Oakbay CEO asked me to intervene in banks dispute, says Pravin Gordhan

FINANCE Minister Pravin Gordhan has revealed how Oakbay Investments CEO Nazeem Howa requested a meeting with him in May to ask that Gordhan intervene in the company’s dispute with a number of banks that had decided to sever their banking relationship with it and its associated companies.

In a reply to a written parliamentary question by DA MP David Maynier, Gordhan said he had advised Howa that it was best that Oakbay take its dispute to the court, "if it has nothing to hide to correct any misperceptions that any bank may have about it, and to ensure it is being treated fairly".

The minister’s conclusion was that he was "unable to assist Oakbay in any way. I am advised that to do so would be legally impermissible. The best course of action would be for the company to approach a competent court so that it can establish the rights which it contends it has, rather than via a political or public media campaign. This will also allow banks to provide any reasons without transgressing their confidentiality obligations."

In his reply Gordhan said he, Treasury director-general Lungisa Fuzile and three other Treasury officials — including legal counsel — met Howa and a member of Oakbay’s finance department on May 24 at Treasury’s offices in Pretoria.

Gordhan said he explained to Howa that the banking sector in SA was highly regulated, "and any failure of our banks to comply with international regulatory standards could have devastating effects on the banking system, financial stability and the economy as a whole. Banks are subject to tough and intrusive international standards such as Basel 3, 2003 United Nations Convention Against Corruption and anti-money laundering obligations."

The convention required banks in member countries including SA to take preventative action against corruption and money laundering, with the onus on all individuals and companies to explain any transactions that their banks may regard as suspicious.

Gordhan told the Oakbay delegation that banks were expected to comply with market conduct standards, including treating customers fairly, financial inclusion and access objectives.

He also explained that there were legislative and regulatory impediments to any registered bank discussing client-related matters with the finance minister or any third party.

"The minister of finance does not have the power to intervene in a bank-client relationship (and I pointed out that I am advised by legal opinion in this respect). The bank-client relationship imposes a duty on the bank to honour the confidentiality of the client," Gordhan said.

Howa agreed to provide all the relevant information to Gordhan’s office, including the letters he had received from banks informing Oakbay of the closure of their accounts.

Howa insisted the banks had not provided Oakbay with any reasons for the closure of the accounts and had never sent Gordhan copies of the letters received from the banks.

However, Howa subsequently indicated in a television interview that one bank had in fact provided the following reason to Oakbay for the closure of its account: "SA’s Companies Act, Regulation 43, Prevention of Organised Crime Act, Prevention and Combating of Corrupt Activities Act and the Financial Intelligence Centre Act (Fica) as well as the US Foreign Corrupt Practices Act and UK Bribery Act, prevent us from having dealings with any person or entity who a reasonably diligent (and vigilant) person would suspect that such dealings could directly or indirectly make us a party to or accessory to contraventions of that law. "

Howa said in the television interview that the bank had stated: "We have [conducted] enhance[d] due diligence of Oakbay entities as required by the Fica and have concluded that continuing with any bank-customer relationship with them would increase our risk of exposure to contravention of the mentioned law to an unacceptable level."

Gordhan said that at the meeting Oakbay had agreed that attacks from individuals related to the company on Treasury were not helpful or in the national interest and should be avoided.

In an aide memoire sent to Howa after the meeting Treasury explained in detail the domestic and international regulatory regime under which banks operated. This pointed out that "tough" international banking standards prevented a country's government from intervening in the operations of a bank, for example by obliging it to take on a customer who could pose a risk to the bank.

"Such an intervention will expose SA to a negative peer review for undermining its own laws and for interfering with the operational independence of financial institutions. Further, taxpayer funds will be liable for any damage suffered by banks for accepting such high-risk clients," the aide memoire said.

South African banks would be exposed to punitive measures by overseas regulators if they failed to comply with international regulations and could lose or be refused correspondent banking relations with other foreign banks.

"Given the serious and significant consequences of SA being found non-compliant with the international regulatory requirements and the large fines foreign regulators may impose, banks have a duty to monitor bank accounts and to take active steps to ensure that their actions meet the regulatory and international requirements," the aide memoire said.

It noted that the Deutsche Bank, Barclays Bank and UBS had closed the accounts of between 20 000 and 35 000 customers, an indication of the "increased seriousness and aggressiveness with which the world's biggest banks are closing client accounts which they consider too risky - either under anti-money laundering rules or from other regulatory requirements. Their actions also includes them withdrawing from countries they consider as not having sufficiently robust anti-money laundering and counterfinancing terrorism regulatory frameworks."