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Days before the Reserve Bank is due to hand over funds it quietly froze to the Chinese railway group CRRC, the tax collector goes to court to preserve them and prepares to claim billions from the group based on evidence that he paid bribes to the Guptas.
In an uncommon rush for officials, the Reserve Bank of South Africa took on the Chinese rail conglomerate CRRC a week after amaBhungane and our #GuptaLeaks partners revealed that CRRC was paying bribes to the Gupta crime family.
It was June 2017, and the Bank eliminated a lonely institution that was resisting state capture. Its officials must have been determined to target an industrial group controlled by a friendly state and allegedly in a corrupt relationship with friends of the South African head of state.
In subsequent correspondence with CRRC, the Bank referred to a June 7, 2017 meeting with its representatives called “to, among other things, discuss the allegation that ‘kickbacks’ were paid to Tequesta.” The Bank complained that its officials “did not receive any plausible explanation of the justification for the transaction.”
In our first #GuptaLeaks story Seven days earlier, we had revealed that CRRC’s predecessor China South Rail, which won contracts to supply Transnet with hundreds of locomotives, agreed to divert billions to Gupta’s offshore fronts, including Tequesta Group in Hong Kong.
We had posted online a copy from a bribery deal in which China South Rail promised to pay Tequesta 21 cents for every rand it received from Transnet for an order for 359 electric locomotives.
CRRC then, as it appears to have maintained ever since, “stated that it was not aware of any [kickback] agreements, ”although the Bank endeavored, according to correspondence, to commission a forensic writing analysis. This appeared to verify the signatures of Gupta’s lieutenant, Salim Essa, and China South Rail officer, Guo Bingquang, on the Tequesta deal.
CRRC, Gupta and Essa have not consistently responded to amaBhungane’s requests for comment.
The great frost
Before the year ended, on December 12, 2017, the Bank froze R1.26 billion that it found in the accounts of CRRC E-Loco Supply, the local CRRC subsidiary contracted to supply Transnet.
The Bank did so under exchange control regulations that allowed for freezing orders and eventual seizures using simple logic: if CRRC offshore was paying 21% of the proceeds from the 359 locomotive contract to Tequesta, CRRC E-Loco had not told the Bank all the truth when it requested the sending of foreign currency to CRRC offshore for the importation of locomotives and spare parts.
The foreign exchange transfers, the Bank argued, should have been inflated by 21% to pay bribes, a purpose the Bank had not approved.
The amount that the Bank froze constituted 21% of the nearly R6 billion that CRRC E-Loco had sent abroad by then. According to the Bank’s correspondence, “CRRC E-Loco… requested and caused the transfer of foreign currency in the amount of R1 255 058 117.48 (21% of R5 976 467 226.08)… outside the Republic, whose foreign currency owed be used or applied for a purpose other than that indicated in the corresponding application “.
In its annual report a year later, CRRC Corporation, the group’s parent company listed in Hong Kong and Shanghai, declared a contingent liability related (as it said) to the establishment of the Zondo State Capture Investigation Commission and the reports of the South African media referring to “violation of laws related to multiple acquisitions for the supply of locomotives by the South African train operator Transnet.”
It stated that “bank balances totaling approximately RMB600 million [about R1.26-billion then] held in two bank accounts of the Group in South Africa are subject to freezing orders issued by the Reserve Bank of South Africa ”.
In subsequent regulatory filings, the frozen amount declared by CRRC grew: RMB1.27 billion (around R2.6 billion) in June 2019, RMB2.2 billion (around R4.4 billion) in December 2019 and RMB1.88-trillion (around R4.6 billion) in June 2020.
Which means that, as Transnet paid CRRC E-Loco for more locomotives, the Bank kept freezing more. The Bank ignored amaBhungane’s inquiries in early 2020 despite the CRRC putting the freeze orders in the public domain.
A burning deadline
But the clock kept ticking. The Foreign Exchange and Currency Law and the exchange control regulations establish that money frozen under suspicion of a currency infringement must be released after 36 months, unless the Bank confirms its suspicion and issues an order to confiscate the money to the Treasury national.
Here, the Bank had the opportunity to recover for the public the largest pot of State Capture loot to date.
But with Saturday December 12, the deadline for releasing the first R1.26 billion, approaching it, the Bank appears to have blinked. The Government Gazette, where the confiscation orders must be published for them to take effect, has been silent week after week.
