For the past 20 years the apartheid-era operators of what is described by European investigators as the largest money laundering operation in history, were confident that they would never be exposed or brought to book. In their heyday, none would have dared expose them: the one man in the know who threatened to blow the whistle on the operation was swiftly and efficiently assassinated. (See editorial.)
As the end approached, one of their last secret projects, code named Masada, was directed at destroying all the documentary records of that massive money-laundering network.
As far as they were concerned, it had been successfully carried out: the documents once held by Armscor and Absa Bank (successor to the original Volkskas Bank), at the SA Reserve Bank and at South Africa’s embassies in Paris and Tel Aviv, had been either shredded or burned. No one would be taken captive.
So they – and their ANC successors – thought. So the governor of the SA Reserve Bank thought (see below Reserve Bank deactivates the activists). So Absa’s directors and its new owners, Barclays plc of London, thought. So Credit Suisse thought. So the Union Bank of Switzerland and Belgium’s KBC banking group thought. They were all wrong.
The reptile egg is about to hatch.
Some time during 1986, champion racing driver-turned-businessman Jorge Pinhol, a well-connected Portuguese citizen, received an unsolicited call from the first secretary of the South African embassy in Lisbon: Would he be so kind as to contact Mr Tonie de Klerk, head of the technical committee of the RSA embassy in Paris?
|Poster produced by Ford Lusitánia in Portugal to celebrate the world speed and endurance record achieved by Jorge Pinhol in 1973. Driving a two-litre Ford Cortina at Monza, he covered 40,000km in 10 days at an average speed of 167 km/h.|
In due course, Pinhol would discover that the “technical committees” based in the South African embassies in Paris and Tel Aviv were, in fact, Armscor’s secret European procurement set-up, charged with securing “a range of items” needed by South Africa’s defence force and its internal security forces. (That they were sited in those cities simply reflected their very close relationship with their Israeli counterparts: Israel had already set up its equivalent “technical committee” in Paris in the 1950s.)
Their main purpose was to circumvent anti-apartheid sanctions and avoid the attentions of the many, increasingly influential, anti-apartheid movements that had succeeded in giving South Africa pariah status, cut off its arms supplies and inhibited its general trade with the outside world.
On meeting Tonie de Klerk, Pinhol learned that his assistance was wanted in creating a Portuguese “channel” for a major project which Armscor needed to hide, for “commercially sensitive reasons”. Pinhol had been chosen for the task because he and his business associates had excellent relationships with Portugal’s ruling parties and defence establishment.
In broad terms, Pinhol learned that Project Adenia involved a French government controlled manufacturing company, Aerospatiale (later Eurocopter), secretly supplying Armscor with new Super Puma helicopters, plus upgrade kits for the South African Air Force’s existing fleet of helicopters – with the technology and engineering resources needed to assemble and maintain them. Unarmed, they were designated “search and rescue craft”.
But first there was to be a smaller trial run, to make sure that Pinhol’s connections could indeed provide a secure channel: in 1986 a night flight guidance system was shipped from France to South Africa via Portugal. When the shipment arrived safely in South Africa, Tonie de Klerk arranged for a commission of U$25,000 to be paid into Pinhol’s Swiss account.
In July 1987 Project Adenia was set in motion. For its fronting role, Portugal’s Air Force would receive a Super Puma upgrade of its own fleet of search and rescue helicopers – to be secretly paid for by South Africa. For his role in setting it all up, Pinhol’s company would be paid a 10% commission on the full value of Project Adenia, with Aerospatiale paying 50% of the commission. Quite how spectacular a sum the commisssion would amount to, Pinhol only discovered many years later. Meanwhile he was happy to take the Paris Armscor man’s word; they were by now trusted friends.
|Jorge Pinhol in 1973|
Three years later, in 1990, Pinhol enquired about his as-yet-unpaid commission, and was reassured when the Paris man suggested they take a trip to Luxembourg, to open a special account for him at Kredietbank Luxembourg. It was further suggested that he sign Power of Attorney in favour of his Armscor friend, who could then not only ensure that all commission payments were promptly deposited as they became due, but also manage any subsequent disbursements on Pinhol's behalf.
When they arrived in Luxembourg, Pinhol was impressed: the bank manager had all the required documents ready for him to sign, everything was done within minutes. Only later would this “efficiency” strike him as suspicious.
