HSBC – The World’s Oldest Cartel

The now infamous purchase of 1,064 locomotives by Transnet was fraudulently inflated to over R50-billion, primarily to facilitate kickback agreements between Gupta-linked front companies and the Chinese supplier – China South Rail (CSR). Ultimately, over R5-billion in kickbacks were dressed up in the language of “advisory services” and paid to firms owned by Gupta lieutenants. 

Most of these payments went into HSBC bank accounts of these firms in the notorious secrecy jurisdictions of the United Arab Emirates and Hong Kong, and then rapidly distributed into hundreds of other accounts, many belonging to other front companies. This is a typical tool of money laundering. To do this, the Gupta network relied on HSBC, a global banking giant, to both hold the accounts and facilitate the payments. The bank did so in the face of overwhelming red flags and evidence that the transactions were suspicious.

This is not the first time that HSBC has been implicated in the facilitation of organised crime and grand corruption for the sake of profit. Arguably, its conduct in enabling State Capture in South Africa is a continuation of a pattern of behaviour where HSBC has accepted fines as a cost of doing business. South African authorities and the Zondo Commission have a unique opportunity to ensure that the impunity HSBC has enjoyed for too long comes to an end. 

Wagner Moura, who plays notorious drug lord Pablo Escobar in Netflix’s ‘Narcos’. (Photo: supplied)

A exterior view of HSBC Bank In China, on Sunday, July 30, 2017. (Photo: Anthony Kwan / Bloomberg)

1. At the time they were registered, Tequesta and Regiments Asia had no discernible infrastructure or capacity to provide services. Yet, within months of their formation, they were receiving millions of dollars in payments, purportedly for “advisory services”.


2. By mid-2015, Essa was already being written about in the South African media related to his dubious activities at Eskom, and by mid-2016 had been clearly linked to the Gupta network and the Transnet corruption.


3. The payments into the accounts were clearly labelled as emanating from CSR or its sister companies, all owned by the Chinese state. These are the only sources of income for these accounts. A sceptical enquirer, as banks should be, would want to know what sort of legitimate business, newly formed without any infrastructure, receives such large payments from four related state entities, without receiving any income from any other parties.


4. Although the exact web of dispersals still needs to be mapped, it is clear that the moneys deposited by China South Rail were dissipated almost immediately after they were paid, leaving no operating capital. Receiving large deposits that are immediately dispersed is a discernible red flag for money laundering.


5. A large number of the payments made from the Tequesta and Regiments Asia accounts were made into accounts owned by shelf companies in Hong Kong that, our investigation shows, had been formed in 2014 or 2015. This is exactly the same time that Tequesta and Regiments Asia were registered.


6. A large number of the onward payments were made to garment, textile and furniture manufacturers based in mainland China. Neither Tequesta nor Regiments Asia had the infrastructure or business intent to trade in wholesale merchandise. Certainly, they recorded no income from such a trade. These industries, however, are often used in money laundering schemes as they have significant turnover and an export focus.


7. Finally, it is noteworthy that HSBC had, previously, acted in relation to Gupta-linked accounts on the basis of what it deemed suspicious activity. According to a statement released by the HSBC in November 2017, it felt compelled to close a number of front companies linked to the Guptas in 2014.

1. Were they knowing participants in the illicit and illegal activities in question?


2. If not, did they satisfy the duties required by the law and their professions to stop becoming unwitting accomplices to criminal activity?


3. Why did they not identify the obviously suspicious nature of many of the transactions sooner, and if they did, why did they not act to stop them sooner?


4. Do they acknowledge that a reasonable and responsible professional in their position should have done more to identify the criminal intentions behind many of the transactions and deals that they facilitated?


5. How much have they profited from these transactions, and how much of this illicit gain has been repaid, if any?


6. What punitive actions have they taken against individual executives and employees identified as being complicit in illegal or unethical activity? Further, what structural reforms have they enacted at their firms to prevent similar conduct in the future?