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brokers, are middlemen who facilitate the movement of funds, information and/or goods both domestically and across transnational networks, using ‘recruitment networks, lending networks, remittance transfers and smuggling networks’.⁵ Examples are Transnet’s Iqbal Sharma; Eric Wood, CEO of Gupta company Trillian Partners; Gupta associate Salim Essa, a former partner of Sharma; and Ashok Narayan, former managing director of the Guptas’ Sahara Computers.

      Networks of brokers secure domestic and cross-border operations through which resources can be moved to international clearing hubs and enter legitimate trade activities. Brokers are often of a different nationality or ethnicity from the controller or patron – usually a minority group – so that they cannot mount a significant challenge. They have commercial ties to different clusters of communities through which they are able to achieve networked competence, and they have access to ports of entry. Brokers and ports are ‘choke points’ for intervention in patronage networks.⁶ If brokers are identified and their ability to operate is significantly reduced, the patronage network is weakened and may collapse.

      Dealers are groups that are able to move the money transnationally (for example, the professional money-laundering syndicates in Hong Kong, the United Arab Emirates and elsewhere).⁷

      An essential requirement is to secure and establish cross-border networks to move illicit proceeds into international clearing hubs where they enter the legitimate trade and accrue value to the members of the network.⁸ In many instances the networks use clandestine methods to mask the origins of resources in order to protect their members from external scrutiny.⁹ From an operational perspective, these networks of brokers and dealers must perform a number of functions.

      They collude with customs or corrupt officials to create false records pertaining to the types of goods traded, quantities and the identities of parties involved in the transactions.

      They provide licences for others to obtain illicit goods in violation of the law.

      They launder cash generated from illicit activities in collusion with formal financial institutions in order to establish legitimate business entities that can generate funds.

      They use shell companies in order to hide ownership details and move assets offshore (for example, the Gupta entities Homix, Regiments Asia, Morningstar International, and so on).

      They exchange one potentially traceable commodity, such as oil or timber, for another less traceable one, in a process also known as trade misinvoicing.

      They purchase legitimate goods outside the country with the proceeds of illicit activities, then import the legitimate goods back into the country to generate ‘clean revenues’.¹⁰ The R200 million temple the Guptas are building in India and their R448 million villa in Dubai, reportedly the most expensive house in the United Arab Emirates, may fall into this category.

      Ultimately, the key to realising the full potential of control over resources is the ability to strip assets and convert them into monetary resources – typically through money laundering – that can fund the patronage operations.¹¹

      The conversion of such assets also requires the existence of an appropriate infrastructure for handling and moving them. Such infrastructure includes banking and ‘alternative remittance systems … import-export firms that participate in false invoicing schemes, precious metal markets, and the use of trusts, international business companies, and non-transparent jurisdictions as mechanisms to hide funds’.¹²

       Money-laundering procedures

      Money laundering is the process of transforming illicit money into ostensibly legitimate assets. It typically follows a three-stage process: placement, layering and integration. Placement involves moving funds into activities or accounts from which they can be legitimised through layering (blending illegitimate with legitimate funds, recycling them through cash-based operations, moving them into ‘legitimate companies’ or moving them around in complex transactions, and so on). These funds are then integrated back into the revenue stream of the money launderer (often by purchasing property and other goods).

      The laundering process usually requires a financial system with lax regulations and controls. Rents are also often distributed in cash and, indeed, this may be preferable in many instances, but there are limits to how beneficiaries can make use of cash in formal transactions because large cash dealings can trigger high-risk alerts with banks. The benefit of cash is that it can be moved overseas, through both formal and informal channels, including the use of diplomatic immunity to traffic large sums of cash across borders (which could raise further questions about the Guptas’ apparently preferential access to the Waterkloof Airforce Base) and the use of informal money exchange networks such as the hawala network, a method of transferring money without any actual movement of cash.

       The broker network in action: Transnet and Hong Kong transactional flows

      With the patronage network model in mind, the Guptas’ apparent access to lucrative Transnet work and the subsequent movement of related funds, both domestically and transnationally, is instructive.

       Controller/patron and elite stages

      Zuma appointed Malusi Gigaba as minister of public enterprises in November 2010, about 18 months after he became president.

       Brokers established

      Gigaba succeeded in moving Gupta brokers into Transnet, thus enabling Gupta-linked entities to benefit from Transnet tender opportunities. Chapter 2 describes the way in which he did this.

       Brokers at work: extracting the resources

       Locomotives

      While he chaired the Transnet Board’s Acquisitions and Disposals Committee, Iqbal Sharma oversaw the adjudication of a R51 billion tender for the purchase of 1 064 locomotives, which was ultimately split among four companies: China North Rail (232 diesel locomotives at R7.8 billion), China South Rail (359 electric locomotives at R14.6 billion), General Electric (233 diesel locomotives at R7.1 billion) and Bombardier (240 electric locomotives at R10.4 billion). Chapter 2 gives details about how the Guptas apparently aggressively represented China South Rail, one of seven bidders then vying to supply the Passenger Rail Agency of South Africa (Prasa) with 600 commuter trains, as documented by former Prasa CEO Lucky Montana.

      While, in this instance, they were not successful in their bid to position the rail company, the Chinese company’s success in the Transnet locomotives deal appears to have benefited the Guptas. Information seen by the group of researchers who prepared the Betrayal of the Promise report suggests that the Chinese company, now called China South Locomotive & Rolling Stock Corporation Limited, following a merger with China North Rail, has been paying large sums of money into Gupta-linked entities based in Hong Kong.

      Just before the successful bidders for the locomotives tender were announced, Sharma emerged as a buyer of VR Laser Property, which was in a highly advantageous position to benefit from supplying component parts to the successful bidders in the locomotives deal (who were required by state procurement policy to source a large proportion of their components from South African sub-contractors). In addition, the size of the locomotive deal meant that advice was needed about financial arrangements and corporate structures.

      As we will explain in Chapter

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