Given the unequivocal tone of the Competition Appeal Court (CAC) ruling involving three banks’ appeals against the Competition Tribunal’s decision in favour of Sekunjalo Investment Holdings, it’s difficult to imagine that the Constitutional Court will see scope for a further appeal. But you should never second-guess the courts, particularly on an issue as complex as banking.
The mere filing of an application to the Constitutional Court represents yet another temporary victory for Sekunjalo. As soon as the CAC released its decision last month, Standard Bank, the largest of the three, promptly reinstated its decision to terminate banking services to the group. However, the Constitutional Court application meant that reinstatement had to be put back on hold.
The banks have been trying to get shot of Sekunjalo and its approximately 200 subsidiaries for the best part of three years, so far without any success, thanks to a dogged counteroffensive by the sprawling empowerment group.
The most recent part of that counteroffensive was a media attack by Sekunjalo-controlled Independent group outlets claiming Standard doesn’t support media freedom, and that it is motivated by political or other interests. (This was just weeks after Standard had funded a generous award to one of Independent’s photographers.)
Anyway, there is lots at stake for everyone caught up in this train wreck. Not having access to bank facilities is an existential threat for any business.
But for banks, getting caught on the wrong side of the regulators can be costly and damage reputations. In the past decade, many of the big banks have had to pay hefty fines for some or other transgression of the Financial Intelligence Centre Act.
In 2019, Standard was slapped with a R30m fine by the Reserve Bank’s Prudential Authority (PA) for, according to the Bank’s website, failing to comply with “suspicious and unusual transaction” reporting requirements.
In 2016, Absa was fined R10m because it had inadequate processes for detecting and reporting suspicious and unusual transactions. In the same year, Investec was fined R20m because of inadequate processes “to detect and report property associated with terrorist and related activities”. In 2014, Nedbank, FirstRand and Absa were forced to pay hefty fines because of inadequate processes for detecting and reporting on dodgy transactions.
It’s impossible to know whether the ‘suspicions’ behind the transactions were confirmed at some stage
And you can understand why Standard is keen to sort out the Sekunjalo situation quickly, because in 2014 it had to pay one of the largest fines levied by the PA. The R60m penalty, with a directive to take remedial action, was because of inadequate processes to detect and report suspicious and unusual transactions.
As in so much reporting by and about banks, there’s a sort of faux modesty when it comes to revealing details. So the Bank makes no mention of the parties behind all these suspect transactions. And it’s impossible to know whether the “suspicions” behind the transactions were confirmed at some stage.
Crucially and understandably, the PA acts pre-emptively, which presumably means it acts on suspicions in a bid to prevent actual harm. It uses a variety of sources to identify areas of concern or noncompliance including “on-site or off-site supervision, inspections, or information provided by the media or the public”, then takes “appropriate action”.
That probably means it leans on one of the banks to take the “appropriate action”. And the bank might, in anticipation of the PA making a move, initiate the de-banking itself to avoid a fine and a reputationally damaging rebuke. Indeed, the law is specific about when banks are obliged to withdraw financial services. Presumably, each one of the banks followed the detailed legal requirements in relation to Sekunjalo.
This is pretty much how it’s done across the globe, and while it may all sound comforting and reassuring, it may not be appropriate for 21st-century banking. We’re in a world where banking is done on such a large scale that “knowing your customer” is down to an algorithm and a computer process. But while computerised glitches could result in individuals falling through the cracks, it’s difficult to imagine it hammering a large corporate.
Change is needed but no-one seems sure what form it should take. In the UK, where the authorities are still in turmoil after Coutts’s botched handling of Nigel Farage’s de-banking, banks may have to give 90 days’ notice, up from 30. But they may still not be able to spell out the reasons for termination because the UK’s National Crime Agency is afraid that would undermine a criminal investigation.
In South Africa, perhaps it’s time for the PA to take a stand on the Sekunjalo battle.
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