Two years later he had still received no commission. Calls to Armscor’s Paris office went unanswered. Even worse, the manager at Kredietbank in Luxembourg wouldn’t take his calls either, let alone report on the state of his account.
In late 1991 Pinhol contacted Pik Botha, then SA Minister of Foreign Affairs, who offered to investigate the matter. Botha called in the assistance of SA’s ambassador to Portugal, who confirmed Pinhol’s claims.
In 1 December 1992 Botha wrote a memo to his colleague, the Minister of Defence, recommending that they settle Pinhol’s claim. To no avail.
In 1993, Pinhol instituted in-camera court proceedings in South Africa against Armscor. Armscor refused to account for Project Adenia, claiming privilege on grounds of national security; it also declared that it had “no commercial relationship” with Pinhol or his companies. (Armscor’s lawyers did not disclose to the court that their client was executing Project Masada, aimed at destroying or “quarantining” all documentation on Adenia and other highly sensitive Armscor projects, such as the joint nuclear programme with Israel.)
In the absence of documentation, Pinhol’s senior counsel advised him to withdraw his case, which he did, without prejudice. He then began proceedings in France, in the hope of forcing Aerospatiale to account for its dealings with him and with Armscor. Again he was faced with denials, lies and obfuscation. (He would later learn that the chairman of Aerospatiale/Eurocopter, JF Bigay, had written to South Africa’s ambassador in Paris on 3 May 1996, urging that “essential measures” be taken against Pinhol, to prevent him from pursuing his case.) The French judge dismissed Pinhol’s case, accepting Aerospatiale’s false claim that it had sold the helicopters to Portugal.
He finally instituted action in Portugal, where he had reputable witnesses who could testify to his role in the project. But by then he had run out of funds to pay legal costs – that is, until Canadian fisheries and telecommunications billionaire (see nose131) John Risley heard of his predicament, and offered to take over the case.
Within no time at all, Lisbon’s top law firm was hired. Investigators were hired to track down all the members of the “technical committee” in the Paris embassy in the 1980s. Many were found, and gave affidavits in which they confirmed the deal with Pinhol – and a great deal more about hundreds of projects, front companies and secret offshore bank accounts that were operated in the apartheid era to bypass international sanctions.
It now emerged that Kredietbank Luxembourg, a major bank in the grand duchy, was the main bank used by Armscor’s Paris “technical committee” – throughout the sanctions period. (This despite the fact that the UN embargo against South Africa was officially accepted by the Duchy of Luxembourg in January 1978.) Kredietbank was wholly owned by KBC Group NV, a €35bn company, listed on the Brussels stock exchange.
Switzerland’s top banking lawyers and a leading firm of Belgian lawyers were now added to Pinhol's team. The Belgian lawyers immediately brought a court application to compel KB Group to produce all its records of their dealings with Armscor in the apartheid era.
They showed that, between 1980 and 1992, Armscor had succeeded, with the help of Kredietbank, in making numerous arms purchases in breach of the UN embargo. And that Kredietbank Luxembourg and its sister company Krediet Trust Luxembourg, had proposed and managed a complex structure of 850 front companies and “jump account” payment channels for these projects, handling about 70% of the business. (The remaining 30% was spread amongst as many banks all over Europe, Asia and America.)
The whole operation has since been described by Dr Mark Pieth, professor of criminal law at the University of Basle and a former head of the organised crime section of the Swiss ministry of justice and police, as “probably the most serious case of sanctions busting and money laundering yet recorded”. Another Swiss legal expert has described the network as “consistent with classical methods of aggravated money laundering and corrupt financial practices”.
In channeling Armscor’s vast movement of funds from South Africa to its various suppliers through those many complex channels, Kredietbank Luxembourg were afforded a comprehensive picture of the nature and pattern of Armscor’s commercial activities. By way of illustration, bank records and other documents unearthed by the European lawyers and investigators over the past year show that Armscor procurement projects handled by the Luxembourg bank included:
- Project Austin – to acquire electronic warfare systems
- Project Nimrod – Mirage jet fighter weapons systems
- Project Keepsake – air-to-air missiles
- Project Buzzard – nuclear components
- Project Popina – Beretta guns
- Project Scummer – armoured vehicles.
The projects run from Paris had a total value of $12bn or more, according to former Armscor officials. The suppliers, located around the world, usually issued invoices at a premium of 30% or more above their normal price. (Typically these suppliers would also contribute – or “kick back” – a substantial commission to an agent or offshore account nominated by Armscor - lending credence to the suggestion that a massive mystery slush fund was being accumulated somewhere off shore.)
