africa, and is a policy-making body that obliges South Africa under international law to implement these undertakings.

The main piece of legislation by which the Task Force’s framework and recommendations have been implemented in South Africa is the Financial Intelligence Centre Act (FICA). There are two parts of FICA that are relevant to the Oakbay case. The first part imposes significant duties on accountable institutions (such as banks) to “get to know their clients” and to monitor their clients for suspicious transactions and activity. These institutions must report any suspicious activity to the Financial Intelligence Centre, which has powers of investigation and intervention. As such, banks can no longer turn a blind eye to suspicious activities. The second part was introduced by an amendment to FICA earlier this year, and requires banks to identify “prominent influential persons” (PIPs) who either hold or have held prominent public positions. This is because the Task Force recognises that powerful people have a greater capacity and vulnerability for money laundering. Banks must therefore be particularly vigilant of PIPs and their transactions. Beyond PIPs, the banks must also be vigilant of these people’s immediate family and all entities that provide goods and services to public bodies, which includes the Guptas. The banks are therefore not the friends of these PIPs, which brings us back to the Oakbay case, as the banks closed the Guptas’ accounts.

The second story is how the Guptas attempted to pressurise the Minister of Finance and other government regulators to intercede on their behalf with the banks. This story was the main subject matter of the case. The third story is how some government ministers (and particularly the Minister of Mineral Resources, Mosebenzi Zwane) aggressively interceded on behalf of the Guptas against the banks. Zwane announced that cabinet had approved the appointment of a judicial commission of enquiry to investigate the conduct of the banks and that they would amend the law to bring the banks to heel under the control of the Minister of Finance. “This announcement was later repudiated by Parliament as it was simply untrue,” explained Trengove.

So how did these three stories play out? In the same month that Pravin Gordhan was reappointed as Minister of Finance, ABSA sent notice to the Guptas that they were terminating their bank accounts. The other banks followed suite, placing massive pressure on the Gupta companies as they require a bank in order to do business. The Gupta companies then started putting pressure on government regulators (including Gordhan) to intercede on their behalf. These regulators declined, except for Zwane who came out “guns blazing” attempting to bully the banks.

It was in this scenario that the Minister of Finance (then still Pravin Gordhan) launched the Oakbay case in October 2016. Gordhan sought a declaratory order that the Minister of Finance does not have a power or duty to intercede with the banks for the benefit of the Guptas. Gordhan also introduced a certificate from the Financial Intelligence Centre (FIC) that the banks had made 72 suspicious transaction reports to the FIC about suspicious transactions made by the Guptas. This was not actually relevant to the case, but Gordhan used it to show that the banks were acting for good and proper reason. The Guptas’ defence was pretty predictable: they argued that they had never claimed that Gordhan had the power to intervene, and accepted that he did not (despite asking him to intervene). The Guptas therefore claimed no conflict with the Minister of Finance and that this was simply a political manoeuvre that did not require a declaratory order, and that the certificate introduced by Gordhan was irrelevant and should be struck out. The judgment was handed down in August last year.

On the legal argument, the Guptas won every side of the case as the court refused to grant the order due to the absence of conflict. The court was also quite stridently critical of Gordhan for bringing the case to “score a political point”, stating in paragraphs 82-83 of the judgment that “it is not appropriate for a member of the national executive to draw the judiciary into the exercise of his executive functions.” As for the certificate, the court found it to be inadmissible and made the Minister of Finance pay for both the dispute about the case at large and the dispute about the certificate.

Although Gordhan lost, one must also look at the political implications of the case. The case immediately shut down all the discourse putting pressure on the Minister to intercede, and shut down Zwane from aggressively interceding. By becoming the subject matter of a pending court case, the discourse disappeared even before the judgment was handed down.  It comes as a matter of law that the government does not have the power and may not interfere on behalf of the Guptas. As such, although there was a legal defeat, Gordhan achieved a political victory. By the time the judgment was given however, Gordhan had been fired.