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‘Bankster’ culture of theft, graft

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Picture: Oupa Mokoena/African News Agency (ANA) / June 22, 2022 – Chief Justice Raymond Zondo hands over the final judicial commission on the state capture report to President Cyril Ramaphosa. While Zondo and others have usefully documented corruption by not only the Guptas but also the enablers of graft in several major accounting, legal and consultancy firms, the fundamental problem is that nearly all such incidents are typically understood as stemming from greedy individuals and small-scale syndicates, not as a systematic problem that appears to have become much worse in the era of neo-liberalism, the writer says.

By Patrick Bond

The confession to rand-rigging by Standard Chartered Bank of London, and its minimalist R43 million fine in a Competition Commission plea bargain where more bank names will be revealed, represent the tip of a lethal iceberg.

Since 2015, the extent of currency manipulation has been obvious, notwithstanding then-finance minister Tito Mboweni’s arrogant denial during a March 2019 parliamentary debate.

Successful prosecutions were piling up in the US against participants in the “ZAR Domination” Bloomberg chatroom, where officials of 28 major banks colluded to make profits from gaming the rand.

The Competition Tribunal labelled the act an “egregious” legal violation, but the Reserve Bank, National Treasury, SAPS, Hawks and National Prosecuting Authority have been notoriously soft on corporate crime.

The February grey-listing of South Africa by the Paris-based Financial Action Task Force followed years of warnings about Illicit Financial Flows, money laundering, drug financing and terrorist money transfers, warnings that regulators like the Reserve Bank – owned by the very banks engaged in rand rigging – have generally ignored.

This year’s Al Jazeera “Gold Mafia” critique of a Zimbabwe cartel that relied on the facilitating role of Johannesburg-based “Mo Dollars” caused embarrassment for Standard Bank and Investec, whose staff regularly and blatantly violated exchange control regulations.

This is a vital matter to raise broader social consciousness. Typical analyses of corruption are limited to blaming individual political leaders or managers of state departments and parastatal corporations. But more cases of economic fraud and criminality are now visible, in part, thanks to courageous whistle-blowers, investigative journalists, corruption-watchdog NGOs, scholars and even the US Foreign Corrupt Practices Act (FCPA) when used against South Africa.

The single most extreme case was probably the pre-Gupta bribery of the ruling ANC investment company Chancellor House, as a precursor to Eskom contracts for the construction of the skorokoro Medupi and Kusile coal-fired power stations, starting in 2007. A successful US FCPA Hitachi prosecution in 2015 was, inexplicably, neglected in the 2018-22 Zondo Judicial Commission of Inquiry into Allegations of State Capture.

Zondo and others have usefully documented corruption by not only the Guptas but also the enablers of graft in several major accounting, legal and consultancy firms: Steinhoff retail (Deloitte), VBS bank (KPMG), SAA (PwC), Tongaat Hulett Sugar (Deloitte), Eskom (Deloitte and McKinsey), Transnet (McKinsey), and the South African Revenue Service (KPMG and Bain).

Part of the problem is that nearly all such incidents are typically understood as stemming from greedy individuals and small-scale syndicates, not as a systematic problem that appears to have become much worse in the era of neo-liberalism. That leads to a widespread belief that private sector economic activity is generally clean, which often contributes to pressure for outsourcing, corporatisation, commercialisation and privatisation.

Yet surveys of South African corruption by international authorities reveal a different dynamic. Setting methodological problems aside, the most cited world “corruption-perception” rankings of 180 countries’ state bureaucracies and politicians are compiled annually by Berlin-based Transparency International.

In its last annual survey, Transparency International ranked South Africa 72nd least corrupt, or 108th most corrupt. Transparency International state corruption perceptions worsened most rapidly from 1996 to 1999 (under President Nelson Mandela), 2000 to 2006 (Thabo Mbeki) and 2009 to 2013 (Jacob Zuma).

Another NGO, Corruption Risk, compiles “fact-based indicators directly linked to observed sources … granular and comprehensive, spanning from the accessibility of land or business ownership information to the online disclosure of government mining concessions”. South Africa’s most recent score was 33rd best out of 114 countries with sufficient reporting data, in part because the “judiciary is the best in the region, its budget transparency is at a maximum globally and freedom of the press is very good”.

However, the NGO reported “a sound system of monitoring assets and conflict of interest of public officials would have avoided a scandal like the 2022 theft of a large amount of money hidden in the residence of President Cyril Ramaphosa”.

As last year’s Parliamentary inquiry determined, “the president has a case to answer on the origin of the foreign currency that was stolen, as well as the underlying transaction for it” – notwithstanding subsequent whitewashing by the public protector and Reserve Bank. Ramaphosa has also suffered criticism for his “CR17” slush-fund electoral spending estimated at nearly R1 billion, drawn mainly from rich individuals associated with some of the country’s major corporations.

Yet the most revealing corporate corruption indicator is not regularly referenced in our debates: the PwC index of economic crime and fraud.

During the 2010s, PwC biannual surveys recorded how South African corporations were considered worst in the world in general and – in the 2014 survey – also in the specific categories of money laundering, bribery and corruption, procurement fraud, asset misappropriation and cybercrime. In the 2018 survey, runner-up countries were Kenya, France and Russia. In 2020, India took over as the most corrupt, with China that year tied for second with South Africa.

“Given the spate of recent scandals in South Africa,” remarked Johannesburg-based PwC Forensic Partner Trevor White in 2020, “it is no surprise that organisations consider bribery and corruption to be the most serious economic crime to affect businesses. This, combined with increased involvement of senior management in perpetrating such acts, has resulted in a sharp increase in the value of losses incurred as a result … The level of involvement of senior management as the main perpetrator escalated from 20 percent in 2018 to 34 percent in 2020.”

Neglect of this corporate crime pandemic is not only local. Internationally among academics, the Transparency International Corruption Perceptions Index had more than 40,000 mentions in scholar.google.com, in comparison to just over 1,000 for PwC’s Economic Crime and Fraud survey.

With a few exceptions, South Africa’s media have generally turned a blind eye. Both the two daily business newspapers mentioned PwC’s Economic Crime and Fraud survey only six times each from 2018 to this year despite the country’s leading position.

The need for radical ethical changes in the Wild West culture of Sandton, Rosebank, Midrand, uMhlanga, Stellenbosch and central Cape Town is glaringly obvious. Nationalisation of the Reserve Bank and installation of serious financial regulators are overdue, as so many other crime-ridden economies across the world realised more than a century ago.

Introducing a public utility function to retail banking, perhaps through a state bank, would reduce genuine social anger. And the tightening of porous exchange controls is vital. Indeed, if the threat of hot-money outflows is thus reduced, that would in turn allow much lower interest rates and greater economic prosperity.

Achieving the reforms, though, requires all of us to take not just momentary lessons from the rand-rigging scandal, with our legitimate, widespread expressions of rage about “bankster” behaviour and regulatory sloth at the Reserve Bank and Treasury.

A deep clean of corporate corruption should also be on society’s agenda.

Patrick Bond is Distinguished Professor and Director of the Centre for Social Change at the University of Johannesburg