The Guptas are "politically exposed persons" (PEPs) which meant all their financial transactions were subject to scrutiny in terms of the law and international treaties and regulations.
When it became clear to Absa there were a large number of unexplained transfers of funds between the Guptas' Oakbay companies and other parties, which the bank could not account for, it was decided that Absa should end the relationship with the family.
This is according to Yasmin Masithela, Absa's head of compliance, in an affidavit lodged in the high court in Pretoria in support of Pravin Gordhan, Minister of Finance. Gordhan is asking the court for a declaratory order that he may not intervene in relationships between banks and private individuals.
Besides Absa, FNB, Standard Bank and Nedbank have also ended their relationship with the Guptas, who are close friends of President Jacob Zuma and also the subject of the Public Protector's investigation into so-called "state capture".
In the affidavit Masithela sets out four reasons for Absa's decision:
- Because Absa wasn't used as Oakbay's main banker Absa was finding it difficult to monitor and understand their risk profiles;
- Absa couldn't account for "large, unexplained transfers" between Oakbay, a number of other parties and other banks;
- The costs to monitor adequately the Oakbay accounts' activities and dealings measured against the revenue it generated for Absa was too high; and
- Absa risked reputational damage if it continued to associate with the Guptas.
A decision was taken after the bank's PEP review committee considered these factors. "Accordingly, on 18 November 2014, the committee decided to terminate its banker-client relationship with the Oakbay companies and related parties," says Masithela.
Banks are required by law to carefully monitor PEPs because of the greater risk those persons pose in terms of money laundering and the financing of terrorism. In South Africa this is governed by the Banking Act and the Financial Intelligence Centre Act.
"The risks associated with PEPs are that they, by virtue of their position and the influence that they hold, may be misused to conceal funds or assets which have been obtained illegally through the misappropriation of public funds, or as a result of the PEP's power and influence," Masithela says on behalf of Absa.
Absa seems to have been placed in an untenable position by the Guptas, because the bank is also subject to laws and regulations in the United Kingdom (UK) and United States (US), including oversight by the UK's Prudential Regulatory Authority and the US's Department of Justice and the Federal Reserve.