Sanctions and Anti-Money Laundering Bill [HL]

Lord Hain Excerpts

Report: 1st sitting: House of Lords
Monday 15th January 2018 Lords Chamber

[Baroness Northover]

My Lords, I too am very glad that the Minister listened to the debates in Committee and engaged, with his team, so effectively with the noble Lord, Lord Pannick, and others. I was slightly amused that, in his letter to us, the Minister described his amendments as technical in nature. I thought that was a phrase he might have avoided, given the trouble he ran into on it before. That aside, I welcome the amendments.

[Lord Hain (Lab)]

My Lords, I shall speak to these amendments, on which the noble and learned Lord, Lord Judge, and the noble Baroness, Lady Northover, made some persuasive and consensual points about how we uphold our international obligations. I will focus on sanctions in the related context affecting UK-based companies. I would be very grateful for some leeway from your Lordships in this so that we can make progress on the whole Bill, especially on Wednesday, when time will be short.

It should be a matter of shame that companies headquartered here in the UK have so far evaded sanctions for aiding and abetting money laundering, corruption and state capture in South Africa, including Bell Pottinger, KPMG, McKinsey, SAP and banks such as HSBC, Standard Chartered and Baroda, in total betrayal of Nelson Mandela’s legacy. I have just referred Hogan Lovells, the international law firm headquartered here in London, to the Solicitors Regulation Authority—the SRA—for enabling a corrupt money launderer to be returned to his post as second-in-command of the critically important South African Revenue Service, SARS. I have asked the SRA to withdraw Hogan Lovells’ authorisation as a recognised body and to examine what other disciplinary action can be taken against its leading partners, including withdrawing their permission to practise as solicitors.

Hogan Lovells spared two of the most notorious perpetrators of state capture in South Africa, Tom Moyane, head of SARS, and his deputy, Jonas Makwakwa, from accountability for their complicity in and cover up of serious financial crimes. In so doing, Hogan Lovells are complicit in undermining South Africa’s once revered tax-collection agency and thereby effectively underpinning President Jacob Zuma and his business associates, the Gupta brothers and others, in perverting South Africa’s democracy, damaging its economy and robbing its taxpayers. When Hogan Lovells was engaged by the corrupt Moyane in September 2016, it was well known that he and Makwakwa were synonymous with President Jacob Zuma’s capture of the state. Hogan Lovells could therefore not plead ignorance as they walked right into that web of corruption and cronyism for a fat fee.

To help protect himself from 783 counts of corruption, fraud, racketeering and money-laundering levelled against him when he came to power in 2009, President Zuma systematically dismembered and manipulated the once highly functional South African Revenue Service and the National Prosecuting Authority. Zuma’s key man in this process was his long-time comrade, Tom Moyane, whom he appointed as head of SARS, as commissioner, in 2014 and who, from day one, loyally set about obliterating all its investigative capacity, with the assistance of his deputy, Jonas Makwakwa. These two turned the institution, which under the leadership of the highly respected Pravin Gordhan had consistently overdelivered on revenue collection, into one now facing a 51 billion rand, or £3 billion, revenue shortfall.

Makwakwa’s unethical behaviour was quickly exposed in May 2016 when South Africa’s financial crime regulator, the Financial Intelligence Centre, ordered SARS to establish whether several “suspicious and unusual cash deposits and payments” into the accounts of Makwakwa and his lover, a low-level SARS employee, Kelly-Ann Elskie, were “the proceeds of crime and/or money laundering”. About 1.7 million rand—about £100,000, a lot in South African purchasing power—had been paid into their bank accounts over a six-year period. The FIC noted that the amounts flowing out of Makwakwa’s account,

“are of concern as they originate from unknown sources and undetermined legal purpose”.

However, when the FIC reported these suspicious transactions to Moyane, he tried to ignore the request by keeping it a secret. At the same time, the FIC reported the suspicious transactions to the police, known as the Hawks, to investigate the alleged criminality associated with the transactional flows and they opened a case.

Four months later, in September 2016, news of the FIC’s report to Moyane was exposed by investigative journalists and he begrudgingly suspended Makwakwa and later Elskie. This is when Hogan Lovells entered the picture. Moyane appointed the law firm to conduct “an independent investigation” into the Financial Intelligence Centre’s allegations to ensure “transparency, independence and integrity”, and then to recommend and independently facilitate necessary action, including disciplinary action. Hogan Lovells was therefore appointed to investigate the allegations contained in the FIC report and to conduct disciplinary proceedings against Makwakwa on behalf of SARS. To that effect, Hogan Lovells drafted the terms of reference for the engagement, a seven-page roadmap signed and adopted by SARS. However, Hogan Lovells failed to investigate the very reason the firm was appointed; the allegations contained in the FIC report. Hogan Lovells deviated so materially from its own terms of reference, allowing itself to be blindly led by Moyane, who redefined the terms of reference as and when it suited him, that a respected investigative journalist described the outcome as being,

“so tailored that it borders on the realm of being cooked”.

What an indictment of a leading international firm, Hogan Lovells, and its role.

The allegations against Makwakwa involved layers of possible transgressions; these being, first, tax law breaches, linked to whether he declared the transactions; secondly, criminal breaches, linked to whether the suspicious transactions were predicated on corruption or money laundering; and thirdly, whether internal SARS policy breaches had occurred. Moyane also mandated PricewaterhouseCoopers to analyse Makwakwa’s tax compliance, with regards to the “suspicious and unusual” money flows through his accounts. The Hawks were simultaneously investigating the criminality. Hogan Lovells’s mandate was, according to its terms of reference, to institute an independent investigation, partly using the findings of these other processes, to assess the veracity of the FIC allegations against labour and administrative law, and institute a disciplinary process.

But then two things happened. First, SARS declined to provide Hogan Lovells with the PricewaterhouseCoopers investigative report into Makwakwa, citing taxpayer confidentiality—an inaccurate interpretation of the law, which Hogan Lovells accepted without question. Secondly, Hogan Lovells never made contact with the Hawks to assess the status of their investigation—information which would logically be crucial to its assessment of Makwakwa’s fitness as a senior SARS employee. Equally puzzling is that around that time, South Africa’s Parliament got interested in Moyane’s puppet mastery of Hogan Lovells, prompting a parliamentary question about the nature of the engagement between the two organisations.