A confiscation order can be reviewed in court. It is not known if the Bank was concerned about the strength of its case, if it was happy that another state body took the initiative or if it has a last-minute trick up its sleeve.
Whatever the Bank’s plans, the South African Revenue Service (SARS) has stepped in with a last-minute attempt to preserve the boat.
Last month, SARS filed a request that it wants the Pretoria Superior Court to hear urgently on Tuesday, December 8, four days before the deadline.
The request is for an interim order that preserves all of CRRC E-Loco’s assets and appoints a conservator to take control of them. The conservator will be specifically authorized to transfer the funds thawed by the Bank to his trust account.
SARS ‘request motivates intervention on the grounds that it is preparing a claim for more than R3 billion in taxes, penalties and interest against CRRC E-Loco and that “a conservation order is required … to secure CRRC E- Crazy”[s] realizable assets that are available for the collection of said tax due ”.
If the court grants the interim order, CRRC E-Loco will have the right to argue against making it final at a full hearing in February.
Not tax deductible
The SARS claim relies heavily, as the Bank before it, on the cover-up that accompanied the bribes.
While the Bank effectively said that CRRC E-Loco violated forex rules by not disclosing that part of the money it took out of the country was earmarked for bribes, SARS says the company violated fiscal rules by including bribes in its cost of sales. . Put another way: corrupt payments are not tax deductible.
And like the Bank, SARS relies heavily on information that amaBhungane put into the public domain.
In his affidavit that prompted the request, Deon Boshoff, an investigator with Sars’s illicit economy unit, says that Sars was investigating Essa, Gupta’s lieutenant, but that the focus began shifting to CRRC E-Loco after that Sars obtained a report on the Bank’s freeze orders. in May of this year.
SARS governing structures approved a unit investigation into CRRC E-Loco in August.
Boshoff claims he studied information in the possession of SARS and in the public domain. “I specifically considered an article that appeared on the amaBhungane website on June 1, 2020 titled How the mad Guptas heist worth 9 billion rand happened“… The amaBhungane article contains several electronic links to documents that are relevant to the discussion below.”
Our article revealed that CRRC group companies had signed contracts to pay Gupta’s offshore fronts a staggering R9 billion in bribes in Transnet locomotive deals worth R42 billion.
Based on our analysis of evidence, including eight bribery contracts and flows to foreign accounts, all of which posted online, we concluded that in October 2016 CRRC companies had already paid R3.7 billion to the Gupta fronts. After that, the overseas data was turned off, but the payments are likely to continue.
SARS opinion
Boshoff’s 96-page affidavit examines each of the three electric locomotive contracts (95, 100 and 359) that CRRC E-Loco won from Transnet, repeatedly returning to the amaBhungane information.
Commenting on the bribery contracts, he says: “SARS is of the opinion that these agreements were entered into to extract funds from Transnet, South Africa’s largest procurement provider together with Eskom, to line the pockets of Mr. Essa, the Guptas and others – people in profile, to the detriment of the South African taxpayer and the South African economy in general ”.
In the end, it identifies R2.65 billion in bribes that CRRC E-Loco irregularly deducted on its 2014, 2015 and 2016 tax returns. It is less than the R3.7 billion identified by amaBhungane, among other reasons because the network of SARS drag did not include a sister company to CRRC E-Loco that won a separate contract for 232 diesel locomotives from Transnet and where bribes were also paid.
It is not known whether SARS is separately investigating the sister company, CRRC SA Rolling Stock.
Boshoff proceeds to recalculate CRRC E-Loco’s tax returns, rejecting the bribe deductions and some other items. With penalties and interest, the “total probable tax debt” comes to R3.17 billion. But the tax audit, he says, is not complete and the figure may change.
Others hanging around
Boshoff says that funds frozen by the Bank last month amounted to R4.19 billion – they were down from the R4.6 billion frozen at its peak after the Bank agreed to a request from CRRC E-Loco to release some of funds “to pay your debts, as you are entitled.”
Boshoff draws the court’s attention to the fact that the currently anticipated SARS claim is approximately R1 billion less than what the Bank has frozen.
He adds: “However, SARS is not fully informed as to exactly what the position is with respect to all these funds or if there may be other persons or entities that have a claim against these funds. In the circumstances, SARS requests that the full amount be retained, along with the other assets of CRRC E-Loco. “
In fact, amaBhungane understands that Transnet, the Asset Forfeiture Unit and possibly other state bodies are preparing their own applications. The recovery race is on. DM
