December 11, 2019

December 10, 2019

Subscribe to Latest Legal News and Analysis

December 09, 2019

Subscribe to Latest Legal News and Analysis

OFAC Sanctions the Gupta Family for Bribery, Corruption and Misappropriation of South African State Assets

In an earlier post, here, we examined the Global Magnitsky Human Rights Accountability Act (“GloMag”), which was formally implemented by an Executive Order that declared “serious human rights abuses and corruption globally” as an emergency threat to U.S. interests. The President delegated his authority under GloMag to the Global Targeting Office of the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the U.S. Department of State to sanction human rights offenders or other persons who have materially assisted significant acts of corruption, freeze their assets, and ban them from entering the U.S.

OFAC recently used its authority under GloMag to designate a wealthy Indian family with significant business interests in South Africa in response to allegations of widespread bribery, corruption and misappropriation of state assets. As a result, the Guptas, their business associate Salim Essa, and all entities owned fifty percent or more by them individually, or by them and other designated persons in aggregate, now are barred from the U.S. financial system. U.S. persons are prohibited from dealing with them and must “block,” or seize, all property or interests in their possession or control.

GloMag

In the past few years, GloMag has been used to designate leaders and units of the Burmese military for their involvement in ethnic cleansing, leaders in Gambia for creating “terror and assassination squads” to murder political opponents, henchmen in Cambodia for repeatedly attacking innocent opposition lawmakers and supporters, and more. Treasury has now used the same GloMag authority to designate three brothers, Ajay Gupta, Atul Gupta, and Rajesh Gupta, as well as their business associate, Salim Essa, for alleged massive corruption involving public funds and public office.

State Capture

According to OFAC, the Guptas, aided by Salim Essa, leveraged close ties to prominent South African politicians—particularly former South African President Jacob Zuma—to expand the family’s business interests and misappropriate hundreds of millions of dollars through illicit dealings with the South African government. Specifically, the Guptas and Essa are alleged to have paid large sums of money or procured for others elevated government positions in exchange for valuable government contracts. OFAC also found that they have influenced the appointment or termination of government personnel based on apparent receptiveness or hostility to the Gupta’s business interests. The degree of influence exercised by the Gupta family over former President Zuma’s administration has seen these events reported in South Africa as “state capture.” OFAC further alleges that the Guptas and Essa utilized a network of shell companies and close associates to obfuscate their acts of corruption and launder the resultant proceeds.

According to Sigal Mandelker, Under Secretary of the United States Treasury for Terrorism and Financial Intelligence, “Treasury’s designation targets the Guptas’ pay-to-play political patronage, which was orchestrated at the expense of the South African people.” Further, “the Guptas and Essa used their influence with prominent politicians and parties to line their pockets with ill-gotten gains.” Finally, Ms. Mandelker confirms that Treasury “will continue to exclude from the U.S. financial system those who profit from corruption.”

As a result of these designations, the property or interests of all four individuals, as well as the property of any entities that are owned fifty percent or more by them, which are in the United States or the possession or control of a U.S. person, are now blocked. Additionally, the Guptas and their criminal network are now excluded from the U.S. financial system as U.S. persons, including U.S. correspondent banks, are prohibited from dealing with them.

Additional Considerations

 Processing transactions through the U.S. financial system on behalf of designated parties exposes financial institutions to potential serious financial penalties and reputational harm. Therefore, it is imperative that global financial institutions, particularly those in jurisdictions other than South Africa in which the Guptas are known or thought to operate, including South Asia and the Middle East, ensure they do not maintain any accounts for these designated parties or entities under their control and do not unwittingly process USD transactions for them in violation of U.S. sanctions.

Co-author: Patrick Fenior

© Copyright 2019 Squire Patton Boggs (US) LLP

TRENDING LEGAL ANALYSIS


About this Author

Kevin McCart, Squire Patton Boggs Law Firm, Washington DC, Corporate and Litigation Law Attorney
Partner

Corporations and individuals facing allegations of white-collar criminal and civil violations call upon Kevin McCart to provide the effective legal strategies and investigative skills that will help them avoid prosecution and minimize damaging outcomes. Kevin has been lead counsel in criminal and civil matters in federal district and circuit courts, as well as military courts-martial. His global government and internal investigations background includes economic sanctions, money laundering, bank fraud, export controls, Foreign Corrupt Practices Act, False Claims Act,...

202-457-6457
Richard Gibbon Criminal Defense Lawyer Squire Patton Boggs Dubai
Attorney

Rich Gibbon is a member of our Government Investigations & White Collar Practice and focuses on white collar criminal defense, regulatory enforcement and internal investigations. He has been based in the Middle East for eight years and has garnered extensive experience counselling boards of directors and senior management across the Middle East and Africa, Levant, Europe, and South Asia through multi-agency, multi-jurisdictional financial crime investigations and enforcement actions. This includes multinational corporates in connection with anticorruption regimes and a particular concentration on matters related to financial institutions involving economic sanctions, money laundering and bank fraud. Due to the sensitive and confidential nature of Rich’s work, much of it is not public. Even so, he has been recognized for government investigations by The Legal 500 and as “Leading White Collar Crime Adviser of the Year – UAE”. He also lectures and acts as thesis advisor at the Paris-Sorbonne University in Abu Dhabi on the International Business Law Master’s Degree, and regularly writes and speaks on global financial crime compliance.

Rich has a wealth of experience advising on the scope of economic sanctions administered by the US Treasury Department's Office of Foreign Assets Control (OFAC) and guiding clients when responding to criminal and civil government inquiries. Rich is presently assisting numerous different financial institutions across the Middle East and Africa, Levant, Europe and South Asia with investigations and transactional audits of potential violations of US sanctions and money laundering laws and with related proceedings before OFAC, the US Department of Justice (DOJ), the New York State Department of Financial Services (NYDFS), and several other US and home-country enforcement agencies and regulators. Rich also advises financial institutions on collateral issues arising from sanctions and money laundering matters, including facilitating relationships with US correspondent banks, and he represents financial institutions and other corporates in OFAC Specially Designated National (SDN) delisting engagements.

Rich has also counselled clients across the defence and security, industrial services, medical devices and therapies, natural resources, pharmaceutical, oil and gas, retail, sporting, and technology sectors, in major US Foreign Corrupt Practices Act (FCPA) and UK Bribery Act (UKBA) representations in countless countries across the globe. He has conducted internal investigations into alleged misconduct and international investigations into alleged noncompliance by foreign agents and business partners, he has addressed the implications of relevant laws in the context of M&A due diligence, he has analyzed and developed business conduct standards and compliance controls, and he has provided training sessions.

In addition, Rich has maintained a commercial disputes practice and has represented clients in DIAC, DIFC-LCIA, LCIA, LMAA, ICC, and UNCITRAL arbitrations and in litigation before the English High Court, the Dubai Court, the Sharjah Court, and the Dubai International Finance Centre (DIFC) Court.

+971-4-447-8715
Sassi Riar, attorney
Attorney

Sassi Riar is an associate in the Dubai office of Squire Patton Boggs. She represents clients in white collar criminal matters, government enforcement actions and internal investigations.

She is experienced in advising numerous different banks and financial institutions in the Middle East with respect to multi-agency inquiries, including conducting internal investigations into alleged OFAC sanctions violations and reporting to OFAC and the DOJ as to the same.

+971-4-447-8734