Pity poor Access Bank (previously Bank of Athens). Two years after it opened an account for little-known Sekunjalo subsidiary AfriNat, it is still paying steep legal bills for closing the account just two months later.
Because of that ill-considered move, Access got swept up in Sekunjalo Group’s broad-ranging legal battle against almost all the banks in South Africa.
From Sekunjalo’s perspective it’s been a remarkably effective shotgun approach that’s seen millions of rand of legal fees devoted to skirmishes in the high court, equality court, the competition tribunal and, most recently, the competition appeal court.
Sekunjalo didn’t respond to the FM’s request for comment; banking and legal sector sources canvassed by the FM would speak only on condition of anonymity.
Access is one of three banks appealing last year’s interim ruling by the competition tribunal. Like an interim ruling by the equality court, the tribunal order stopped the banks from cutting off services to Sekunjalo or any of its companies. And it turns out there are a lot of them — 200 in all.
This, and the fact most are small players operating below the public radar, is probably why, when AfriNat executives approached Access Bank in May 2021, officials there weren’t aware it was part of the Sekunjalo Group. (So much for knowing your customer.)
Access Bank also evidently didn’t realise Absa had closed AfriNat’s account nine months earlier, with all Sekunjalo-related accounts. It stumbled on that fact only a month later, when African Equity Empowerment Investments (AEEI) came knocking. AEEI, which is one of Sekunjalo’s larger subsidiaries and has a high public profile, had also been “unbanked” by Absa.
At that stage Access conducted an “internal screening review” into the Sekunjalo Group. In doing so, it came across “adverse media reports” as well as the troubling findings of the Mpati commission of inquiry, set up to look into allegations of impropriety at the Public Investment Corp.
“The Mpati report concluded that some of the firms falling within the Sekunjalo Group had been accused of engaging in irregular financial transactions and other financial misdeeds,” lawyers for Access told the competition appeal court at its hearing last month.
“This caused Access Bank to have grave concerns about the regulatory and reputational exposure it was likely to face if it continued its association with AfriNat and, by extension, the Sekunjalo Group.”
Adverse and serious findings had been made against the group as well as its controlling shareholder, Iqbal Survé. This was essentially the reason all the banks gave in their legal encounters, though a few, including Absa, made the point that they had commenced a review process in 2018 — before the Mpati commission began.
The high-profile controversy around the December 2017 listing of Ayo Technology Solutions and the subsequent, even more controversial attempt to list Sagarmatha, were enough for Absa to reckon its Sekunjalo accounts needed close scrutiny. After that, in August 2020, it sent notices of termination to 24 Sekunjalo-related companies.
Absa’s move was hardly surprising, given how much criticism banks had received during the Gupta state capture years. In February 2016, Absa was the first of the big banks to close 33 Gupta-linked accounts. Nedbank followed soon after, then FNB and finally Standard Bank.
FNB was next to pull the banking plug on Sekunjalo. In mid-April 2021, Ayo issued a Sens statement warning shareholders that FNB would be terminating its banking services from May 3. Ayo failed to obtain an urgent interdict from the high court.
Smaller banks such as Investec, Sasfin and Access terminated their services between April and July 2021.
When Nedbank announced in February 2022 that it was closing AEEI accounts, the company rushed to the Western Cape High Court. But, once again, it failed to secure an interdict.
That Sekunjalo failed a third time is understandable, given legal precedent. In 2010 the Supreme Court of Appeal ruled, in an unrelated case, that a bank has the right to terminate its relationship with a customer unilaterally, provided certain requirements are met. In the Sekunjalo case, the banks believed they met those requirements.
[The Mpati report] caused Access Bank to have grave concerns about the regulatory and reputational exposure it was likely to face if it continued its association with AfriNat and, by extension, the Sekunjalo Group
— Access Bank lawyers
This may have prompted Sekunjalo to be more imaginative in its fight. In 2022 it launched actions at the equality court against Nedbank and at the competition tribunal against nine banks.
In the equality court, it argued it had been unfairly discriminated against because it was a black-owned company. If Nedbank was concerned about reputational harm, Sekunjalo asked, why hadn’t it also closed the accounts of Steinhoff, EOH and Tongaat Hulett.
Nedbank denied the claim, arguing it had retained those companies as clients because, unlike Sekunjalo, remedial action had been taken as soon as wrongdoing had been identified.
