By Stephany Torres, Esq.
The United Kingdom has recently extended their sanctions regime to target not only human rights abusers, but also international corruption under the new Global Anti-Corruption Sanctions Regulations 2021 resulting in the UK announcing in April 2021 that 22 people from six different countries facing various restrictions such as visa bans and asset freezes. Included in the 22 are Ajay, Atul and Rajesh “Tony” Gupta, as well as Salim Essa for their role in the “long-running process of corruption in South Africa which caused significant damage to its economy,” the Foreign Office said in a statement. This is the first time the UK has imposed sanctions for international corruption.[1]
The Global Anti-Corruption Sanctions Regulations 2021
On 26 April 2021, the Foreign, Commonwealth and Development Office (“FCDO”) together with the Office of Financial Sanctions Implementation (“OFSI”) published the Global Anti-Corruption Sanctions Regulations 2021 (the “Regulations”).
The purpose of the Regulations is to combat serious corruption, which is defined by the Regulations as bribery or misappropriation of property involving foreign public officials (“FPO”). This is in line with the United Nations Convention Against Corruption’s requirements to criminalise corruption offences and provides a clear, targeted and unambiguous regime. The Regulations provide a clear signal of the UK’s zero-tolerance to international corruption.
The Regulations target individuals referred to as “designated persons”[2], as opposed to previous UK sanctions which targeted specific countries or individuals within specific countries.
The Regulations go further in that they enable the UK to target those who facilitate or profit from serious corruption, those who conceal or transfer the proceeds of serious corruption, and those who obstruct justice relating to serious corruption.
The Regulations are aimed at preventing designated persons from accessing the UK’s financial system, thereby reducing the impact of corruption on the UK’s domestic institutions. The Regulations impose financial sanctions on the designated persons which include (i) an asset freeze, (ii) the prohibition to deal with a designated person’s funds and economic resources (non-monetary assets) and (iii) the prohibition to make funds or economic resources available to or for the benefit of a designated person (either directly or indirectly).[3]
In terms of section 2 of the Regulations the corruption alleged against the “designated person” must be of a serious nature[4]. We set out below how the allegations against the Guptas would certainly qualify as “serious” for purposes of the Regulations.
State Capture in South Africa and the Gupta Family
In 2016, after receiving a formal complaint the public protector, Advocate Thuli Madonsela, launched an investigation into state capture in South Africa. In her report, following the investigation, she recommended that the president assemble a commission of inquiry into state capture.
State capture is a form of corruption in which businesses and politicians conspire to influence a country’s decision-making process to advance their own interests. “As most democracies have laws to make sure this does not happen, state capture also involves weakening those laws, and neutralising any agencies that enforce them”[5].
Abby Innes, assistant professor of political economy at the London School of Economics states that “Full-on state capture is where corporations can influence the nature of the legislative process, and political actors allow them to do so for private gain. The whole policy-making structure of the state becomes commodified – something that politicians are willing to sell.”[6]
In terms of section 84(2)(f) of the Constitution of the Republic of South Africa of 1996, in January 2018, the president of South Africa at the time, Jacob Zuma, appointed a Commission of Inquiry to investigate and make recommendations in relation to allegations of state capture, corruption and fraud in the Public Sector (“the Commission of Inquiry”).[7]
The Commission of Inquiry has uncovered a corrupt relationship between the Zumas (family of former president Jacob Zuma) and the Guptas. This corrupt relationship has led to widespread claims of corruption and undue influence and ultimately, state capture. [8]
The Guptas owned a portfolio of companies that enjoyed lucrative contracts with South African government departments and state-owned conglomerates (e.g. the state broadcaster SABC, the national carrier, South African Airways, the state-owned rail-freight operator Transnet and the energy giant Eskom)[9]. Furthermore, Public officials responsible for various state bodies (e.g. ministries of finance, natural resources and public enterprise, as well as the government agencies responsible for tax collection and communications)[10] say that in exchange for money and/or promotion they were ordered by the Guptas to make decisions that would advance the brothers’ business interests. Non-compliance would be punished with dismissal.[11]
The Gupta’s deny any wrongdoing and are currently in self-exile in Dubai. South Africa continues to try and extradite them for questioning in relation to their alleged role in state capture.
What it means?
The concern from Labour, however, is that given that the present rate of prosecutions in the UK for economic crimes is very low, it is questionable whether law enforcement agencies have the resources to support investigations.
Nevertheless, the Regulations represent an important milestone in South Africa’s fight against corruption. In this regard, James Duddridge, UK Minister for Africa, said: “The South African people know better than most the corrosive effect corruption has on a country, its economy and its people. Today, the UK is supporting the important efforts of the South African authorities to tackle corruption, by imposing sanctions against Ajay Gupta, Atul Gupta, Rajesh Gupta and Salim Essa for their roles in serious corruption which caused significant damage to the South African economy.”
However, the Guptas will be able to request that a Minister reviews the decision, and they can also apply to challenge the decision in court. However, it is questionable whether a challenge from the Guptas would arise or be successful given that the UK foreign secretary assured parliament that the designations are underpinned by evidence, and meet the tests set out in the Sanctions Act[12] and the Regulations.[13]
However, the impact on the Guptas is questionable in that authorities from Dubai and India, where the Guptas have stashed their millions, have failed to take any action against them. Nevertheless the UK sanctions, as well as the US sanctions (imposed upon the Guptas over a year ago) should impact the Guptas and will deter others from engaging in future corrupt activities.
The sanctions may put pressure on other authorities, including South Africa, to follow suit. In fact, the UK foreign secretary called upon international action, stating in Parliament “As with all targeted sanctions, they are most effective when they are backed up by coordinated, international action”.[14]
[1] https://www.bbc.com/news/uk-56895332
[2] See section 6 of the Regulations.
[3] https://www.legislation.gov.uk/uksi/2021/488/part/3/made
[4] https://www.legislation.gov.uk/uksi/2021/488/regulation/6/made
[5] https://www.bbc.com/news/world-africa-48980964
[6] https://www.bbc.com/news/world-africa-48980964
[7] https://www.statecapture.org.za/uploads/r24_of_2020.pdf
[8] https://en.wikipedia.org/wiki/Gupta_family
[9] https://www.bbc.com/news/world-africa-48980964
[10] https://www.bbc.com/news/world-africa-48980964
[11] https://www.bbc.com/news/world-africa-48980964
[12] Sanctions and Anti-Money Laundering Act 2018.
[13] https://www.gov.uk/government/speeches/global-anti-corruption-sanctions-regime-foreign-secretarys-statement-to-parliament-april-2021
[14] https://www.gov.uk/government/speeches/global-anti-corruption-sanctions-regime-foreign-secretarys-statement-to-parliament-april-2021
Anti-Fraud & Corruption Law in Africa 