Here’s a handful of names taken from a single sheet of a payment list that totals scores of pages, produced by the Paris “technical committee” – and what a quick Google search revealed about them:
Arias, Fabrega & Fabrega (which also trades as Arifa): “Law firm specializing in general Panamanian legal services and offshore and fiduciary structures using Panama, BVI and The Bahamas.” (SA Breweries was also a client - see nose51)
Panazur; “The word is a combination of ‘Panama’ and ‘Zurich’.” For almost 30 years, the enterprise has combined legal instruments from Panama (one of the most stable offshore jurisdictions worldwide) with Swiss quality service. “Since its establishment in 1981 the firm have steadily increased the number and variety of companies, foundations and trusts from all over the world on offer; leading provider of offshore products to the entire financial market of Switzerland and Liechtenstein.” (In the Paris list “Armscor company” appears in brackets next to the name Panazur.)
Horst J Feist: “Holder of a patent for converting carbon blanks into graphite electrodes.”
Supramar AG: “Provider of high-speed hydrofoil solutions”.
Titeflex: “Develops and manufactures Teflon and metal hose assemblies for aerospace and aeronautics.”
BNJ Industries: “Customised fighter craft, auto missile defence locking devices, concealable laser turrets.” (From a defence gossip blogsite.)
Project Adenia entailed Aerospatiale delivering kits for 50 new Super Puma helicopters, renamed the Oryx by Armscor in a superficial bid to disguise its origins. Former Armscor officials say the Eurocopter/Aerospatiale helicopter deal was worth $3bn. By now, Pinhol’s commission claim, including interest, stands at about €300m.
Portuguese sources believe the Lisbon case is likely to be settled very soon, as the focus shifts to much bigger targets: the European banks whose sanctions-busting on behalf of the apartheid regime have now been exposed, and in South Africa, so have Absa Bank, its former directors and shareholders – and its UK parent-in-the-know, Barclays. In the process the Reserve Bank’s past actions are sure to be hung out to dry, despite its recent best efforts to batten down the hatches.
Faced with the growing threat of massive reparations claims by victims of apartheid, in May KBC Group NV hurriedly negotiated the sale of its Luxembourg subsidiary, KBL European Private Bankers SA, to India’s Hinduja Group for €1.35bn euros. The bankers are on the run.
RESERVE BANK DEACTIVATES THE ACTIVISTS
The South African Reserve Bank Amendment Act (Act 4 of 2010) made its passage through parliament faster than any other Act, ever. “The entire legislative process in less than five months? Unheard of in this country,” a legal expert told noseweek.
The new Act appears to achieve its primary objective: to clip the wings of unwanted shareholder activism and provide a little more “privacy” to those calling the shots at 370 Church Street, Pretoria.
Here’s how it all happened:
During mid-March German shareholder Michael Duerr informs the South African government that he intends to start proceedings before an international tribunal, to protect his investment in SARB shares. He says the Reserve Bank’s management are “creepingly expropriating” his rights, contrary to the provisions of a bi-lateral investment treaty South Africa signed during Trevor Manuel’s tenure as Finance Minister (see noses101,115,127&129)
In mid-April, Duerr engages directly, yet fruitlessly, with new governor Gill Marcus to address his issues. On 21 April, the Reserve Bank receives a request by shareholders to convene an extraordinary general meeting to address their issues. On the same day a Cabinet meeting takes place at which the go-ahead is given for amendments to the Reserve Bank Act.
Two weeks later Marcus asks Duerr for more time to answer his questions; only hours later a Government Gazette is published, containing a proposed Bill containing amendments to the Reserve Bank Act. On 15 May the public participation process is advertised. The public is given just two weeks to make submissions. Two weeks later, on 30 May, Duerr meets Marcus for the last time. The outcome of the 90 minute meeting, according to Duerr: “We could only agree that we can’t agree on anything.”
During the first days of June, the participation process takes place before parliament’s Standing Committee on Finance. On 25 July, the SARB hands in a 47-page document rebutting the shareholders’ submissions in opposition to the Act. The SARB document is kept secret until the end of the process. One shareholder’s submission came accompanied by a document describing illegal, criminal activities by (current) SARB employees, Governor Marcus included. SARB claims not to have understood this submission. The Standing Committee approves the Bill.
