By Raunak Haldipur
In June 2017, a footnote to the Bank of Baroda’s (BoB) quarterly results mentioned a fine levied by the South African Reserve Bank (SARB), headquartered in Pretoria. The sum of ₹5.45 crore was insignificant for an institution the size of BoB. No further details were given; the penalty passed unnoticed in India.
However, in South Africa, the SARB’s actions suggested BoB’s involvement in the ‘State Capture’ scandal, an avalanche of allegations that President Jacob Zuma was under the sway of three brothers from Saharanpur, Uttar Pradesh- Ajay, Atul, and Rajesh Gupta, collectively known as “The Guptas”.
Understanding the scandal
Bank of Baroda underwrote the controversial purchase of a coal mine in South Africa by the Guptas. This transaction is now the subject of parliamentary inquiry. The bank also stood by the Guptas as four major South African banks shut their bank accounts in 2016 on the grounds that anti-money laundering laws made it too risky to do business with the family.
As the scandal continues to unfold, BoB’s role as the Gupta family’s banker of choice for their most controversial deals has attracted increasing attention from South African regulators, investigators, and the press. A joint investigation of thousands of pages of court documents, bank records, SARB records, internal Gupta company correspondence, and interviews with bank officials, by Hindustan Times, South Africa’s Bhungane Centre for Investigative Journalism, Finance Uncovered and the Daily Maverick’s Scorpio unit, reveals a laundry list of potential violations, and a seeming disregard for banking ethics and regulations by BoB executives.
An example, as early as 2010, BoB financed the purchase of a luxurious house that was bought in the name of President Jacob Zuma’s fourth wife but paid for by the Guptas through BoB accounts operated by secretive trusts. Also, as late as November 2016, an investigation into the Guptas’ controversial purchase of a coal mine by South Africa’s Public Protector, a constitutional public ombudsman, found that the conduct of the Bank of Baroda appears highly suspicious in the bank’s role in underwriting the deal.
BoB stood by the Guptas as four major South African banks shut their bank accounts in 2016 on the grounds that anti-money laundering laws made it too risky to do business with the family. While BoB executives say they began to exit their relationship with the Guptas in July 2016, the bank sent out account termination notices a full year later in July 2017. The Guptas then took the bank to court. At the time of going to press, BoB was stuck with the accounts of at least 35 Gupta companies according to the most recent court disclosures. What follows is an inside account of how a culture of willful blindness in BoB’s South Africa operations exposed India’s second largest bank to a damaging investigation in a foreign jurisdiction. Bank executives sought personal favours from the Guptas and enjoyed their hospitality, emails show, while the family used BoB accounts to funnel millions through an international network of secretive companies and trusts. Personal favours aside, the systemic shortcomings identified by the SARB audit lead back to BoB’s compliance department in Mumbai, raising questions about the bank’s operations in India and across the world.
Bank of Baroda’s reputation worldwide
BoB’s stocks have already started taking a hit in India due to the scandal in South Africa. South African investigators now are probing if the money in these accounts included kickbacks for prominent South African politicians for awarding dodgy government contracts to the Guptas. Today, as BoB attempts to sever its relationship with the Guptas, senior bank officials admit that a further setback in South Africa could expose the bank to damaging investigations in all 25 international jurisdictions where it currently does business.
Months after being forced to keep open the accounts of businesses owned by the controversial Gupta family, India-based money lender, The Bank of Baroda, has given notification to the South African Reserve Bank that it will be exiting the country. BoB has notified the Office of the Registrar of Banks of its exit from South Africa. The Registrar, which is part of the South African Reserve Bank (SARB), is in discussions with BoB to ensure its orderly withdrawal from South Africa so that no depositor is disadvantaged.
One major implication of this that BoB will face is audit and investigations in various other countries where they have operations. The central banks of those countries will put BoB under the scanner and closely watch their business. Due to this scandal, a lot of companies will think twice before doing any business with Bank of Baroda for at least some time. This phase will pass for them but this will undoubtedly leave a black mark on their reputation.
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