'Guptas used mine rehab funds to pay back loans'

The trustees of a Gupta-linked mining rehabilitation fund have been accused of deliberately and unlawfully allowing the controversial family to use the trust to pay back loans.

That is the argument of the Organisation Undoing Tax Abuse (Outa)‚ who on Thursday filed an affidavit in an urgent court application to have the accounts‚ in which the funds are held‚ frozen.

The application was brought in the Pretoria High Court just hours after the Guptas lost an urgent application to interdict the Bank of Baroda from closing their bank accounts.

The Guptas' application will now see the bank closing the family's accounts‚ including accounts holding R1.75-billion for the rehabilitation of their Kroonfontein and Optimum coal mines.

The mines are owned by the Guptas' Tegeta Exploration and Resources company through their holding firm Oakbay.

In their application‚ Outa's legal head‚ Stefanie Fick‚ said the organisation was bringing the application to protect the funds within the mines' rehabilitation trusts.

She said their application was critical as it stemmed from the bank's imminent closure of the family's bank accounts at the end of September.

"The trustees will not be able to secure alternative banking facilities for the trusts due to their association with the Guptas‚" Fick said.

"Not only are these funds at risk due to the imminent closure of the trusts' accounts at the bank‚ and the current trustees inability to secure alternative banking facilities in South Africa‚ but because of the trustees' ongoing failures to perform their fiduciary duties in respect of the trusts."

Fick said adding to Outa's concerns was that the organisation had been unable to source copies of the trust deeds of either Optimum or Koornfontein‚ despite legal requests to the master of the court.

"The trustees are bound by law and have a legal duty to protect the trust. They are also bound to avoid conflicts of interests including with the associated mining company or their own interests‚" she said.

"Tegeta's acquisition of Optimum and Koornfontein mines in March 2016 was mired in controversy and formed a theme in the former Public Protector's State of Capture report."

She said an issue in the report was the funding of the acquisition‚ which included an advance payment by Eskom for coal amounting to nearly R600-million.

Fick said that money covered the shortfall the Guptas had been unable to secure as a loan for the transaction.

All of this‚ she said‚ occurred as Nedbank‚ Standard Bank‚ Absa Bank and First National Bank closed the accounts of entities within the Gupta group.

Fick said: "Trustees of the trusts‚ until recently were directors of related companies in the Gupta-Oakbay group. Trustees must avoid conflicts of interests.

"It goes without saying that the Gupta family face very serious allegations including corruption and money laundering."

She said because the Guptas were classified as "high risk" clients and "politically exposed persons"‚ the bank had a duty to monitor their transactions and report suspicious or unusual transactions.

"Soon after the Bank of Baroda severed ties with the Guptas the Bank of India and State Bank of India suspended transactions on their accounts immediately.

"The Bank of Baroda cannot continue to hold the funds unless the current trustees are stopped from dealing with the accounts and it's improbable that the trusts will be able to secure banking facilities unless independent trustees are appointed."

She said worrying Outa was information contained in affidavits submitted in the Guptas' attempts to stop the Bank of Baroda from closing their accounts.

Fick said the affidavits showed that the bank was seeking repayments of money it had loaned the Guptas and their companies.

"It's unclear how the Guptas and the bank intend to conduct themselves in respect of these loans and what the implications‚ if any‚ are for the trusts.

"But‚ what is clear from affidavits is that the trustees concluded at least one contract that would have allowed the bank to use the Koornfontein Trust's funds as security against a loan to Koornfontein."

She said this was unlawful and could only be concluded if the trustees had allowed their conflict of interests‚ with their undertakings to the Guptas' companies‚ to affect how they had dealt with the trusts.

Fick added that it was clear that the trust's funds were being used for "unlawful purposes".

"Substantial funds may have been used and there will be no prospect of recovering the cost of rehabilitation from either Koornfontein or Optimum."

She called for a full audit of the trusts and said guarantees were needed to say exactly what would happen to the money if the accounts were closed‚ with the trustees having to provide information on whether the trusts had been used to pay back loans.

"The trustees must say whether‚ as is required‚ they had ministerial or mineral resources department permission for the funds to be used for anything other than the mines' rehabilitation."