On 10 August, Minister of Finance Pravin Gordhan appears before the National Assembly and explains the urgency to amend the Act, citing “questionable shareholder actions” that allegedly threaten the functioning of the Bank. Three days later a notice appears in the Government Gazette announcing that the SARB AGM is postponed from September to 8 December. Only 48hrs later, a second participation process is advertised, this time before the Select Committee on Finance. Interested parties are given just seven days to submit their input. The Select Committee approves the Bill after the hearing on 25 August and, one day later, the National Council of Provinces agrees to the SARB Amendment Bill.
On 9 September the “South African Reserve Bank Amendment Act” is published in the Government Gazette and becomes law. According to the Gazette, the President assented to the Bill on 8 September, just in time to make the all-important AGM on 8 December possible. According to the presidential minutes, President Zuma only signed it on 12 September (a Sunday) – three days after the Act was gazetted as law. It also emerges that the new selection panel provided for in the amended Act could only have been constituted legally on 13 September – too late for the nomination of new directors in time for the AGM scheduled for 8 December.
In their haste, the SARB and the Treasury appear to have tripped over their own fibs. But as noseweek readers will have gathered, it’s becoming something of a habit.
Is Gill Marcus to be credited with the unprecedented speed of this fast track legislation? Hardly, says a ranking source in the SARB: about eight years ago a few shareholders started asking questions, about their dividends, primarily. In 2003, a majority at the AGM actually voted to approve a substantial increase in their dividends, which they somehow never got. However, they had shown that they could assert themselves beyond the board’s control. Shortly thereafter, the bank’s management and its legal advisors began considering ways to limit the rights of shareholders. Some of the amendments to the Reserve Bank Act were thus in the pipeline long before investment banker Duerr started asking inconvenient questions and even – horrors – calling the Bank’s management to account and demanding an audit of the Bank’s gold reserves and other assets.
But while the basic draft had probably been lingering in someone’s bottom drawer for years, some sections of the Amendment Act, and the accompanying regulations in particular, were obviously hastily amended to deal with Duerr: he and his family hold, legally under the old Act, 10,000 shares each; altogether almost 5% of the total share capital of the Bank. Under the new Act, close family members, step-children and even members of the same church are not permitted to acquire more than 10,000 shares jointly, limiting, among other things, their voting rights.
Comments human rights lawyer Zehir Omar: “It would appear that certain provisions of the SARB Amendment Act conflict with our Bill of Rights, Section 9(1) in particular.” Section 9(1) is the Equality Clause. According to Omar, a constitutional challenge could soon be on the cards.
And what of the private shareholders’ oversight function? One would have wished for changes to the Reserve Bank Act that would support them in performing that function – not disempower them.
Unfortunately it is a fact of life that South African shareholders are generally a disorganised, gutless bunch; the SARB lot were unable even to deliver just the 10% of votes legally required to force the bank into convening a special general meeting. And now, since 13 September, the minimum has been upped to 20% – besides clear restrictions on what they would be able to discuss there: they have been told in no uncertain terms that the day-to-day operations of the Bank are none of their business. (Which, of course, is where the trouble lies.)
To top it all, the board no longer manages the Bank. In the new Act the phrase “shall be managed by the board” has been relaced by “shall have a board of directors”.
And the Bavarian? Might Herr Duerr be willing to spend a few hundred thousand rands on a Constitutional Court challenge in South Africa? “Absolutely not,” he says. “They’d pull me over the table like they have done for the past couple of years. I’m fed up with it.” Besides, “this illegal piece of rubbish [the new Act] is actually good for me”.
How? Duerr, who probably has more insight into the finer mechanics of international banking than the current SARB board members, appears to have learned a thing or two fromnose131: He is now negotiating with a hedge fund run by lawyers, which specialises in third-party litigation, and that they are about to finalise an agreement in terms of which the fund will finance the international lawsuit Duerr had always threatened, should the SARB “play dirty”.
He has in mind a class action in the US, combining all foreign SARB shareholders whose investments in South Africa might be governed by a bilateral investment treaty. Such a treaty would supersede local laws aimed at unfairly limiting the rights of foreign shareholders. Roughly 20% of SARB shares are in foreign hands, half of them German.
Also on this subject, you might now want to read What's the deal? Is ANC still cashing in on Apartheid profiteering? in nose131.
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