laundering – that can fund the patronage operations.11
The conversion of such assets also requires the existence of an appropriate infrastructure for handling and moving them. Such infrastructure includes banking and ‘alternative remittance systems … import-export firms that participate in false invoicing schemes, precious metal markets, and the use of trusts, international business companies, and non-transparent jurisdictions as mechanisms to hide funds’.12
Money-laundering procedures
Money laundering is the process of transforming illicit money into ostensibly legitimate assets. It typically follows a three-stage process: placement, layering and integration. Placement involves moving funds into activities or accounts from which they can be legitimised through layering (blending illegitimate with legitimate funds, recycling them through cash-based operations, moving them into ‘legitimate companies’ or moving them around in complex transactions, and so on). These funds are then integrated back into the revenue stream of the money launderer (often by purchasing property and other goods).
The laundering process usually requires a financial system with lax regulations and controls. Rents are also often distributed in cash and, indeed, this may be preferable in many instances, but there are limits to how beneficiaries can make use of cash in formal transactions because large cash dealings can trigger high-risk alerts with banks. The benefit of cash is that it can be moved overseas, through both formal and informal channels, including the use of diplomatic immunity to traffic large sums of cash across borders (which could raise further questions about the Guptas’ apparently preferential access to the Waterkloof Airforce Base) and the use of informal money exchange networks such as the hawala network, a method of transferring money without any actual movement of cash.
The broker network in action: Transnet and Hong Kong transactional flows
With the patronage network model in mind, the Guptas’ apparent access to lucrative Transnet work and the subsequent movement of related funds, both domestically and transnationally, is instructive.
Controller/patron and elite stages
Zuma appointed Malusi Gigaba as minister of public enterprises in November 2010, about 18 months after he became president.
Brokers established
Gigaba succeeded in moving Gupta brokers into Transnet, thus enabling Gupta-linked entities to benefit from Transnet tender opportunities. Chapter 2 describes the way in which he did this.
Brokers at work: extracting the resources
Locomotives
While he chaired the Transnet Board’s Acquisitions and Disposals Committee, Iqbal Sharma oversaw the adjudication of a R51 billion tender for the purchase of 1 064 locomotives, which was ultimately split among four companies: China North Rail (232 diesel locomotives at R7.8 billion), China South Rail (359 electric locomotives at R14.6 billion), General Electric (233 diesel locomotives at R7.1 billion) and Bombardier (240 electric locomotives at R10.4 billion). Chapter 2 gives details about how the Guptas apparently aggressively represented China South Rail, one of seven bidders then vying to supply the Passenger Rail Agency of South Africa (Prasa) with 600 commuter trains, as documented by former Prasa CEO Lucky Montana.
While, in this instance, they were not successful in their bid to position the rail company, the Chinese company’s success in the Transnet locomotives deal appears to have benefited the Guptas. Information seen by the group of researchers who prepared the Betrayal of the Promise report suggests that the Chinese company, now called China South Locomotive & Rolling Stock Corporation Limited, following a merger with China North Rail, has been paying large sums of money into Gupta-linked entities based in Hong Kong.
Just before the successful bidders for the locomotives tender were announced, Sharma emerged as a buyer of VR Laser Property, which was in a highly advantageous position to benefit from supplying component parts to the successful bidders in the locomotives deal (who were required by state procurement policy to source a large proportion of their components from South African sub-contractors). In addition, the size of the locomotive deal meant that advice was needed about financial arrangements and corporate structures.
As we will explain in Chapter 2, after a series of highly questionable events a Gupta-linked company, Trillian Asset Management, ultimately benefited from this opportunity to the value of at least R170 million.
Information technology
Chapter 2 details how a national multi-billion-rand telecoms company, Neotel, benefited from significant Transnet work, but seemingly only as a result of an obscure Gupta-linked shell company, Homix, which acted as a broker between Neotel and Transnet. In addition, global software giant SAP was strongly encouraged by Transnet to partner with a Gupta entity, Global Softech Solutions, in order to win Transnet work.
Procurement
Liebherr Africa, a German maker of cranes and a supplier of Transnet, was reportedly pressured by Transnet to partner with Burlington Strategy Advisors, which is a subsidiary of Regiments Capital (see Chapter 2) and which also ultimately paid money into Homix.
Brokers at work: moving the resources
In July 2015 amaBhungane presented the first detailed analysis of how the Guptas allegedly laundered the proceeds of their business activities in an operation that centred on Homix.13
This pattern displays the three classic money-laundering characteristics of placement, layering and integration described above.
In moving their money transnationally the Guptas appear to have made extensive use of Hong Kong, which is infamous as a money-laundering capital and where, in the 1960s, 1970s and 1980s, money launderers and couriers made a living out of providing access to underground financial services. While regulations have been significantly tightened, professional money-laundering networks remain active in the country.
The Guptas’ movement of their money through Hong Kong is likely to prove to be only a subset of the full extent of their transnational organisation and movement of rents. The Gupta-linked companies that feature most prominently in the Hong Kong movement of money are Regiments Asia Ltd (unrelated to the South African company Regiments), Tequesta Group Ltd and Morningstar International Trade Ltd, which shares a Hong Kong address with three companies in which Salim Essa is listed as the director: Regiments Asia, Tequesta Group and VR Laser Asia (Table 1.1).
Table 1.1. Known outflows from Gupta-linked companies and individuals
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