In June, the equality court judge issued an interim order requiring Nedbank to reopen the accounts until the merits of the case were heard in full.
Given the large numbers of parties involved, the chances of the case being heard within the next several months are slim. That’s good news for Sekunjalo but not for Nedbank, which is presumably keen to clear its name of suspicions of “discrimination”.
Sekunjalo scored an even bigger, and possibly more surprising, victory in September, when the competition tribunal granted it interim relief, preventing three banks from closing accounts and ordering five to reopen them pending a decision by the competition commission.
The commission is investigating Sekunjalo’s complaint that the banks colluded when they unbanked the companies. It seems a bit of a stretch, given the haphazard way each bank decided to terminate Sekunjalo accounts. And it’s worth recalling that the first public mention of Sekunjalo’s banking woes was made by its then chair, the late Wallace Mgoqi, at a presentation to parliament’s standing committee on finance in March 2021. That was a full seven months after Absa had done the unbanking. It hardly has the hallmarks of collusive activity.
In a way, the competition tribunal and equality court have rescued both sides from something of a pickle. For Sekunjalo, a lack of access to banking facilities puts the group’s very survival at risk. For the banks, the orders provide shelter from any subsequent challenges, either from the public or regulatory bodies. They can now say: “Yes, we were concerned about the accounts, we wanted to terminate them, but we were prevented from doing so.”
It is perhaps also a useful way of dealing with the troubling fact that here we have private sector companies imposing public policy on other private sector companies. The banks are effectively required to act as agents of the government in its efforts to regulate the financial system; their reporting obligations are hugely burdensome and costly.
Standard Bank complained that the Sekunjalo companies wouldn’t provide information for the due diligence required under the Financial Intelligence Centre Act (Fica). If it cannot perform that due diligence, Fica obliges it to terminate the relationship. Sasfin told the competition tribunal some Sekunjalo companies couldn’t use their Sasfin accounts in the first place because they hadn’t complied with Fica requirements. The cost of undertaking the necessary monitoring of high-risk clients such as the Sekunjalo companies would plunge Sasfin’s banking division into deeper losses, it said.
Sekunjalo Group is in a broad-ranging battle with almost all of South Africa’s banks around the closure of its accounts. It’s received at least a temporary reprieve from the equality court and competition tribunal
— What it means:
But it’s important to remember that neither Survé nor any of the Sekunjalo companies have been found guilty of breaking any law.
The banks had serious concerns, but it was only Nedbank that provided any details of worrying transactions, including the apparent use of company funds for personal affairs and “loans” or “donations” to politically exposed persons.
A report by investigative journalism outfit amaBhungane links to correspondence, reportedly attached to an affidavit by Nedbank chief legal counsel Zanele Mngadi, querying particular transactions. One involves the transfer of R25m from the African News Agency (ANA) to Survé’s personal account, which Sekunjalo noted was to fund his divorce. (In correspondence, Survé says the payment was “in lieu of an intercompany loan between ANA and Sekunjalo Investment Holdings”.)
There’s also a R200,000 loan to former energy minister Tina Joemat-Pettersson in 2018. (She told amaBhungane it was a formal loan backed by a written agreement.)
According to amaBhungane, Nedbank also took issue with a number of supposed intercompany loans made with no supporting documents.
Still, Sekunjalo hasn’t been found guilty of anything.
A related and significant factor is reputational risk. The banks argue that their mere association with Sekunjalo “poses reputational and association risks”. This is no small matter: banks have to consider local and international clients as well as their correspondent banking relationships.
And things on this front are set to become considerably tougher. South Africa’s inclusion on the Financial Action Task Force (FATF) greylist means increased oversight of financial transactions. This will add to the banks’ regulatory burden (and, presumably, the fees we’re all charged).
It’s rarely mentioned in public, but banking industry sources say increasing numbers of accounts are being terminated. The banks have learnt from the horrors of state capture and are painfully aware of the dangers of greylisting — for their reputations as well as the country.
But it now appears banks are caught between three potentially conflicting pieces of legislation — the Equality Act, the Competition Act and Fica — if they want to carry out their perceived regulatory obligations. The regulators need to step in with some firm guidelines that would protect the banks from being forced to be judge and jury — and occasionally villain.
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