By Gabriele Steinhauser in Johannesburg and Margot Patrick in London
South Africa's Gupta family used HSBC Holdings PLC bank accounts
in Dubai to transfer millions of dollars through companies that
have been linked to suspected kickbacks for the sale of Chinese
locomotives, according to documents reviewed by The Wall Street
Journal.
The documents show money moving among three United Arab
Emirates-based firms in January and February 2013 through HSBC
accounts while one of the firms was receiving payments from a
Chinese rail company with a contract to sell locomotives to a South
African state-owned enterprise.
One of the documents, a spreadsheet of bank transactions, shows
that the transfers among U.A.E.-based firms were made in dollars
and cleared by HSBC in New York.
The spreadsheet and other documents cited in this article were
among a trove of emails, bank statements and other documents that
appear to have been obtained from Gupta-controlled companies
earlier this year. The documents have buttressed longstanding
suspicions among many South Africans that the powerful business
clan leveraged its connection to President Jacob Zuma and other
government officials to amass great personal wealth.
They also underscore the risks for banks of processing
potentially illicit money flows.
HSBC said it is determined to keep criminals out of the
financial system. It said it "has been reviewing its exposure to
the Guptas for some time, and has closed a number of accounts for
associated front companies wherever we have found them."
"This is inherently challenging because those who seek to
launder money are often extremely sophisticated, hiding behind
legitimate companies, layers of front companies, connected parties
and individuals that have controlling interests in the subject
companies," HSBC said.
South Africa's amaBhungane Centre for Investigative Journalism
published documents in June showing the Guptas were involved in
arranging the contacts between CSR Zhuzhou Electric Locomotive Co.,
a subsidiary of China's state-owned CRRC Group, and South African
rail-and-port operator Transnet. It said the documents present
evidence Gupta family companies received kickbacks of around 20% on
three locomotive deals from CSR and other CRRC subsidiaries.
CRRC Group didn't respond to a request for comment.
South African police and prosecutors have said they are
investigating allegations of wrongdoing by people and companies
with ties to the Guptas, including potential kickbacks from
international companies.
The Guptas, who didn't respond to a request for comment for this
article, have previously denied wrongdoing. Atul Gupta, who leads
the family's businesses, has said without elaboration that "there
is no authenticity" to the documents, which have been dubbed
#GuptaLeaks in South Africa. Mr. Zuma has also denied
wrongdoing.
The possible role of U.K. banks in Gupta-related business was
raised in October by Peter Hain, a former cabinet minister and a
member of the U.K.'s House of Lords. At the time, the U.K.
financial regulator said it had already asked two banks named by
Lord Hain, HSBC and Standard Chartered PLC, to review possible
Gupta-related business.
Standard Chartered said it shut down some accounts linked to the
Guptas in 2014 after an internal investigation.
In a letter sent last week to U.K. Treasury chief Philip Hammond
and seen by the Journal, Lord Hain accused HSBC of sanctioning
money laundering. He alleged that accounts with U.K.-based HSBC in
Dubai and Hong Kong were used for Gupta money transfers out of
South Africa. He told Mr. Hammond that some of the transactions had
been flagged as suspicious by HSBC staff, but "I am informed that
they were told by HSBC UK to ignore it."
HSBC denies that it sanctioned money laundering.
HSBC has spent billions of dollars improving its financial
crime-fighting systems and hired thousands of compliance staff
since paying $1.9 billion in 2012 to settle U.S. allegations of
money laundering and sanctions breaches. Under the terms of a
five-year deferred prosecution agreement, part of that settlement
with the Justice Department, it must raise its standards to an
agreed level or face an extension of the agreement, additional
conditions or criminal prosecution.
The transactions in the #GuptaLeaks spreadsheet could draw
scrutiny from U.S. authorities, since they are listed as having
been made in dollars and cleared by HSBC in New York.
The Federal Bureau of Investigation is examining funds involving
Gupta-linked businesses that may have traveled through the U.S.
financial system, and the role any U.S. companies may have played,
according to people familiar with the matter.
The spreadsheet shows a total of $2 million moving from two
U.A.E. companies--Century General Trading FZE and JJ Trading
FZE--to a third U.A.E. company, Global Corporation LLP, in January
and February 2013.
The three companies appeared to be controlled by the Guptas,
according to correspondence and financial data in the #GuptaLeaks
documents.
Century General Trading and JJ Trading didn't respond to calls
seeking comment. Global Corporation couldn't be reached for
comment.
Other #GuptaLeaks documents show that Century General Trading
had another lucrative stream of revenue at the time. In October
2012, Chinese rail company CSR signed a 2.69 billion rand ($190
million) deal with South African state-owned Transnet for 95
locomotives. As part of the deal, CSR pledged to pay 20% of its
proceeds, or 537.3 million rand, to Century General Trading,
according to a table setting out the payments the firms were to
receive from the Chinese company.
Transnet said it is investigating the procurement processes for
the locomotive deals.
Emails from the months preceding the deal show that the Guptas
and companies they controlled were involved in arranging the
agreement.
One email chain from January 2012 shows that CSR directors
forwarded a letter to the Transnet chief executive seeking
participation in the locomotive tender to several employees and
executives at Gupta-owned companies.
The transactions processed via HSBC accounts in early 2013 are
part of much-larger money flows due to JJ Trading and Century
General Trading in the years to come. One document states that by
2015, the two companies were entitled to 5.27 billion rand in
payments from CSR, as the Chinese company went on to win two more
tenders with Transnet, for 100 and 359 locomotives, respectively.
The funds from the later deals, between 20% and 21% of the total
proceeds, had been promised to JJ Trading, according to the
document.
It is unclear how payments after February 2013 were processed.
The JJ Trading and Century General Trading accounts with HSBC were
shut down in 2014.
Aruna Viswanatha in Washington contributed to this article.
Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com
and Margot Patrick at margot.patrick@wsj.com
(END) Dow Jones Newswires
November 10, 2017 10:55 ET (15:55 GMT)
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