Guptas offer to repay Industrial Development Corporation R300-million to settle unpaid mining loan

13 Jun 2023

Suspicion over source of funds causes the IDC to dig in its heels over R300-million payment offer from Oakbay Resources, even though lawyers are adamant the cash is kosher and not the proceeds of crime.

The Industrial Development Corporation has been hit with an extraordinary deal: A conditional settlement offer from the Guptas who suddenly appear keen to pay back an unpaid loan linked to their acquisition of Shiva Uranium more than a decade ago.

But unlike the payback deals of McKinsey & Co, Bain or KPMG, this is no mea culpa-style offering to settle a State Capture hangover.

The Guptas’ previously listed Oakbay Resources and Energy (ORE) wants to pay the IDC in excess of R300-million to end a six-year high court battle that would give them a shot at once more controlling and preserving this valuable asset in their estate.

The IDC has declined to comment but Daily Maverick has confirmed that an initial offer submitted via the Guptas’ local legal team was submitted to IDC representatives roughly 10 days after the UAE extradition debacle in respect of Atul and Rajesh Gupta became public on Good Friday.

The IDC though, not dazzled by the initial offer, has engaged the Gupta representatives on a revised offer that apparently factored in interest and associated legal and security costs.

The IDC has thus far refused to provide its banking details for payment and is insisting that Oakbay and a mystery third-party funder both be subjected to stringent Fica checks.

But the state-owned development funding institution is playing hardball, partly because it is suspicious about the source of funds Oakbay intends to use to pay up.

Gupta-owned companies have been unbanked since at least 2017 when all major South African banks terminated their accounts and owners Ajay, Atul and Rajesh Gupta – along with their former key man, Salim Essa – were all slapped with financial sanctions under the US’ Global Magnitsky Act in 2019.

The IDC has thus far refused to provide its banking details for payment and is insisting that Oakbay and a mystery third-party funder both be subjected to stringent Financial Intelligence Centre Act (Fica) checks. The act requires reportable institutions to “Know Your Client” and disclose suspicious transactions to combat financial crimes including money laundering.

And despite the settlement discussions, the IDC is also pushing ahead with a separate court case to try to liquidate Shiva Uranium which is among a batch of Gupta assets placed into voluntary business rescue in 2018.

Details of Oakbay’s offer come barely two months after a national outcry over South Africa’s failure to secure the extradition of Atul and Rajesh Gupta from the UAE and a recent announcement by the Department of Justice of new measures to resuscitate those efforts.

The IDC has fought the Guptas all the way to New York as part of efforts to recover the outstanding balance of the R250-million loan dispensed under controversial circumstances in 2010 to help them buy a uranium (later named Shiva Uranium) mine in South Africa.

When the Gupta-owned company failed to meet repayment terms, the loan was restructured in terms of another murky debt-to-equity deal through which the IDC acquired a stake in Shiva Uranium.

The IDC has since tried to rescind this share deal as part of its legal recovery efforts.

In 2017, the IDC went to court to recover the debt that now comprises a capital balance, security, legal costs and interest totalling about R300-million.

On the face of it, the Gupta offer could be viewed as a fair deal, one that would get the IDC out of this tangled web of litigation, the cost of which – at last check – was even more than the current capital balance of about R30-million.

Any settlement deal with the Guptas or any of their companies is likely to come with elevated risk considerations around the source of funds.

But the Guptas, and by extension their companies, are no ordinary litigants.

They are accused of building a vast empire in South Africa on the back of dodgy deals with state-owned companies and political influence that extended right to the office of former president Jacob Zuma.

Given that the Guptas are under international sanctions and embroiled in civil litigation – including a R3.8-billion civil claim from Eskom and the Special Investigating Unit (SIU) – it may also be that the IDC is concerned that the money could be seized by law enforcement once it lands in its accounts.

At the very least there are other stakeholders with a vested interest in Gupta assets – provided they can prove a case for criminal or civil forfeiture.

Those include the National Prosecuting Authority (NPA), which already has the Gupta-owned Optimum Coal Mine under a preservation order, the Special Investigating Unit (SIU) and possibly also the South African Revenue Service.

Even if this deal can be pulled off, an important question is what it ultimately means for the IDC, which has fought this case through the courts at huge expense.

This includes the IDC’s successful extraction of Gupta-linked records from 17 New York banks in 2020.

Any settlement deal with the Guptas or any of their companies is likely to come with elevated risk considerations around the source of funds.

Our client already confirmed that funds, to be utilised to pay the IDC, are not proceeds of crime.

And cash mobilised from abroad would likely also come under heightened scrutiny as the Reserve Bank is concerned.

Oakbay lawyer Pieter van der Merwe, in response to questions from Daily Maverick, said his client – Oakbay – had tendered “full” payment in the hope of bringing an end to the lengthy legal battle.

He said it was baffling that the IDC would want to continue to litigate.

“Millions of rand has been (and will be) spent on legal costs. This matter will continue for years to come. From a commercial perspective it simply does not make sense continuing with the litigation, bearing in mind that the assets are deteriorating on a daily basis.”

His clients, Van der Merwe said, had already “confirmed” to the IDC that the money to be used to pay up would not be the proceeds of crime. And, subject to “normal confidentiality principles” it will also be up for auditing to satisfy money laundering concerns.

He described the Eskom claim as a figment of “someone’s imagination”.

Daily Maverick asked: “Given that the Guptas are often accused of having built an empire out of the proceeds of crime, what assurances would your clients be able to provide that any cash provided for such a settlement would withstand anti-money laundering concerns?”

Said Van der Merwe: “Our client already confirmed that funds, to be utilised to pay the IDC, are not proceeds of crime and will, subject to normal confidentiality principles, be able to be audited as being lawfully acquired. Our client tendered full transparency in verifying the source of funding and that it is not proceeds of crime, obviously subject to confidentiality.”

The source of funding can be validated, and all information will be divulged to the IDC’s own compliance unit, he said.

As an indication of the seriousness of the offer, the Gupta lawyer said they would seek to have the settlement made an order of court.

“We have already informed the presiding judge who has been dealing with this matter that our client has tendered payment of the amount claimed.”

The IDC offer is the first indication that the Guptas may be looking to streamline their legal battles in South Africa – especially in the wake of their UAE extradition victory.

While some of them hold Vanuatu passports, the precise whereabouts of the Guptas remain a mystery.

And confusion continues about whether South Africa has valid Interpol Red Notices in place for Atul and Rajesh Gupta who are wanted on criminal charges relating to a Free State government deal commonly known as the Nulane case.

Read more in Daily Maverick: Shamefaced NPA Investigating Directorate to appeal dismissed R24.9-million Nulane Investments case

The Gupta brothers, although not before court in the Nulane trial, no doubt view the extradition victory and the section 174 discharge of criminal charges against other accused in the Nulane case in South Africa as ammunition for any bid to rebrand themselves internationally. DM

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